<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MOTORS AND GEARS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 3621 36-410641
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION NUMBER)
ORGANIZATION)
MOTORS AND GEARS, INC.
ARBORLAKE CENTRE, SUITE 550
1751 LAKE COOK ROAD
DEERFIELD, ILLINOIS 60015
(847) 945-5591
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICERS)
----------------
RON SANSOM, PRESIDENT
ARBORLAKE CENTRE, SUITE 550
1751 LAKE COOK ROAD
DEERFIELD, ILLINOIS 60015
(847) 945-5591
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
WITH A COPY TO:
PHILIP J. NIEHOFF
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 701-7843
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If 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>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 3/4% Series D Senior
Notes Due 2006.......... $270,000,000 100% $270,000,000 $79,650.00
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the 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>
SUBJECT TO COMPLETION, DATED JANUARY 9, 1998
PROSPECTUS
MOTORS AND GEARS, INC.
OFFER TO EXCHANGE UP TO $270,000,000 OF ITS10 3/4% SERIES D SENIOR NOTES DUE
2006, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR ANY AND ALL
OFITS OUTSTANDING 10 3/4% SERIES C SENIOR NOTES DUE 2006AND ITS 10 3/4% SERIES
B SENIOR NOTES DUE 2006
----------------
Motors and Gears, Inc., a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying letter of transmittal (the "Letter of
Transmittal") (which together constitute the "Exchange Offer"), to exchange up
to $270 million aggregate principal amount of 10 3/4% Series D Senior Notes
due 2006 (the "New Notes"), of the Company for $100 million aggregate
principal amount of its outstanding 10 3/4% Series C Senior Notes due 2006
(the "Old Series C Notes") and $170 million aggregate principal amount of its
outstanding 10 3/4% Series B Senior Notes due 2006 (the "Old Series B Notes"
and collectively with the Old Series C Notes, the "Old Notes" and collectively
with the New Notes, the "Senior Notes") with the holders (each holder of Old
Notes, a "Holder") thereof. The terms of the New Notes are substantially
identical to the terms of the Old Series B Notes that are to be exchanged
therefor, except for the total outstanding principal amount thereof. See
"Description of Senior Notes." The Company will receive no proceeds in
connection with the Exchange Offer. See "Use of Proceeds."
The New Notes will be senior unsecured obligations of the Company and will
rank pari passu in right of payment with all other Senior Indebtedness (as
defined) of the Company and senior to all Subordinated Indebtedness (as
defined) of the Company, and will effectively rank junior to all secured
Indebtedness (as defined) of the Company and to all Indebtedness of the
Company's subsidiaries, including borrowings under the Amended Credit
Agreement (as defined). On a pro forma basis, as of September 30, 1997, after
giving effect to the Old Offering and the application of the net proceeds
therefrom, the aggregate principal amount of secured Indebtedness of the
Company and Indebtedness of the Company's subsidiaries to which the Senior
Notes are effectively junior is approximately $9.1 million. The Indenture
permits the Company and its subsidiaries to incur additional Indebtedness,
including secured Indebtedness, subject to certain limitations. Such permitted
additional secured Indebtedness which would effectively be senior to the
Senior Notes may include up to $115.0 million incurred under the Amended
Credit Agreement and other Indebtedness permitted by the Indenture (as
defined), and $25.0 million of additional Indebtedness. See "Description of
Senior Notes" and "Description of Certain Indebtedness."
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998, UNLESS EXTENDED.
(Cover continued on following pages)
----------------
SEE "RISK FACTORS" COMMENCING ON PAGE 14 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY HOLDERS OF OLD NOTES WHO
TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ACT 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 , 1998
<PAGE>
Prior to the Exchange Offer, there has been no established trading market
for the Old Notes or the New Notes. The Company does not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock
market. Therefore, there can be no assurance as to the liquidity of any
trading market for the New Notes or that an active public market for the New
Notes will develop. Any Old Notes not tendered and accepted in the Exchange
Offer will remain outstanding. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. Following the
consummation of the Exchange Offer, the holders of the Old Series C Notes will
continue to be subject to the existing restrictions on transfer thereof and
the Company will have no further obligations to such holders to provide for
the registration of the Old Series C Notes under the Securities Act. See "The
Exchange Offer --Consequences of Not Exchanging Old Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on
, 1998, unless the Exchange Offer is extended (the "Expiration
Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain customary
conditions which may be waived by the Company. The Company will pay the
expenses of the Exchange Offer.
The Old Series C Notes were issued and sold on December 17, 1997 (the "Old
Offering"), in a transaction not registered under the Securities Act of 1933,
as amended (the "Securities Act"), in reliance upon the exemption provided in
Section 4(2) of the Securities Act. Accordingly, the Old Series C Notes may
not be reoffered, resold or otherwise pledged, hypothecated or transferred in
the United States unless so registered or unless an applicable exemption from
the registration requirements of the Securities Act is available. The New
Notes are being offered for exchange in order to satisfy certain obligations
of the Company under a Registration Rights Agreement (as defined) between the
Company and the Initial Purchasers (as defined). The New Notes will be
obligations of the Company evidencing the same indebtedness as the Old Notes
and will be entitled to the benefits of the same Indenture, which governs both
the Old Series C Notes and the New Notes. The form and terms (including
interest rate, maturity and ranking) of the New Notes are the same as the form
and terms of the Old Series B Notes, except for the total outstanding
principal amount thereof, and are the same as the form and terms of the Old
Series C Notes, except for the total outstanding principal amount thereof and
that the New Notes (i) will be registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable
to the Old Series C Notes, (ii) will not be entitled to registration rights
and (iii) will not provide for any Liquidated Damages. See "The Exchange
Offer--Registration Rights; Liquidated Damages."
The Company is making the Exchange Offer pursuant to the registration
statement of which the Prospectus is a part in reliance upon the position of
the staff of the Securities and Exchange Commission (the "Commission") set
forth in certain no-action letters addressed to other parties in other
transactions. However, the Company has not sought its own no-action letter and
there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer. Based on these
interpretations by the staff of the Commission, the Company believes that the
New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by Holders thereof (other than (i) any such
Holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act, (ii) an Initial Purchaser who acquired the Old Notes
directly from the Company solely in order to resell pursuant to Rule 144A of
the Securities Act or any other available exemption under the Securities Act
or (iii) a broker-dealer who acquired the Old Notes as a result of market
making or other trading activities) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
Holder's business and such Holder is not participating and has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes.
i
<PAGE>
By tendering, each Holder which is not a broker-dealer will represent to the
Company that, among other things, the person receiving the New Notes, whether
or not such person is the Holder, (i) will acquire the New Notes in the
ordinary course of such persons' business, (ii) has no arrangement or
understanding with any person to participate in a distribution of the New
Notes and (iii) is not engaged in and does not intend to engage in a
distribution of the New Notes. If any Holder or any such other person has an
arrangement or understanding with any person to participate in a distribution
of such New Notes, is engaged in or intends to engage in a distribution of
such New Notes, is an "affiliate," as defined under rule 405 of the Securities
Act, of the Company, or acquired the Old Notes as a result of market making or
other trading activities, then such Holder or any such other person (i) can
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 any resale transaction. Each broker-
dealer that receives New Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging 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. 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
Old Notes where such Old Notes are 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 120 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."
ii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to and should
be read in conjunction with the more detailed information and financial
statements, including the notes thereto, appearing elsewhere herein. Unless
otherwise indicated, all references herein to the Company's business and pro
forma information give effect to the acquisition of all of the Company's
subsidiaries, including the acquisitions of Barber-Colman Motors (as defined)
(the "Barber-Colman Acquisition"), Imperial, Scott and Gear (each as defined)
(the "Imperial Acquisitions"), FIR (as defined) (the "FIR Acquisition"),
Electrical Design (as defined) (the "Electrical Design Acquisition") and Motion
Control (as defined) (the "Motion Control Acquisition") (collectively, either
the "Acquisitions" or the "Acquired Companies"), as if all such transactions
occurred at the beginning of the relevant period. See "--Recent Acquisitions"
and "The Company--Operating Subsidiaries." Unless the context indicates or
otherwise requires, references in this Prospectus to the "Company" are to
Motors and Gears, Inc. (formerly MK Group, Inc.) and its subsidiaries.
THE COMPANY
The Company is a leading international manufacturer of specialty purpose
electric motors, gearmotors, gearboxes, gears and electronic motion controls
for a wide variety of consumer, commercial and industrial markets. The Company
has a diverse base of customers and its products are used in a broad range of
applications including vending machines, refrigerator ice dispensers,
commercial dishwashers, commercial floor care equipment, commercial sewing
machines, industrial ventilation equipment, automated material handling systems
and elevators. The Company's subsidiaries have sold their brand name products
for an average of over 70 years. The Company believes that it has created
strong customer loyalty for its products primarily through its emphasis on high
quality, custom engineered products, competitive prices and customer service.
For the year ended December 31, 1996, the Company had pro forma net sales and
net income of $210.4 million and $3.1 million, respectively and for the nine
months ended September 30, 1997, the Company had pro forma net sales and net
income of $166.4 million and $4.4 million, respectively.
The Company competes primarily in the electric motors and electronic motion
control systems industries. U.S. shipments of electric motors are estimated by
industry sources to have been approximately $8.0 billion in 1996 and to have
been growing at a compound annual growth rate of approximately 4.0% over the
last five years. Although the industry has experienced substantial
consolidation in recent years, the industry remains highly fragmented with over
200 manufacturers serving the U.S. market in 1996 according to industry
sources. The Company believes that continuing competitive pressures will lead
to further consolidation in the electric motor industry and will create
opportunities for the Company to extend its product lines and business through
strategic acquisitions.
Within these industries, the Company operates in specialized niche markets
which typically consist of high value-added motor and control system
applications requiring custom engineered, non-standardized motors and controls.
The Company has an active new product development effort and constantly seeks
to find new applications for its products and new niche markets to enter. As a
result of these efforts, the Company has historically been able to achieve
sales growth in excess of industry trends. The Company's products typically
require small manufacturing runs and frequent line changeovers. These markets
are generally unattractive to large integrated manufacturers which target
larger markets and long-run, standardized product lines.
The Company constantly seeks to reduce its costs through redesigning its
manufacturing processes to minimize labor and material costs without
sacrificing quality. In addition, the Company works closely with its customers
to engineer its products in ways that enable the Company to manage costs and
increase value to the customer. In addition, the Company's operations have
historically generated significant free cash flow. The Company outsources its
most capital intensive processes and strives to minimize its capital investment
through
1
<PAGE>
purchasing and updating used equipment. As a result, annual capital
expenditures for the last five years have averaged less than $3.0 million.
The Company operates in four product groups: (1) subfractional motors, which
represented 39.0% and 41.7% of pro forma net sales for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively, (2)
fractional/integral motors, which represented 34.6% and 31.2% of pro forma net
sales for the year ended December 31, 1996 and the nine months ended September
30, 1997, respectively, (3) gears and gearboxes, which represented 2.9% and
3.4% of pro forma net sales for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, and (4) motion control systems,
which represented 23.5% and 23.7% of pro forma net sales for the year ended
December 31, 1996 and the nine months ended September 30, 1997, respectively.
Subfractional Motors. The Company's subfractional horsepower products are
comprised of motors and gearmotors that power applications up to 30 watts (
1/25 horsepower). These small, "fist-size" AC and DC motors are used in light
duty applications such as snack and beverage vending machines, refrigerator ice
dispensers and photocopy machines. Average product selling prices typically
range from $3 to $20 per unit. The Company focuses on niche applications in
this product group and believes it has a leading market position in most of its
niches.
Fractional/Integral Motors. The Company's fractional/integral horsepower
products are comprised of AC and DC motors and gearmotors having power ranges
from 1/8 up to 300 horsepower. Key end markets for these motors include
commercial floor care equipment, commercial dishwashers, commercial sewing
machines, industrial ventilation equipment and elevators. Average product
selling prices typically range from $50 to $150 per unit for commercial floor
care products to $2,000 to $2,500 per unit for elevator motors. The Company
believes it is the leading DC elevator motor manufacturer in the United States,
the leading commercial dishwasher pump manufacturer in Europe and the primary
supplier to virtually all the major commercial floor care product manufacturers
in the United States.
Gears and Gearboxes. The Company's precision gear and gearbox products are
produced in sizes of up to 16 inches in diameter and in various customized
configurations such as pump, bevel and helical gears. These products have a
reputation for their durability, accuracy, and low noise generation. Key end
markets for these products include original equipment manufacturers ("OEMs") of
motors, commercial floor care equipment, aerospace and food processing product
equipment. The Company focuses on niche applications in this product group and
believes it is the primary supplier of gears and gearboxes to virtually all the
major commercial floor care product manufacturers in the United States.
Electronic Motion Control Systems. The Company's motion control systems are
used primarily in automated conveyor systems within the automotive industry and
the elevator modernization market. The systems typically control several
components such as electric motors, hydraulic or pneumatic valves, actuators
and switches that are required for the conveyor or elevator systems to function
properly. The prices for these motion control systems can run from several
thousand dollars to several hundred thousand dollars. The Company believes its
engineering capability, manufacturing quality and after-sales service are
highly regarded by all of its customers.
COMPETITIVE STRENGTHS. The Company believes that it benefits from the
following competitive strengths:
Leading Position in Niche Markets. The Company has targeted niche markets in
which it has achieved leading market positions and which are generally
unattractive to large manufacturers due to their small size and specialized
nature. These leading market positions have provided a high level of
predictability to the Company's net sales. The Company believes that it has
succeeded in these markets due to its product design capabilities, reputation,
competitive prices, quality and service.
2
<PAGE>
Diverse Markets and Customers. The Company serves numerous end user markets
and a diverse base of over 2,500 customers. In 1996, the Company's largest
single customer represented approximately 3% of net sales and the Company's top
five customers represented approximately 14% of net sales. The Company's
customers include leading OEMs such as General Electric Co., Inc. ("General
Electric"), Whirlpool Corporation ("Whirlpool"), Clarke Industries ("Clarke"),
Siebe, plc. ("Siebe") and Vendo Company, Inc. ("Vendo"). The diversity of
products, markets and customers minimizes the Company's exposure to economic
cycles or geographic markets and provides a broad base from which to grow sales
through continued development of new products.
Active Product Development. The Company focuses on developing value-added
products with its customers by utilizing its extensive product development
expertise and manufacturing process capabilities to meet specific application
requirements. The Company's sales and technical staff work with existing
customers to identify specific needs and develop innovative solutions. This
custom application capability has also been a key driver of new customer
development.
Quality Product and High Level of Service. The Company sells into end product
applications which have long life cycles and require durability. In response,
the Company has established itself as a reliable manufacturer of high-quality
products. The Company maintains close contact with its customers during both
the original motor and control system design and the continuous redesign
processes to ensure that the most reliable product is manufactured. The Company
aggressively redesigns its products to improve performance and reduce
production costs, which entrenches the Company with its customers and minimizes
competition. In addition, the Company is dedicated to on-time delivery as
evidenced by its 100% on-time delivery record with General Electric, its
largest customer, in 1996.
Experienced Management Team. The Company's seven senior managers average over
28 years of experience in the motors, gears and motion control systems industry
and, over time, have substantially improved operating efficiencies. The
experience of senior management has been critical to developing strong
relationships with the Company's customers and has resulted in significant new
product development opportunities. The Company's President, Ron Sansom, gained
extensive experience in this industry during his 15 years with General
Electric.
BUSINESS STRATEGY. The Company's business strategy includes the following key
elements:
Expand Product Lines and Increase Distribution. The Company focuses on
developing value-added products with its customers by utilizing its extensive
product development expertise. The Company's sales, technical service and
development staff work with customers to identify specific needs and develop
innovative solutions. Recent examples of such product introductions include a
new transaxle drive system for floor care customers and a value-added sub-
assembly for major appliance customers. New product developments can often be
profitably applied to other high-margin niche markets. In addition, the Company
intends to expand its distribution sales effort to capture additional sales
opportunities.
Reduce Costs. The Company's manufacturing cost reduction effort is
accomplished through redesigning the Company's products in cooperation with its
customers and through incremental production process improvements. The Company
also seeks to reduce costs through acquisitions by centralizing administration,
finance, legal, service and long-range strategic planning functions. This has
been demonstrated by annual cost savings from completed headcount reductions
and administrative savings relating to the Barber-Colman Acquisition.
Pursue Strategic Acquisitions. The electric motor, gear and motion control
markets remain highly fragmented, with many specialized manufacturers serving
numerous market niches. The Company will continue to search for strategic
acquisitions that support its current product groups by adding complementary
product
3
<PAGE>
lines, expanding technological capabilities or entering new geographic markets.
This strategy is illustrated by the Company's recent acquisition of FIR which
allowed it to add complementary products, acquire brushless motor technology
and enter new European markets. In addition, the Company plans to continue to
target the motion control industry for additional acquisition opportunities.
Acquisitions in the motion control industry, such as the Company's recent
acquisitions of Electrical Design and Motion Control in the controls and
sensors segment, allow the Company to access new markets and develop higher
value-added products by combining an existing motor product with additional
motion control features.
The Company was organized in September 1995 by Jordan Industries, Inc.
("JII") to acquire and operate companies in the motion control industry. Since
its inception, the Company acquired Merkle-Korff Industries, Inc. ("Merkle-
Korff") in September 1995 and acquired the net assets of each of Colman, Inc.
and Colman Motor Products, Inc. (collectively, "Barber-Colman Motors") in March
1996 through Merkle-Korff. The Company, through a newly formed subsidiary,
acquired the business and net assets of Imperial Electric Company ("Imperial"),
and Imperial's subsidiaries, Scott Motor Company ("Scott") and Gear Research,
Inc. ("Gear") in November 1996 from JII. The Company is structured as a holding
company which owns all of the stock of Motors and Gears Industries, Inc. ("M&G
Industries"). M&G Industries owns all the stock of the Company's operating
subsidiaries.
RECENT DEVELOPMENTS
On June 12, 1997, the Company, through its newly-formed wholly-owned
subsidiary, FIR Group Holdings, Inc. and its wholly-owned subsidiaries, Motors
and Gears Amsterdam, B.V. and FIR Group Holdings Italia, SrL, purchased all of
the common stock of the FIR Group Companies ("FIR"), consisting of CIME S.p.A.,
SELIN, S.p.A. and FIR S.p.A. FIR is a manufacturer of electric motors and pumps
for niche applications such as pumps for commercial dishwashers, motors for
industrial sewing machines and motors for industrial fans and ventilators. The
purchase price was $48.4 million.
On October 27, 1997, the Company purchased all of the outstanding stock of E.
D. and C. Company, Inc. through its newly formed wholly owned subsidiary,
Electrical Design and Control Company ("Electrical Design"). Electrical Design
is a full-service electrical engineering company which designs, engineers and
manufactures electrical control systems and panels for material handling
systems and other like applications. Electrical Design provides comprehensive
design, build and support services to produce electronic control panels which
regulate the speed and movement of conveyor systems used in a variety of
automotive plants and other industrial applications. The purchase price was
$19.0 million, including a $4.0 million ED Junior Seller Note (as defined). See
"Description of Certain Indebtedness--Junior Seller Notes."
On December 18, 1997, the Company purchased all of the outstanding stock of
Motion Control Engineering, Inc. ("Motion Control") through its newly formed
wholly owned subsidiary, Motion Holdings, Inc. Motion Control manufactures
electronic motion and logic control products for elevator markets, primarily
the elevator modernization market. The purchase price was $51.6 million.
----------------
The Company was incorporated in the State of Illinois on September 8, 1995.
On November 1, 1996, the Company effected a reincorporation merger whereby MK
Group, Inc., an Illinois corporation, was merged with and into Motors and
Gears, Inc., a Delaware corporation, with Motors and Gears, Inc. being the
surviving entity. The Company is a direct, wholly-owned subsidiary of Motors
and Gears Holdings, Inc., a Delaware corporation ("Parent"). The Company's
principal executive offices are located at ArborLake Centre, Suite 550, 1751
Lake Cook Road, Deerfield, Illinois 60015, and its telephone number is (847)
945-5591.
4
<PAGE>
THE EXCHANGE OFFER
Securities Offered........ $270 million aggregate principal amount of 10 3/4%
Series D Senior Notes due 2006. The terms of the
New Notes and the Old Series C Notes are identical
in all material respects, except for the total
outstanding principal amount thereof, certain
transfer restrictions and registration rights
relating to the Old Series C Notes and certain
Liquidated Damages provisions relating to the Old
Series C Notes described below under "--Summary
Description of the New Notes."
Issuance of Old
Notes;Registration
Rights...................
The Old Series C Notes were issued on December 17,
1997 to Jefferies & Company, Inc. and BT Alex.
Brown Incorporated (the "Initial Purchasers"),
which placed the Old Series C Notes with "qualified
institutional buyers" (as such term is defined in
Rule 144A promulgated under the Securities Act). In
connection therewith, the Company executed and
delivered for the benefit of the holders of Old
Series C Notes a registration rights agreement (the
"Registration Rights Agreement"), pursuant to which
the Company agreed (i) to file a registration
statement (the "Registration Statement") on or
prior to February 15, 1998 with respect to the
Exchange Offer and (ii) to use its best efforts to
cause the Registration Statement to be declared
effective by the Commission on or prior to April
16, 1998. In certain circumstances, the Company
will be required to provided a shelf registration
statement (the "Shelf Registration Statement") to
cover resales of the Old Series C Notes by the
holders thereof. If the Company does not comply
with its obligations under the Registration Rights
Agreement, it will be required to pay liquidated
damages ("Liquidated Damages") to holders of the
Old Series C Notes under certain circumstances. See
"The Exchange Offer--Registration Rights;
Liquidated Damages," Holders of Old Series C Notes
do not have any appraisal rights in connection with
the Exchange Offer.
The Exchange Offer........ The New Notes are being offered in exchange for a
like aggregate principal amount of Old Notes. The
issuance of the New Notes is intended to satisfy
the obligations of the Company contained in the
Registration Rights Agreement. The objective of the
Exchange Offer is to create a single series debt
securities having a total outstanding principal
amount which is larger than that of either the Old
Series B Notes or the Old Series C Notes as
separate series, thus resulting in greater
liquidity for the New Notes. However, see "Risk
Factors--New Notes; Dilution of Interest." As of
the date hereof, $170,000,000 aggregate principal
amount of Old Series B Notes and $100,000,000
aggregate principal amount of Old Series C Notes
are outstanding. Based upon the position of the
staff of the Commission set forth in no-action
letters issued to third parties in other
transactions substantially similar to the Exchange
Offer, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any
such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act; (ii) and Initial Purchaser who acquired the
Old Notes directly from the Company solely in order
to
5
<PAGE>
resell pursuant to Rule 144A of the Securities Act
or any other available exemption under the
Securities Act; or (iii) a broker-dealer who
acquired the Old Notes as a result of market making
or other trading activities) without further
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that such New Notes are acquired in the
ordinary course of such holder's business and such
holder is not participating and has no arrangement
or understanding with any person to participate in
a distribution (within the meaning of the
Securities Act) of such New Notes. By tendering,
each Holder, which is not a broker-dealer, will
represent to the Company that, among other things,
the person receiving the New Notes, whether or not
such person is the Holder, (i) will acquire the New
Notes in the ordinary course of such person's
business, (ii) has no arrangement or understanding
with any person to participate in a distribution of
the New Notes and (iii) is not engaged in and does
not intend to engage in a distribution of the New
Notes. If any Holder or any such other person has
an arrangement or understanding with any person to
participate in a distribution of such New Notes, is
engaged in or intends to engage in a distribution
of such New Notes, is an "affiliate," as defined
under Rule 405 of the Securities Act, of the
Company, or acquired the Old Notes as a result of
market making or other trading activities, then
such Holder or any such other person (i) cannot
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 any resale
transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such New Notes. Although there has been no
indication of any change in the staff's position,
there can be no assurance that the staff of the
Commission would make a similar determination with
respect to the resale of the New Notes. See "Risk
Factors."
Procedures for Tendering.. Tendering Holders of Old Notes must complete and
sign the Letter of Transmittal in accordance with
the instructions contained therein and forward the
same by mail, facsimile or hand delivery, together
with any other required documents, to the Exchange
Agent, either with the Old Notes to be tendered or
in compliance with the specified procedures for
guaranteed delivery of Old Notes. Holders of the
Old Notes desiring to tender such Old Notes in
exchange for New Notes should allow sufficient time
to ensure timely delivery. Certain brokers,
dealers, commercial banks, trust companies and
other nominees may also effect tenders by book-
entry transfer. Holders of Old Notes registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee are urged to contact
such person promptly if they wish to tender Old
Notes pursuant to the Exchange Offer. Letters of
Transmittal and certificates representing Old Notes
should not be sent to the Company. Such documents
should only be sent to the Exchange Agent.
Questions regarding how to tender the requests for
information
6
<PAGE>
should be directed to the Exchange Agent. See "The
Exchange Offer--Procedures for Tendering Old
Notes."
Tenders, Expiration Date;
Withdrawal...............
The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998 or such later
date and time to which it is extended. The tender
of Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
Any Old Note 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. See "The Exchange Offer--Terms of the
Exchange Offer; Period for Tendering Old Notes" and
"--Withdrawal Rights."
Certain Conditions to
theExchange Offer........
The Exchange Offer is subject to certain customary
conditions, all of which may be waived by the
Company, including the absence of (i) threatened or
pending proceedings seeking to restrain the
Exchange Offer or resulting in a material delay to
the Exchange Offer; (ii) a general suspension of
trading on any national securities exchange or in
the over-the-counter market; (iii) a banking
moratorium; (iv) a commencement of war, armed
hostilities or other similar international calamity
directly or indirectly involving the United States;
and (v) change or threatened change in the
business, properties, assets, liabilities,
financial condition, operations, results of
operations or prospects of the Company and its
subsidiaries taken as a whole that, in the sole
judgment of the Company, is or may be adverse to
the Company. The Company shall not be required to
accept for exchange, or to issue New Notes in
exchange for, any Old Notes, if at any time before
the acceptance of such Old Notes for exchange or
the exchange of New Notes for such Old Notes, any
of the foregoing events occurs which, in the sole
judgment of the Company, make it inadvisable to
proceed with the Exchange Offer and/or with such
acceptance for exchange or with such exchange. In
the event the Company asserts or waives a condition
to the Exchange Offer which constitutes a material
change to the terms of the Exchange Offer, the
Company will disclose such change in a manner
reasonably calculated to inform prospective
investors of such change, and will extend the
period of the Exchange Offer by five business days.
If the Company fails to consummate the Exchange
Offer because the Exchange Offer is not permitted
by applicable law or Commission policy, it will
file with the Commission a Shelf Registration
Statement to cover resales of the Transfer
Restricted Securities (as defined) by the holder
thereof who satisfy certain conditions. If the
Company fails to consummate the Exchange Offer or
file a Shelf Registration Statement in accordance
with the Registration Rights Agreement, the Company
will pay Liquidated Damages to each Holder of
Transfer Restricted Securities until the cure of
all defaults. The Exchange Offer is not conditioned
upon any minimum aggregate principal amount of Old
Notes being tendered for exchange. See "The
Exchange Offer--Registration Rights; Liquidated
Damages" and "--Certain Conditions to the Exchange
Offer."
7
<PAGE>
Federal Income
TaxConsequences..........
The exchange of Old Notes for New Notes pursuant to
the Exchange Offer will not result in any income,
gain or loss to the Holders or the Company. See
"Certain Federal Income Tax Considerations" for a
discussion of the material federal income tax
consequences expected to result from the Exchange
Offer.
Use of Proceeds........... There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Appraisal Rights.......... Holders of Old Notes will not have dissenters'
rights or appraisal rights in connection with the
Exchange Offer.
Exchange Agent............ State Street Bank and Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer.
CONSEQUENCES OF NOT EXCHANGING THE OLD NOTES
Holders of Old Series C Notes who do not exchange their Old Series C Notes
for New Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Series C Notes as set forth in the legend
thereon as a consequence of the issuance of the Old Series C Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Old Series C 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 Old
Series C Notes under the Securities Act. In addition, Holders of Old Notes who
do not exchange their Old Notes for New Notes will not be able to take
advantage of the increased liquidity afforded by the New Notes which would have
a total aggregate principal amount of $270,000,000 as opposed to $170,000,000
for the Old Series B Notes and $100,000,000 for the Old Series C Notes. See
"Risk Factors--Consequences of Exchange and Failure to Exchange" and "The
Exchange Offer--Consequences of Not Exchanging Old Notes."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Series C Notes are identical in all
material respects, except for the total outstanding principal amount thereof,
certain transfer restrictions and registration rights relating to the Old
Series C Notes and except that, if the Registration Statement is not filed on
or before February 15, 1998 or is not declared effective on or before April 16,
1998 or the Exchange Offer is not consummated on or before 30 business days
after the effective date of this Registration Statement, subject to certain
exceptions, with respect to the first 90-day period immediately following
thereafter, the Company will be obligated to pay liquidated damages to each
Holder of Old Series C Notes in an amount equal to $.05 per week for each
$1,000 principal amount of Old Series C Notes, as applicable, held by such
Holder ("Liquidated Damages"). The amount of the Liquidated Damages will
increase by an additional $.05 per week with respect to each subsequent 90-day
period until the Exchange Offer is consummated, or any other Registration
Default (as defined) is cured, up to a maximum of $.40 per week for each $1,000
principal amount of Old Series C Notes, as applicable.
The New Notes will accrue interest from the most recent date to which
interest has been paid on the Old Notes, or, if no interest has been paid on
the Old Notes, from November 16, 1997. Accordingly, registered Holders of New
Notes on the relevant record date for the first interest payment date following
the consummation of the Exchange Offer will receive interest from the most
recent date to which interest has been paid or, if no interest has been paid,
from November 16, 1997. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
of Old Notes whose Old Notes are accepted will not receive any payment in
respect of interest on such Old Notes otherwise payable on any interest payment
date which occurs on or after the consummation of the Exchange Offer.
8
<PAGE>
THE NEW NOTES
Issuer.................... Motors and Gears, Inc.
Securities Offered........ $270.0 million aggregate principal amount of 10
3/4% Series D Senior Notes due 2006.
Maturity.................. November 15, 2006.
Interest Rate and Payment The Old Notes bear interest and the New Notes will
Dates.................... bear interest at a rate of 10 3/4% per annum,
payable semi-annually in cash in arrears on each
November 15 and May 15, commencing May 15, 1998.
Optional Redemption....... On or after November 15, 2001, the Senior Notes
will be redeemable at the option of the Company, in
whole or in part, at any time at the redemption
prices set forth herein, plus accrued and unpaid
interest and Liquidated Damages, if any, to the
date of redemption. Notwithstanding the foregoing,
at any time prior to November 15, 1999, the Company
may redeem up to 35% of the original aggregate
principal amount of the Senior Notes with the net
proceeds of one or more Equity Offerings (as
defined) at a redemption price equal to 109.750% of
the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to
the date of redemption. See "Description of Senior
Notes-- Redemption of Senior Notes."
Mandatory Redemption...... Except after the passage of certain events, the
Company is not required to make any mandatory
redemption, purchase or sinking fund payments with
respect to the Senior Notes. See "Description of
Senior Notes--Mandatory Offers to Purchase Senior
Notes."
Change of Control......... Upon the occurrence of a Change of Control (as
defined), each holder of Senior Notes will have the
right to require the Company to purchase such
holder's Senior Notes pursuant to an Offer (as
defined) at a purchase price in cash equal to 101%
of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages,
if any, to the date of purchase. Certain
transactions with affiliates of the Company may not
be deemed to be a Change of Control. Transactions
constituting a Change of Control are not limited to
hostile takeover transactions not approved by the
current management of the Company. Except as
described under "Description of Senior Notes--
Mandatory Offers to Purchase Senior Notes," the
Indenture does not contain provisions that permit
the holders of Senior Notes to require the Company
to purchase or redeem the Senior Notes in the event
of a takeover, recapitalization or similar
restructuring, including an issuer recapitalization
or similar transaction with management.
Ranking................... The Senior Notes will be senior unsecured
obligations of the Company, will rank pari passu in
right of payment with all other Senior Indebtedness
of the Company and senior to all Subordinated
Indebtedness of the Company. The Senior Notes will
effectively rank junior to any secured Indebtedness
incurred under the Amended Credit Agreement. On a
pro forma basis, as of September 30, 1997, after
giving effect to the Old Offering and the
application of the net proceeds therefrom, the
aggregate principal of secured Indebtedness of the
Company and Indebtedness of the Company's
subsidiaries to which the
9
<PAGE>
Senior Notes will effectively rank junior is
approximately $9.1 million. The Indenture will
permit the Company and its subsidiaries to incur
additional Indebtedness, including secured
Indebtedness, subject to certain limitations. Such
permitted additional secured Indebtedness which
would effectively be senior to the Senior Notes may
include up to $115.0 million incurred under the
Amended Credit Agreement and other Indebtedness
permitted by the Indenture, and $25.0 million of
additional Indebtedness. See "Description of Senior
Notes--Certain Covenants" and "Description of
Certain Indebtedness."
The Company believes that prepayment of the Senior
Notes pursuant to a Change of Control would
constitute a default under the Amended Credit
Agreement. In the event a Change of Control occurs,
the Company will likely be required to refinance
the Indebtedness outstanding under the Amended
Credit Agreement and the Senior Notes. If there is
a Change of Control, any Indebtedness under the
Amended Credit Agreement could be accelerated,
which Indebtedness is secured and effectively ranks
senior to the Senior Notes. Moreover, 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 the Senior Notes
given the Company's high leverage. See "Risk
Factors--Leverage and Coverage."
Certain Covenants......... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries (as
defined) to pay dividends or make certain other
restricted payments, to incur certain additional
Indebtedness, to encumber or sell assets, to enter
into transactions with affiliates, to enter into
certain guarantees of indebtedness, to make certain
investments, to merge or consolidate with any other
entity and to transfer or lease all or
substantially all of their assets. In addition,
under certain circumstances, the Company will be
required to offer to purchase Senior Notes at a
price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase
with the proceeds of certain Asset Sales (as
defined). See "Description of Senior Notes--Certain
Covenants" and "--Mandatory Offers to Purchase
Senior Notes--Asset Sales."
For a discussion of the terms of the Senior Notes, see "Description of Senior
Notes."
RISK FACTORS
Holders of Old Notes should consider carefully all of the information set
forth in the Prospectus and, in particular, should consider the factors set
forth under "Risk Factors." Risk factors which Holders of Old Notes should
evaluate include the consequences of exchanging and not exchanging Old Notes
for New Notes, the Company's leverage and coverage, the ranking of the Senior
Notes among other indebtedness of the Company, the Company's dependence on
intercompany transfers to meet its debt service and other obligations, the
Company's limited operating history and the limited relevance of its historical
financial information, the restrictive covenants contained in the Indenture and
the Amended Credit Agreement, the absence of a market for the New Notes, the
ability of the Company to purchase the Senior Notes upon a Change of Control,
the influence of the Company's principal stockholders, the Company's
acquisition strategy and the dilution of voting interest caused by the issuance
of New Notes.
10
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents summary (i) historical and pro forma balance
sheet data of the Company at September 30, 1997, (ii) historical operating and
other data of the Company and its predecessor, Merkle-Korff (also referred to
herein as the "Predecessor"), for the year ended December 31, 1994, for the
period from January 1, 1995 to September 22, 1995, for the period from
September 23, 1995 to December 31, 1995, for the year ended December 31, 1996
and for the nine months ended September 30, 1996 and 1997 and (iii) pro forma
operating and other data of the Company for the year ended December 31, 1996
and the nine months ended September 30, 1997. The pro forma data is unaudited.
The pro forma data gives effect to the Old Offering, the application of the
net proceeds therefrom and the Acquisitions. The pro forma data does not
purport to represent what the consolidated results of operations of the
Company would actually have been had the Old Offering, and the application of
the net proceeds therefrom, and the Acquisitions actually occurred at the
beginning of the relevant period, and does not purport to project the
consolidated results of operations of the Company for the current year or any
future period. The historical data of the Predecessor and the Company reflects
the results of the Company's wholly-owned subsidiary, Merkle-Korff, for all
periods presented, together with its wholly-owned subsidiary, Barber-Colman
Motors, from March 8, 1996, the date of the Barber-Colman Acquisition,
Imperial, Scott and Gear from September 23, 1995, the date at which the
Company and Imperial, Scott and Gear came under the common control of JII and
FIR from June 12, 1997, the date of its acquisition by the Company. The
historical data does not reflect the results of Electrical Design or Motion
Control. The historical data of the Company at December 31, 1995 and 1996, for
the period from September 23, 1995 to December 31, 1995 and for the year ended
December 31, 1996 were derived from the audited consolidated financial
statements of the Company. The historical data of the Company at and for the
nine months ended September 30, 1996 and 1997 were derived from the unaudited
condensed consolidated Financial Statements of the Company. The historical
data of the Predecessor for the year ended December 31, 1994 and the period
from January 1, 1995 to September 22, 1995 were derived from the audited
combined financial statements of the Predecessor. The summary financial data
set forth below should be read in conjunction with "Use of Proceeds,"
"Selected Historical Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company, the Predecessor, Barber-Colman Motors, Imperial,
FIR, Electrical Design and Motion Control, and the related notes thereto,
included elsewhere herein.
11
<PAGE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
-----------------------
HISTORICAL PRO FORMA(1)
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 37,303 $ 70,845
Total assets............................................ 228,295 329,293
Long-term obligations, including current portion(2)..... 209,095 283,595
Stockholder's equity (net capital deficiency)........... (13,461) 6,539
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(3)
---------------------------------------------------------------------------------- --------------------------
PREDECESSOR
AND COMPANY
PREDECESSOR(4) COMPANY COMBINED(5) COMPANY(6) COMPANY
-------------------------- ------------ ----------- ------------------------------ --------------------------
NINE
JANUARY 1, SEPTEMBER 23 MONTHS ENDED NINE MONTHS
YEAR ENDED THROUGH THROUGH YEAR ENDED YEAR ENDED SEPTEMBER 30, YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 22, DECEMBER 31, DECEMBER DECEMBER 31, ----------------- DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 31, 1995 1996 1996 1997(7) 1996 1997
------------ ------------- ------------ ----------- ------------ ------- -------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Net sales....... $49,340 $39,295 $24,684 $63,979 $117,571 $90,154 $106,379 $210,376 $166,413
Gross profit,
excluding
depreciation... 18,022 15,182 8,255 23,437 41,820 32,147 38,030 74,070 60,663
Operating
income......... 12,309 11,616 4,753 16,369 23,229 18,365 21,978 35,982 29,976
Interest
expense, net... 0 0 2,412 2,412 10,987 7,413 15,596 30,891 22,865
Net income...... 11,921 11,604 1,360 12,964 4,834 6,870 3,577 3,093 4,357
SUPPLEMENTAL PRO
FORMA AND OTHER
DATA:
Pro forma income
taxes(8)....... $ 4,837 $ 4,755 $ -- $ 4,755 $ -- $ -- $ -- $ -- $ --
Pro forma net
income(8)...... 7,255 7,133 1,360 8,493 4,834 6,870 3,577 3,093 4,357
Ratio of
earnings to
fixed
charges(9)..... 41.7x -- -- 6.3x 2.1x 2.4x 1.4x 1.2x 1.3x
</TABLE>
- -------
(1) Gives effect to (i) the transactions contemplated by the Old Offering and
the application of the net proceeds therefrom and (ii) the Electrical
Design Acquisition and the Motion Control Acquisition, as if all such
transactions occurred on September 30, 1997. See "Use of Proceeds,"
Unaudited Pro Forma Condensed Financial Statements of the Company and
"Certain Transactions--The Company Formation and Proceeds From the Series
A/B Note Offering."
(2) Pro forma balance includes the $4,500 premium on the Old Series C Notes
reflecting the issuance price of 104.5%. See "Capitalization."
(3) Includes the results of operations of the Company and the Acquired
Companies as if all of the Acquired Companies were acquired at the
beginning of the relevant period, and the elimination or adjustment of
certain expenses and fees as described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Certain
Transactions--Services Agreements," and the Unaudited Pro Forma Condensed
Financial Statements of the Company and the related notes thereto appearing
elsewhere herein.
(4) Reflects the results of operations of the Predecessor for the periods prior
to its acquisition by the Company on September 22, 1995.
(5) Reflects the combined results of operations of the Predecessor from January
1, 1995 to September 22, 1995, and the results of operations of the Company
from September 23, 1995 to December 31, 1995. The results of operations of
Imperial, Scott and Gear are included in the Company's consolidated
operating results from September 23, 1995, the date at which the Company
and Imperial, Scott and Gear came under the common control of JII.
(6) The Company's results of operations for the year ended December 31, 1996
include the results of operations of Barber-Colman Motors since its
acquisition by the Company on March 8, 1996.
12
<PAGE>
(7) The Company's results of operations for the nine months ended September 30,
1997 include the results of FIR since June 12, 1997, the date of its
acquisition by the Company, through July 31, 1997. The results of FIR are
included for periods ending two months prior to the Company's year end and
interim periods to ensure timely preparation of the Consolidated Financial
Statements.
(8) Pro forma net income reflects income taxes at the tax rate of 40%. For the
Predecessor, reflects only certain state income taxes attributable to
Merkle-Korff's income for the historical periods presented prior to its
acquisition by the Company on September 22, 1995, during which it elected
to be a subchapter S corporation and therefore was not subject to federal
and certain state income taxes. For the Company, reflects income taxes
attributable to the Company for the historical periods presented subsequent
to September 23, 1995 at the tax rate (40%) attributed to it as a C
corporation pursuant to the Tax Sharing Agreement (as defined). See
"Certain Transactions--Tax Sharing Agreement."
(9) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness and
capitalized interest (which the Company and Predecessor have not incurred
in the respective periods), amortization of deferred financing costs, and
rental expense on operating leases, representing that portion of rental
expense deemed by the Company to be attributable to interest.
13
<PAGE>
RISK FACTORS
Holders of the Old Notes should carefully consider the following risk
factors, as well as other information set forth in this Prospectus, before
tendering their Old Notes in the Exchange Offer. The risk factors set forth
below (other than "--Consequences of Exchange and Failure to Exchange") are
generally applicable to the Old Notes as well as the New Notes.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Issuance of New Notes in exchange for Old Notes pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of such Old
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, Holders of Old Notes desiring to tender
such Old Notes in exchange for New Notes should allow sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to tenders of Old Notes for exchange.
Holders of Old Series C Notes who do not exchange their Old Series C Notes for
New Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Series C Notes as set forth in the legend
thereon. In general, the Old Series C 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 Old Series C Notes under the Securities Act. In addition, upon
the consummation of the Exchange Offer holders of Old Series C Notes which
remain outstanding will not be entitled to any rights to have such Old Series
C Notes registered under the Securities Act or to any rights under the
Registration Rights Agreement. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. See "The
Exchange Offer--Consequences of Not Exchanging Old Notes." In addition,
Holders of Old Notes who do not exchange their Old Notes for New Notes will
not be able to take advantage of the increased liquidity afforded by the New
Notes which would have a total aggregate principal amount of $270,000,000 as
opposed to $170,000,000 for the Old Series B Notes and $100,000,000 for the
Old Series C Notes.
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties in other transactions substantially
similar to the Exchange Offer, the Company believes that the New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i)
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act; (ii) an Initial Purchaser who acquired the Old Notes directly
from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act; or
(ii) a broker-dealer who acquired the Old Notes as a result of market making
or other trading activities) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such Holder's business and
that such holder is not participating and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. The Company has not, however, sought its
own no-action letter from the staff of the Commission. Although there has been
no indication of any change in the staff's position, there can be no assurance
that the staff of the Commission would make a similar determination with
respect to the resale of the New Notes. By tendering, each Holder which is not
a broker-dealer will represent to the Company that, among other things, the
person receiving the New Notes, whether or not such person is a Holder, (i)
will acquire the New Notes in the ordinary course of such person's business,
(ii) has no arrangement or understanding with any person to participate in a
distribution of the New Notes and (iii) is not engaged in and does not intend
to engage in a distribution of the New Notes. If any Holder or any such other
person has an arrangement or understanding with any person to participate in a
distribution of such New Notes, is engaged in or intends to engage in a
distribution of such New Notes, is an "affiliate," as defined under Rule 405
of the Securities Act, of the Company, or acquired the Old Notes as a result
of market making or other trading activities, then such Holder or any such
other person (i) can not rely on the applicable interpretations of the staff
of the Commission and (ii) must comply with the registration and prospectus
delivery requirements of
14
<PAGE>
the Securities Act in connection with a secondary resale transaction, unless
such sale is made pursuant to an exemption from such requirements. See "The
Exchange Offer--Purpose of the Exchange Offer."
LEVERAGE AND COVERAGE
The Company has substantial indebtedness and debt service obligations. At
September 30, 1997, on a pro forma basis, the Company's total indebtedness,
including current portion, was approximately $279.1 million, which excludes
the $4.5 million of premium on the Old Series C Notes, and its stockholders'
equity was $6.5 million, in each case after giving effect to the Old Offering,
the application of the net proceeds therefrom, and the Acquisitions. In
addition, subject to the restrictions under the Amended Credit Agreement and
the Indenture, the Company and its subsidiaries may incur additional
Indebtedness (including additional secured Indebtedness and Senior
Indebtedness) from time to time. See "Use of Proceeds," "Capitalization" and
"Description of Senior Notes--Certain Covenants."
The level of the Company's indebtedness could have important consequences to
holders of the Senior Notes, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service and will
not be available for other purposes, (ii) the Company's ability to obtain
additional debt financing in the future for working capital, capital
expenditures, research and development or acquisitions may be limited and
(iii) the Company's level of indebtedness could limit its flexibility in
reacting to changes in its operating environment and economic conditions
generally.
The Company's ability to pay principal and interest on the Senior Notes and
to satisfy its other debt obligations will depend upon its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its
control, as well as the availability of revolving credit borrowings under the
Amended Credit Agreement or a successor facility. The Company anticipates that
its operating cash flow, together with borrowings under the Amended Credit
Agreement, will be sufficient to meet its operating expenses and to service
its debt requirements as they become due. However, the Company may be required
to refinance a portion of the principal of the Senior Notes prior to their
maturity and, if the Company is unable to service its indebtedness, it will be
forced to take actions such as reducing or delaying capital expenditures,
selling assets, restructuring or refinancing its indebtedness, or seeking
additional equity capital. There can be no assurance that any of these
remedies can be effected on satisfactory terms, if at all.
RANKING OF SENIOR NOTES
The Senior Notes will be senior unsecured obligations of the Company and
will rank pari passu in right of payment with all other Senior Indebtedness of
the Company. The Senior Notes will effectively rank junior to any secured
Indebtedness of the Company and to all Indebtedness of the Company's
subsidiaries, including indebtedness incurred under the Amended Credit
Agreement. The Contingent Earnout (as defined) provided by the Company, M&G
Industries, Imperial, Scott and Gear to an affiliate of JII, its indirect
parent, in connection with the Imperial Acquisitions is a potential future
obligation and liability of such subsidiaries of the Company, the payment of
which, if earned, will not be limited or otherwise restricted by the Indenture
or the Amended Credit Agreement. See "Certain Transactions." On a pro forma
basis, as of September 30, 1997, the aggregate principal amount of secured
Indebtedness of the Company and Indebtedness of the Company's subsidiaries to
which the Senior Notes will effectively rank junior was approximately $9.1
million. The Indenture permits the Company and its subsidiaries to incur up to
$25.0 million of additional indebtedness, including secured indebtedness and
indebtedness of its subsidiaries, subject to certain limitations. See
"Description of Senior Notes--Certain Covenants" and "Description of Certain
Indebtedness."
HOLDING COMPANY STRUCTURE; DEPENDENCE ON SUBSIDIARIES; LIMITATIONS ON ACCESS
TO CASH FLOW OF THE SUBSIDIARIES
The Company is structured as a holding company which owns all of the stock
of M&G Industries. M&G Industries owns all of the stock of the Company's
operating subsidiaries. See "The Company--Operating
15
<PAGE>
Subsidiaries." Accordingly, the Company's operations are conducted exclusively
through its subsidiaries, and the Company's only significant assets are the
capital stock of its subsidiaries. As a holding company, the Company is
dependent on dividends or other intercompany transfers of funds from its
subsidiaries to meet the Company's debt service and other obligations,
including its obligations under the Senior Notes. Under the terms of the
Indenture, the Company's subsidiaries may incur certain indebtedness pursuant
to agreements that may restrict the ability of such subsidiaries to make such
dividends or other intercompany transfers necessary to service the Company's
obligations, including its obligations under the Senior Notes. The terms of the
Amended Credit Agreement will limit the Company's subsidiaries from making
dividends to the Company except in limited circumstances. While the Amended
Credit Agreement permits dividends to the Company for the purpose of paying
interest on the Senior Notes, dividends for other purposes, such as repurchases
of Senior Notes upon a Change of Control or an Asset Sale, are not permitted.
Any failure by the Company to satisfy its obligations with respect to the
Senior Notes at maturity (with respect to payments of principal) or prior
thereto (with respect to payments of interest or required repurchases) would
constitute a default under the Indenture and the Amended Credit Agreement and
could cause a default under agreements governing other indebtedness of the
Company and its subsidiaries. Senior Notes will be obligations exclusively of
the Company and will not be guaranteed by any of the Company's subsidiaries. In
addition, because the Company conducts its business through its subsidiaries,
all existing and future liabilities and obligations of the Company's
subsidiaries (including the Amended Credit Agreement and the Contingent Earnout
Agreement) will be effectively senior to the Senior Notes. Consequently, the
Company's cash flow and ability to service its debt, including the Senior
Notes, are dependent upon the earnings of its subsidiaries and the distribution
of those earnings to the Company, or upon loans, advances or other payments
made by its subsidiaries to the Company.
LIMITED OPERATING HISTORY AND LIMITED RELEVANCE OF HISTORICAL FINANCIAL
INFORMATION
The Company was incorporated in September 1995 to acquire Merkle-Korff and
other targeted companies focused on the motion control industry. The Company
defines the motion control industry as having the following major business
segments: motors, gears and gear drives, controls and sensors, drives and drive
systems, and couplings. The Company has conducted limited operations to date.
The historical financial information included herein for periods prior to
September 22, 1995 is based upon the historical information of Merkle-Korff.
For the periods after September 22, 1995, the historical financial information
is based upon historical information of the Company, including the results of
Barber-Colman Motors since its acquisition by the Company on March 8, 1996, and
includes purchase accounting adjustments as a result of the Company's
acquisitions. The historical financial information does not reflect the results
of operations, financial position or cash flows of the Company with Imperial,
Scott and Gear prior to September 22, 1995 or the results of FIR prior to June
12, 1997. None of the historical financial information presented in the
Prospectus reflects the results of Electrical Design or Motion Control. As a
result, the historical financial information is of limited relevance in
understanding what the results of operations, financial position or cash flows
of the Company would have been for the historical periods presented had the
Company in fact owned all of its current subsidiaries or had the Company in
fact been organized for such periods. See "Selected Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CONTROL BY PRINCIPAL STOCKHOLDER AND CERTAIN TRANSACTIONS
JII and other Jordan Stockholders (as defined) own all of the preferred stock
and substantially all of the common stock of the Parent. See "Principal
Stockholders." Accordingly, JII has sufficient voting power to elect the entire
Board of Directors, exercise control over the business, policies and affairs of
Parent and its wholly-owned subsidiary, the Company, and, in general, determine
the outcome of any corporate transaction or other matters submitted to the
stockholders for approval, such as any amendment to the Company's Certificate
of Incorporation, the authorization of additional shares of capital stock, and
any merger, consolidation, sale of all or substantially all of the assets of
the Company and could prevent or cause a change of control of the Company. JII
is expected to maintain a majority ownership interest in the Company. Messrs.
Jordan, Quinn, Zalaznick and Boucher, all directors of Parent and the Company,
are directors, executive officers and stockholders of JII.
JII expects to include the Company in its consolidated group for Federal
income tax purposes. However, if JII ceased to own stock representing at least
80% of the voting power and 80% of the value of all outstanding
16
<PAGE>
stock of the Company, the Company would be deconsolidated from the JII group.
It is anticipated that deconsolidation will occur, at the latest, in 2002, when
the preferred stock of the Company that is owned by JII is redeemed according
to its terms or discontinues its participation in the earnings of the Company,
although deconsolidation could occur prior to such time. Deconsolidation of the
Company from the JII group will trigger the recognition of substantial amount
of deferred intercompany gain that certain of the subsidiaries of JII will
realize as a result of the purchase of Imperial, Scott and Gear from JII.
Although JII would have the primary responsibility to pay the Federal income
tax liability arising from the recognition of those gains, the Company could
become liable for the Federal income tax on those gains if JII failed to pay
such tax.
The Company has entered into a number of affiliate transactions with JII,
including the Contingent Earnout Agreement, the New Subsidiary Advisory
Agreement (as defined), the JI Properties Services Agreement (as defined), the
New Subsidiary Consulting Agreement (as defined), the Transition Agreement (as
defined), the Tax Sharing Agreement and certain other agreements and
transactions. See "Certain Transactions."
RESTRICTIVE COVENANTS
The Indenture restricts, among other things, the Company's and its Restricted
Subsidiaries' ability to pay dividends or make certain other Restricted
Payments, to incur additional indebtedness, to encumber or sell assets, to
enter into transactions with affiliates, to enter into certain guarantees of
indebtedness, to make Restricted Investments, to merge or consolidate with any
other entity and to transfer or lease all or substantially all of their assets.
In addition, the Amended Credit Agreement will contain other and more
restrictive covenants and prohibits the Company and its subsidiaries from
prepaying other indebtedness, including the Senior Notes. See "Description of
Senior Notes--Certain Covenants" and "Description of Certain Indebtedness--
Credit Agreement." The Amended Credit Agreement will also require the Company
to maintain specified financial ratios and satisfy certain financial condition
tests. The Company's ability to meet those financial ratios and tests can be
affected by events beyond its control, and there can be no assurance that the
Company will meet those tests. A breach of any of these covenants could result
in a default under the Amended Credit Agreement and/or the Indenture. Upon the
occurrence of an event of default under the Amended Credit Agreement, the
lenders thereunder could elect to declare all amounts outstanding under the
Amended Credit Agreement, together with accrued interest, to be immediately due
and payable. If the Company were unable to repay those amounts, such lenders
could proceed against the collateral granted to them to secure that
indebtedness. If the Senior Indebtedness were to be accelerated, there can be
no assurance that the assets of the Company would be sufficient to repay in
full all Senior Indebtedness, including the Senior Notes. Substantially all of
the assets of the Company's subsidiaries were pledged as security under the
Amended Credit Agreement. The Indenture and the Amended Credit Agreement do not
limit or otherwise restrict the Company's obligations under the Contingent
Earnout Agreement. See "--Ranking of Senior Notes" and "Description of Certain
Indebtedness--Credit Agreement."
CHANGE OF CONTROL AND DEFAULT UNDER AMENDED CREDIT AGREEMENT
In the event of a Change of Control, each holder of Senior Notes will be
entitled to require the Company to purchase any or all of the Senior Notes held
by such holder at the prices stated herein. Prepayment of the Senior Notes
pursuant to a Change of Control would constitute a default under the Amended
Credit Agreement. In the event that a Change of Control occurs, the Company
would be required to refinance the indebtedness outstanding under the Amended
Credit Agreement and the Senior Notes. There can be no assurance that the
Company would be able to refinance such indebtedness or, if such refinancing
were to occur, that such refinancing would be on terms favorable to the
Company. See "Description of Senior Notes--Mandatory Offers to Purchase Senior
Notes--Change of Control" and "--Certain Definitions."
ACQUISITION STRATEGY
One of the Company's business strategies is to acquire additional electric
motors and generators companies that will complement the Company's existing
operations or provide the Company with an entry into regions or
17
<PAGE>
markets it does not presently serve. Inherent in such a strategy are certain
risks, such as increasing leverage and debt service requirements, potential
exposure to liabilities of acquired companies, and operating business in many
geographically diverse markets. There can be no assurance that the Company will
be able to identify suitable acquisition candidates or successfully acquire or
profitably manage additional companies. The Company competes and will continue
to compete with many other buyers, some of which have greater financial and
other resources than those of the Company, for the acquisition of electric
motors and generators companies.
NEW NOTES; DILUTION OF INTEREST
Pursuant to the Registration Rights Agreement, the Company has agreed to file
with the Commission the Exchange Offer Registration Statement with respect to
the Exchange Offer on or before February 15, 1998 and to use good faith efforts
to cause the Exchange Offer Registration Statement to become effective under
the Securities Act on or before April 16, 1998. It is likely that all Old Notes
will be tendered for exchange in the Exchange Offer; however, there is no
assurance that a significant amount of Old Series B Notes will be so tendered.
If all Old Series B Notes and Old Series C Notes are exchanged for New Notes,
$270,000,000 aggregate principal amount of New Notes will be outstanding
following consummation of the Exchange Offer, and the New Notes will be deemed
to be a single series of notes outstanding under the Indenture. In such case,
any actions requiring the consent of each holder or the holders of a majority
in outstanding principal amount of Senior Notes under the Indenture will
therefore require the consent of each holder of New Notes or the holders of a
majority in aggregate principal amount of such outstanding New Notes, as
applicable, and the individual voting interest of each holder will accordingly
be diluted.
ABSENCE OF PUBLIC MARKET FOR THE SENIOR NOTES; RESTRICTIONS ON TRANSFERS
The New Notes are being offered to Holders of the Old Notes. New Notes will
constitute a new issue of securities and do not have an established trading
market. The Old Notes are eligible for trading in the PORTAL Market, the
National Association of Securities Dealers' screen based, automated market for
trading of securities eligible for resale under Rule 144A. Although the Initial
Purchasers have advised the Company that they currently intend to make a market
in the New Notes, they are not obligated to do so and may discontinue such
market making at any time without notice. The Company does not intend to list
the Senior Notes on any national securities exchange or to seek the admission
thereof to trading in the National Association of Securities Dealers Automated
Quotation System. Accordingly, no assurance can be given that an active market
will develop for any of the Senior Notes or as to the liquidity of the trading
market for any of the Senior Notes. If a trading market does not develop or is
not maintained, holders of the Senior Notes may experience difficulty in
reselling such Senior Notes or may be unable to sell them at all. If a market
for the Senior Notes develops, any such market may be discontinued at any time.
If a trading market develops for the Senior Notes, future trading prices of
such Senior Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Company, the Senior Notes may trade at a discount from their principal amount.
18
<PAGE>
THE COMPANY
GENERAL
The Company is a leading international manufacturer of specialty purpose
electric motors, gearmotors, gearboxes, gears and electronic motion controls
for a wide variety of consumer, commercial and industrial markets. The Company
has a diverse base of customers and its products are used in a broad range of
applications including vending machines, refrigerator ice dispensers,
commercial dishwashers, commercial floor care equipment, commercial sewing
machines, industrial ventilation equipment, automated material handling systems
and elevators. The Company's subsidiaries have sold their brand name products
for an average of over 70 years. The Company believes that it has created
strong customer loyalty for its products primarily through its emphasis on high
quality, custom engineered products, competitive prices and customer service.
For the year ended December 31, 1996, the Company had pro forma net sales and
net income of $210.4 million and $3.1 million, respectively and for the nine
months ended September 30, 1997, the Company had pro forma net sales and net
income of $166.4 million and $4.4 million, respectively.
The Company operates in four product groups: (1) subfractional motors, which
represented 39.0% and 41.7% of pro forma net sales for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively, (2)
fractional/integral motors, which represented 34.6% and 31.2% of pro forma net
sales for the year ended December 31, 1996 and the nine months ended September
30, 1997, respectively, (3) gears and gearboxes, which represented 2.9% and
3.4% of pro forma net sales for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, and (4) motion control systems,
which represented 23.5% and 23.7% of pro forma net sales for the year ended
December 31, 1996 and the nine months ended September 30, 1997, respectively.
Subfractional Motors. The Company's subfractional horsepower products are
comprised of motors and gearmotors that power applications up to 30 watts (
1/25 horsepower). These small, "fist-size" AC and DC motors are used in light
duty applications such as snack and beverage vending machines, refrigerator ice
dispensers and photocopy machines. Average product selling prices typically
range from $3 to $20 per unit. The Company focuses on niche applications in
this product group and believes it has a leading market position in most of its
niches.
Fractional/Integral Motors. The Company's fractional/integral horsepower
products are comprised of AC and DC motors and gearmotors having power ranges
from 1/8 up to 300 horsepower. Key end markets for these motors include
commercial floor care equipment, commercial dishwashers, commercial sewing
machines, industrial ventilation equipment and elevators. Average product
selling prices typically range from $50 to $150 per unit for commercial floor
care products to $2,000 to $2,500 per unit for elevator motors. The Company
believes it is the leading DC elevator motor manufacturer in the United States
and the leading commercial dishwasher pump manufacturer in Europe and the
primary supplier to virtually all the major commercial floor care product
manufacturers in the United States.
Gears and Gearboxes. The Company's precision gear and gearbox products are
produced in sizes of up to 16 inches in diameter and in various customized
configurations such as pump, bevel and helical gears. These products have a
reputation for their durability, accuracy, and low noise generation. Key end
markets for these products include OEMs of motors, commercial floor care
equipment, aerospace and food processing product equipment. The Company focuses
on niche applications in this product group and believes it is the primary
supplier of gears and gearboxes to virtually all the major commercial floor
care product manufacturers in the United States.
Electronic Motion Control Systems. The Company's motion control systems are
used primarily in automated conveyor systems within the automotive industry and
the elevator modernization market. The systems typically control several
components such as electric motors, hydraulic or pneumatic valves, actuators
and switches that are required for the conveyor or elevator systems to function
properly. The prices for these motion control systems can run from several
thousand dollars to several hundred thousand dollars. The Company believes its
engineering capability, manufacturing quality and after-sales service are
highly regarded by all of its customers.
19
<PAGE>
OPERATING SUBSIDIARIES
The Company was organized in September 1995 by JII to acquire and operate
companies in the motion control industry. The Company conducts all of its
operations through an intermediate holding company, M&G Industries, and M&G
Industries' wholly-owned subsidiaries and each of their respective
subsidiaries.
Merkle-Korff, founded in 1911 and acquired by the Company in September 1995,
custom manufactures subfractional horsepower motors and gearmotors used in such
products as vending machines, refrigerators, photocopy machines, pumps and
compressors.
Barber-Colman Motors, founded in 1894 and acquired by the Company through
Merkle-Korff in March 1996, manufactures subfractional horsepower motors and
gearmotors used as components in such products as vending machines, photocopy
machines, automatic teller machines, currency changers, X-ray machines,
heating, ventilating and air conditioning ("HVAC") actuators and medical
equipment.
Imperial, founded in 1889 and acquired by certain Jordan Stockholders in
November 1983 and by JII in March 1988, manufactures electric motors and
gearmotors for commercial and industrial uses, including elevators, floor care
equipment and automatic hose reels.
Scott, founded in 1982 and acquired by JII through Imperial in August 1988,
designs and manufactures a variety of electric motors for commercial and
industrial applications, including floor care equipment and hydraulic pumps
used in various lift applications.
Gear, founded in 1952 and acquired by JII through Imperial in November 1988,
manufactures high-precision gears and gear boxes for OEMs in the floor care
equipment, hydraulic pump, food processing equipment, and aerospace industries.
FIR, founded in 1925 and acquired by the Company in June 1997, is an Italian
manufacturer of electric motors which are utilized in a variety of applications
including commercial sewing machines, commercial dishwashers and industrial
ventilation equipment.
Electrical Design, founded in 1958 and acquired by the Company in October
1997, manufactures electronic motion control products which control automated
conveyor systems and are used primarily in automotive manufacturing facilities.
Motion Control, founded in 1983 and acquired by the Company in December 1997,
manufactures electronic motion control products for elevator markets, primarily
the elevator modernization market.
For a discussion of the acquisitions of the Company's subsidiaries, see
"Certain Transactions--The Company Formation and Proceeds from the Series A/B
Note Offering."
20
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer.
The net proceeds received by the Company from the Old Offering and the
purchase of Company common stock by the Parent (after the deduction of
discounts and commissions, fees and other expenses associated with the Old
Offering, the Consent Solicitation and the Amended Credit Agreement) were
approximately $120.4 million. The net proceeds from the Old Offering and the
purchase of Company common stock by the Parent were used by the Company to (i)
repay existing indebtedness, (ii) acquire Motion Control, and (iii) provide
additional working capital.
M&G Industries, the Company's wholly-owned subsidiary, will enter into the
Amended Credit Agreement in order to provide for borrowings of up to $115.0
million. See "Description of Certain Indebtedness--Credit Agreement." The
following table summarizes the sources and uses of funds received in the Old
Offering.
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
- ------------------------------------ -----------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Senior Notes (1)............. $105.4 Repay existing indebtedness (2).. $ 49.0
Additional Common Stock...... 20.0 Acquire Motion Control........... 51.6
Working Capital.................. 19.8
Fees and expenses................ 5.0
------ ------
Total Sources............ $125.4 Total Uses....................... $125.4
====== ======
</TABLE>
- --------
(1) Reflects the issuance of the Old Series C Notes at a price of 104.5%, plus
accrued interest from November 16, 1997 of $0.9 million.
(2) Represents repayment of outstanding balances as of December 17, 1997 under
the Existing Credit Agreement which bore interest at an average rate of
8.5% and was incurred to finance the FIR Acquisition in June 1997 and the
Electrical Design Acquisition in October 1997.
21
<PAGE>
CAPITALIZATION
The following table sets forth the (i) historical consolidated cash and cash
equivalents and capitalization of the Company at September 30, 1997 and (ii)
the pro forma consolidated cash and cash equivalents and capitalization of the
Company at September 30, 1997 as adjusted to reflect the transactions
contemplated by the Old Offering and the application of the net proceeds
therefrom, the Electrical Design Acquisition, the Motion Control Acquisition
and the proceeds from the purchase of common stock of the Company by the
Parent. The table should be read in conjunction with the "Selected Historical
Financial Data" and Consolidated Financial Statements of the Company and
related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------
ACTUAL PRO FORMA
-------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 5,104 $ 26,628
======== ========
Long-term obligations, including current portion:
Existing Credit Agreement (1)............................. $ 34,000 $ --
Senior Notes (2).......................................... 170,000 274,500
Other debt (3)............................................ 5,095 9,095
-------- --------
Total long-term obligations............................. 209,095 283,595
Stockholder's equity (net capital deficiency) (4)........... (13,461) 6,539
-------- --------
Total capitalization.................................... $195,634 $290,134
======== ========
</TABLE>
- --------
(1) For additional information see "Description of Certain Indebtedness--
Credit Agreement."
(2) Pro forma balance includes the $4,500 premium on the Old Series C Notes
reflecting the issuance price of 104.5%. For purposes of the above table,
"Senior Notes" includes the Old Series B and the Old Series C Notes.
(3) Includes the $5,000 MK Junior Seller Note (as defined) issued to the
seller of Merkle-Korff and the $4,000 ED Junior Seller Note (as defined)
issued to the seller of Electrical Design. See "Description of Certain
Indebtedness--Junior Seller Notes."
(4) Gives effect to the $20,000 of proceeds from the purchase of common stock
of the Company by the Parent.
22
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents summary (i) historical operating and other data
of the Company's predecessor, Merkle-Korff, for the years ended December 31,
1992, 1993, 1994 and the period from January 1, 1995 to September 22, 1995, and
(ii) historical operating and other data of the Company for the period
September 23, 1995 to December 31, 1995, for the year ended December 31, 1996
and the nine months ended September 30, 1996 and 1997. The historical data of
the Predecessor and the Company reflect the results of the Company's wholly-
owned subsidiary, Merkle-Korff, for all periods presented, together with its
wholly-owned subsidiary, Barber-Colman Motors, from the date of its acquisition
by the Company on March 8, 1996. The historical data of the Company also
reflects the results of Imperial, Scott and Gear from September 23, 1995, the
date at which the Company and Imperial, Scott and Gear came under the common
control of JII, and the results of FIR from June 12, 1997, the date of its
acquisition by the Company. The results of Electrical Design and Motion Control
are not included in any historical period. The financial data of the
Predecessor as of and for the years ended December 31, 1992 through 1994 and
the period from January 1, 1995 to September 22, 1995 were derived from the
Combined Financial Statements of the Predecessor, and the financial data of the
Company as of December 31, 1995 and 1996 and for the period from September 23,
1995 to December 31, 1995 and the year ended December 31, 1996 were derived
from the Consolidated Financial Statements of the Company, all of which have
been audited by Ernst & Young LLP, independent auditors. The financial data as
of and for the nine months ended September 30, 1996 and 1997 are derived from
the unaudited financial statements of the Company included elsewhere herein.
The financial statements of the Company for the periods ended September 30,
1996 and 1997 are unaudited, but in the opinion of management include all
adjustments consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position and results of
operations. The results of operations for the nine months ended September 30,
1997 are not necessarily indicative of the results of operations for the year
ending December 31, 1997. The financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company, the Predecessor, Imperial, Barber-Colman Motors and FIR and the
related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
PREDECESSOR
AND COMPANY
PREDECESSOR(1) COMPANY(2) COMBINED(3) COMPANY(4)
------------------------------------- ------------- ------------ ------------------------------
JANUARY 1 , SEPTEMBER 23,
THROUGH THROUGH YEAR ENDED YEAR ENDED NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 22, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
----------------------- ------------- ------------- ------------ ------------ -----------------
1992 1993 1994 1995 1995 1995 1996 1996 1997
------- ------- ------- ------------- ------------- ------------ ------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............... $39,801 $43,766 $49,340 $39,295 $ 24,684 $ 63,979 $117,571 $ 90,154 $106,379
Gross profit, excluding
depreciation........... 13,828 16,315 18,022 15,182 8,255 23,437 41,820 32,147 38,030
Operating income........ 7,241 8,547 12,309 11,616 4,753 16,369 23,229 18,365 21,978
Interest expense........ -- -- -- -- 2,412 2,412 11,134 7,413 15,596
Income taxes(5)......... 116 143 171 284 948 1,232 5,290 4,082 2,805
Net income.............. 6,929 8,122 11,921 11,604 1,360 12,964 4,834 6,870 3,577
SUPPLEMENTAL PRO FORMA AND
OTHER DATA:
Pro forma income
taxes(6)............... $ 2,818 $ 3,306 $ 4,837 $ 4,755 $ -- $ 4,755 $ -- $ -- $ --
Pro forma net income.... 4,227 4,959 7,255 7,133 1,360 8,493 4,834 6,870 3,577
Ratio of earnings to
fixed charges(7)....... 26.2x 29.4x 41.7x -- -- 6.3x 2.1x 2.4x 1.4x
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital......... $ 9,646 $ 9,944 $11,546 $ 7,697 $ 14,747 $ 14,747 $ 27,586 $ 17,642 $ 37,303
Total assets............ 16,630 16,421 18,952 14,409 145,387 145,387 173,668 164,474 228,295
Long-term obligations,
including current
portion................ -- -- -- -- 83,547 83,547 175,067 96,369 209,095
Stockholder's equity
(net capital
deficiency)............ 12,057 12,515 14,332 9,218 45,925 45,925 (15,787) 52,445 (13,461)
</TABLE>
23
<PAGE>
- --------
(1) Reflects the results of operations of the Predecessor for the periods prior
to its acquisition by the Company on September 22, 1995.
(2) Reflects the Company's results of operations from September 23, 1995
through December 31, 1995.
(3) Reflects the combined results of operations of the Predecessor from January
1, 1995 to September 22, 1995 and the Company from September 23, 1995 to
December 31, 1995. The results of operations of Imperial, Scott and Gear
are included in the Company's consolidated operating results from September
23, 1995, the date at which the Company and Imperial, Scott and Gear came
under the common control of JII.
(4) The Company's results of operations for the year ended December 31, 1996
include the results of operations of Barber-Colman Motors since its
acquisition by the Company on March 8, 1996 and the results of operations
of Imperial, Scott and Gear for the entire period.
(5) For the Predecessor, historical net income reflects only certain state
income taxes attributable to Merkle-Korff's income for the historical
periods presented prior to its acquisition by the Company on September 22,
1995, during which it elected to be a subchapter S corporation and
therefore was not subject to federal and certain state income taxes.
(6) Prior to its acquisition by the Company, the Predecessor was an S
corporation and therefore was not subject to federal and certain state
income taxes. The pro forma data presented includes an unaudited pro forma
adjustment for income taxes which would have been recorded if the
Predecessor had been a C corporation.
(7) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness and
capitalized interest (which the Company and Predecessor have not incurred
in the respective periods), amortization of deferred financing costs, and
rental expense on operating leases, representing that portion of rental
expense deemed by the Company to be attributable to interest.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following financial information presents, (i) for the year ended December
31, 1994, the results of operations of the Predecessor, (ii) for the year ended
December 31, 1995, the combined results of operations of the Predecessor from
January 1, 1995 to September 22, 1995, and the Company, from September 23, 1995
to December 31, 1995, and (iii) for the year ended December 31, 1996, the
results of operations of the Company. The results of operations of Barber-
Colman Motors are included in the consolidated results of operations of the
Company since its acquisition on March 8, 1996, the results of operations of
Imperial, Scott and Gear are included in the consolidated results of operations
of the Company from September 23, 1995, the date at which the Company and
Imperial, Scott and Gear came under the common control of JII, and the results
of operations of FIR are included in the consolidated results of operations
from June 12, 1997 through July 31, 1997. The financial data after September
22, 1995 is not directly comparable to prior periods because the acquired
assets and liabilities assumed were revalued and adjusted to reflect their
estimated fair market values at the date of the acquisition. This discussion
reflects the Series A/B Note Offering from November 7, 1996. See the Financial
Statements and the notes thereto included elsewhere herein and "Risk Factors--
Limited Operating History and Limited Relevance of Historical Financial
Information."
<TABLE>
<CAPTION>
PREDECESSOR
AND COMPANY
PREDECESSOR COMBINED COMPANY
----------- ----------- --------------------------------
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
-------------------------------- -----------------
1994 1995 1996 1996 1997
----------- ----------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $49,340 $63,979 $117,571 $90,154 $106,379
Gross profit (excluding
depreciation).......... 18,022 23,437 41,820 32,147 38,030
EBITDA(1)............... 12,633 17,725 30,307 23,453 28,328
Operating income........ 12,309 16,369 23,229 18,365 21,978
Interest expense........ -- 2,412 11,134 7,413 15,596
Gross margin (excluding
depreciation)(2)....... 36.5% 36.6% 35.6% 35.7% 35.8%
EBITDA margin(2)........ 25.6 27.7 25.8 26.0 26.6
Operating margin(2)..... 24.9 25.6 19.8 20.4 20.7
</TABLE>
- --------
(1) EBITDA is included herein because management believes that certain
investors find it to be a useful tool for measuring the ability of the
Company to service its debt.
(2) All margins are calculated as a percentage of net sales.
Nine Months Ended September 30, 1997 Compared to Nine Months ended September
30, 1996
Net Sales. Net sales for the nine months ended September 30, 1997 increased
$16.2 million or 18.0% as compared with the same period in 1996. Net sales of
sub-fractional motors for the nine months ended September 30, 1997 increased
20.0% over the same period in 1996. The growth in sub-fractional motors sales
was primarily attributable to the inclusion of Barber-Colman Motors in the 1996
period only from March 8, 1996, as well as continued strength in the vending
and appliance markets. Gears and gearbox sales for the nine months ended
September 30, 1997 increased 21.0% as compared with the same period in 1996,
primarily as a result of strong sales of planetary gears in the floor care
market. Sales of fractional/integral motors for the nine months ended September
30, 1997 increased 13.0% as compared with the same period in 1996. This
significant increase is attributable to the FIR Acquisition on June 12, 1997.
Existing fractional/integral motor sales for the nine months ended September
30, 1997 decreased 13.0%, reflecting unusually strong sales in the first half
of 1996, principally due to a substantial reduction in the backlog of orders
accumulated in the fourth quarter of 1995.
Gross Profit. Gross profit for the nine months ended September 30, 1997
increased $5.9 million or 18.4% as compared with the same period in 1996. The
increase was due to the increased sales noted above. The gross margin remained
strong, increasing from 35.7% for the nine months ended September 30, 1996 to
35.8% for the nine months ended September 30, 1997.
25
<PAGE>
EBITDA. EBITDA for the nine months ended September 30, 1997 increased $4.8
million or 20.4% as compared with the same period in the prior year. The
increase was due to the $5.9 million increased gross profit noted above.
Increases in selling, general and administrative expenses, depreciation and
amortization were due principally to the Barber-Colman Acquisition and the FIR
Acquisition. These increases were partially offset by reduced management fees
and other expenses at Imperial. The EBITDA margin remained strong, increasing
from 26.0% for the nine months ended September 30, 1996 to 26.5% for the nine
months ended September 30, 1997.
Operating Income. Operating income increased $3.6 million or 20% for the
nine months ended September 30, 1997 as compared with the same period in 1996.
This increase in operating income is primarily due to the increased sales
discussed above. Increases in selling, general and administrative expenses,
depreciation and amortization were due principally to the Barber-Colman
Acquisition and the FIR Acquisition. These increases were partially offset by
reduced management fees and other expenses at Imperial. Operating margins
remained strong, increasing from 20.4% for the nine months ended September 30,
1996 to 20.7% for the nine months ended September 30, 1997.
Interest Expense. Interest expense increased $8.2 million or 110% for the
nine months ended September 30, 1997 as compared with the same period in 1996
due to a full nine months of interest on the Old Series B Notes and borrowings
related to the Barber-Colman Acquisition. Interest expense also increased as a
result of the FIR Acquisition in June of 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased $53.6 million or 83.8%. The Barber-Colman
Acquisition on March 8, 1996 added $17.6 million to current year sales. Also,
the inclusion of Imperial, Scott and Gear for the entire year of 1996 as
compared to only the period from September 22, 1995 to December 31, 1995 in
the prior year, accounted for $29.9 million of the current year increase in
net sales. Sales at Merkle-Korff increased $6.1 million over the prior year
due primarily to increased sales of vending machine motors, $1.5 million,
refrigerator door ice dispenser motors, $1.2 million and pumps and controls,
$0.8 million.
Gross Profit. Gross profit increased $18.4 million or 78.4%. This increase
was due to increased net sales. The gross margin decreased from 36.6% in 1995
to 35.6% in 1996. This decrease was due to the acquisition of Barber-Colman
Motors which operates at a slightly lower gross margin than the rest of the
Company.
EBITDA. EBITDA increased $11.9 million or 64.6% as compared to 1995. This
increase was due to the $18.4 million increase in gross profit noted above,
and was partially offset by an increase in management fee expense of $2.0
million in 1996. The EBITDA margin decreased to 25.8% from 28.8% in 1995 due
to the increased expenses discussed above.
Operating Income. Operating income increased $6.9 million or 41.9% in 1996
as compared to 1995. This increase was due to the increased gross profit noted
above, partially offset by increased depreciation and amortization of $5.6
million, and increased management fees to JII of $2.0 million. The increased
expenses noted above caused the operating margin to decrease from 25.6% in
1995 to 19.8% in 1996.
Interest Expense. Interest expense increased $8.6 million or 360% in 1996
compared to 1995 due to the inclusion of a full year of interest on the
Merkle-Korff debt, interest on borrowings related to the Barber-Colman
Acquisition on March 8, 1996 and the Old Series B Notes.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased $14.6 million or 29.7% in 1995 as compared to
1994. The increase was partially attributable to the inclusion of Imperial,
Scott and Gear in the Company's results from September 23, 1995 to December
31, 1995. This accounted for $10.5 million of the increase. In addition, sales
at Merkle-Korff increased $4.1 million in 1995 due to higher appliance motor
net sales of $1.5 million, higher vending machine motor net sales of $1.6
million and higher net sales of recreational equipment motors of $0.8 million.
26
<PAGE>
Gross Profit. Gross profit increased $5.4 million or 30.0% in 1995 as
compared to 1994. The increase was due to the increased sales noted above.
Gross margin remained constant.
EBITDA. EBITDA increased $5.8 million or 45.7%. The increase was due to the
increased gross profit noted above along with a $0.9 million decrease in
selling, general and administrative expenses primarily due to a reduction in
executive compensation.
Operating Income. Operating income increased $4.1 million or 33.0%. The
increase was due to the increase in gross profit noted above partially offset
by an increase in depreciation and amortization of $1.0 million related to the
acquisition of Merkle-Korff, and $0.3 million related to the addition of
Imperial, Scott and Gear. Also, management fee expense of $0.7 million was
incurred by the Company in 1995 as compared to $0 in 1994. The increase in
gross profit caused operating margin to increase from 24.9% in 1994 to 25.6%
in 1995.
Interest Expense. Interest expense increased by $2.4 million in 1995 from $0
in 1994 due to the inclusion of interest expense associated with Imperial,
Scott & Gear from September 23, 1995 and new third party debt entered into by
the Company in connection with the acquisition of Merkle-Korff on September
22, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $37.3 million of working capital at September 30, 1997,
compared with $27.6 million at December 31, 1996. The increase in working
capital was primarily due to the FIR Acquisition, increased accounts
receivable, and lower intercompany payables offset partially by an increase in
accounts payable and accrued expenses and other current liabilities, and a
decrease in inventory.
The Company's net cash generated from operating activities for the nine
months ended September 30, 1997 increased $3.5 million to $13.1 million
compared with the same period in 1996. The increase was due to higher current
liabilities of $2.1 million, an increase in payables to affiliated company of
$7.3 million, an increase in depreciation and amortization of $1.1 million and
a greater benefit for deferred taxes of $0.3 million. These increases were
partially offset by lower net income of $3.3 million, an increase in current
assets of $3.7 million and an increase in non-current assets of $0.3 million.
The net cash used in investing activities increased $28.2 million to $50.8
million in 1997, as compared to the same period in 1996, reflecting the FIR
Acquisition of $50.5 million, offset partially by lower capital expenditures
of $0.2 million, cash acquired in the FIR Acquisition of $0.9 million and the
absence of the Barber-Colman Acquisition of $21.7 million, which occurred in
1996.
The net cash provided by financing activities for the nine months ended
September 30, 1997, increased by $19.3 million compared with the same period
in 1996, due to net borrowings under the Existing Credit Agreement of $34.0
million and lower repayments of long term debt of $6.9 million, offset
partially by proceeds in the first quarter of 1996 from new debt issued in
connection with the Barber-Colman Acquisition of $21.7 million.
The Company's principal sources of liquidity will be from cash flow
generated from operations and borrowings under the Amended Credit Agreement.
The Amended Credit Agreement is anticipated to be a five-year, $115.0 million
revolving credit facility that will not be subject to any borrowing base or
similar restrictions on borrowings. See "Description of Certain Indebtedness--
Credit Agreement." Since consummation of the Old Offering, the Company has not
borrowed and upon consummation of the Exchange Offer does not expect to borrow
under the Amended Credit Agreement, leaving borrowing availability thereunder
of $115.0 million. Based upon its present plans, management believes that
operating cash flow and availability under the Amended Credit Agreement will
be adequate to meet the anticipated cash needs of the Company and to execute
the Company's operating strategy over the next three years.
SEASONALITY AND INFLATION
The Company's net sales typically show no significant seasonal variations.
The impact of inflation on the Company's operations has not been significant
to date. However, there can be no assurance that a high rate of inflation in
the future would not have an adverse effect on the Company's operating
results.
27
<PAGE>
BUSINESS
The Company is a leading international manufacturer of specialty purpose
electric motors, gearmotors, gearboxes, gears and electronic motion controls
for a wide variety of consumer, commercial and industrial markets. The Company
has a diverse base of customers and its products are used in a broad range of
applications including vending machines, refrigerator ice dispensers,
commercial dishwashers, commercial floor care equipment, commercial sewing
machines, industrial ventilation equipment, automated material handling systems
and elevators. The Company's subsidiaries have sold their brand name products
for an average of over 70 years. The Company believes that it has created
strong customer loyalty for its products primarily through its emphasis on high
quality, custom engineered products, competitive prices and customer service.
For the year ended December 31, 1996, the Company had pro forma net sales and
net income of $210.4 million and $3.1 million, respectively, and for the nine
months ended September 30, 1997, the Company had pro forma net sales and net
income of $166.4 million and $4.4 million, respectively.
The Company competes primarily in the electric motors and electronic motion
control systems industries. U.S. shipments of electric motors are estimated by
industry sources to have been approximately $8.0 billion in 1996 and to have
been growing at a compound annual growth rate of approximately 4.0% over the
last five years. Although the industry has experienced substantial
consolidation in recent years, the industry remains highly fragmented with over
200 manufacturers serving the U.S. market in 1996 according to industry
sources. The Company believes that continuing competitive pressures will lead
to further consolidation in the electric motor industry and will create
opportunities for the Company to extend its product lines and business through
strategic acquisitions.
Within these industries, the Company operates in specialized niche markets
which typically consist of high value-added motor and control system
applications requiring custom engineered, non-standardized motors and controls.
The Company has an active new product development effort and constantly seeks
to find new applications for its products and new niche markets to enter. As a
result of these efforts, the Company has historically been able to achieve
sales growth in excess of industry trends. The Company's products typically
require small manufacturing runs and frequent line changeovers. These markets
are generally unattractive to large integrated manufacturers which target
larger markets and long-run, standardized product lines.
The Company constantly seeks to reduce its costs through redesigning its
manufacturing processes to minimize labor and material costs without
sacrificing quality. In addition, the Company works closely with its customers
to engineer its products in ways that enable the Company to manage costs and
increase value to the customer. In addition, the Company's operations have
historically generated significant free cash flow. The Company outsources its
most capital intensive processes and strives to minimize its capital investment
through purchasing and updating used equipment. As a result, annual capital
expenditures for the last five years have averaged less than $3.0 million.
The Company operates in four product groups: (1) subfractional motors, which
represented 39.0% and 41.7% of pro forma net sales for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively, (2)
fractional/integral motors, which represented 34.6% and 31.2% of pro forma net
sales for the year ended December 31, 1996 and the nine months ended September
30, 1997, respectively, (3) gears and gearboxes, which represented 2.9% and
3.4% of pro forma net sales for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, and (4) motion control systems,
which represented 23.5% and 23.7% of pro forma net sales for the year ended
December 31, 1996 and the nine months ended September 30, 1997, respectively.
Subfractional Motors. The Company's subfractional horsepower products are
comprised of motors and gearmotors that power applications up to 30 watts (
1/25 horsepower). These small, "fist-size" AC and DC motors are used in light
duty applications such as snack and beverage vending machines, refrigerator ice
dispensers and photocopy machines. Average product selling prices typically
range from $3 to $20 per unit. The Company focuses on niche applications in
this product group and believes it has a leading market position in most of its
niches.
28
<PAGE>
Fractional/Integral Motors. The Company's fractional/integral horsepower
products are comprised of AC and DC motors and gearmotors having power ranges
from 1/8 up to 300 horsepower. Key end markets for these motors include
commercial floor care equipment, commercial dishwashers, commercial sewing
machines, industrial ventilation equipment and elevators. Average product
selling prices typically range from $50 to $150 per unit for commercial floor
care products to $2,000 to $2,500 per unit for elevator motors. The Company
believes it is the leading DC elevator motor manufacturer in the United States,
the leading commercial dishwasher pump manufacturer in Europe and the primary
supplier to virtually all the major commercial floor care product manufacturers
in the United States.
Gears and Gearboxes. The Company's precision gear and gearbox products are
produced in sizes of up to 16 inches in diameter and in various customized
configurations such as pump, bevel and helical gears. These products have a
reputation for their durability, accuracy, and low noise generation. Key end
markets for these products include OEMs of motors, commercial floor care
equipment, aerospace and food processing product equipment. The Company focuses
on niche applications in this product group and believes it is the primary
supplier of gears and gearboxes to virtually all the major commercial floor
care product manufacturers in the United States.
Electronic Motion Control Systems. The Company's motion control systems are
used primarily in automated conveyor systems within the automotive industry and
the elevator modernization market. The systems typically control several
components such as electric motors, hydraulic or pneumatic valves, actuators
and switches that are required for the conveyor or elevator systems to function
properly. The prices for these motion control systems can run from several
thousand dollars to several hundred thousand dollars. The Company believes its
engineering capability, manufacturing quality and after-sales service are
highly regarded by all of its customers.
COMPETITIVE STRENGTHS. The Company believes that it benefits from the
following competitive strengths:
Leading Position in Niche Markets. The Company has targeted niche markets in
which it has achieved leading market positions and which are generally
unattractive to large manufacturers due to their small size and specialized
nature. These leading market positions have provided a high level of
predictability to the Company's net sales. The Company believes that it has
succeeded in these markets due to its product design capabilities, reputation,
competitive prices, quality and service.
Diverse Markets and Customers. The Company serves numerous end user markets
and a diverse base of over 2,500 customers. In 1996, the Company's largest
single customer represented approximately 3% of net sales and the Company's top
five customers represented approximately 14% of net sales. The Company's
customers include leading OEMs such as General Electric, Whirlpool, Clarke,
Siebe and Vendo. The diversity of products, markets and customers minimizes the
Company's exposure to economic cycles or geographic markets and provides a
broad base from which to grow sales through continued development of new
products.
Active Product Development. The Company focuses on developing value-added
products with its customers by utilizing its extensive product development
expertise and manufacturing process capabilities to meet specific application
requirements. The Company's sales and technical staff work with existing
customers to identify specific needs and develop innovative solutions. This
custom application capability has also been a key driver of new customer
development.
Quality Product and High Level of Service. The Company sells into end product
applications which have long life cycles and require durability. In response,
the Company has established itself as a reliable manufacturer of high-quality
products. The Company maintains close contact with its customers during both
the original motor and control system design and the continuous redesign
processes to ensure that the most reliable product is manufactured. The Company
aggressively redesigns its products to improve performance and reduce
production costs, which entrenches the Company with its customers and minimizes
competition. In addition, the Company is dedicated to on-time delivery as
evidenced by its 100% on-time delivery record with General Electric, its
largest customer, in 1996.
29
<PAGE>
Experienced Management Team. The Company's seven senior managers average over
28 years of experience in the motors, gears and motion control systems industry
and, over time, have substantially improved operating efficiencies. The
experience of senior management has been critical to developing strong
relationships with the Company's customers and has resulted in significant new
product development opportunities. The Company's President, Ron Sansom, gained
extensive experience in this industry during his 15 years with General
Electric.
BUSINESS STRATEGY. The Company's business strategy includes the following key
elements:
Expand Product Lines and Increase Distribution. The Company focuses on
developing value-added products with its customers by utilizing its extensive
product development expertise. The Company's sales, technical service and
development staff work with customers to identify specific needs and develop
innovative solutions. Recent examples of such product introductions include a
new transaxle drive system for floor care customers and a value-added sub-
assembly for major appliance customers. New product developments can often be
profitably applied to other high-margin niche markets. In addition, the Company
intends to expand its distribution sales effort to capture additional sales
opportunities.
Reduce Costs. The Company's manufacturing cost reduction effort is
accomplished through redesigning the Company's products in cooperation with its
customers and through incremental production process improvements. The Company
also seeks to reduce costs through acquisitions by centralizing administration,
finance, legal, service and long-range strategic planning functions. This has
been demonstrated by annual cost savings from completed headcount reductions
and administrative savings relating to the Barber-Colman Acquisition.
Pursue Strategic Acquisitions. The electric motor, gear and motion control
markets remain highly fragmented, with many specialized manufacturers serving
numerous market niches. The Company will continue to search for strategic
acquisitions that support its current product groups by adding complementary
product lines, expanding technological capabilities or entering new geographic
markets. This strategy is illustrated by the Company's recent acquisition of
FIR which allowed it to add complementary products, acquire brushless motor
technology and enter new European markets. In addition, the Company plans to
continue to target the motion control industry for additional acquisition
opportunities. Acquisitions in the motion control industry, such as the
Company's recent acquisitions of Electrical Design and Motion Control in the
controls and sensors segment, allow the Company to access new markets and
develop higher value-added products by combining an existing motor product with
additional motion control features.
PRODUCTS
An electric motor is a device that converts electric power into rotating
mechanical energy. The amount of energy delivered is determined by the level of
input power supplied to the electric motor and the size of the motor itself. An
electric motor can be powered by alternating current ("AC") or direct current
("DC"). AC power is generally supplied by power companies directly to homes,
offices and industrial sites whereas DC power is supplied either through the
use of batteries or by converting AC power to DC power. Both AC motors and DC
motors can be used to power most applications; the determination is made
through the consideration of power source availability, speed variability
requirements, torque considerations, and noise constraints.
The power output of electric motors is measured in horsepower. Motors are
produced in power outputs that range from less than one horsepower up to
thousands of horsepower. The Company's subfractional horsepower products are
comprised of AC and DC motors that power applications up to 30 watts ( 1/25
horsepower). The Company's fractional/integral horsepower products are
comprised of AC and DC motors and gearmotors having power ranges from 1/8
horsepower up to 300 horsepower.
Gears and gearboxes are mechanical components used to transmit mechanical
energy from one source to another source. They are normally used to change the
speed and torque characteristics of a power source such as an electric motor.
Gears and gearboxes come in various configurations such as helical gears, bevel
gears,
30
<PAGE>
planetary gearboxes, and right-angle gearboxes. For certain applications, an
electric motor and a gear box are combined to create a gearmotor.
An electronic motion control system is an assembly of electronic and
electromechanical components that are configured in such a manner that the
system has the capability to control various commercial or industrial
processes such as conveyor systems, packaging systems, elevators and automated
assembly operations. The components utilized in a motion control system are
typically electric motor drives (electronic controls that vary the speed and
torque characteristics of electric motors), programmable logic controls
("PLCs"), transformers, capacitors, switches and various types of software.
The majority of the Company's motion control products control automated
conveyor systems used in automotive manufacturing and elevators.
The Company has established itself as a reliable niche manufacturer of high-
quality, economical, custom electric motors, gearmotors, gears and electronic
motion control systems used in a wide variety of applications including
vending machines, refrigerator ice dispensers, commercial dishwashers,
commercial floor care equipment, automated material handling systems and
elevators. The Company's products are custom designed to meet specific
application requirements. Less than 5% of the Company's products are sold as
stock products.
The Company offers a wide variety of options to provide greater flexibility
in its custom designs. These options include thermal protectors, special
mounting brackets, custom leads and terminals, single or double shaft
extensions, brakes, cooling fans, special heavy gearing, custom shaft
machining and custom software solutions. The Company also provides value-added
assembly work, incorporating some of the above options into its final motor
and control products. All of the custom-tailored motors, gearmotors and
control systems are designed for long life, quiet operation, and superior
performance.
The following chart sets forth the Company's product categories indicating
the pro forma net sales for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively:
PRODUCT CATEGORIES
SUBFRACTIONAL FRACTIONAL/INTEGRAL GEAR AND ELECTRONIC MOTION
HORSEPOWER HORSEPOWER GEARBOX PRODUCTS CONTROL SYSTEMS
PRODUCTS PRODUCTS
$72.7 AND $51.9 $6.2 AND $5.7 $49.5 AND $39.4
$82.0 AND $69.4 MILLION IN MILLION IN MILLION IN
MILLION IN NET SALES NET SALES(1) NET SALES
NET SALES
39.0% AND 41.7% 34.6% AND 31.2% 2.9% AND 3.4% OF 23.5% AND 23.7%
OF TOTAL OF TOTAL TOTAL OF TOTAL
NET SALES NET SALES NET SALES NET SALES
PRODUCTS: PRODUCTS: PRODUCTS: PRODUCTS:
. AC Motors . AC Motors . Gears . Motion Control
. DC Motors . DC Motors . Gearboxes Systems
. AC & DC Motors . DC Permanent
Magnet Motors
. AC & DC
Gearmotors
APPLICATIONS: APPLICATIONS: APPLICATIONS: APPLICATIONS:
. Refrigerator . Commercial . Commercial . Automated
Ice Dispensers Floor Care Floor Care Conveyor
. Vending Equipment Equipment Systems
Machines -- . Elevator Lift . Hydraulic . Robotics
Product Motors Pumps . Process
Delivery . Automatic Hose . Food Controls
Systems Reel Winding Processing . Packaging
. Photocopy Mechanisms Equipment Systems
Machines . Commercial . Elevator
. Commercial and Dishwashers Control
Industrial . Commercial Systems
Controls -- Sewing
HVAC Controls Machines
--RV Vent . Industrial
Actuators Ventilation
Equipment
(1) Excludes $3.3 and $3.2 million of intercompany sales, respectively.
31
<PAGE>
Subfractional Horsepower Products
Subfractional horsepower products are "fist-size" motors used in light duty
applications up to 30 watts. Most of the Company's products are custom designed
and manufactured in-house. The Company produces AC and DC subfractional
horsepower motors and gearmotors which have output speeds from 1 to 6,000 RPM
and torque ratings up to 200 pounds per inch.
The Company sells its subfractional horsepower products into a variety of
specialized applications including motors used in certain refrigeration units,
vending machine mechanisms, business machines, and HVAC and medical
applications.
The Company defines its refrigeration market as ice dispensing subfractional
motors for "through the door" ice dispensing refrigerators and supplies General
Electric, as well as other refrigerator manufacturers. Similarly, the Company's
vending machine customers purchase subfractional horsepower AC or DC motors in
products which are incorporated in snack, beverage, game and bill changer
(currency validation) machines. The Company serves virtually every major player
in the vending market. The Company's business equipment market focuses upon the
paper handling function of photocopier machinery. The Company's share of the
business equipment market has been established by utilizing the Company's
expertise in motor design and targeting office equipment customers. Finally,
the Company services a diverse array of HVAC, medical and industrial companies
that manufacture equipment for a wide range of applications.
Fractional/Integral Horsepower Products
Fractional/integral horsepower products are defined as motors and gearmotors
having power ranges from 1/8 horsepower up to 300 horsepower. The most common
application for the Company's AC and DC fractional motors are commercial floor
care equipment, commercial dishwashers, commercial sewing machines, industrial
ventilation equipment, elevators and automatic hose reels.
The Company has carved a strong niche in the commercial floor care market
through its strength in providing permanent magnet DC motors and gearboxes to
commercial floor care equipment manufacturers. The Company believes that the DC
gearmotor product has replaced and will continue to replace the AC product in
commercial floor care equipment because of its superior operating
characteristics, particularly its variable speed capability, which makes it
easier for the floor care equipment manufacturers to optimize the performance
of its machine.
The Company also has a strong position in the DC elevator motor market as a
result of its long history of serving this market and because of the trend by
elevator manufacturers to outsource their motor manufacturing. The Company's
permanent magnet motors and gearmotors for automatic hose reels are highly
specialized and are used on oil trucks, fire engines, lawn care trucks, and
similar vehicles which require an automatic reel motor. The Company also
manufactures low voltage permanent magnet motors and gearmotors for commercial
and industrial lift applications, hydraulic pumps and lift truck power
steering. Low voltage motors are used in portable applications requiring high
torque, long life and high efficiencies.
In Europe, the Company has cultivated a strong position in the commercial
dishwasher market by supplying pump products (a motor and pump combination) to
manufacturers of commercial dishwashers. These commercial dishwashers are used
in applications such as restaurants and hospitals. The Company is also a key
producer of commercial sewing machine motors within the European market. These
motors are highly specialized clutch and brake motors and are supplied with an
electronic control that regulates the motor's speed and braking
characteristics. The other major European market for the Company is industrial
ventilation. The Company produces motors and, in some cases, the entire fan
assembly for its industrial ventilation customer base. These fans are used to
heat and cool commercial and industrial sites.
32
<PAGE>
Gear and Gearbox Products
The Company manufactures precision gears and gearboxes for various OEMs in
sizes of up to 16 inches in diameter and in various configurations such as
bevel gears and helical gears, for various drive and speed reduction
applications and systems. The Company's gear products are characterized by
their durability, accuracy, and low noise generation. The Company's planetary
gearbox line is manufactured primarily for the commercial floor care equipment
industry which requires durability. The Company supplies gearboxes to Imperial,
for assembly into a gearmotor before being shipped to the end user, and to end
users directly. The Company also produces gears for the food processing
industry and hydraulic pumps used on garbage trucks, snowplows and tailgate
lifters.
Electronic Motion Control Systems
The Company manufactures motion control systems which are used primarily in
automated elevator control and conveyor systems and the elevator modernization
market. The systems typically control several components such as electric
motors, hydraulic or pneumatic valves, actuators and switches that are required
for the conveyor or elevator systems to function properly. The prices for these
motion control systems can run from several thousand dollars to several hundred
thousand dollars. The Company believes its engineering capability,
manufacturing quality and after-sales service are highly regarded by all of its
customers.
MARKETS
The Company produces motors, gears, gearmotors and motion control systems for
a wide variety of consumer, commercial and industrial products. The diversity
of markets, products and customers minimizes the Company's exposure to economic
cycles and geographic markets. The Company's markets can be segmented into
three areas: (i) consumer, which represented approximately 27% of 1996 net
sales and includes end-use products such as refrigerator ice dispensers,
vending machines and treadmills, (ii) industrial, which represented
approximately 36% of 1996 net sales and includes end-use products such as
elevators, control systems and ventilation equipment and (iii) commercial,
which represented approximately 37% of 1996 net sales and includes end-use
products such as floor care equipment, hose reels and commercial dishwashers.
OPERATIONS
The Company is a fully integrated manufacturer performing practically every
aspect of motor, gear and motion control manufacturing with the exception of
certain capital-intensive functions such as casting and lamination punching for
subfractional horsepower motors which it subcontracts. Capital expenditure
requirements are kept low by purchasing used equipment and updating the
equipment for the Company's specific requirements. The Company also out sources
all die production to further reduce capital expenditures and future
maintenance requirements. The Company sources most of the components used in
its electronic motion control systems with the exception of certain DC motor
drives, which the Company manufactures. All other processes such as stamping,
machining, endshield machining, winding, injection molding, assembly, painting,
and testing are completed in-house.
The Company is capable of producing specialized products at very low volumes
as well as high volume products such as refrigerator ice dispenser motors. The
products are generally built to order; hence, a small warehouse/shipping area
at each plant is adequate to serve its customer base.
The Company is constantly redesigning its products and improving its
processes to reduce material and labor costs and improve quality. In many
instances, the Company initiates a product application with a custom product
which is designed from standard parts. As the application grows in volume, the
Company further customizes the product by redesigning the standard components
to reduce costs. The Company's manufacturing processes are improved using a
similar approach.
33
<PAGE>
RAW MATERIALS
The primary raw materials used by the Company to produce its products are
steel, copper, and miscellaneous purchased parts such as endshield castings,
powdered metal gears, commutators, sheet metal cabinets and packaging
supplies. All materials are readily available in the marketplace. The Company
is not dependent upon any single supplier in its operations for any materials
essential to its business or not otherwise commercially available to the
Company. The Company has been able to obtain an adequate supply of raw
materials, and no shortage of raw materials is currently anticipated.
Surcharges and/or raw material price escalation clauses are often used to
insulate the Company from fluctuations in prices.
SALES AND MARKETING
The Company's sales and marketing success is characterized by long-term
customer relationships which are the result of continuity of management,
outstanding delivery records, high-quality products, and competitive pricing.
The Company utilizes a combination of direct sales personnel and
manufacturers' representatives to market the Company's product lines.
Generally, the inside sales organization is compensated through a fixed salary
while the manufacturers' representative organizations receive commission.
The Company's subfractional horsepower product line is served through a
Vice-President of Sales who oversees a Field Sales Manager, a National
Accounts Manager and a Distribution Sales Manager. The Field Sales Manager
leads the efforts of seven Area Sales Managers who direct 18 manufacturers'
representatives. The manufacturers' representatives serve as the "front line"
sales force for the Company. The National Accounts Manager serves large
national OEMs such as General Electric, Whirlpool and Vendo. More than 95% of
the Company's sales are to OEM customers; however, the Company has begun a
distribution program with four distributors in its subfractional horsepower
product line to increase coverage and generate more revenue growth. The
Distribution Sales Manager is responsible for this program.
The Company's fractional/integral horsepower product line is served by five
Sales Managers and four manufacturers' representatives, two of which are
located in the U.S., one in France and one in Germany. This product line
requires fewer sales resources because the Company serves fewer markets than
in the subfractional horsepower product line. This product line serves OEMs
exclusively.
The Company's gear and gearbox products are served through an inside sales
manager and one manufacturers' representative. These products are also sold
exclusively to OEMs.
The Company's motion control systems business is served through eleven
internal sales and marketing professionals and eight representatives. The
Company plans to add sales talent to this segment in order to expand its
presence into additional motion control markets.
The Company's advertising efforts consist of specific product literature
which is printed and provided to customers as applications are developed. In
addition, the Company attends various trade shows to market its products and
to stay abreast of industry trends. It also advertises in trade magazines on a
periodic basis.
BACKLOG
The Company's approximate backlog of unfilled orders at the dates specified
was as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED BACKLOG
SEPTEMBER 30, (DOLLARS IN THOUSANDS)
----------------- ----------------------
<S> <C>
1996............ $33,238
1997............ $48,730
</TABLE>
The Company will ship substantially all of the 1997 nine month backlog
during the following twelve months.
34
<PAGE>
ENVIRONMENTAL REGULATION
The Company is subject to a variety of Federal, state and local governmental
regulations related to the storage, use, discharge and disposal of toxic,
volatile or otherwise hazardous materials used in its manufacturing processes.
Moreover, the Company anticipates that such laws and regulations will become
increasingly stringent in the future. The Company does not currently anticipate
any material adverse effect on its business, financial condition or results of
operations as a result of compliance with U.S. Federal, state, provincial,
local or foreign environmental laws or regulations or remediation costs.
However, some risk of environmental liability and other costs is inherent in
the nature of the Company's business. For example, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Company could be responsible for the necessary costs responding to any
releases of hazardous substances at facilities that it has owned or operated,
or facilities to which it sent hazardous substances for disposal. In addition,
any failure by the Company to obtain and maintain permits that may be required
for manufacturing operations could subject the Company to suspension of its
operations. Such liability or suspension of manufacturing operations could have
a material adverse effect on the Company's results of operations and financial
condition.
Barber-Colman Motors leases property that has been the subject of remedial
investigation and corrective action following the removal of a small,
underground waste oil tank in 1994. Contaminated soils have been removed up to
the edge of the foundation of an overlying structure and down to bedrock. The
Wisconsin Department of Natural Resources has advised the Company that no
further action is necessary at this time. In connection with the Barber-Colman
Acquisition, the Company obtained indemnification from the former owner of
Barber-Colman Motors for environmental liability resulting from its prior
operations. Soils and groundwater, contaminated by historic waste handling
practices at the FIR property in Casalmaggiore, Italy are the subject of an
investigation and remediation under the review of government authorities. In
connection with the FIR Acquisition, the Company obtained indemnification from
the former owners for this investigation and remediation.
COMPETITION
The electric motor, gear and motion control systems' markets are highly
fragmented with a multitude of manufacturing companies servicing numerous
markets. Motor manufacturers range from small local producers serving a
specific application or end user, to high volume manufacturers offering
general-purpose "off the shelf" motors to a wide variety of end users. The
Company believes there are over 200 fractional and subfractional horsepower
motor manufacturers serving the U.S. market and a slightly smaller number
serving the European market. While there are numerous manufacturers of gears
and gearboxes that service a wide variety of industries and applications, the
Company competes in certain niche markets.
The Company's motion control systems business competes primarily within the
automated conveyor system controls market and sells to conveyor manufacturers
that serve the automotive manufacturing industry and the elevator modernization
market. These niche markets consists of four to five major competitors. Based
upon internal customer surveys, the Company believes its motion control systems
business is a leader within its served markets.
The principal competitive factors in the motor, gear and motion control
systems' markets include price, quality and service. Major motor and control
system manufacturers include General Electric, Baldor Electric Company, Emerson
Electric Company and Reliance Electric Company; however, the Company generally
competes with smaller, specialized manufacturers. While many of the major motor
manufacturers have substantially greater assets and financial resources, the
Company believes that its leading position in certain niche markets, its high-
quality products and its value-added custom applications are adequate to meet
competition.
INTELLECTUAL PROPERTY
The Company's patents and trademarks taken individually and as a whole, are
not critical to the ongoing success of its business. The proprietary nature of
the Company's products is attributable to the custom application designs for
particular customers' needs rather than attributable to proprietary patented or
licensed technology.
35
<PAGE>
PROPERTIES
The Company's headquarters are located in an approximately 12,750 square foot
office space in Deerfield, Illinois that is provided by JII. Manufacturing,
design and distribution are located in 22 facilities across the United States
and Italy.
<TABLE>
<CAPTION>
SQUARE OWNED/ LEASE
LOCATION USE FEET LEASED EXPIRATION
-------- --- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Des Plaines, IL Design/ 38,000 Leased September 2000
Administration
SUBFRACTIONAL Des Plaines, IL Manufacturing 45,000 Leased September 2000
HORSEPOWER Crystal Lake, IL Manufacturing 46,000 Leased April 1998
PRODUCTS Darlington, WI Manufacturing 68,000 Leased September 2005
Richland Center, WI Manufacturing 45,000 Leased September 2000
Belvedere, IL Design/ 12,000 Leased March 1998
Administration
- -----------------------------------------------------------------------------------
Akron, OH Manufacturing 43,000 Owned
Stow, OH Administration 7,000 Leased September 2000
Middleport, OH Manufacturing 85,000 Owned
Cuyahoga Falls, OH Manufacturing 63,000 Leased October 2003
Alamagordo, NM Manufacturing 15,000 Leased October 2002
FRACTIONAL/ Casalmaggiore, Italy Administration/ 100,000 Owned
INTEGRAL Manufacturing
HORSEPOWER Varano, Italy Manufacturing 30,000 Owned
PRODUCTS Bedonia, Italy Manufacturing 8,000 Owned
Genona, Italy Research & 33,000 Leased July 2002
Development/
Manufacturing
Reggio Emilia, Italy Manufacturing 35,000 Leased August 2002
Reggio Emilia, Italy Manufacturing 30,000 Leased November 2000
- -----------------------------------------------------------------------------------
Troy, MI Manufacturing/ 12,000 Leased January 1998
MOTION CONTROL Administration
SYSTEMS Troy, MI Administration 4,000 Leased January 1998
Rancho Cordova, CA Administration 40,000 Leased May 2001
- -----------------------------------------------------------------------------------
GEARS AND Grand Rapids, MI Manufacturing/ 39,000 Owned
GEARBOXES Administration
</TABLE>
The Company believes all its facilities are in good operating condition and
adequate for their present purposes. Its production facilities are capable of
being utilized at a higher capacity to support increased demand, if necessary.
36
<PAGE>
EMPLOYEES AND LABOR RELATIONS
As of September 30, 1997, the Company employed 1,343 employees, of which 750
were non-union, and 593 were represented by the following seven unions:
<TABLE>
<CAPTION>
NUMBER OF CONTRACT
UNION EMPLOYEES EXPIRATION
----- --------- --------------
<S> <C> <C>
International Workers
Union.................. 175 September 1998
United Steelworkers..... 90 March 2000
International Union of
Electrical Workers..... 29 September 1998
International
Brotherhood of
Electrical Workers..... 51 November 2000
United Auto Workers..... 47 November 2001
International
Association of
Machinists............. 20 October 2000
Metallurgic and Mechanic
Union of Italy......... 181 June 2000
</TABLE>
The Company has experienced no work stoppages over the past 10 years. It
considers its relations with its employees to be excellent.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding the resolution of
which, the management of the Company believes, would have a material adverse
effect on the Company's results of operations or financial condition, nor to
any other pending legal proceedings other than ordinary, routine litigation
incidental to its business.
37
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following sets forth the names and ages of the Company's directors,
executive officers and other key employees and the positions they hold as of
January 1, 1998:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
Thomas H. Quinn......... 50 Chairman
Ron A. Sansom........... 38 Chief Executive Officer and a Director
Norman Bates............ 35 Chief Financial Officer
Randall Bays............ 42 President, Imperial (Fractional/Integral Products)
G. Barry Lawrence....... 46 President, Gear (Gears and Gear Boxes)
John W. Brown........... 59 President, Chief Executive Officer Merkle-Korff
(Subfractional Products)
Carlo Bergamaschi....... 66 President, FIR
Mike McGuire............ 55 President, Electrical Design
Javad Rahimian.......... 47 President, Motion Control
Jonathan F. Boucher..... 40 Vice President and a Director
John W. Jordan, II...... 49 Director
David W. Zalaznick...... 43 Director
</TABLE>
Set forth below is a brief description of the business experience of each
director and executive officer of the Company.
MR. QUINN has served as Chairman of the Company since its inception. Since
1988, Mr. Quinn has been President, Chief Operating Officer and a director of
JII. Mr. Quinn is also the Chairman of the Board and Chief Executive Officer of
American Safety Razor Company and Welcome Home, Inc. as well as a director of
AmeriKing, Inc. and of a number of privately held companies. On January 22,
1997, Welcome Home, Inc. filed a Chapter 11 petition in the United States
Bankruptcy Court for the Southern District of New York.
MR. SANSOM has served as Chief Executive Officer and a director of the
Company since June 1996. Prior to joining the Company, Mr. Sansom held several
senior management positions with General Electric from 1981 to 1996, including
General Manager of General Electric's Appliance Components business.
MR. BATES has served as Chief Financial Officer of the Company since April,
1997. Prior to that, Mr. Bates held several financial management positions with
General Electric from 1984 to 1997, including Finance Manager of General
Electric's Appliance Components business.
MR. BAYS has served as the President of Imperial since April, 1997. Prior to
that, Mr. Bays held several senior management positions in General Electric's
motor and control business from 1991 to 1997. Prior to that, Mr. Bays held
senior management positions in Bomar, Inc.'s electronics business.
MR. LAWRENCE has served as President of Gear since 1991. Prior to that, Mr.
Lawrence held several senior management positions with Gear since 1978.
MR. BROWN has served as President of Merkle-Korff since 1993 and of Barber-
Colman Motors since March 1996. Prior to that, Mr. Brown held several senior
management positions with Merkle-Korff since the 1950's, including Executive
Vice President until 1993.
MR. BERGAMASCHI has served as the President of FIR since 1960. Prior to that,
Mr. Bergamaschi held several management positions within FIR.
38
<PAGE>
MR. MCGUIRE has served as the General Manager of Electrical Design since 1990
and was promoted to President after the Electrical Design Acquisition. Prior to
that, Mr. McGuire was President of a controls company from 1985 to 1989. Mr.
McGuire has 31 years of experience in the motion controls business.
MR. RAHIMIAN has served as President of Motion Control since its inception in
1983. Prior to that, Mr. Rahimian was employed by Elevator Industries as an
engineering specialist.
MR. BOUCHER has served as a Vice President and a director of the Company
since its inception. Since 1983, Mr. Boucher has been a partner of The Jordan
Company, a private merchant banking firm. Mr. Boucher is also a director of JII
and American Safety Razor Company as well as other privately held companies.
MR. JORDAN has served as a director of the Company since its inception. Mr.
Jordan is a managing partner of The Jordan Company, a private merchant banking
firm which he founded in 1982. Mr. Jordan is also a director of JII, AmeriKing,
Inc., American Safety Razor Company, Carmike Cinemas, Inc., Welcome Home, Inc.
and Apparel Ventures, Inc. as well as other privately held companies.
MR. ZALAZNICK has served as a director of the Company since June 1996. Since
1982, Mr. Zalaznick has been a managing partner of The Jordan Company. Mr.
Zalaznick is also a director of JII, AmeriKing, Inc., Carmike Cinemas, Inc.,
American Safety Razor Company, Marisa Christina, Inc., and Apparel Ventures,
Inc. as well as other privately held companies.
BOARD OF DIRECTORS
Liability Limitation. The Certificate of Incorporation provides that a
director of the Company shall not be personally liable to it or its
stockholders for monetary damages to the fullest extent permitted by Delaware
Corporation Law. In accordance with Delaware Corporation Law, the Certificate
of Incorporation does not eliminate or limit the liability of a director for
acts or omissions that involve intentional misconduct by a director or a
knowing violation of law by a director for voting or assenting to an unlawful
distribution, or for any transaction from which the director will personally
receive a benefit in money, property, or services to which the director is not
legally entitled. Delaware Corporation Law does not affect the availability of
equitable remedies such as an injunction or rescission based upon a director's
breach of his duty of care. Any amendment to these provisions of the Delaware
Corporation Law will automatically be incorporated by reference into the
Certificate of Incorporation and the Bylaws, without any vote on the part of
its stockholders, unless otherwise required.
Indemnification Agreements. The Company and each of its directors and certain
executive officers have entered into indemnification agreements. The
indemnification agreements provide that the Company will indemnify the
directors against certain liabilities (including settlements) and expenses
actually and reasonably incurred by them in connection with any threatened or
pending legal action, proceeding or investigation (other than actions brought
by or in the right of the Company) to which any of them is, or is threatened to
be, made a party by reason of their status as a director, officer or agent of
the Company, or serving at the request of the Company in any other capacity for
or on behalf of the Company; provided that (i) such director acted in good
faith and in a manner not opposed to the best interest of the Company, (ii)
with respect to any criminal proceedings had no reasonable cause to believe his
or her conduct was unlawful, (iii) such director is not finally adjudged to be
liable for negligence or misconduct in the performance of his or her duty to
the Company, unless the court views in light of the circumstances the director
is nevertheless entitled to indemnification, and (iv) the indemnification does
not relate to any liability arising under Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or the rules or
regulations promulgated thereunder. With respect to any action brought by or in
the right of the Company, directors are also indemnified to the extent not
prohibited by applicable laws or as determined by a court of competent
jurisdiction, against expenses actually and reasonably incurred by them in
connection with such action if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
Company.
Director Compensation. Directors of the Company receive $10,000 per year for
serving as a director of the Company. In addition, the Company reimburses
directors for their travel and other expenses incurred in connection with
attending meetings of the Board of Directors.
39
<PAGE>
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
The Board of Directors does not maintain a Compensation Committee. During
fiscal 1996, however, Messrs. Boucher, Jordan and Quinn participated in
deliberations of the Board of Directors concerning executive officer
compensation. During 1996, certain of the foregoing executive officers of the
Company served and currently serve as directors, executive officers and
members of a compensation committee of another entity, one of whose executive
officers served and currently serves as a director of the Company. See
"Certain Transactions."
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth a summary of certain information regarding
compensation paid or accrued by the Company for services rendered to the
Company for the fiscal year ended December 31, 1996 to those persons who were,
at December 31, 1996: (i) the Company's chief executive officer and (ii) the
Company's four most highly compensated executive officers other than the chief
executive officer whose total salary and bonus exceeded $100,000 during such
period. The following table does not include payments made by JII to Mr. Frank
A. Collins, the prior President of Imperial. See "Certain Transactions--JII
Payments."
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
--------------------------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Thomas H. Quinn(2)
Chairman of the Board and Chief Executive
Officer..................................... 1996 $ 0 $ 0 $--
Ron A. Sansom(2)
President and Chief Operating Officer....... 1996 0 0 --
</TABLE>
- --------
(1) For the periods indicated, no executive officer named in the table
received any Other Annual Compensation in an amount in excess of the
lesser of either $50,000 or 10% of the total of Annual Salary and Bonus
reported for him in the two preceding columns.
(2)Does not reflect compensation paid to Messrs. Quinn and Sansom by JII.
The Company does not maintain a stock option or stock purchase plan and has
not awarded any of its employees individual stock option grants.
40
<PAGE>
PRINCIPAL STOCKHOLDERS
All of the outstanding common stock of the Company is, and will be, owned by
the Parent. The table below sets forth as of the date hereof certain
information regarding beneficial ownership of the common stock of Parent held
by (i) each of its directors and executive officers who own shares of common
stock of Parent, (ii) all directors and executive officers of Parent as a group
and (iii) each person known by Parent to own beneficially more than 5% of its
common stock. The Company believes that each individual or entity named has
sole investment and voting power with respect to shares of common stock of
Parent indicated as beneficially owned by them, except as otherwise noted. See
"The Company--General."
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL
OWNERSHIP(1)
----------------------
NUMBER OF PERCENTAGE
SHARES OWNED
----------- ----------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Ron A. Sansom..................................... 300.0000 1.5%
John W. Jordan II(2)(3)(4)(5)..................... 7,136.8809 36.2
David W. Zalaznick(2)(4)(6)....................... 3,531.2473 17.9
Jonathan F. Boucher(2)............................ 1,116.5587 5.7
Thomas H. Quinn(2)................................ 1,799.7294 9.1
All directors and executive officers as a group
(12 persons)..................................... 13,884.4163 70.5
OTHER PRINCIPAL STOCKHOLDERS:
Jordan Industries, Inc(7)......................... 0.0000 0.0%
JI Partners(8).................................... 1,500.0000 7.6
</TABLE>
- --------
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage owned
by such person, but not deemed outstanding for the purpose of calculating
the percentage owned by each other person listed. As of the date hereof,
there were 19,700 shares of common stock of Parent issued and outstanding.
(2) Does not include shares of common stock of Parent owned by JI Partners as
to which the named individuals disclaim beneficial ownership.
(3) Includes 0.1650 shares held personally and 7,136.7159 shares held by the
John W. Jordan II Revocable Trust. Does not include 51.025 shares held by
Daly Jordan O'Brien, the sister of Mr. Jordan, 51.025 shares held by
Elizabeth O'Brien Jordan, the mother of Mr. Jordan or 51.025 shares held by
George C. Jordan, Jr., the brother of Mr. Jordan.
(4) Does not include 16.4973 shares held by the Jordan/Zalaznick Capital
Company or 577.4053 shares held by MCIT PLC, a publicly traded U.K.
investment trust advised by an affiliate of The Jordan Company (which is
controlled by Messrs. Jordan and Zalaznick).
(5) Does not include 535.8871 shares held by The Jordan Family Trust, of which
John W. Jordan II, George C. Jordan, Jr. and G. Robert Fisher are the
Trustees.
(6) Does not include 13.5558 shares held by Bruce H. Zalaznick, the brother of
Mr. Zalaznick.
(7) JII owns all of the issued and outstanding junior preferred stock of
Parent. The junior preferred stock entitles JII to 80% of the voting power
as of the date hereof. The principal address of JII is ArborLake Centre,
Suite 550, 1751 Lake Cook Road, Deerfield, IL 60015.
(8) JI Partners is an investment partnership whose partners include certain
officers and employees of JII and its affiliates. The principal address of
JI Partners is ArborLake Centre, Suite 550, 1751 Lake Cook Road, Deerfield,
IL 60015.
41
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Registration Rights Agreement, which requires the Company to
use its best efforts to effect the Exchange Offer. See "--Registration Rights;
Liquidated Damages."
The Company is making the Exchange Offer in reliance upon the position of
the staff of the Commission set forth in certain no-action letters addressed
to other parties in other transactions. However, the Company has not sought
its own no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Based on these interpretations by the
staff of the Commission, the New Notes issued pursuant to the Exchange Offer
may be offered for resale, resold and otherwise transferred by holders thereof
(other than (i) any such holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act; (ii) an Initial Purchaser
who acquired the Old Notes directly from the Company solely in order to resell
pursuant to Rule 144A of the Securities Act or any other available exemption
under the Securities Act; or (iii) a broker-dealer who acquired the Old Notes
as a result of market making or other trading activities) without compliance
with the registration and prospectus delivery requirements of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder is not participating and has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes. By tendering, each Holder
which is not a broker-dealer will represent to the Company that, among other
things, the person receiving the New Notes, whether or not such person is the
Holder, (i) will acquire the New Notes in the ordinary course of such person's
business, (ii) has no arrangement or understanding with any person to
participate in a distribution of the New Notes and (ii) is not engaged in and
does not intend to engage in a distribution of the New Notes. If any Holder or
any such other person has an arrangement or understanding with any person to
participate in a distribution of such New Notes, is engaged in or intends to
engage in a distribution of such New Notes, is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company, or acquired the Old
Notes as a result of market making or other trading activities, then such
Holder or any such other person (i) can 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, unless such sale is made
pursuant to an exemption from such requirements.
Holders of Old Series C Notes not tendered will not have any further
registration rights and the Old Series C Notes not exchanged will continue to
be subject to certain restrictions on transfer. Accordingly, the liquidity of
the markets for the Old Notes could be adversely affected.
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE
OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD
NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL
AND CONSULTING THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION
AND REQUIREMENTS.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the issuance of the Old Series C Notes, the Company
entered into the Registration Rights Agreement with the Initial Purchasers of
the Old Series C Notes.
Holders of the New Notes (other than as set forth below) are not entitled to
any registration rights with respect to the New Notes. Pursuant to the
Registration Rights Agreement, Holders of Old Series C Notes are
42
<PAGE>
entitled to certain registration rights. Under the Registration Rights
Agreement, the Company has agreed, for the benefit of the Holders of the Old
Series C Notes, that it will, at its cost, (i) on or before February 15, 1998
file the Registration Statement with the Commission and (ii) on or before April
16, 1998, use its best efforts to cause such Registration Statement to be
declared effective under the Securities Act. The Registration Statement of
which this Prospectus is a part constitutes the Registration Statement. If (i)
the Company is not permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or Commission policy or (ii)
any Holder of Transfer Restricted Securities (as defined) notifies the Company
within the specified time period that (A) due to a change in law or policy it
is not entitled to participate in the Exchange Offer, (B) due to a change in
law or policy it may not resell the New Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and the prospectus
contained in the Registration Statement is not appropriate or available for
such resales by such holder or (C) it is a broker-dealer and acquired the
Senior Notes directly from the Company or an affiliate of the Company, the
Company will file with the Commission a Shelf Registration Statement to cover
resales or the Transfer Restricted Securities by the Holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Self Registration Statement. The Company will use its best
efforts to cause the applicable registration statement to be declared effective
as promptly as possible by the Commission. For purposes of the foregoing,
"Transfer Restricted Securities" means each Old Series C Note, until (i) the
date of which such Transfer Restricted Security has been exchanged in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of a Transfer Restricted Security for a New Note, the date on which such
New Note is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sales a copy of the Prospectus contained in the
Registration Statement, (iii) the date on which such security has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such security
is distributed pursuant to Rule 144 under the Act.
The Registration Rights Agreement also provides that, (i) unless the Exchange
Offer would not be permitted by applicable law or Commission policy, the
Company will commence the Exchange Offer and use its best efforts to issue on
or prior to 30 business days after the date on which the Registration Statement
was declared effective by the Commission, New Notes in exchange for all
Transfer Restricted Securities tendered prior thereto in the Exchange Offer and
(ii) if obligated to file the Shelf Registration Statement, the Company will
file the Shelf Registration Statement with the Commission on or prior to 60
days after days after such filing obligation arises and use its best efforts to
cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to 120 days after such obligation arises. The Company
shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended until the third anniversary of
the Closing Date or such shorter period that will terminate when all the Senior
Notes covered by the Shelf Registration Statement have been sold pursuant to
the Shelf Registration Statement. If (a) the Company fails to file any of the
registration statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such registration
statements are not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Registration Statement, or (d)
the Shelf Registration Statement or the Registration Statement is declared
effective but thereafter, subject to certain exceptions, ceases to be effective
or usable in connection with resales of Transfer Restricted Securities during
the periods specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (d) above a "Registration Default"), then
the Company will pay Liquidated Damages to each Holder of Transfer Restricted
Securities in an amount equal to $.05 per week for each $1,000 principal amount
of Senior Notes held by such Holder. The amount of the Liquidated Damages will
increase by an additional $.05 per week with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of Liquidated Damages of $.40 per week for each $1,000 principal amount of
Senior Notes, as applicable. Following the cure of all Registration Defaults,
the accrual of Liquidated Damages will cease.
Holders of Transfer Restricted Securities will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the
43
<PAGE>
time periods set forth in the Registration Rights Agreement in order to have
their Transfer Restricted Securities included in the Shelf Registration
Statement and benefit from the provisions regarding Liquidated Damages set
forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus constitutes a part.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD 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 Old 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 February , 1998; provided, however, that if the
Company, in its sole discretion, 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. The Company may extend the
Exchange Offer at any time and from time to time by giving oral or written
notice to the Exchange Agent and by timely public announcement. Without
limiting the manner in which the Company may choose to make any public
announcement and subject to applicable law, the Company shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
During any extension of the Exchange Offer, all Old Notes previously tendered
pursuant to the Exchange Offer will remain subject to the Exchange Offer. The
Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations
thereunder.
As of the date of this Prospectus, $270,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1998, to all Holders
of Old Notes known to the Company. The Company's obligation to accept Old
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 terms of the New Notes and the Old Series C Notes are identical in all
material respects, except for the total outstanding principal amount thereof,
certain transfer restrictions and registration rights relating to the Old
Series C Notes and rights to receive Liquidated Damages. See "--Registration
Rights; Liquidated Damages." The Old Series C Notes were, and the New Notes
will be, issued under the Indenture and all such Senior Notes are entitled to
the benefits of the Indenture.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof. Any Old 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 Old 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 oral or written notice of any amendment, nonacceptance or
termination to the Holders of the Old Notes as promptly as practicable. Any
amendment to the Exchange Offer will not limit the right of Holders to
withdraw tendered Old Notes prior to the Expiration Date. See "--Withdrawal
Rights."
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old 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
44
<PAGE>
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 Old 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 State
Street Bank and Trust Company (the "Exchange Agent") 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 Old 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 Old
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 (iii) the Holder must comply
with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY
OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. 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 SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD 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 Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old 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 correspondent in the United States (collectively,
"Eligible Institutions"). If Old Notes are registered in the name of a person
other than the signer of the Letter of Transmittal, the Old 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 Old 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 Old Notes not properly tendered or to not accept any
particular Old 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 Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any Holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old 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, all defects or irregularities in connection with tenders of Old 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 Old Notes for exchange, nor shall any of them incur
any lability for failure to give such notification. The Exchange Agent intends
to use reasonable efforts to give notification of such defects and
irregularities.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered Holder or Holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of a corporation or others acting in a fiduciary or
45
<PAGE>
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 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 person receiving such New
Notes, whether or not such person is the Holder and such person has no
arrangement or understanding with any person to participate in the
distribution of the New Notes. If any Holder or any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company,
is engaged in or intends to engage in or has an arrangement or understanding
with any person to participate in a distribution of such New Notes to be
acquired pursuant to the Exchange Offer, or acquired the Old Notes as a result
of market making or other trading activities, such Holder or any such other
person (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirement of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit and it is an "underwriter" within the meaning of the
Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions to the Exchange Offer." For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when as and if the Company has given oral or
written notice thereof to the Exchange Agent, with written confirmation of any
oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note in an aggregate principal amount equal to that of the
surrendered Old Note. Accordingly, registered Holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest from November 16,
1997. Old Notes accepted for exchange will cease to accrue interest from and
after the date of consummation of the Exchange Offer. Holders of Old Notes
whose Old Notes are accepted for exchange will not receive any interest on
such Old Notes otherwise payable on any interest payment date the record date
for which occurs on or after consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility; (ii) a properly completed and duly executed
Letter of Transmittal; and (iii) all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer, or if Old Notes are submitted for a greater
amount than the Holder desires to exchange, such unaccepted or nonexchanged
Old Notes will be returned without expense to the tendering Holder thereof
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry procedures described below, such nonexchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility)
designated by the tendering Holder as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry of Old Notes by causing the Book-Entry
Transfer Facility to transfer such Old Notes into the
46
<PAGE>
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 Old 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 Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old 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 has 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 of the corresponding exhibit to
the Registration Statement of which this Prospectus constitutes a part (by
telex, facsimile transmission, mail or hand delivery), setting forth the name
and address of the Holder of Old Notes and the amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that within
three New York Stock Exchange ("NYSE") trading days after the date of execution
of the Notice of Guaranteed Delivery, the certificates for all physically
tendered Old 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 Old 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 three NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of the 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 Old Notes to be withdrawn, identify the Old Notes to
be withdrawn including the amount of such Old Notes, and (where certificates
for Old Notes have been transmitted) specify the name in which such Old Notes
are registered, if different from that of the withdrawing Holder. If
certificates for Old 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 Old
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 Old 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 Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old 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 Old 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 Old Notes
will be credited to an account with such Book-Entry Transfer Facility specified
by the Holder) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering Old Notes" above at any time on or prior to the Expiration Date.
47
<PAGE>
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 Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding, before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of
the Old Notes pursuant to the Exchange Offer; or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the
Company might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the sole judgment of the
Company, might result in the holders of New Notes having obligations with
respect to resales and transfers of New Notes which are greater than those
described in the interpretation of the Commission referred to on the cover
page of this Prospectus, or would otherwise make it inadvisable to proceed
with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market; (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer; (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in the
sole judgment of the Company, is or may be adverse to the Company, or the
Company shall have become aware of facts that, in the sole judgment of the
Company, have or may have an adverse effect on the value of the Old Notes
or the New Notes.
Holders of Old Notes will have registration rights and the right to Liquidated
Damages as described under
"--Registration Rights; Liquidation Damages" if the Company fails to consummate
the Exchange Offer.
To the Company's knowledge as of the date of this Prospectus, none of the
above events has occurred.
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 sole discretion. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any 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 the event the Company asserts
or waives a condition to the Exchange Offer which constitutes a material change
to the terms of the Exchange Offer, the Company will disclose such change in a
manner reasonably calculated to inform prospective investors of such change,
and will extend the period of the Exchange Offer by five business days.
In addition, the Company will not accept for exchange any Old Notes tendered,
and no New Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with
48
<PAGE>
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.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal and Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the addresses
set forth below. Questions and requests for assistance, requests for additional
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:
Deliver to: State Street Bank and Trust Company, Exchange Agent:
By Registered or Certified Mail: By Overnight Courier or Hand:
State Street Bank State Street Bank
and Trust Company and Trust Company
P.O. Box 778 Two International Place or
Boston, MA 02102-0078 Boston, MA 02110
Attn: Kellie Mullen Attn: Kellie Mullen
By Facsimile for Eligible Institutions:
(617) 664-5395
For confirmation call:
(617) 664-5587
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The Company will, however, pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus and related
documents to the beneficial owners of Old Notes, and in handling tenders for
their customers. The expenses to be incurred in connection with the Exchange
Offer, including the fees and expenses of the Exchange Agent and printing,
accounting, registration, and legal fees, will be paid by the Company and are
estimated to be approximately $250,000.
TRANSFER TAXES
Holders who tender their Old 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 Old 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.
49
<PAGE>
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes in the
Exchange Offer will not be able to take advantage of the increased liquidity
afforded by the New Notes which would have a total aggregate principal amount
of $270,000,000 as opposed to $170,000,000 for the Old Series B Notes and
$100,000,000 for the Old Series C Notes. In addition, Holders of Old Series C
Notes who do not exchange their Old Series C Notes for New Notes pursuant to
the Exchange Offer will continue to be subject to the restrictions on transfer
of such Old Series C Notes as set forth in the legend thereon as a consequence
of the issuance of the Old Series C Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Series C 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 Old Series C Notes under the
Securities Act. Based upon no-action letters issued by the staff of the
Commission to third parties, the Company believes the New Notes issued pursuant
to the Exchange Offer in exchange for the Old Notes may be offered for resale,
resold or otherwise transferred by a Holder thereof (other than any (i) Holder
which is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act); (ii) an Initial Purchaser who acquired the Old Notes directly
from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act; or
(iii) a broker-dealer who acquired the Old Notes as a result of market making
or other trading activities) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not participating and has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such New Notes. However, the Company has not sought its own no-action
letter and there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer as in such
other circumstances. Each Holder, other than a broker-dealer, must acknowledge
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes, and has no arrangement or understanding to participate in a
distribution of New Notes. If any Holder is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, or acquired the Old Notes as a result of market making or other
trading, activities, such Holder (i) could not rely on the relevant
determinations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities and that it will
deliver a prospectus meeting the requirements of the Securities Act 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 jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company
has agreed to register or qualify the sale of the New Notes in such
jurisdiction only in limited circumstances and subject to certain conditions.
ACCOUNTING TREATMENT
The exchange of the New Notes for the Old Notes will have no impact on the
Company's accounting records on the date of the exchange. Accordingly, no gain
or loss for accounting purposes will be recognized. Expenses of the Exchange
Offer and expenses related to the Old Notes will be amortized, pro rata, over
the term of the New Notes.
50
<PAGE>
DESCRIPTION OF SENIOR NOTES
GENERAL
The Old Series C Notes were and the New Notes will be issued pursuant to an
indenture (the "Indenture") between the Company and State Street Bank and
Trust Company, as trustee (the "Trustee"), in a private transaction that is
not subject to the registration requirements of the Securities Act. The terms
of the Senior Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), as in effect on the date of original issuance of
the Old Series C Notes. The Senior Notes are subject to all such terms, and
holders of the Senior Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of the material
provisions of the Indenture does not purport to be complete and is qualified
in its entirety by reference to the Indenture, including the definitions
therein of certain terms used below.
As of the date of the Indenture, all of the Company's subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate each of its existing subsidiaries, subsidiaries
formed by the Company or subsidiaries acquired by the Company after the
original issuance of the Old Series C Notes as Non-Restricted Subsidiaries.
Non-Restricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
The Senior Notes will be limited to $270,000,000 in aggregate principal
amount, provided that $170,000,000 of Senior Notes reserved for issuance under
the Indenture will be available only in connection with the exchange of Old
Series B Notes for New Notes pursuant to the Exchange Offer. Each Senior Note
will mature on November 15, 2006. The Old Notes did bear and the New Notes
will bear interest at the rate of 10 3/4% per annum. Interest on the Senior
Notes is payable semi-annually in cash in arrears on May 15 and November 15 in
each year, commencing May 15, 1998, to holders of record of Senior Notes at
the close of business on the May 1 or November 1 immediately preceding such
interest payment date. Interest on the Senior Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from November 16, 1997. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. Senior Notes will be issued in denominations of
$1,000 and integral multiples thereof.
Principal of, premium, if any, and interest on the Senior Notes will be
payable, and the Senior Notes may be presented for registration of transfer or
exchange, at the office of the Paying Agent and Registrar in New York, New
York. Holders of Senior Notes must surrender their Senior Notes to the Paying
Agent to collect principal payments, and the Company may pay principal,
premium, if any, interest and Liquidated Damages, if any, by check and may
mail checks to a holder's registered address; provided that all payments with
respect to Global Notes and Certificated Notes, the holders of whom have given
wire transfer instructions to the Company, will be required to be made by wire
transfer of immediately available funds to the accounts specified by the
holders thereof. The Registrar may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
with certain transfers or exchanges. See "--Transfer and Exchange." The
Trustee will initially act as Paying Agent and Registrar. The Company may
change the Paying Agent or Registrar without prior notice to holders of Senior
Notes, and the Company or any of its subsidiaries may act as Paying Agent or
Registrar.
The Old Notes were and the New Notes will be senior unsecured obligations of
the Company, will rank senior in right of payment to all Subordinated
Indebtedness of the Company, and will rank pari passu in right of payment with
all Senior Indebtedness of the Company. The Senior Notes effectively rank
junior to all indebtedness of the Company and to any indebtedness of the
Company's subsidiaries, including borrowings under the Amended Credit
Agreement. On a pro forma basis as of September 30, 1997, after giving effect
to the Old Offering and the application of the net proceeds therefrom, the
aggregate principal amount of secured Indebtedness of the Company and
indebtedness of the Company's subsidiaries to which the Senior Notes
effectively rank junior is approximately $9.1 million. The Indenture permits
the Company and its Subsidiaries to
51
<PAGE>
incur additional Indebtedness, including secured Indebtedness, subject to
certain limitations. In addition, under the terms of the Indenture, the
Company's Subsidiaries may incur certain Indebtedness pursuant to agreements
that may restrict the ability of such Subsidiaries to make dividends or other
intercompany transfers to the Company necessary to service the Company's
obligations, including its obligations under the Senior Notes. Such permitted
additional Indebtedness which would effectively be senior to the Senior Notes
may include up to $115.0 million incurred under the Amended Credit Agreement
and other Indebtedness permitted by the Indenture, including $25.0 million of
additional Indebtedness. Any failure by the Company to satisfy its obligations
with respect to the Senior Notes at maturity (with respect to payments of
principal) or prior thereto (with respect to payments of interest or required
repurchases) would constitute a default under the Indenture and the Amended
Credit Agreement and could cause a default under agreements governing other
indebtedness of the Company and its Subsidiaries. See "Risk Factors--Holding
Company Structure; Dependence on Subsidiaries; Limitations on Access to Cash
Flow of the Subsidiaries," "--Certain Covenants" and "Description of Certain
Indebtedness."
REDEMPTION OF SENIOR NOTES
Optional Redemption. The Senior Notes may not be redeemed at the option of
the Company prior to November 15, 2001 other than out of the net proceeds of
one or more Equity Offerings, as and to the extent described below. During the
12-month period beginning on November 15 of the years indicated below, the
Senior Notes will be redeemable, at the option of the Company, in whole or in
part, on at least 30 but not more than 60 days' notice to each holder of Senior
Notes to be redeemed, at the redemption prices (expressed as percentages of the
principal amount) set forth below, plus any accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.......................... 105.375%
2002.......................... 103.583%
2003.......................... 101.792%
2004 and thereafter........... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to November 15, 1999, the Company may
(but shall not have the obligation to) redeem up to 35% of the original
aggregate principal amount of the Senior Notes at a redemption price of
109.750% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date, with the net proceeds of
one or more Equity Offerings; provided that at least 65% of the aggregate
principal amount of Senior Notes originally issued remain outstanding
immediately after the occurrence of any such redemption; and provided, further,
that any such redemption shall occur within 60 days of the date of the closing
of any such Equity Offering. The restrictions on optional redemptions contained
in the Indenture do not limit the Company's right to separately make open
market, privately negotiated or other purchases of Senior Notes from time to
time.
Mandatory Redemption. Except as set forth below under "--Mandatory Offers to
Purchase Senior Notes," the Company is not required to make any mandatory
redemption, purchase or sinking fund payments with respect to the Senior Notes.
MANDATORY OFFERS TO PURCHASE SENIOR NOTES
Change of Control. Upon the occurrence of a Change of Control (such date
being the "Change of Control Trigger Date"), each holder of Senior Notes shall
have the right to require the Company to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Senior Notes pursuant
to an Offer (as defined herein) at a purchase price in cash equal to 101% of
the aggregate principal amount thereof, plus any accrued and unpaid interest
and Liquidated Damages, if any, to the date of purchase. The Company shall
furnish to the Trustee, at least two Business Days before notice of an Offer is
mailed to all holders of Senior Notes pursuant to the procedures described
below under "--Procedures for Offers," notice that the Offer is being made.
Transactions constituting a Change of Control are not limited to hostile
takeover transactions not approved by the current management of the Company.
52
<PAGE>
The Company expects that prepayment of the Senior Notes pursuant to a Change
of Control would, and the exercise by holders of Senior Notes of the right to
require the Company to purchase Senior Notes may, constitute a default under
the Amended Credit Agreement or other indebtedness of the Company. The
Indenture provides that, prior to the mailing of the notice referred to below,
but in any event within 30 days following any Change of Control Trigger Date,
the Company covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Amended Credit Agreement and all other Senior
Indebtedness the terms of which require repayment upon a Change of Control or
offer to repay in full and terminate all commitments under all Indebtedness
under the Amended Credit Agreement and all other such Senior Indebtedness and
to repay the Indebtedness owed to each lender which has accepted such offer or
(ii) obtain the requisite consents under the Amended Credit Agreement and all
such other Senior Indebtedness to permit the repurchase of the Senior Notes as
provided below. The Company shall first comply with the covenant in the
immediately preceding sentence before it shall be required to repurchase Senior
Notes pursuant to the provisions described below. The Company's failure to
comply with this covenant shall constitute an Event of Default described in
clause (c) and not in clause (b) under "--Events of Default" below. In the
event a Change of Control occurs, the Company will likely be required to
refinance the Indebtedness outstanding under the Amended Credit Agreement and
the Senior Notes. If there is a Change of Control, any Indebtedness under the
Amended Credit Agreement could be accelerated. There is no limitation in the
Indenture which prohibits the Company from using the proceeds from the Old
Offering to finance mandatory purchases of Senior Notes upon a Change of
Control. Moreover, 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 the Senior Notes given the Company's high leverage. The financing of the
purchases of Senior Notes could additionally result in a default under the
Amended Credit Agreement or other indebtedness of the Company. The occurrence
of a Change of Control may also have an adverse impact on the ability of the
Company to obtain additional financing in the future. The ability of holders of
Senior Notes to require that the Company purchase Senior Notes upon a Change of
Control may deter persons from effecting a takeover of the Company which would
constitute a Change of Control if it believes such takeover will cause the
occurrence of a Change of Control and it has insufficient funds available to
make mandatory purchases of Senior Notes. Except as described above with
respect to a Change of Control, the Indenture does not contain provisions that
permit (i) the holders of Senior Notes to require that the Company purchase or
redeem the Senior Notes in the event of a takeover, recapitalization or similar
restructuring or (ii) the Board of Directors or the Trustee to waive the
covenant relating to the holders' right to redeem upon a "Change of Control."
See "Risk Factors--Leverage and Coverage" and "--Holding Company Structure;
Dependence on Subsidiaries; Limitations on Access to Cash Flow of the
Subsidiaries."
Asset Sales. The Indenture provides that the Company may not, and may not
permit any Restricted Subsidiary to, directly or indirectly, consummate an
Asset Sale (including the sale of any of the Capital Stock of any Restricted
Subsidiary) providing for Net Proceeds in excess of $2,500,000 unless at least
75% of the Net Proceeds from such Asset Sale are applied (in any manner
otherwise permitted by the Indenture) to one or more of the following purposes
in such combination as the Company shall elect: (a) an investment in another
asset or business in the same line of business as, or a line of business
similar to that of, the line of business of the Company and its Restricted
Subsidiaries at the time of the Asset Sale; provided that such investment
occurs on or prior to the 365th day following the date of such Asset Sale (the
"Asset Sale Disposition Date"), (b) to reimburse the Company or its
Subsidiaries for expenditures made, and costs incurred, to repair, rebuild,
replace or restore property subject to loss, damage or taking to the extent
that the Net Proceeds consist of insurance proceeds received on account of such
loss, damage or taking, (c) the purchase, redemption or other prepayment or
repayment of outstanding Senior Indebtedness of the Company or Indebtedness of
the Company's Restricted Subsidiaries on or prior to the 365th day following
the Asset Sale Disposition Date or (d) an Offer expiring on or prior to the
Purchase Date (as defined herein). The Indenture also provides that the Company
may not, and may not permit any Restricted Subsidiary to, directly or
indirectly, consummate an Asset Sale unless at least 75% of the consideration
thereof received by the Company or such Restricted Subsidiary is in the form of
cash, cash equivalents or marketable securities; provided that, solely for
purposes of calculating such 75% of the consideration, the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto, excluding contingent liabilities
and trade payables), of the Company
53
<PAGE>
or any Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Senior Notes) that are assumed by the transferee of any
such assets and (y) any notes or other obligations received by the Company or
any such Restricted Subsidiary from such transferee that are promptly, but in
no event more than 30 days after receipt, converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received), shall be
deemed to be cash and cash equivalents for purposes of this provision. Any Net
Proceeds from any Asset Sale that are not applied or invested as provided in
the first sentence of this paragraph shall constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10,000,000 (such date
being an "Asset Sale Trigger Date"), the Company shall make an Offer to all
holders of Senior Notes to purchase the maximum principal amount of the Senior
Notes then outstanding that may be purchased out of Excess Proceeds that remain
upon completion of the Excess Proceeds offer required under the Series A/B
Indenture, at an offer price in cash in an amount equal to 100% of principal
amount thereof plus any accrued and unpaid interest and Liquidated Damages, if
any, to the Purchase Date in accordance with the procedures set forth in the
Indenture. Notwithstanding the foregoing, to the extent that any or all of the
Net Proceeds of an Asset Sale is prohibited or delayed by applicable local law
from being repatriated to the United States, the portion of such Net Proceeds
so affected will not be required to be applied as described in this or the
preceding paragraph, but may be retained for so long, but only for so long, as
the applicable local law prohibits repatriation to the United States.
To the extent that any Excess Proceeds remain after completion of an Offer,
the Company may use such remaining amount for general corporate purposes. If
the aggregate principal amount of Senior Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Senior
Notes to be purchased on a pro rata basis. Upon completion of an Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
While the Amended Credit Agreement permits dividends from the Company's
subsidiaries to the Company for the purpose of paying interest on the Senior
Notes, dividends for other purposes, such as repurchases of Senior Notes by the
Company upon an Asset Sale, are not permitted under the terms thereof.
Accordingly, the Company would need to seek the consent of its lenders under
the Amended Credit Agreement in order to repurchase Senior Notes with any Net
Proceeds. See "Risk Factors--Holding Company Structure; Dependence on
Subsidiaries; Limitations on Access to Cash Flow of the Subsidiaries."
Procedures for Offers. Within 30 days following any Change of Control Trigger
Date or Asset Sale Trigger Date, subject to the provisions of the Indenture,
the Company shall mail a notice to each holder of Senior Notes at such holder's
registered address a notice stating: (a) that an offer ("Offer") is being made
pursuant to a Change of Control or an Asset Sale Trigger Date, as the case may
be, the length of time the Offer shall remain open and the maximum principal
amount of Senior Notes that will be accepted for payment pursuant to such
Offer, (b) the purchase price, the amount of accrued and unpaid interest and
Liquidated Damages, if any, as of the purchase date, and the purchase date
(which shall be no earlier than 30 days and no later than 40 days from the date
such notice is mailed (the "Purchase Date")), and (c) such other information
required by the Indenture and applicable law and regulations.
On the Purchase Date for any Offer, the Company will, to the extent required
by the Indenture and such Offer, (1) in the case of an Offer resulting from a
Change of Control, accept for payment all Senior Notes or portions thereof
tendered pursuant to such Offer and, in the case of an Offer resulting from an
Asset Sale Trigger Date, accept for payment the maximum principal amount of
Senior Notes or portions thereof tendered pursuant to such Offer that can be
purchased out of Excess Proceeds from such Asset Sale Trigger Date, (2) deposit
with the Paying Agent the aggregate purchase price of all Senior Notes or
portions thereof accepted for payment and any accrued and unpaid interest and
Liquidated Damages, if any, on such Senior Notes as of the Purchase Date, and
(3) deliver or cause to be delivered to the Trustee all Senior Notes tendered
pursuant to the Offer. The Paying Agent shall promptly mail to each holder of
Senior Notes or portions thereof accepted for payment an amount equal to the
purchase price for such Senior Notes plus any accrued and unpaid interest and
Liquidated Damages, if any, thereon, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book-entry)
54
<PAGE>
to such holder of Senior Notes accepted for payment in part a new Note equal in
principal amount to any unpurchased portion of the Senior Notes and any Note
not accepted for payment in whole or in part shall be promptly returned to the
holder thereof. The Company will publicly announce the results of the Offer on
or as soon as practicable after the Purchase Date.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with an Offer
required to be made by the Company to repurchase the Senior Notes as a result
of a Change of Control or an Asset Sale Trigger Date. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
the Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
Indenture by virtue thereof.
Selection and Notice. In the event of a redemption or purchase of less than
all of the Senior Notes, the Senior Notes to be redeemed or purchased will be
chosen by the Trustee pro rata, by lot or by any other method that the Trustee
considers fair and appropriate and, if the Senior Notes are listed on any
securities exchange, by a method that complies with the requirements of such
exchange; provided that, if less than all of a holder's Senior Notes are to be
redeemed or accepted for payment, only principal amounts of $1,000 or multiples
thereof may be selected for redemption or accepted for payment. On and after
any redemption or purchase date, interest and Liquidated Damages, if any, shall
cease to accrue on the Senior Notes or portions thereof called for redemption
or accepted for payment. Notice of any redemption or offer to purchase will be
mailed at least 30 days but not more than 60 days before the redemption or
purchase date to each holder of Senior Notes to be redeemed or purchased at
such holder's registered address.
CERTAIN COVENANTS
The Indenture contains, among other things, the following covenants:
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on account
of the Company's or such Restricted Subsidiary's Capital Stock or other Equity
Interests (other than dividends or distributions payable in Capital Stock or
other Equity Interests (other than Disqualified Stock) of the Company or a
Restricted Subsidiary and dividends or distributions payable by a Restricted
Subsidiary to another Restricted Subsidiary or to the Company); (ii) purchase,
redeem or otherwise acquire or retire for value any Capital Stock or other
Equity Interests of the Company or any of its Restricted Subsidiaries (other
than any such Equity Interest purchased from the Company or any Restricted
Subsidiary for fair market value (as determined by the Board of Directors in
good faith)); (iii) voluntarily prepay any Subordinated Indebtedness of the
Company, whether any such Subordinated Indebtedness is outstanding on, or
issued after, the date of original issuance of the Senior Notes except as
specifically permitted by the covenants of the Indenture as described herein;
or (iv) make any Restricted Investment (all such dividends, distributions,
purchases, redemptions, acquisitions, retirements, prepayments and Restricted
Investments, being collectively referred to as "Restricted Payments"), if, at
the time of such Restricted Payment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
(b) immediately after such Restricted Payment and after giving effect
thereto on a Pro Forma Basis, the Company shall not be able to issue $1.00
of additional Indebtedness pursuant to the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant; or
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after the date of original issuance of the Senior
Notes, without duplication, exceeds the sum of: (1) 50% of the aggregate
Consolidated Net Income (including, for this purpose, gains from Asset
Sales and, to the extent not included in Consolidated Net Income, any gain
from a sale or disposition of a Restricted Investment) of the Company (or,
in case such aggregate is a loss, 100% of such loss) for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing immediately after the date of
55
<PAGE>
original issuance of the Senior Notes and ended as of the Company's most
recently ended fiscal quarter at the time of such Restricted Payment; plus
(2) 100% of the aggregate net cash proceeds and the fair market value of
any property or securities (as determined by the Board of Directors in good
faith) received by the Company from the issue or sale of Capital Stock or
other Equity Interests of the Company subsequent to the date of original
issuance of the Senior Notes (other than (x) Capital Stock or other Equity
Interests issued or sold to a Restricted Subsidiary and (y) the issuance or
sale of Disqualified Stock); plus (3) $5,000,000; plus (4) the amount by
which the principal amount of and any accrued interest on either (A) Senior
Indebtedness of the Company or (B) any Indebtedness of any Restricted
Subsidiary is reduced on the Company's consolidated balance sheet upon the
conversion or exchange other than by a Restricted Subsidiary subsequent to
the date of original issuance of the Senior Notes of any Indebtedness of
the Company or any Restricted Subsidiary (not held by the Company or any
Restricted Subsidiary) for Capital Stock or other Equity Interests (other
than Disqualified Stock) of the Company or any Restricted Subsidiaries
(less the amount of any cash, or the fair market value of any other
property or securities (as determined by the Board of Directors in good
faith), distributed by the Company or any Restricted Subsidiary (to persons
other than the Company or any other Restricted Subsidiary) upon such
conversion or exchange); plus (5) if any Non-Restricted Subsidiary is
redesignated as a Restricted Subsidiary, the value of the deemed Restricted
Payment resulting therefrom and determined in accordance with the second
sentence of the "Designation of Restricted and Non-Restricted Subsidiaries"
covenant; provided, however, that for purposes of this clause (5), the
value of any redesignated Non-Restricted Subsidiary shall be reduced by the
amount that any such redesignation replenishes or increases the amount of
Restricted Investments permitted to be made pursuant to clause (ii) of the
next sentence.
Notwithstanding the foregoing, the Indenture does not prohibit as
Restricted Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all covenants of such Indenture (including, but not limited
to, the "Limitation on Restricted Payments" covenant);
(ii) making Restricted Investments at any time, and from time to
time, in an aggregate outstanding amount of $20,000,000 after the date
of original issuance of the Senior Notes (it being understood that if
any Restricted Investment after the date of original issuance of the
Senior Notes pursuant to this clause (ii) is sold, transferred or
otherwise conveyed to any person other than the Company or a Restricted
Subsidiary, the portion of the net cash proceeds or fair market value
of securities or properties paid or transferred to the Company and its
Restricted Subsidiaries in connection with such sale, transfer or
conveyance that relates or corresponds to the repayment or return of
the original cost of such a Restricted Investment will replenish or
increase the amount of Restricted Investments permitted to be made
pursuant to this clause (ii), so that up to $20,000,000 of Restricted
Investments may be outstanding under this clause (ii) at any given
time; provided that without otherwise limiting this clause (ii), any
Restricted Investment in a Subsidiary made pursuant to this clause (ii)
is made for fair market value (as determined by the Board of Directors
in good faith).
(iii) the repurchase, redemption, retirement or acquisition of the
Company's stock from the executives, management, employees or
consultants of the Company or its Subsidiaries pursuant to the terms of
any subscription, stockholder or other agreement or plan, up to an
aggregate amount not to exceed $5,000,000;
(iv) any loans, advances, distributions or payments from the Company
to its Restricted Subsidiaries, or any loans, advances, distributions
or payments by a Restricted Subsidiary to the Company or to another
Restricted Subsidiary, in each case pursuant to intercompany
Indebtedness, intercompany management agreements and other intercompany
agreements and obligations;
(v) investments in marketable securities and other negotiable
instruments through the William Penn Funds (including the William Penn
Interest Income Fund);
(vi) the purchase, redemption, retirement or other acquisition of (a)
any Senior Indebtedness of the Company or any Indebtedness of a
Restricted Subsidiary required by its terms to be purchased, redeemed,
retired or acquired with the net proceeds from asset sales (as defined
in the instrument
56
<PAGE>
evidencing such Senior Indebtedness or Indebtedness) or upon a change
of control (as defined in the instrument evidencing such Senior
Indebtedness or Indebtedness) and (b) the Senior Notes pursuant to the
"Change of Control" or "Asset Sales" provisions of the Indenture;
(vii) to the extent constituting Restricted Payments, payments under
the Tax Sharing Agreement, New Subsidiary Consulting Agreement,
Transition Agreement and the JI Properties Services Agreement;
(viii) to the extent constituting Restricted Payments, payments under
the New Subsidiary Advisory Agreement, provided that such payments will
not be made and shall be accrued so long as any Default or Event of
Default shall have occurred and be continuing or shall occur as a
consequence thereof, and the Company's obligations to pay such fees
under the New Subsidiary Advisory Agreement shall be subordinated
expressly to the Company's Obligations in respect of the Senior Notes
and indemnities, expenses and other amounts under the New Subsidiary
Advisory Agreement;
(ix) the redemption, repurchase, retirement or the acquisition of any
Capital Stock or other Equity Interests of the Company or any
Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the
Company) of other Capital Stock or other Equity Interests of the
Company or any Restricted Subsidiary (other than any Disqualified
Stock); provided that any net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition, and any
Net Income resulting therefrom, shall be excluded from clauses (c)(1)
and (c)(2) of the preceding paragraph;
(x) the defeasance, redemption or repurchase of pari passu or
Subordinated Indebtedness with the net cash proceeds from an issuance
of permitted Refinancing Indebtedness or the substantially concurrent
sale (other than to a Subsidiary of the Company) of Capital Stock or
other Equity Interests of the Company or of a Restricted Subsidiary
(other than Disqualified Stock); provided that any net cash proceeds
that are utilized for any such defeasance, redemption or repurchase,
and any Net Income resulting therefrom, shall be excluded from clauses
(c)(1) and (c)(2) of the preceding paragraph;
(xi) payments of fees, expenses and indemnities in respect of the
Company's and its Subsidiaries' directors and such payments to Parent
(and its parent companies) in respect of their directors provided that
the aggregate amount of such fees payable to all such directors does
not exceed $250,000 in any fiscal year;
(xii) payments in respect of the Junior Seller Notes;
(xiii) payments in connection with the Old Offering;
(xiv) payments in respect of the Contingent Earnout Agreement;
(xv) Restricted Investments made or received in connection with the
sale, transfer or disposition of any business, properties or assets of
the Company or any Restricted Subsidiary, provided, that if such sale,
transfer or disposition constitutes an Asset Sale, the Company complies
with the "Asset Sale" provisions of the Indenture;
(xvi) any Restricted Investment constituting securities or
instruments of a person issued in exchange for trade or other claims
against such person in connection with a financial reorganization or
restructuring of such person; and
(xvii) any Restricted Investment constituting an equity investment in
a Receivables Subsidiary.
Limitation on Incurrence of Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, issue any
Indebtedness (other than the Indebtedness represented by the Senior Notes)
unless the Company's Cash Flow Coverage Ratio for its four full fiscal quarters
next preceding the date such additional Indebtedness is issued would have been
at least 2.0 to 1 if such date is on or prior to November 15, 1998, and 2.25 to
1 thereafter, in each case, determined on a Pro Forma Basis (including, for
this purpose, any other Indebtedness incurred since the end of the applicable
four quarter period) as if such additional Indebtedness and any other
Indebtedness issued since the end of such four quarter period had been issued
at the beginning of such four-quarter period.
57
<PAGE>
The foregoing limitations do not apply to the issuance of:
(i) Indebtedness of the Company and/or its Restricted Subsidiaries as
measured on such date of issuance in an aggregate principal amount
outstanding on any such date of issuance not exceeding the greater of (a)
$115.0 million aggregate principal amount under the Amended Credit
Agreement, and (b) an aggregate principal amount up to the sum of: (A) 85%
of the book value of the Receivables of the Company and its Restricted
Subsidiaries on a consolidated basis, and (B) 65% of the book value of the
inventories of the Company and its Restricted Subsidiaries on a
consolidated basis; provided that the aggregate principal amount of
Indebtedness outstanding under this clause (i) together with the aggregate
principal amount of Indebtedness outstanding under clause (iv) below shall
not exceed $120.0 million in aggregate principal amount at any one time
outstanding;
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
respect of any Receivables Financing;
(iii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with capital leases, sale and leaseback transactions, purchase
money obligations, capital expenditures or similar financing transactions
relating to: (A) their properties, assets and rights as of the date of
original issuance of the Senior Notes up to $5,000,000 in aggregate
principal amount, or (B) their properties, assets and rights acquired after
the date of original issuance of the Senior Notes, provided that the
aggregate principal amount of such Indebtedness under this clause (iii)(B)
does not exceed 100% of the cost of such properties, assets and rights;
(iv) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount up to $25,000,000 (all or any
portion of which may be issued as additional Indebtedness under the Amended
Credit Agreement); provided that the aggregate principal amount of
Indebtedness outstanding under this clause (iv) together with the aggregate
principal amount of Indebtedness outstanding under clause (i) above shall
not exceed $120.0 million in aggregate principal amount at any one time
outstanding; and
(v) Other Permitted Indebtedness.
Notwithstanding the foregoing, no Restricted Subsidiary shall under any
circumstances issue a guarantee of any Indebtedness of the Company except for
guarantees issued by Restricted Subsidiaries pursuant to the "Limitation on
Guarantees of Company Indebtedness by Restricted Subsidiaries" covenant;
provided, however, that the foregoing will not limit or restrict guarantees
issued by Restricted Subsidiaries in respect of Indebtedness of other
Restricted Subsidiaries.
Limitation on Liens. The Indenture provides that the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien (other than Permitted Liens)
upon any property or asset now owned or hereafter acquired by them, or any
income or profits therefrom, or assign or convey any right to receive income
therefrom; provided, however, that in addition to creating Permitted Liens on
its properties or assets, the Company and any of its Restricted Subsidiaries
may create any Lien upon any of their properties or assets (including, but not
limited to, any Capital Stock of its Subsidiaries) if the Senior Notes are
equally and ratably secured.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective, any encumbrance or
restriction on the ability of any Restricted Subsidiary to: (a) pay dividends
or make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits, owned by the Company or any
Restricted Subsidiary, or pay any Indebtedness owed to, the Company or any
Restricted Subsidiary, (b) make loans or advances to the Company, or (c)
transfer any of its properties or assets to the Company, except for such
encumbrances or restrictions existing under or by reason of:
(i) applicable law,
(ii) Indebtedness permitted (A) under the first sentence of the first
paragraph of the "Limitation on Incurrence of Indebtedness" covenant, (B)
under clauses (i), (ii) and (iv) of the second paragraph of the
58
<PAGE>
"Limitation on Incurrence of Indebtedness" covenant and clauses (i), (v),
(vi), (vii), (ix), (x), (xi), (xv) and (xvi) of the definition of Other
Permitted Indebtedness, or (C) by agreements and transactions permitted
under the "Limitation on Restricted Payments" covenant,
(iii) customary provisions restricting subletting or assignment of any
lease or license of the Company or any Restricted Subsidiary,
(iv) customary provisions of any franchise, distribution or similar
agreement,
(v) any instrument governing Indebtedness or any other encumbrance or
restriction of a person acquired by the Company or any Restricted
Subsidiary at the time of such acquisition, which encumbrance or
restriction is not applicable to any person, or the properties or assets of
any person, other than the person, or the property or assets of the person,
so acquired,
(vi) Indebtedness or other agreements existing on the date of original
issuance of the Senior Notes,
(vii) any Refinancing Indebtedness permitted under the "Limitation on
Incurrence of Indebtedness" covenant and clauses (i), (v), (vi), (vii),
(ix), (x) (xi), (xv) and (xvi) of the definition of Other Permitted
Indebtedness; provided that the encumbrances and restrictions created in
connection with such Refinancing Indebtedness are no more restrictive in
any material respect with regard to the interests of the holders of Senior
Notes than the encumbrances and restrictions in the refinanced
Indebtedness,
(viii) any restrictions, with respect to a Restricted Subsidiary, imposed
pursuant to an agreement that has been entered into for the sale or
disposition of the stock, business, assets or properties of such Restricted
Subsidiary,
(ix) the terms of any Indebtedness of the Company incurred in connection
with the "Limitation on Incurrence of Indebtedness" covenant; provided that
the terms of such Indebtedness constitute no greater encumbrance or
restriction on the ability of any Restricted Subsidiary to pay dividends or
make distributions, make loans or advances or transfer properties or assets
than is otherwise permitted by this covenant, and
(x) the terms of purchase money obligations, but only to the extent such
purchase money obligations restrict or prohibit the transfer of the
property so acquired.
Nothing contained in this covenant shall prevent the Company from entering
into any agreement or instrument providing for the incurrence of Permitted
Liens or restricting the sale or other disposition of property or assets of the
Company or any of its Restricted Subsidiaries that are subject to Permitted
Liens.
Limitation on Transactions With Affiliates. The Indenture provides, except
under certain circumstances, that neither the Company nor any of its Restricted
Subsidiaries may make any loan, advance, guarantee or capital contribution to,
or for the benefit of, or sell, lease, transfer or dispose of any properties or
assets to, or for the benefit of, or purchase or lease any property or assets
from, or enter into any or amend any contract, agreement or understanding with,
or for the benefit of, an Affiliate (each such transaction or series of related
transactions that are part of a common plan are referred to as an "Affiliate
Transaction"), except in good faith and on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction on an arm's length basis from an
unrelated person.
The Indenture further provides that the Company will not, and will not permit
any Restricted Subsidiary to, engage in any Affiliate Transaction involving
aggregate payments or other transfers by the Company and its Restricted
Subsidiaries in excess of $5,000,000 (including cash and non-cash payments and
benefits valued at their fair market value by the Board of Directors of the
Company in good faith) unless the Company delivers to the Trustee:
(i) a resolution of the Board of Directors of the Company stating that
the Board of Directors (including a majority of the disinterested
directors, if any) has, in good faith, determined that such Affiliate
Transaction complies with the provisions of the Indenture, and
(ii) (A) with respect to any Affiliate Transaction involving the
incurrence of Indebtedness, a written opinion of a nationally recognized
investment banking or accounting firm experienced in the review of
59
<PAGE>
similar types of transactions, (B) with respect to any Affiliate
Transaction involving the transfer of real property, fixed assets or
equipment, either directly or by a transfer of 50% or more of the Capital
Stock of a Restricted Subsidiary which holds any such real property, fixed
assets or equipment, a written appraisal from a nationally recognized
appraiser, experienced in the review of similar types of transactions or
(C) with respect to any Affiliate Transaction not otherwise described in
(A) and (B) above, a written certification from a nationally recognized
professional or firm experienced in evaluating similar types of
transactions, in each case, stating that the terms of such transaction are
fair to the Company or such Restricted Subsidiary, as the case may be, from
a financial point of view.
Notwithstanding the foregoing, this Affiliate Transactions covenant will not
apply to:
(i) transactions between the Company and any Restricted Subsidiary or
between Restricted Subsidiaries;
(ii) payments under the New Subsidiary Advisory Agreement, the New
Subsidiary Consulting Agreement, the Transition Agreement, the JI
Properties Services Agreement and the Tax Sharing Agreement;
(iii) payments under the Contingent Earnout Agreement;
(iv) any other payments or transactions permitted pursuant to the
"Limitation on Restricted Payments" covenant;
(v) reasonable compensation paid to officers, employees or consultants of
the Company or any Subsidiary as determined in good faith by the Company's
Board of Directors or executives;
(vi) transactions in connection with a Receivables Financing; or
(vii) payments and transactions in connection with the Old Offering.
Limitation on Guarantees of Company Indebtedness by Restricted Subsidiaries.
The Company will not permit any Restricted Subsidiary, directly or indirectly,
to guarantee any Indebtedness of the Company other than the Senior Notes (the
"Other Company Indebtedness") unless (A) such Restricted Subsidiary
contemporaneously executes and delivers a supplemental indenture to the
Indenture providing for a guarantee of payment of the Senior Notes then
outstanding by such Restricted Subsidiary to the same extent as the guarantee
of payment (the "Other Company Indebtedness Guarantee") of the Other Company
Indebtedness (including waiver of subrogation, if any) and (B) if the Other
Company Indebtedness guaranteed by such Restricted Subsidiary is (1) Senior
Indebtedness, the guarantee for the Senior Notes shall be pari passu in right
of payment with the Other Company Indebtedness Guarantee and (2) Subordinated
Indebtedness, the guarantee for the Senior Notes shall be senior in right of
payment to the Other Company Indebtedness Guarantee; provided that the
foregoing will not limit or restrict guarantees issued by Restricted
Subsidiaries in respect of Indebtedness of other Restricted Subsidiaries.
Each guarantee of the Senior Notes created by a Restricted Subsidiary
pursuant to the provisions described in the foregoing paragraph shall be in
form and substance satisfactory to the Trustee and shall provide, among other
things, that it will be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer permitted by the Indenture
of (a) all of the Company's Capital Stock in such Restricted Subsidiary or (b)
the sale of all or substantially all of the assets of the Restricted Subsidiary
and upon the application of the Net Proceeds from such sale in accordance with
the requirements of the "Asset Sales" provisions described herein or (ii) the
release or discharge of the Other Company Indebtedness Guarantee that resulted
in the creation of such guarantee of the Senior Notes, except a discharge or
release by or as a result of direct payment under such Other Company
Indebtedness Guarantee.
Designation of Restricted and Non-Restricted Subsidiaries. The Indenture
provides that, subject to the exceptions described below, from and after the
date of original issuance of the Senior Notes, the Company may designate any
existing or newly formed or acquired Subsidiary as a Non-Restricted Subsidiary;
provided that (i) either (A) the Subsidiary to be so designated has total
assets of $1,000,000 or less or (B) immediately before and
60
<PAGE>
after giving effect to such designation on a Pro Forma Basis; (1) the Company
could incur $1.00 of additional Indebtedness pursuant to the first sentence of
the "Limitation on Incurrence of Indebtedness" covenant determined on a Pro
Forma Basis; and (2) no Default or Event of Default shall have occurred and be
continuing, and (ii) all transactions between the Subsidiary to be so
designated and its Affiliates remaining in effect are permitted pursuant to the
"Limitation on Transactions with Affiliates" covenant. Any Investment made by
the Company or any Restricted Subsidiary which is redesignated from a
Restricted Subsidiary to a Non-Restricted Subsidiary shall thereafter be
considered as having been a Restricted Payment (to the extent not previously
included as a Restricted Payment) made on the day such Subsidiary is designated
a Non-Restricted Subsidiary in the amount of the greater of (i) the fair market
value (as determined by the Board of Directors of the Company in good faith) of
the Equity Interests of such Subsidiary held by the Company and its Restricted
Subsidiaries on such date, and (ii) the amount of the Investments determined in
accordance with GAAP made by the Company and any of its Restricted Subsidiaries
in such Subsidiary.
A Non-Restricted Subsidiary may be redesignated as a Restricted Subsidiary.
The Company may not, and may not permit any Restricted Subsidiary to, take any
action or enter into any transaction or series of transactions that would
result in a Person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of a Non-Restricted Subsidiary or otherwise, but
not including through the creation of a new Restricted Subsidiary) unless,
immediately before and after giving effect to such action, transaction or
series of transactions on a Pro Forma Basis, (a) the Company could incur at
least $1.00 of additional Indebtedness pursuant to the first sentence of
"Limitation on Incurrence of Indebtedness" and (b) no Default or Event of
Default shall have occurred and be continuing.
The designation of a Subsidiary as a Restricted Subsidiary or the removal of
such designation is required to be made by a resolution adopted by a majority
of the Board of Directors of the Company stating that the Board of Directors
has made such designation in accordance with the Indenture, and the Company is
required to deliver to the Trustee such resolution together with an Officers'
Certificate certifying that the designation complies with the Indenture. Such
designation will be effective as of the date specified in the applicable
resolution, which may not be before the date the applicable Officers'
Certificate is delivered to the Trustee.
MERGER OR CONSOLIDATION
The Indenture provides that the Company shall not consolidate or merge with
or into, or sell, lease, convey or otherwise dispose of all or substantially
all of its assets to, any person (any such consolidation, merger or sale being
a "Disposition") unless: (a) the successor corporation of such Disposition or
the corporation to which such Disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (b) the successor corporation of such Disposition or
the corporation to which such Disposition shall have been made expressly
assumes the Obligations of the Company, pursuant to a supplemental indenture in
a form reasonably satisfactory to the Trustee, under the Indenture and the
Senior Notes; (c) immediately after such Disposition, no Default or Event of
Default shall exist; and (d) the corporation formed by or surviving any such
Disposition, or the corporation to which such Disposition shall have been made,
shall (i) have Consolidated Net Worth (immediately after the Disposition but
prior to giving any pro forma effect to purchase accounting adjustments or
Restructuring Charges resulting from the Disposition) equal to or greater than
the Consolidated Net Worth of the Company immediately preceding the
Disposition, (ii) be permitted immediately after the Disposition by the terms
of the Indenture to issue at least $1.00 of additional Indebtedness determined
on a Pro Form a Basis, and (iii) have a Cash Flow Coverage Ratio, for the four
fiscal quarters immediately preceding the applicable Disposition, and
determined on a Pro Forma Basis, equal to or greater than the actual Cash Flow
Coverage Ratio of the Company for such four quarter period. The limitations in
the Indenture on the Company's ability to make a Disposition described in this
paragraph do not restrict the Company's ability to sell less than all or
substantially all of its assets, such sales being governed by the "Asset Sales"
provisions of the Indenture as described herein.
Prior to the consummation of any proposed Disposition, the Company shall
deliver to the Trustee an officers' certificate to the foregoing effect and an
opinion of counsel stating that the proposed Disposition and such supplemental
indenture comply with the Indenture.
61
<PAGE>
PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF SENIOR NOTES
So long as the Senior Notes are outstanding, whether or not the Company is
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall submit for filing with the Commission the annual
reports, quarterly reports and other documents that the Company would have been
required to file with the Commission pursuant to Section 13 or 15(d) if the
Company were subject to such reporting requirements. The Company will also
provide to all holders of Senior Notes and file with the Trustee copies of such
annual reports, quarterly reports and other documents required to be furnished
to stockholders generally under the Exchange Act. In addition, the Company has
agreed that, for so long as any Senior Notes remain outstanding, it will
furnish to the holders and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that an Event of Default is: (a) a default for 30 days
in payment of interest on, or Liquidated Damages, if any, with respect to, the
Senior Notes; (b) a default in payment when due of principal or premium, if
any, with respect to the Senior Notes; (c) the failure of the Company to comply
with any of its other agreements or covenants in, or provisions of, such
Indenture or the Senior Notes outstanding under such Indenture and the Default
continues for the period, if applicable, and after the notice specified in the
next paragraph; (d) a default by the Company or any Restricted Subsidiary under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed by
the Company or any Restricted Subsidiary (or the payment of which is guaranteed
by the Company or any Restricted Subsidiary), whether such Indebtedness or
guarantee now exists or shall be created hereafter, if (1) either (A) such
default results from the failure to pay principal of or interest on any such
Indebtedness at or after the final maturity thereof (after giving effect to any
extensions thereof) and such default continues for 30 days beyond any
applicable grace period, or (B) as a result of such default the maturity of
such Indebtedness has been accelerated prior to its expressed maturity, and (2)
the principal amount of such Indebtedness, together with the principal amount
of any other such Indebtedness in default for failure to pay principal or
interest thereon at final maturity, or, because of the acceleration of the
maturity thereof, aggregates in excess of $10,000,000; (e) a failure by the
Company or any Restricted Subsidiary to pay final judgments (not covered by
insurance) aggregating in excess of $10,000,000 which judgments a court of
competent jurisdiction does not rescind, annul or stay within 45 days after
their entry and the Default or an Event of Default continues for the period and
after the notice specified in the next paragraph; and (f) certain events of
bankruptcy or insolvency involving the Company or any Significant Subsidiary.
In the case of any Event of Default pursuant to clause (a) or (b) above
occurring by reason of any willful action (or inactions) taken (or not taken)
by or on behalf of the Company with the intention of avoiding payment of the
premium that the Company would have to pay pursuant to a redemption of Senior
Notes as described under "--Redemption of Senior Notes--Optional Redemption,"
an equivalent premium shall also become and be immediately, due and payable to
the extent permitted by law.
A Default or Event of Default under clause (c) (other than an Event of
Default arising under the "Merger or Consolidation" covenant which shall be an
Event of Default with the notice but without the passage of time specified in
this paragraph) or clause (e) is not an Event of Default under the Indenture
until the Trustee or the holders of at least 25% in principal amount of the
Senior Notes then outstanding notify the Company of the Default and the Company
does not cure the Default within 30 days after receipt of the notice. A Default
or Event of Default under clause (f) of the preceding paragraph will result in
the Senior Notes automatically becoming due and payable without further action
or notice.
Upon the occurrence of an Event of Default, the Trustee or the holders of at
least 25% in principal amount of the then outstanding Senior Notes may declare
all Senior Notes to be due and payable by notice in writing to the Company and
the Trustee specifying the respective Event of Default and that it is a "notice
of acceleration" (the "Acceleration Notice") and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Amended Credit Agreement, shall become immediately due and payable upon
62
<PAGE>
the first to occur of an acceleration under the Amended Credit Agreement or
five business days after receipt by the Company and the Representative under
the Amended Credit Agreement of such Acceleration Notice but only if such Event
of Default is then continuing. The holders of a majority in principal amount of
the Senior Notes then outstanding under the Indenture, by notice to the
Trustee, may rescind any declaration of acceleration of such Senior Notes and
its consequences (if the rescission would not conflict with any judgment or
decree) if all existing Events of Default (other than the nonpayment of
principal of or interest on such Senior Notes that shall have become due by
such declaration) shall have been cured or waived. Subject to certain
limitations, holders of a majority in principal amount of the Senior Notes then
outstanding under the Indenture may direct the Trustee in its exercise of any
trust or power. Holders of the Senior Notes may not enforce the Indenture,
except as provided therein. The Trustee may withhold from holders of Senior
Notes notice of any continuing Default or Event of Default (except a Default or
an Event of Default in payment of principal, premium, if any, or interest) if
the Trustee determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Senior Notes
then outstanding may on behalf of all holders of such Senior Notes waive any
existing Default or Event of Default under the Indenture and its consequences,
except a continuing Default in the payment of the principal of, or premium, if
any, or interest on, such Senior Notes, which may only be waived with the
consent of each holder of the Senior Notes affected.
Upon any payment or distribution of assets of the Company and its
subsidiaries in a total or partial liquidation, dissolution, reorganization or
similar proceeding, including a Default under clause (f) above involving
certain events of bankruptcy or insolvency of the Company or a Significant
Subsidiary, there may not be sufficient assets remaining to satisfy the claims
of any holders of Senior Notes given the effective structural subordination of
the Senior Notes to the obligations of the Company under the Amended Credit
Agreement.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and upon an officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default.
NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES, STOCKHOLDERS AND
SUBSIDIARIES
No officer, employee, director, stockholder or Subsidiary of the Company
shall have any liability for any Obligations of the Company under the Senior
Notes or the Indenture, or for any claim based on, in respect of, or by reason
of, such Obligations or the creation of any such Obligation, except, in the
case of a Subsidiary, for an express guarantee or an express creation of any
Lien by such Subsidiary of the Company's Obligations under the Senior Notes
issued in accordance with the Indenture. Each holder of the Senior Notes by
accepting a Senior Note waives and releases all such liability, and such waiver
and release is part of the consideration for issuance of the Senior Notes. The
foregoing waiver may not be effective to waive liabilities under the Federal
securities laws and the Securities and Exchange Commission is of the view that
such a waiver is against public policy.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Company at any time may terminate all its obligations under the Senior
Notes and the Indenture ("legal defeasance option"), except for certain
obligations (including those with respect to the defeasance trust (as defined
herein) and obligations to register the transfer or exchange of the Senior
Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a
registrar and paying agent in respect of the Senior Notes). The Company at any
time may terminate (1) its obligations under the "Change of Control" and "Asset
Sales" provisions described herein and the covenants described under "Certain
Covenants" and certain other covenants in the Indenture, (2) the operation of
clauses (c), (d), (e), and (f) contained in the first paragraph of the "Events
of Default and Remedies" provisions described herein and (3) the limitations
contained in clauses (c) and (d) under the "Merger or Consolidation" provisions
described herein (collectively, a "covenant defeasance option").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Senior Notes may not
63
<PAGE>
be accelerated because of an Event of Default with respect thereto. If the
Company exercises its covenant defeasance option, payment of the Senior Notes
shall not be accelerated because of an Event of Default specified in clauses
(c), (d), (e) or (f) in the first paragraph under the "Events of Default and
Remedies" provisions described herein or because of the Company's failure to
comply with clauses (c) and (d) under the "Merger or Consolidation" provisions
described herein.
To exercise either defeasance option with respect to the Senior Notes
outstanding, the Company must irrevocably deposit in trust (the "defeasance
trust") with the Trustee money or U.S. Government Obligations (as defined in
the Indenture) for the payment of principal of, premium, if any, and unpaid
interest on, and Liquidated Damages, if any, with respect to the Senior Notes
then outstanding to redemption or maturity, as the case may be, and must comply
with certain other conditions, including the passage of 91 days and the
delivery to the Trustee an opinion of counsel to the effect that holders of
such Senior Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been in the case if such deposit and defeasance has not
occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
TRANSFER AND EXCHANGE
Holders of Senior Notes may transfer or exchange their Senior Notes in
accordance with the Indenture, but the Registrar may require a holder, among
other things, to furnish appropriate endorsements and transfer documents, and
to pay any taxes and fees required by law or permitted by the Indenture, in
connection with any such transfer or exchange. Neither the Company nor the
Registrar is required to issue, register the transfer of, or exchange (i) any
Senior Note selected for redemption or tendered pursuant to an Offer, or (ii)
any Senior Note during the period between (a) the date the Trustee receives
notice of a redemption from the Company and the date the Senior Notes to be
redeemed are selected by the Trustee or (b) a record date and the next
succeeding interest payment date. The registered holder of a Senior Note will
be treated as its owner for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the Senior Notes then outstanding under such Indenture, and any existing
Default or Event of Default (other than a payment default) or compliance with
any provision may be waived with the consent of the holders of a majority in
principal amount of the Senior Notes then outstanding under the Indenture.
Without the consent of any holder of Senior Notes, the Company and the Trustee
may amend or supplement the Indenture or the Senior Notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Senior Notes
in addition to or in place of certificated Senior Notes, to provide for the
assumption by a successor corporation of the Company's obligations to the
holders of Senior Notes in the case of a Disposition, to comply with the Trust
Indenture Act, or to make any change that does not materially adversely affect
the legal rights of any holder of Senior Notes.
Without the consent of each holder of Senior Notes affected, the Company may
not (i) reduce the principal amount of Senior Notes whose holders must consent
to an amendment to the Indenture or a waiver under the Indenture; (ii) reduce
the rate of or change the interest payment time of the Senior Notes, or alter
the redemption provisions with respect thereto (other than the provisions
relating to the covenants described above under the caption "--Mandatory Offers
to Purchase Senior Notes--Change of Control" and "--Asset Sales") or the price
at which the Company is required to offer to purchase the Senior Notes; (iii)
reduce the principal of or change the fixed maturity of the Senior Notes; (iv)
make the Senior Notes payable in money other than stated in the Senior Notes;
(v) make any change in the provisions concerning waiver of Defaults or Events
of Default by holders of the Senior Notes, or rights of holders of the Senior
Notes to receive payment of principal or interest; or (vi) waive any default in
the payment of principal of, premium, if any, or unpaid interest on, and
Liquidated Damages, if any, with respect to the Senior Notes.
64
<PAGE>
CONCERNING THE TRUSTEE
The Trustee for the Senior Notes will be State Street Bank and Trust Company.
The Indenture contains certain limitations on the rights of the Trustee, if
it becomes a creditor of the Company, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee is permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Trust Indenture Act) it must eliminate such conflict or resign.
The holders of a majority in principal amount of the Senior Notes then
outstanding will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that if an Event of
Default occurs (and has not been cured), the Trustee will be required, in the
exercise of its power, to use the degree of care and skill of a prudent person
in similar circumstances in the conduct of its own affairs. Subject to the
provisions of the Indenture, the Trustee will be under no obligation to
exercise any of its rights or powers under its Indenture at the request of any
of the holders of the Senior Notes, unless such holders shall have offered to
the Trustee security and indemnity satisfactory to it.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Notes to be exchanged as
set forth herein will initially be issued in the form of one or more Global New
Notes (collectively, the "Global New Note"). The Global New Note will be
deposited on the Expiration Date with, or on behalf of, the Depositary and
registered in the name of Cede & Co., as nominee of the Depositary (such
nominee being referred to herein as the "Global New Note Holder").
New Notes that are issued as described below under "--Certificated New Notes"
will be issued in the form of registered definitive certificates (the
"Certificated New Notes"). Such Certificated New Notes may, unless the Global
New Note has previously been exchanged for Certificated New Notes, be exchanged
for an interest in the Global New Note representing the principal amount of New
Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or the "Depositary's
Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only through the Depositary's Participants or the Depositary's
Indirect Participants.
So long as the Global New Note Holder is the registered owner of any New
Notes, the Global New Note Holder will be considered the sole holder under the
Indenture of any New Notes evidenced by the Global New Note. Beneficial owners
of New Notes evidenced by the Global New Note will be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any directions, instructions or approvals to the Trustee
thereunder. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records of the Depositary or for maintaining,
supervising or reviewing any records of the Depositary relating to the New
Notes.
Payments in respect of the principal of, premium, if any, and interest on New
Notes registered in the name of the Global New Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
New Note Holder in its capacity as the registered holder under the Indenture.
Under the terms of the Indenture, the Company and the Trustee may treat the
persons in whose names New Notes, including the
65
<PAGE>
Global New Note, are registered as the owners thereof for the purpose of
receiving such payments. 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. The Company believes, however, that it is
currently the policy of the Depositary to immediately credit the accounts of
the relevant participants with such payments, in amounts proportionate to their
respective holdings of beneficial interests in the relevant security as shown
on the records of the Depositary. Payments by the Depositary's Participants and
the Depositary's 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 Depositary's Participants or the Depositary's
Indirect Participants.
CERTIFICATED NEW NOTES
Subject to certain conditions, any person having a beneficial interest in the
Global New Note may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of Certificated New Notes. Upon any such
issuance, the Trustee is required to register such Certificated New Notes in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as a
depositary 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 New Notes in the form of Certificated New
Notes under the Indenture, then, upon surrender by the Global New Note Holder
of its Global New Note, New Notes in such form will be issued to each person
that the Global New Note Holder and the Depositary identify as being the
beneficial owner of the related New Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global New Note Holder or the Depositary in identifying the beneficial owners
of New Notes and the Company and the Trustee may conclusively rely on, and will
protected in relying on, instructions from the Global New Note Holder or the
Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes represented
by the Global New Note (including principal, premium, if any, and interest) be
made by wire transfer of immediately available funds to the accounts specified
by the Global New Note Holder. With respect to Certificated New Notes, the
Company will make all payments of principal, premium, if any, and interest by
wire transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to each
such holder's registered address. Secondary trading in long-term notes and
debentures of corporate issuers is generally settled in clearinghouse or next-
day funds. In contrast, New Notes represented by the Global New Note are
expected to be eligible to trade in the PORTAL market and to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such New Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated New Notes will also be settled in
immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the Indenture.
Reference is made to the Indenture for the definition of all other terms used
in the Indenture.
"Affiliate" means any of the following: (i) any person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Company, (ii) any spouse, immediate family member or other relative who has
the same principal residence as any person described in clause (i) above, (iii)
any trust in which any such persons described in clause (i) or (ii) above has a
beneficial interest, and (iv) any corporation or other organization of which
any such persons described above collectively own 50% or more of the equity of
such entity.
66
<PAGE>
"Amended Credit Agreement" means the credit agreement, dated November 7,
1996, as amended as of the date hereof, among M&G Industries, Inc., certain of
its subsidiaries and the lenders party thereto in their capacities as lenders
thereunder and Bankers Trust Company, as agent, together with all loan
documents and instruments thereunder (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without limitation, increasing the amount of available borrowings thereunder,
and all Obligations with respect thereto, in each case, to the extent permitted
by the "Limitation on Incurrence of Indebtedness" covenant, or adding
Subsidiaries of the Company as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Asset Sale" means the sale, lease, conveyance or other disposition by the
Company or a Restricted Subsidiary of assets or property whether owned on the
date of original issuance of the Senior Notes or thereafter acquired, in a
single transaction or in a series of related transactions, that are outside of
the ordinary course of business of the Company or such Restricted Subsidiary;
provided that Asset Sales will not include such sales, leases, conveyances or
dispositions in connection with (i) the sale or disposition of any Restricted
Investment, (ii) any Equity Offering by (a) the Company or (b) any Restricted
Subsidiary if the proceeds therefrom are used to make mandatory prepayments of
Indebtedness under the Amended Credit Agreement or Indebtedness of the
Restricted Subsidiaries or redeem Senior Notes as described above in "Optional
Redemption," (iii) the sale or lease of equipment, inventory, accounts
receivable or other assets in the ordinary course of business, (iv) Receivables
Financings, (v) the surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind, (vi) the
grant of any license of patents, trademarks, registration therefor and other
similar intellectual property, (vii) a transfer of assets by the Company or a
Restricted Subsidiary to any of the Company, a Restricted Subsidiary or a Non-
Restricted Subsidiary, (viii) the designation of a Restricted Subsidiary as a
Non-Restricted Subsidiary pursuant to the "Designation of Restricted and Non-
Restricted Subsidiaries" covenant, (ix) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company as
permitted under "Merger or Consolidation," (x) the sale or disposition of
obsolete equipment or other obsolete assets, or (xi) Restricted Payments
permitted by the "Limitations on Restricted Payments" covenant.
"Board of Directors" means the Company's board of directors or any authorized
committee of such board of directors.
"Capital Stock" means any and all shares, interests, participations or other
equivalents (however designated) of corporate stock, including any preferred
stock.
"Cash Flow" means, for any given period and person, the sum of, without
duplication, Consolidated Net Income, plus (a) the portion of Net Income
attributable to the minority interests in its Subsidiaries, to the extent not
included in calculating Consolidated Net Income, plus (b) any provision for
taxes based on income or profits to the extent such income or profits were
included in computing Consolidated Net Income, plus (c) Consolidated Interest
Expense, to the extent deducted in computing Consolidated Net Income, plus (d)
the amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, debt and financing costs, and Incentive
Arrangements), plus (e) any non-capitalized transaction costs incurred in
connection with financings, acquisitions or divestitures (including, but not
limited to, financing and refinancing fees, including those in connection with
the Old Offering, in each case, to the extent deducted in computing
Consolidated Net Income), plus (f) all depreciation and all other non-cash
charges (including, without limitation, those charges relating to purchase
accounting adjustments and LIFO adjustments), to the extent deducted in
computing Consolidated Net Income, plus (g) any interest income, to the extent
such income was not included in computing Consolidated Net Income, plus (h) all
dividend payments on preferred stock (whether or not paid in cash) to the
extent deducted in computing Consolidated Net Income, plus (i) any
extraordinary or non-recurring charge or expense arising out of the
implementation of SFAS 106 or SFAS 109 to the extent deducted in computing
Consolidated Net Income,
67
<PAGE>
plus (j) to the extent not covered in clause (e) above, fees paid or payable in
respect of the New TJC Management Consulting Agreement to the extent deducted
in computing Consolidated Net Income, plus (k) the net loss of any person,
other than those of a Restricted Subsidiary, to the extent deducted in
computing Consolidated Net Income, plus (l) net losses in respect of any
discontinued operations as determined in accordance with GAAP, to the extent
deducted in computing Consolidated Net Income; provided, however, that if any
such calculation includes any period during which an acquisition or sale of a
person or the incurrence or repayment of Indebtedness occurred, then such
calculation for such period shall be made on a Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and person, the ratio
of: (i) Cash Flow, divided by (ii) the sum of Consolidated Interest Expense and
the amount of all dividend payments on any series of preferred stock of such
person (except dividends paid or payable in additional shares of Capital Stock
(other than Disqualified Stock)), in each case, without duplication; provided,
however, that if any such calculation includes any period during which an
acquisition or sale of a person or the incurrence or repayment of Indebtedness
occurred, then such calculation for such period shall be made on a Pro Forma
Basis.
"Change of Control" means the occurrence of each of the following: (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), excluding the Jordan Stockholders, is or becomes 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 securities 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 more
than 50% of the total Voting Stock of the Company; and (ii) the Company
consolidates with, or merges with or into, another person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any person, or any person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where (A)
the outstanding Voting Stock of the Company is converted into or exchanged for
(1) Voting Stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation or (2) cash, securities and other property in an amount
which could be paid by the Company as a Restricted Payment under the Indenture
and (B) immediately after such transaction no "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding the
Jordan Stockholders, is 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 securities 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 more than 50% of the total Voting
Stock of the surviving or transferee corporation; and (iii) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of a
majority of the directors then still in office who are entitled to vote to
elect such new director and were either directors at the beginning of such
period or persons whose election as directors or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Senior Notes to require the Company to repurchase such Senior Notes
as a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of the Company and its subsidiaries to another person
may be uncertain. Furthermore, an acquisition of the Company by the Jordan
Stockholders including pursuant to a spin-off to the Jordan Stockholders by
JII, directly or indirectly of its investment in the Company, would not
constitute a Change of Control.
"Commission" means the Securities and Exchange Commission.
"Consolidated Interest Expense" means, for any given period and person, the
aggregate of the interest expense in respect of all Indebtedness of such person
and its Subsidiaries for such period, on a consolidated basis,
68
<PAGE>
determined in accordance with GAAP (including amortization of original issue
discount on any such Indebtedness, all non-cash interest payments, the interest
portion of any deferred payment obligation and the interest component of
capital lease obligations, but excluding amortization of deferred financing
fees if such amortization would otherwise be included in interest expense);
provided, however, that for the purpose of the Cash Flow Coverage Ratio,
Consolidated Interest Expense shall be calculated on a Pro Forma Basis;
provided further that any premiums, fees and expenses (including the
amortization thereof) payable in connection with the Old Offering and the
application of the net proceeds therefrom or any other refinancing of
Indebtedness will be excluded.
"Consolidated Net Income" means, for any given period and person, the
aggregate of the Net Income of such person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
however, that: (i) the Net Income of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, and (ii) Consolidated Net Income of any person will not
include, without duplication, any deduction for: (A) any increased amortization
or depreciation resulting from the write-up of assets pursuant to Accounting
Principles Board Opinion Nos. 16 and 17, as amended or supplemented from time
to time, (B) the amortization of all intangible assets (including amortization
attributable to inventory write-ups, goodwill, debt and financing costs, and
Incentive Arrangements), (C) any non-capitalized transaction costs incurred in
connection with financings, acquisitions or divestitures (including, but not
limited to, financing and refinancing fees), (D) any extraordinary or
nonrecurring charges relating to any premium or penalty paid, write-off of
deferred financing costs or other financial recapitalization charges in
connection with redeeming or retiring any Indebtedness prior to its stated
maturity, and (E) any Restructuring Charges; provided, however, that for
purposes of determining the Cash Flow Coverage Ratio, Consolidated Net Income
shall be calculated on a Pro Forma Basis.
"Consolidated Net Worth" with respect to any person means, as of any date,
the consolidated equity of the common stockholders of such person (excluding
the cumulated foreign currency translation adjustment), all determined on a
consolidated basis in accordance with GAAP, but without any reduction in
respect of the payment of dividends on any series of such person's preferred
stock if such dividends are paid in additional shares of Capital Stock (other
than Disqualified Stock); provided, however, that Consolidated Net Worth shall
also include, without duplication: (a) the amortization of all write-ups of
inventory, (b) the amortization of all intangible assets (including
amortization of goodwill, debt and financing costs, and Incentive
Arrangements), (c) any non-capitalized transaction costs incurred in connection
with financings, acquisitions or divestitures (including, but not limited to,
financing and refinancing fees), (d) any increased amortization or depreciation
resulting from the write-up of assets pursuant to Accounting Principles Board
Opinion Nos. 16 and 17, as amended and supplemented from time to time, (e) any
extraordinary or nonrecurring charges or expenses relating to any premium or
penalty paid, write-off of deferred financing costs or other financial
recapitalization charges incurred in connection with redeeming or retiring any
Indebtedness prior to its stated maturity, (f) any Restructuring Charges, and
(g) any extraordinary or non-recurring charge arising out of the implementation
of SFAS 106 or SFAS 109; provided, however, that Consolidated Net Worth shall
be calculated on a Pro Forma Basis.
"Contingent Earnout Agreement" means the Contingent Earnout Agreement, among
the Company and certain of its Restricted Subsidiaries and JII and certain of
its Restricted Subsidiaries, as in effect on November 7, 1996.
"Default" means any event that is, or after notice or passage of time or both
would be, an Event of Default.
"Disqualified Stock" means 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, in whole or in part on, or
prior to, the maturity date of the Senior Notes.
"Equity Interests" means Capital Stock or partnership interests or warrants,
options or other rights to acquire Capital Stock or partnership interests (but
excluding (i) any debt security that is convertible into, or
69
<PAGE>
exchangeable for, Capital Stock or partnership interests, and (ii) any other
Indebtedness or Obligation) provided, however, that Equity Interests will not
include any Incentive Arrangements or obligations or payments thereunder.
"Equity Offering" means a public or private offering by the Company and/or
its Subsidiaries for cash of Capital Stock or other Equity Interests and all
warrants, options or other rights to acquire Capital Stock, other than (i) an
offering of Disqualified Stock or (ii) Incentive Arrangements or obligations or
payments thereunder.
"GAAP" means generally accepted accounting principles, consistently applied,
as of the date of original issuance of the Senior Notes. All financial and
accounting determinations and calculations under the Indenture will be made in
accordance with GAAP.
"Hedging Obligations" means, with respect to any person, the Obligations of
such persons under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange
contracts, currency swap agreements or similar agreements, and (iii) other
agreements or arrangements designed to protect such person against
fluctuations, or otherwise to establish financial hedges in respect of,
exchange rates, currency rates or interest rates.
"Incentive Arrangements" means any earn-out agreements, stock appreciation
rights, "phantom" stock plans, employment agreements, non-competition
agreements, subscription and stockholders agreements and other incentive and
bonus plans and similar arrangements made in connection with acquisitions of
persons or businesses by the Company or the Restricted Subsidiaries or the
retention of executives, officers or employees by the Company or the Restricted
Subsidiaries.
"Indebtedness" means, with respect to any person, any indebtedness, whether
or not contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the deferred and unpaid balance
of the purchase price of any property (including pursuant to capital leases),
except any such balance that constitutes an accrued expense or a trade payable,
and any Hedging Obligations, if and to the extent such indebtedness (other than
a Hedging Obligation) would appear as a liability upon a balance sheet of such
person prepared on a consolidated basis in accordance with GAAP, and also
includes, to the extent not otherwise included, the guarantee of items that
would be included within this definition; provided, however, that
"Indebtedness" will not include any Incentive Arrangements or obligations or
payments thereunder.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or bankruptcy
or similar case or proceeding, or any reorganization, receivership,
liquidation; dissolution or winding up of the Company, whether voluntary or
involuntary, or (ii) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company.
"Investment" means any capital contribution to, or other debt or equity
investment in, any Person.
"Issue" means create, issue, assume, guarantee, incur or otherwise become
directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be issued by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary. For this definition, the terms "issuing," "issuer," "issuance" and
"issued" have meanings correlative to the foregoing.
"JI Properties Services Agreement" means the properties services agreement,
dated as of July 25, 1997, between the Company and each of its Subsidiaries and
JI Properties, Inc., a subsidiary of JII, as in effect on December 17, 1997.
"Jordan Stockholders" means JII, The Jordan Company and Jordan/Zalaznick
Capital Corporation and their respective affiliates, principals, partners and
employees, family members of any of the foregoing and trusts
70
<PAGE>
for the benefit of any of the foregoing, including, without limitation, MCIT
PLC and Leucadia National Corporation and their respective Subsidiaries.
"Junior Seller Notes" mean the subordinated promissory note, dated September
22, 1995, issued by Merkle-Korff Industries, Inc., in the principal amount of
$5.0 million, and maturing on December 31, 2003 and the subordinated promissory
note, dated October 27, 1997, issued by Electrical Design, in the principal
amount of $4.0 million, and maturing on December 31, 2002, each as in effect on
December 17, 1997.
"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 and any filing of or
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any person, the net income (loss) of such
person, determined in accordance with GAAP, excluding, however, any gain or
loss, together with any related provision for taxes, realized in connection
with any Asset Sale (including, without limitation, dispositions pursuant to
sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount of
cash proceeds (including any cash received by way of deferred payment pursuant
to a note receivable issued in connection with such Asset Sale, other than the
portion of such deferred payment constituting interest, and including any
amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either such
case, only as and when so received) received by the Company or any of its
Restricted Subsidiaries in respect of such Asset Sale, net of: (i) the cash
expenses of such Asset Sale (including, without limitation, the payment of
principal of, and premium, if any, and interest on, Indebtedness required to be
paid as a result of such Asset Sale (other than the Senior Notes) and legal,
accounting, management and advisory and investment banking fees and sales
commissions), (ii) taxes paid or payable as a result thereof, (iii) any portion
of cash proceeds that the Company determines in good faith should be reserved
for post-closing adjustments, it being understood and agreed that on the day
that all such post-closing adjustments have been determined, the amount (if
any) by which the reserved amount in respect of such Asset Sale exceeds the
actual post-closing adjustments payable by the Company or any of its Restricted
Subsidiaries shall constitute Net Proceeds on such date, (iv) any relocation
expenses and pension, severance and shutdown costs incurred as a result
thereof, and (v) any deduction or appropriate amounts to be provided by the
Company or any of its Restricted Subsidiaries as a reserve in accordance with
GAAP against any liabilities associated with the asset disposed of in such
transaction and retained by the Company or such Restricted Subsidiary after
such sale or other disposition thereof, including, without limitation, pension
and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated
with such transaction.
"New Subsidiary Advisory Agreement" means the advisory agreement, dated as of
July 25, 1997, between the Company and each of its Subsidiaries and JII, as in
effect on December 17, 1997.
"New Subsidiary Consulting Agreement" means the management consulting
agreement, dated as of July 25, 1997, between the Company and each of its
Subsidiaries and JII, as in effect on December 17, 1997.
"New TJC Management Consulting Agreement" means the management consulting
agreement, dated as of July 25, 1997, between JII and TJC Management Corp., as
in effect on December 17, 1997.
"Non-Restricted Subsidiary" means any Subsidiary of the Company other than a
Restricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, all principal,
interest, premiums, penalties, fees, indemnities, expenses (including legal
fees and expenses), reimbursement obligations and other liabilities
71
<PAGE>
payable to the holder of such Indebtedness under the documentation governing
such Indebtedness, and any other claims of such holder arising in respect of
such Indebtedness.
"Other Permitted Indebtedness" means:
(i) Indebtedness of the Company and its Restricted Subsidiaries existing
as of the date of issuance of the Senior Notes;
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
respect of bankers acceptances and letters of credit (including, without
limitation, letters of credit in respect of workers' compensation claims)
issued in the ordinary course of business, or other Indebtedness in respect
of reimbursement-type obligations regarding workers' compensation claims;
(iii) Refinancing Indebtedness, provided that: (A) the principal amount
of such Refinancing Indebtedness shall not exceed the outstanding principal
amount of Indebtedness (including unused commitments) extended, refinanced,
renewed, replaced, substituted or refunded plus any amounts incurred to pay
premiums, fees and expenses in connection therewith, (B) 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 extended, refinanced, renewed, replaced, substituted or refunded;
provided, however, that this limitation in this clause (B) does not apply
to Refinancing Indebtedness of Senior Indebtedness, and (C) in the case of
Refinancing Indebtedness of Subordinated Indebtedness, such Refinancing
Indebtedness shall be subordinated to the Senior Notes at least to the same
extent as the Subordinated Indebtedness being extended, refinanced,
renewed, replaced, substituted or refunded;
(iv) intercompany Indebtedness of and among the Company and its
Restricted Subsidiaries (excluding guarantees by Restricted Subsidiaries of
Indebtedness of the Company not issued in compliance with "Limitation on
Guarantees of Company Indebtedness by Restricted Subsidiaries" covenant);
(v) Indebtedness of the Company and its Restricted Subsidiaries incurred
in connection with making permitted Restricted Payments under clauses
(iii), (iv) but only to the extent that such Indebtedness is provided by
the Company or a Restricted Subsidiary, or (xi) of the second sentence of
the "Limitation on Restricted Payments" covenant;
(vi) Indebtedness of any Non-Restricted Subsidiary created after the date
of original issuance of the Senior Notes, provided that such Indebtedness
is nonrecourse to the Company and its Restricted Subsidiaries and the
Company and its Restricted Subsidiaries have no Obligations with respect to
such Indebtedness;
(vii) Indebtedness of the Company and its Restricted Subsidiaries under
Hedging Obligations;
(viii) Indebtedness of the Company and its Restricted Subsidiaries
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts, which will not be, and will not be deemed to be,
inadvertent) drawn against insufficient funds in the ordinary course of
business;
(ix) Indebtedness of any person at the time it is acquired as a
Restricted Subsidiary, provided that such Indebtedness was not issued by
such person in connection with or in anticipation of such acquisition;
(x) guarantees by Restricted Subsidiaries of Indebtedness of any
Restricted Subsidiary if such Indebtedness so guaranteed is permitted under
the Indenture;
(xi) guarantees by a Restricted Subsidiary of Indebtedness of the Company
if the Indebtedness so guaranteed is permitted under the Indenture and the
Senior Notes are guaranteed by such Restricted Subsidiary to the extent
required by the "Limitation on Guaranties of Company Indebtedness by
Restricted Subsidiaries" covenant;
(xii) guarantees by the Company of Indebtedness of any Restricted
Subsidiary if the Indebtedness so guaranteed is permitted under the
Indenture;
(xiii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with performance, surety, statutory, appeal or similar bonds in
the ordinary course of business;
72
<PAGE>
(xiv) Indebtedness of the Company and its Restricted Subsidiaries in
connection with agreements providing for indemnification, purchase price
adjustments and similar obligations in connection with the sale or
disposition of any of their business, properties or assets;
(xv) Indebtedness of the Restricted Subsidiaries in respect of the Junior
Seller Notes; and
(xvi) Indebtedness of the Company and its Restricted Subsidiaries in
respect of the Contingent Earnout Agreement.
"Parent" means Motors and Gears Holdings, Inc., a Delaware corporation and
corporate parent of the Company.
"Permitted Liens" means: (a) with respect to the Company and its Restricted
Subsidiaries,
(1) Liens for taxes, assessments, governmental charges or claims which
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor;
(2) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings,
if a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made therefor;
(3) Liens incurred on deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security;
(4) Liens incurred on deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, government
contracts, performance and return of money bonds and other obligations of a
like nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money);
(5) easements, rights-of-way, zoning or other restrictions, minor defects
or irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of the Company or any
of its Restricted Subsidiaries incurred in the ordinary course of business;
(6) Liens (including extensions, renewals and replacements thereof) upon
property acquired (the "Acquired Property") after the date of original
issuance of the Senior Notes, provided that: (A) any such Lien is created
solely for the purpose of securing Indebtedness representing, or issued to
finance, refinance or refund, the cost (including the cost of construction)
of the Acquired Property, (B) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of the cost of the Acquired
Property, (C) such Lien does not extend to or cover any property other than
the Acquired Property and any improvements on such Acquired Property, and
(D) the issuance of the Indebtedness to purchase the Acquired Property is
permitted by the "Limitation on Incurrence of Indebtedness" covenant;
(7) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the
importation of goods;
(8) judgment and attachment Liens not giving rise to an Event of Default;
(9) leases or subleases granted to others not interfering in any material
respect with the business of the Company or any of its Restricted
Subsidiaries;
(10) Liens securing Indebtedness under Hedging Obligations;
(11) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements;
(12) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by the Company or its Restricted Subsidiaries in
the ordinary course of business;
(13) any interest or title of a lessor in property subject to any capital
lease obligation or operating lease;
(14) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
73
<PAGE>
(15) Liens existing on the date of original issuance of the Senior Notes
and any extensions, refinancings, renewals, replacements, substitutions or
refundings thereof;
(16) any Lien granted to the Trustee and any substantially equivalent
Lien granted to any trustee or similar institution under any indenture for
Senior Indebtedness permitted by the terms of the Indenture; and
(17) additional Liens at any one time outstanding in respect of
properties or assets where aggregate fair market value does not exceed
$10,000,000 (the fair market value to be determined on the date such Lien
is granted on such properties or assets);
(b) with respect to the Restricted Subsidiaries,
(1) Liens securing Restricted Subsidiaries' reimbursement Obligations
with respect to letters of credit that encumber documents and other
property relating to such letters of credit and the products and proceeds
thereof;
(2) Liens securing Indebtedness issued by Restricted Subsidiaries if such
Indebtedness is (A) under the Credit Agreement or Amended Credit Agreement,
or (B) permitted by the first sentence of the "Limitation on Incurrence of
Indebtedness" covenant, clauses (i), (ii), (iii) or (iv) of the second
sentence of the "Limitation on Incurrence of Indebtedness" covenant, or
clauses (i), (iii) (to the extent the Indebtedness subject to such
Refinancing Indebtedness was subject to Liens), (vi), (vii), (ix) or (x) of
the definition of Other Permitted Indebtedness;
(3) Liens securing intercompany Indebtedness issued by any Restricted
Subsidiary to the Company or another Restricted Subsidiary; and
(4) Liens securing guarantees by Restricted Subsidiaries of Indebtedness
issued by the Company if such guarantees permitted by clause (xi) (but only
in respect of the property, rights and assets of the Restricted
Subsidiaries issuing such guarantees) of the definition of Other Permitted
Indebtedness;
(c) with respect to the Company,
(1) Liens securing Indebtedness issued by the Company if such
Indebtedness is (A) under the Credit Agreement or the Amended Credit
Agreement, or (B) if such Indebtedness is permitted by the "Limitation on
Incurrence of Indebtedness" covenant (including, but not limited to,
Indebtedness issued by the Company under the Credit Agreement or the
Amended Credit Agreement pursuant to clause (i) and/or clause (iv) of the
second sentence of the "Limitation on Incurrence of Indebtedness"
covenant);
(2) Liens securing Indebtedness of the Company if such Indebtedness is
permitted by clauses (i), (iii) (to the extent the Indebtedness subject to
such Refinancing Indebtedness was subject to Liens) or (vii) of the
definition of Other Permitted Indebtedness;
(3) Liens securing guarantees by the Company of Indebtedness issued by
Restricted Subsidiaries if such Indebtedness is permitted by the
"Limitation on Incurrence of Indebtedness" covenant (including, but not
limited to, Indebtedness issued by Restricted Subsidiaries under the Credit
Agreement or the Amended Credit Agreement pursuant to clause (i) and/or
clause (iv) of the second sentence of the "Limitation on Incurrence of
Indebtedness" covenant) and if such guarantees are permitted by clause
(xii) (but only in respect of Indebtedness issued by the Restricted
Subsidiaries under the Credit Agreement or the Amended Credit Agreement
pursuant to the "Limitation on Incurrence of Indebtedness" covenant) of the
definition of Other Permitted Indebtedness; and
(4) Liens securing the Company's reimbursement obligations with respect
to letters of credit that encumber documents and other property relating to
such letters of credit and the products and proceeds thereof
provided, however, that, notwithstanding any of the foregoing, the Permitted
Liens referred to in clause (c) of this definition shall not include any Lien
on Capital Stock of Restricted Subsidiaries held directly by the Company (as
distinguished from Liens on Capital Stock of Restricted Subsidiaries held by
other Restricted Subsidiaries) other than Liens securing (A) Indebtedness of
the Company issued under the Credit Agreement or
74
<PAGE>
the Amended Credit Agreement pursuant to the "Limitation on Incurrence of
Indebtedness" covenant and any permitted Refinancing Indebtedness of such
Indebtedness, and (B) guarantees by the Company of Indebtedness issued by
Restricted Subsidiaries under the Credit Agreement or the Amended Credit
Agreement pursuant to the "Limitation on Incurrence of Indebtedness" covenant
and any permitted Refinancing Indebtedness of such Indebtedness.
"Pro Forma Basis" means, for purposes of determining Consolidated Net Income
in connection with the Cash Flow Coverage Ratio (including in connection with
the "Limitation on Restricted Payments" covenant, the "Designation of
Restricted and Non-Restricted Subsidiaries" covenant, the "Merger or
Consolidation" covenant, the incurrence of Indebtedness pursuant to the first
sentence of the "Limitation on Incurrence of Indebtedness" covenant and
Consolidated Net Worth for purposes of the "Merger or Consolidation" covenant,
giving pro forma effect to (x) any acquisition or sale of a person, business or
asset, related incurrence, repayment or refinancing of Indebtedness or other
related transactions, including any Restructuring Charges which would otherwise
be accounted for as an adjustment permitted by Regulation S-X under the
Securities Act or on a pro forma basis under GAAP, or (y) any incurrence,
repayment or refinancing of any Indebtedness and the application of the
proceeds therefrom, in each case, as if such acquisition or sale and related
transactions, restructurings, consolidations, cost savings, reductions,
incurrence, repayment or refinancing were realized on the first day of the
relevant period permitted by Regulation S-X under the Securities Act or on a
pro forma basis under GAAP. Furthermore, in calculating the Cash Flow Coverage
Ratio, (1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the determination date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the determination date;
(2) if interest on any Indebtedness actually incurred on the determination date
may optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a eurocurrency interbank offered rate, or other rates, then
the interest rate in effect on the determination date will be deemed to have
been in effect during the relevant period; and (3) notwithstanding clause (1)
above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to interest rate swaps
or similar interest rate protection Hedging Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Receivables" means, with respect to any person, all of the following
property and interests in property of such person, whether now existing or
existing in the future or hereafter acquired or arising: (i) accounts, (ii)
accounts receivable (including, without limitation, all rights to payment
created by or arising from sales of goods, leases of goods or leased or the
rendition of services rendered no matter how evidenced, whether or not earned
by performance), (iii) all unpaid seller's or lessor's rights (including,
without limitation, recession, replevin, reclamation and stoppage in transit,
relating to any of the foregoing or arising therefrom), (iv) all rights to any
goods or merchandise represented by any of the foregoing (including, without
limitation, returned or repossessed goods), (v) all reserves and credit
balances with respect to any such accounts receivable or account debtors, (vi)
all letters of credit, security or guarantees of any of the foregoing, (vii)
all insurance policies or reports relating to any of the foregoing, (viii) all
collection or deposit accounts relating to any of the foregoing, (ix) all
proceeds of any of the foregoing, and (x) all books and records relating to any
of the foregoing.
"Receivables Financing" means (i) the sale, factoring or other disposition of
Receivables that arise in the ordinary course of business, or (ii) the sale,
factoring or other disposition of Receivables that arise in the ordinary course
of business to a Receivables Subsidiary followed by a financing transaction in
connection with such sale or disposition of such Receivables.
"Receivables Subsidiary" means any Subsidiary of the Company or any other
corporation trust or entity that is exclusively engaged in Receivables
Financings and activities reasonably related thereto.
"Redeemable Preferred Stock" means preferred stock that by its terms or
otherwise is required to be redeemed or is redeemable at the option of the
holder thereof on, or prior to, the maturity date of the Senior Notes.
75
<PAGE>
"Refinancing Indebtedness" means (i) Indebtedness of the Company and its
Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund any
Indebtedness permitted under this Indenture or any Indebtedness issued to so
extend, refinance, renew, replace, substitute or refund such Indebtedness, (ii)
any refinancings of Indebtedness issued under the Amended Credit Agreement, and
(iii) any additional Indebtedness issued to pay premiums and fees in connection
with clauses (i) and (ii).
"Representative" means the agent or other representative in respect of the
Amended Credit Agreement, with the Representative originally being Bankers
Trust Company.
"Restricted Investment" means any Investment in any person, provided that
Restricted Investments will not include: (i) Investments in marketable
securities and other negotiable instruments permitted by the Indenture; (ii)
any Incentive Arrangements; (iii) Investments in the Company; or (iv)
Investments in any Restricted Subsidiary (provided that any Investment in a
Restricted Subsidiary was made for fair market value (as determined by the
Board of Directors in good faith)). The amount of any Restricted Investment
shall be the amount of cash and the fair market value at the time of transfer
of all other property (as determined by the Board of Directors in good faith)
initially invested or paid for such Restricted Investment, plus all additions
thereto, without any adjustments for increases or decreases in value of or
write-ups, write-downs or write-offs with respect to, such Restricted
Investment.
"Restricted Subsidiary" means: (i) any Subsidiary of the Company existing on
November 7, 1996, and (ii) any other Subsidiary of the Company formed, acquired
or existing after November 7, 1996 that is designated as a "Restricted
Subsidiary" by the Company pursuant to a resolution approved a majority of the
Board of Directors, provided, however, that the term Restricted Subsidiary
shall not include any Subsidiary of the Company that has been redesignated by
the Company pursuant to a resolution approved by a majority of the Board of
Directors as a Non-Restricted Subsidiary in accordance with the "Designation of
Restricted and Non-Restricted Subsidiaries" covenant unless such Subsidiary
shall have subsequently been redesignated a Restricted Subsidiary in accordance
with clause (ii) of this definition.
"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any persons
or businesses either alone or together with the Company or any Restricted
Subsidiary, as permitted by GAAP or Regulation S-X under the Securities Act.
"Senior Indebtedness" means: (i) all Obligations (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of the
Company, whether outstanding on the date of original issuance of the Senior
Notes or thereafter created, incurred or assumed, of the following types: (A)
all Indebtedness of the Company (including without limitation the Old Series C
Notes and the Old Series B Notes) for money borrowed, and (B) all Indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which the Company is responsible or liable; (ii) all capitalized
lease obligations of the Company; (iii) all Obligations of the Company: (A) for
the reimbursement of any obligor on any letter of credit, banker's acceptance
or similar credit transaction, (B) all constituting Hedging Obligations, or (C)
issued as the deferred purchase price of property and all conditional sale
Obligations of the Company and all Obligations of the Company under any title
retention agreement; (iv) all guarantees of the Company with respect to
Obligations of other persons of the type referred to in clauses (ii) and (iii)
and with respect to the payment of dividends of other persons; and (v) all
Obligations of the Company consisting of modifications, renewals, extensions,
replacements and refundings of any Obligations described in clauses (i), (ii),
(iii) or (iv) unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is expressly provided that such
Obligations are subordinated or junior in right of payment to the Senior Notes;
provided, however, that Senior Indebtedness shall not be deemed to include: (1)
any Obligation of the Company to any Subsidiary, (2) any liability for federal,
state, local or other taxes owed or owing by the Company, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including
76
<PAGE>
guarantees thereof or instruments evidencing such liabilities), (4) any
Indebtedness, guarantee or Obligation of the Company that is contractually
subordinated or junior in any respect to any other Indebtedness, guarantee or
Obligation of the Company, or (5) any Indebtedness to the extent the same is
incurred in violation of the Indenture. Senior Indebtedness shall include all
Obligations in respect of the Senior Notes and the Indenture.
To the extent any payment on the Senior Notes, whether by or on behalf of the
Company, as proceeds of security or enforcement of any right of setoff or
otherwise, is declared to be fraudulent or preferential, set aside or required
to be paid to a trustee, receiver or other similar party under any bankruptcy,
insolvency, receivership or similar law, then if such payment is recovered by,
or paid over to, such trustee, receiver or other similar party, the Senior
Notes or part thereof originally intended to be satisfied by such payment shall
be deemed to be reinstated and outstanding as if such payment had not occurred.
"SFAS 106" means Statement of Financial Accounting Standards No. 106.
"SFAS 109" means Statement of Financial Accounting Standards No. 109.
"Significant Subsidiary" means any Restricted Subsidiary of the Company that
would be a "significant subsidiary" as defined in clause (2) of the definition
of such term in Rule 1-02 of Regulation S-X under the Securities Act and the
Exchange Act.
"Subordinated Indebtedness" means all Obligations of the type referred to in
clauses (i) through (v) of the definition of Senior Indebtedness, if the
instrument creating or evidencing the same, or pursuant to which the same is
outstanding, designates such Obligations as subordinated or junior in right of
payment to Senior Indebtedness.
"Subsidiary" of any person means any entity of which the Equity Interests
entitled to cast at least a majority of the votes that may be cast by all
Equity Interests having ordinary voting power for the election of directors or
other governing body of such entity are owned by such person (regardless of
whether such Equity Interests are owned directly by such person or through one
or more Subsidiaries).
"Transition Agreement" means the transition agreement, dated as of July 25,
1997, between the Parent and JII, as in effect on December 17, 1997.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the sum of the product(s)
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other requirement payment of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) which will elapse between such
date and the making of such payment.
77
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of important terms of certain indebtedness of the
Company and its Subsidiaries:
JUNIOR SELLER NOTES
In connection with the acquisition of Merkle-Korff, Merkle-Korff issued to
the Merkle-Korff seller a $5.0 million, 9% junior seller note (the "MK Junior
Seller Note") due December 31, 2003. The MK Junior Seller Note is a general
unsecured obligation of Merkle-Korff, which was subordinated to borrowings
under the Existing Credit Agreement and will be subordinated to borrowings
under the Amended Credit Agreement. Interest under the MK Junior Seller Note
is payable annually in arrears and Merkle-Korff is required to pay
installments of principal on the MK Junior Seller Note as follows: (i) $1.0
million on December 31, 2000, (ii) $1.25 million on December 31, 2001, (iii)
$1.25 million on December 31, 2002, and (iv) the entire then outstanding
principal amount on December 31, 2003. Subject to the terms and conditions of
the Amended Credit Agreement, Merkle-Korff may prepay the principal amount of
the MK Junior Seller Note in whole or in part at any time without payment of
any premium or penalty.
In connection with the acquisition of Electrical Design, Electrical Design
issued to the Electrical Design Seller a $4.0 million, 9.0% seller note (the
"ED Junior Seller Note" and collectively with the MK Junior Seller Note, the
"Junior Seller Notes") due December 31, 2002. Interest is payable upon
Electrical Design achieving certain financial performance goals. The ED Junior
Seller Note is subordinated to all Senior Debt (as defined in the ED Junior
Seller Note).
CREDIT AGREEMENT
Concurrently with the consummation of the Series A/B Note Offering, M&G
Industries entered into a new revolving credit agreement with BTCo., as agent,
and other lenders thereunder, which replaced and refinanced the Company's
prior credit facility and provided for borrowings of up to $75.0 million for a
five year term (the "Existing Credit Agreement"). The Existing Credit
Agreement is a revolving credit facility and borrowings thereunder are not
subject to a borrowing base or similar limitation. M&G Industries pays
interest under the Existing Credit Agreement based upon LIBOR plus 2.50% or
base rate plus 1.5%, subject to reduction based on the Company's leverage
ratio. Unutilized commitments under the revolving credit facility bear an
availability fee of 1/2 of 1% per annum, subject to reduction based on the
Company's leverage ratio. M&G Industries' obligations under the Existing
Credit Agreement are guaranteed by M&G Industries' subsidiaries, and secured
by pledges of the stock of M&G Industries' subsidiaries and liens in respect
of certain assets of M&G Industries and its subsidiaries.
Following the Exchange Offer, the Company intends to enter into an amended
and restated credit agreement (the "Amended Credit Agreement") which will
provide for borrowings of up to $115.0 million.
The Existing Credit Agreement contains and the Amended Credit Agreement will
contain customary covenants, including covenants relating to levels of
interest coverage and limits on the ability of M&G Industries and certain of
its subsidiaries to incur indebtedness, create liens, make restricted
payments, engage in affiliate transactions, engage in mergers and
consolidations and make asset sales. The Existing Credit Agreement contains
and the Amended Credit Agreement also will contain customary events of
default. As of the consummation of the Old Offering, M&G Industries will not
have any outstanding borrowings under the Existing Credit Agreement.
78
<PAGE>
CERTAIN TRANSACTIONS
The Company Formation and Proceeds From the Series A/B Note Offering. The
Company was formed in September 1995 in order to acquire and operate companies
in the motion control industry (the "Company Formation"). In September 1995,
the Company acquired Merkle-Korff for $107.4 million, including the $90.0
million MK Installment Note, a $5.6 million promissory note paid in 1995, the
$5.0 million MK Junior Seller Note and related fees and expenses. The Company
borrowed approximately $72.5 million under the Company's then existing credit
facility to finance the cash portion of the purchase price for Merkle-Korff and
to pay related fees and expenses. In connection with the acquisition of Merkle-
Korff, the Company also entered into the MK Installment Note LC Facility,
pursuant to which Merkle-Korff deposited $90.0 million in a cash collateral
account which, in turn, secured a letter of credit in the face amount of $90.0
million which was delivered to the Merkle-Korff seller in support of payment of
the MK Installment Note and other obligations. In March 1996, the Company,
through Merkle-Korff, effected the Barber-Colman Acquisition for $21.7 million.
The Company borrowed approximately $21.7 million under the then existing credit
facility to finance the cash purchase price for the Barber-Colman Acquisition
and to pay related fees and expenses.
Prior to the consummation of the Series A/B Note Offering, Imperial, Scott
and Gear were subsidiaries of JII. Imperial, Scott and Gear were sold to the
Company for $75.0 million in cash, which included the repayment of
approximately $6.0 million of liabilities of Imperial and its subsidiaries owed
to JII, and the Contingent Earnout, if any, to be earned pursuant to the
Contingent Earnout Agreement. The acquisition agreement entered into in
connection with such sale contained customary terms and provisions used in
transactions of that type and limited the aggregate amount of any claims for
indemnification by the Company for breaches by the sellers thereunder to $15.0
million. On November 7, 1996, the Company originally issued and sold
$170,000,000 of notes in a transaction not registered under the Securities Act
(the "Series A/B Note Offering") which were then exchanged for the Old Series B
Notes pursuant to a prospectus dated April 3, 1997. The cash portion of the
purchase price for the Imperial Acquisitions was funded from the net proceeds
of the Series A/B Note Offering. The Contingent Earnout Agreement, an
obligation of each of the Company, M&G Industries, Imperial, Scott and Gear is
payable to an affiliate of JII and will not be limited or otherwise restricted
by the Indenture or the Amended Credit Agreement.
Services Agreements. Until July 24, 1997, the Parent and its subsidiaries
(including the Company) had been charged an annual management and advisory fee
by JII equal to 1.0% of its net sales payable quarterly. Management and
advisory fees charged to the Company were $0.7 million, $2.7 million and $0.8
million, respectively, for the period from September 23, 1995 to December 31,
1995, for the year ended December 31, 1996 and for the period from January 1,
1997 to July 24, 1997. Imperial, Scott and Gear were charged similar fees by
JII. Such fees were $2.0 million, $2.2 million and $1.5 million, respectively,
for the years ended December 31, 1993, 1994 and for the period from January
1995 to September 22, 1995. The Company was also obligated to pay to The Jordan
Company (i) an investment banking and sponsorship fee of up to 2.0% of the
purchase price of certain acquisitions or sales involving the Company or any of
its subsidiaries, (ii) a financial consulting fee of up to 1.0% of any debt,
equity or other financing arranged by the Company with the assistance of The
Jordan Company and (iii) reimbursement for out-of-pocket costs; provided, that
such fees may be paid, in whole or in part, to JII, upon the mutual agreement
of the board of directors of JII and The Jordan Company. In connection with the
acquisitions of Merkle-Korff and Barber-Colman Motors and related financings,
The Jordan Company was paid investment banking fees of $2.1 million and $0.4
million, respectively. In connection with the Imperial Acquisitions and the
Series A/B Note Offering and the Existing Credit Agreement, the Company paid
The Jordan Company $2.25 million pursuant to such agreements. These
arrangements were terminated as of July 25, 1997 and replaced with five new
types of agreements and arrangements which are described below.
First, the Parent and each of its subsidiaries (including the Company)
entered into the New Subsidiary Advisory Agreement with JII, pursuant to which
the Parent and its subsidiaries pay to JII (i) investment banking and
sponsorship fees of up to 2.0% of the purchase price of acquisitions, joint
ventures, minority investments or sales involving the Parent and its
subsidiaries or their respective businesses or properties; (ii) financial
advisory fees of up to 1.0% of any debt, equity or other financings or
refinancing involving the Company or such
79
<PAGE>
subsidiary, in each case, arranged with the assistance of The Jordan Company or
its affiliates; and (iii) reimbursement for The Jordan Company's or JII's out-
of-pocket costs in connection with providing such services. The New Subsidiary
Advisory Agreement contains customary indemnities in favor of JII, The Jordan
Company and TJC Management Corp. (an affiliate of JII). Pursuant to the New TJC
Management Consulting Agreement between JII and TJC Management Corp., JII pays
to TJC Management Corp. (i) annual consulting fees, payable quarterly, equal to
$3.0 million; (ii) one-half of the investment banking, sponsorship and
financing fees paid to JII pursuant to the New Subsidiary Advisory Agreement;
and (ii) reimbursement of TJC Management Corp.'s and The Jordan Company's out-
of-pocket costs incurred in connection with providing such services. Each of
the New Subsidiary Advisory Agreement and the New TJC Management Consulting
Agreement expires in December 2007, but is automatically renewed for successive
one-year terms, unless either party provides written notice of termination 60
days prior to the scheduled renewal date. Pursuant to the New Subsidiary
Advisory Agreement, the Company paid fees of $0 to JII for the period from July
25, 1997 through September 30, 1997. In connection with the consummation of the
Old Offering, the acquisition of Motion Control and the Amended Credit
Agreement, the Company expects to pay fees of approximately $2.5 million to JII
pursuant to the New Subsidiary Advisory Agreement. Messrs. Jordan, Boucher and
Zalaznick, directors of the Company, are partners of The Jordan Company.
Second, the Parent and each of its subsidiaries (including the Company)
entered into the New Subsidiary Consulting Agreement, pursuant to which they
pay to JII annual consulting fees of 1.0% of the Parent's net sales for such
services, payable quarterly, and reimburse JII for its out-of-pocket costs
related to its services. The New Subsidiary Consulting Agreement expires in
December 2007, but is automatically renewed for successive one-year terms,
unless either party provides written notice of termination 60 days prior to the
scheduled renewal date. Pursuant to the New Subsidiary Consulting Agreement,
JII (but not JII's affiliates) are obligated to present all acquisition,
business and investment opportunities that relate to manufacturing, assembly,
distribution or marketing of products and services in the motors, gears and
motion control industries to the Company, and JII will not be permitted to
pursue such opportunities or present them to third parties unless the Company
determines not to pursue such opportunities or consents thereto. Pursuant to
the New Subsidiary Consulting Agreement, the Company paid approximately $0.3
million for the period from July 25, 1997 to September 30, 1997.
Third, the Parent and each of its subsidiaries (including the Company)
entered into the JI Properties Services Agreement with JI Properties, Inc. ("JI
Proprieties"), a subsidiary of JII, pursuant to which JI Properties provides
certain real estate and other assets, transportation and related services to
the Company. Pursuant to the JI Properties Services Agreement, the Parent is
charged for its allocable portion of such services based upon its usage of such
services and its relative revenues, as compared to JII and its other
subsidiaries. Pursuant to the JI Properties Services Agreement, the Company
paid approximately $0.1 million for the period from July 25, 1997 to September
30, 1997. The JI Properties Services Agreement expires in December 2007, but is
automatically renewed for successive one year terms, unless either party
provides written notice of termination 60 days prior to the scheduled renewal
date.
Fourth, JII determined to refine the allocation of its overhead, general and
administrative charges and expenses among JII and its subsidiaries, including
the Company, in order to more closely match these overhead charges with the
revenues and usage of corporate overhead by JII and its subsidiaries. On pro
forma basis, after giving effect to the corporate expenses reallocation by JII,
and prior to any charges or payments under the New Subsidiary Consulting
Agreement, Transition Agreement, JI Properties Services Agreement, New
Subsidiary Advisory Agreement, Tax Sharing Agreement and directors' fees, the
Company's allocable portion of corporate expenses would have been approximately
$0.2 million for the period from July 25, 1997 to September 30, 1997.
Fifth, the Parent and JII entered into the Transition Agreement, pursuant to
which JII will provide office space and certain administrative and accounting
services to the Parent to facilitate the transition of the Parent as a stand-
alone company. The Parent will reimburse JII for services provided pursuant to
the Transition Agreement on an allocated cost basis. The Transition Agreement
will expire on December 31, 1997, but is automatically renewed for success one
year periods (unless either party provides prior written notice of non-renewal)
and may
80
<PAGE>
be terminated by the Parent on 90 days' written notice. Pursuant to the
Transition Agreement, the Parent paid $0 to JII for the period from July 25,
1997 through September 30, 1997.
Tax Sharing Agreement. The Company and each of its subsidiaries are party to
a Tax Sharing Agreement among JII and each of its consolidated subsidiaries for
Federal income tax purposes. Pursuant to the Tax Sharing Agreement, each of the
consolidated subsidiaries of JII pays to JII, on an annual basis, an amount
determined by reference to the separate return tax liability of the subsidiary
as defined in Treasury Regulation (S) 1.1552-1(a)(2)(ii). For the years ended
December 31, 1994 and 1995, the income tax payments by Imperial, Scott and Gear
to JII under the Tax Sharing Agreement were $2.0 million and $1.3 million. For
the year ended December 31, 1996, the income tax payments by the Company to JII
under the Tax Sharing Agreement were $2.4 million. These income tax payments
reflected a Federal and state income tax rate of approximately 40% of each
subsidiary's pre-tax income.
Merkle-Korff Leases. Merkle-Korff leases its plants, warehouse and offices
under a net lease (the "Merkle-Korff Leases") from companies controlled by John
Simms, Sr., Chairman and Chief Executive Officer of Merkle-Korff and Barber-
Colman Motors. Rent expenses, including real estate taxes attributable to the
Merkle-Korff Leases, amounted to $0.7 million for the year ended December 31,
1996. The Company has agreed to pay the following future minimum rental
payments under the Merkle-Korff Leases: (i) $0.8 million for the year ended
December 31, 1997; (ii) $0.8 million for the year ended December 31, 1998;
(iii) $0.8 million for the year ended December 31, 1999; and (iv) $0.6 million
for the year ended December 31, 2000. The Company has the right of first
refusal to buy these facilities from Mr. Simms. See Note 3 to the Company's
Consolidated Financial Statements. The Company believes that the terms of the
Merkle-Korff Leases are comparable to the terms that it would obtain from a
non-affiliated party.
Employment Agreements. Effective September 22, 1995, Merkle-Korff entered
into an employment agreement with John D. Simms, Sr. (the "Simms Employment
Agreement"). Pursuant to the terms of the Simms Employment Agreement, Mr. Simms
agreed to serve as Chairman and Chief Executive Officer of Merkle-Korff for a
three-year period ending on September 22, 1998. Mr. Simms also agreed not to
compete against Merkle-Korff throughout the term of his employment agreement
and for three years thereafter or until September 22, 2000, whichever is later,
and not to disclose any confidential information during and after the term of
his employment. In exchange for his services and covenants, Merkle-Korff agreed
to compensate Mr. Simms with (i) a base salary of $100,000 per annum, (ii) the
use of an automobile, including reimbursement for automobile-related costs and
(iii) participation in Merkle-Korff's benefit programs. In the event Mr. Simms
no longer provides services to Merkle-Korff due to his dismissal without cause
(as defined in the Simms Employment Agreement), then Mr. Simms is entitled to
receive his base compensation from the date of his termination through the
remaining term of his employment agreement.
Effective September 22, 1995, Merkle-Korff entered into an employment
agreement with John W. Brown (the "Brown Employment Agreement"). Pursuant to
the terms of the Brown Employment Agreement, Mr. Brown agreed to serve as
President of Merkle-Korff for a three-year period ending on September 22, 1998.
Mr. Brown also agreed not to compete against Merkle-Korff throughout the term
of his employment agreement and for three years thereafter or until September
22, 2000, whichever is later, and not to disclose any confidential information
during and after the term of his employment. In exchange for his services and
covenants, Merkle-Korff agreed to compensate Mr. Brown with (i) a base salary
of $200,000 per annum, (ii) the use of an automobile, including reimbursement
for automobile-related costs, (iii) payment of monthly and other incidental
country club fees, (iv) payment of annual life insurance premiums on his life
and (v) participation in benefit programs for JII's executives. In addition,
Mr. Brown is eligible to receive an annual bonus of up to $200,000, as
calculated by a formula reflecting annual increases in Merkle-Korff's
profitability. In the event Mr. Brown no longer provides services to Merkle-
Korff due to his dismissal without cause (as defined in the Brown Employment
Agreement), then Mr. Brown is entitled to receive his base compensation from
the date of his termination through the remaining term of his employment
agreement and a pro rata portion of the annual bonus which he would have been
entitled to had he not been dismissed.
81
<PAGE>
JII Payments. Effective October 1, 1996, JII voluntarily agreed to pay to
Mr. Frank A. Collins $3.9 million (the "JII Payment") in view of his
contributions to JII, including identifying and analyzing acquisition
candidates for JII and providing strategic advice to the Board of Directors of
JII. JII agreed to pay Mr. Collins the JII Payment as follows: (i) one-third
(or $1.3 million) was paid to Mr. Collins in October 1996 and (ii) the
remaining two-thirds (or $2.6 million) will be paid to Mr. Collins in six
equal, semi-annual installments payable on each October 1 and April 1,
commencing on April 1, 1997.
Directors and Officers Indemnification. The Company has entered into
indemnification agreements with each member of the Company's Board of
Directors and certain executive officers whereby the Company agreed, subject
to certain exceptions, to indemnify and hold harmless each director and
certain executive officers from liabilities incurred as a result of such
person's status as a director or executive officer of the Company. See
"Management--Board of Directors."
Future Transactions. The Company has adopted a policy to provide that all
transactions between the Company and its officers, directors and other
affiliates must (i) be approved by a majority of the members of the Board of
Directors and by a majority of the disinterested members of the Board of
Directors and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account as a result
of market-making activities or other trading activities in connection with 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 Old Notes where
such Old 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 Expiration Date, it will make available a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any such resale. In addition, until , 1998 (90 days), all
dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will receive no proceeds in connection with the Exchange Offer.
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 prices 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 form any such broker-
dealers 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.
82
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion is a summary of the material United States federal
income tax considerations relevant to the acquisition, ownership and
disposition of the Senior Notes acquired on original issue for cash, but does
not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, Internal Revenue Service ("Service") rulings and
pronouncements and judicial decisions all in effect as of the date hereof, all
of which are subject to change at any time, and any such change may be applied
retroactively in a manner that could adversely affect a holder of the Senior
Notes. The discussion does not address all of the federal income tax
consequences that may be relevant to a holder in light of such holder's
particular circumstances or to holders subject to special rules, such as
certain financial institutions, insurance companies, dealers in securities,
foreign corporations, nonresident alien individuals and persons holding the
Senior Notes as part of a "straddle," "hedge" or "conversion transaction."
Moreover, the effect of any applicable state, local or foreign tax laws is not
discussed. The discussion deals only with Senior Notes held as "capital assets"
within the meaning of Section 1221 of the Code.
The Company has not sought and will not seek any rulings from the Service
with respect to any position of the Company discussed below. There can be no
assurance that the Service will not take a different position from the Company
concerning aspects of the tax consequences of the acquisition, ownership or
disposition of the Senior Notes or that any such position would not be
sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.
CONSEQUENCES OF EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of an Old Note for a New Note pursuant to the Exchange Offer
will not be taxable to the exchanging Holders for Federal income tax purposes.
As a result (i) an exchanging Holder will not recognize any gain or loss on the
on the exchange, (ii) the holding period for the New Note will include the
holding period for the Old Note and (iii) the basis of the New Note will be the
same as the basis of the Old Note.
The Exchange Offer will result in no Federal income tax consequences to a
nonexchanging Holder.
INTEREST INCOME AND GAIN ON DISPOSITION
Interest payable on the Senior Notes will be includible in the income of a
holder in accordance with such holder's regular method of accounting. The
treatment of interest described in the preceding sentence with respect to the
Senior Notes is based in part upon the Company's determination that, as of the
date of issuance of the Senior Notes, the possibility that Liquidated Damages
would be paid to holders of the Senior Notes pursuant to a Registration Default
was remote. The Service may take a different position, which could affect the
timing and character of interest income reported by holders of the Senior
Notes.
If a Senior Note is redeemed, sold or otherwise disposed of, a holder
generally will recognize gain or loss equal to the difference between the
amount realized on the sale or other disposition of such Senior Note (to the
extent such amount does not represent accrued but unpaid interest) and such
holder's tax basis in the Senior Note. Such gain or loss generally will be
capital gain or loss, provided that the holder has held the Senior Note as a
capital asset. In general, the maximum tax rate for non-corporate taxpayers on
long-term capital gains is 20% for most capital assets (including the Senior
Notes) held for more than 18 months. Capital gain on such assets for non-
corporate holders having a holding period of more than one year but not more
than 18 months will be subject to a maximum tax rate of 28%.
83
<PAGE>
AMORTIZABLE BOND PREMIUM
The Old Series C Notes were issued for an amount in excess of their principal
amounts. A holder that purchased an Old Series C Note for an amount in excess
of its principal amount may elect to treat such excess as "amortizable bond
premium," in which case the amount required to be included in the holder's
income each year with respect to interest on the Old Series C Note will be
reduced by the amount of amortizable bond premium allocable (based on the Old
Series C Note's yield to maturity) to such year. Any election to amortize bond
premium shall apply to all bonds (other than bonds the interest on which is
excludable from gross income) held by the holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the
holder, and is irrevocable without the consent of the Service.
BACKUP WITHHOLDING
A holder may be subject, under certain circumstances, to backup withholding
at a 31% rate with respect to "reportable payments" on the Senior Notes. This
withholding generally applies only if the holder (i) fails to furnish his or
her social security or other taxpayer identification number ("TIN"), (ii)
furnishes an incorrect TIN, (iii) is notified by the Service that he or she has
failed to report properly payments of interest and dividends and the Service
has notified the Company that the holder is subject to backup withholding, or
(iv) fails, under certain circumstances, to provide a certified statement,
signed under penalty of perjury, that the TIN provided is his or her correct
number and that he or she is not subject to backup withholding. Any amount
withheld from payment to a holder under the backup withholding rules is
allowable as a credit against such holder's federal income tax liability,
provided that the required information is furnished to the Service. Certain
holders (including, among others, corporations and foreign individuals who
comply with certain certification requirements) are not subject to backup
withholding. Holders should consult their tax advisors as to their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption.
INFORMATION REPORTING
The Company is required to furnish certain information to the Service and
will furnish annually to record holders of the Senior Notes information with
respect to interest paid on the Senior Notes during the calendar year.
LEGAL MATTERS
The validity of the Senior Notes will be passed upon for the Company by
Mayer, Brown & Platt, Chicago, Illinois. Mayer, Brown & Platt also represents
JII and its affiliates from time to time in connection with its various
acquisitions and divestitures.
EXPERTS
The consolidated financial statements of Motors and Gears, Inc. as of
December 31, 1995 and 1996 and for the period from September 23, 1995 to
December 31, 1995 and the year ended December 31, 1996, appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The combined financial statements of Merkle-Korff Industries, Inc., Mercury
Industries, Inc. and Elmco Industries, Inc. as of December 31, 1994, and for
the years ended December 31, 1993, 1994 and the period from January 1, 1995 to
September 22, 1995, appearing in this Prospectus and Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
84
<PAGE>
The financial statements of Barber-Colman Motors Division as of March 31,
1995 and December 31, 1995, and for the year ended March 31, 1995 and the nine
month period ended December 31, 1995, appearing in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of The Imperial Electric Company and
Subsidiaries as of December 31, 1994 and 1995, and for each of the three years
in the period ended December 31, 1995, appearing in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of The FIR Group as of July 31, 1995,
1996 and March 31, 1997, and for each of the two years in the period ended
July 31, 1996 and the eight month period ended March 31, 1997, appearing in
this Prospectus and Registration Statement have been audited by Coopers &
Lybrand L.L.P., independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of E. D. and C. Company, Inc. as of
December 31, 1996, and for the year then ended, appearing in this Prospectus
and Registration Statement have been audited by Janz & Knight, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Motion Control Engineering, Inc. as
of December 31, 1996 and September 30, 1997 and for the year and nine months
in the period ended September 30, 1997, appearing in this Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the periodic and other informational requirements
of the Exchange Act. Periodic reports and other information filed by the
Company with the Commission may be inspected at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at its regional offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, New York, New York 10048 at prescribed rates. Such materials may also
be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov.
85
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONDENSED UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Condensed Unaudited Pro Forma Financial Statements...................... P-1
Condensed Unaudited Pro Forma Statements of Operations and Other Data
for the year ended December 31, 1996................................... P-2
Condensed Unaudited Pro Forma Statements of Operations and Other Data
for the nine months ended September 30, 1997........................... P-3
Condensed Unaudited Pro Forma Balance Sheet as of September 30, 1997.... P-5
MOTORS AND GEARS, INC.
Report of Independent Auditors.......................................... F-1
Consolidated Balance Sheets as of December 31, 1995 and 1996............ F-2
Consolidated Statements of Income for the period from September 23, 1995
to
December 31, 1995, and the year ended December 31, 1996 ............... F-3
Consolidated Statements of Changes in Shareholder's Equity (Net Capital
Deficiency) for the period from September 23, 1995 to December 31,
1995, and the year ended December 31, 1996............................. F-4
Consolidated Statements of Cash Flows for the period from September 23,
1995
to December 31, 1995, and the year ended December 31, 1996............. F-5
Notes to Consolidated Financial Statements.............................. F-6
Condensed Consolidated Balance Sheet as of September 30, 1997
(unaudited)............................................................ F-14
Condensed Consolidated Statements of Income for the nine months ended
September 30, 1996 and 1997 (unaudited)................................ F-15
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1997 (unaudited).......................... F-16
Notes to Condensed Consolidated Financial Statements (unaudited)........ F-17
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC. AND
ELMCO INDUSTRIES, INC.
Report of Independent Auditors.......................................... F-19
Combined Balance Sheet as of December 31, 1994.......................... F-20
Combined Statements of Income and Retained Earnings for each of the
years ended December 31, 1993 and 1994, and the period from January 1,
1995 to September 22, 1995............................................. F-21
Combined Statements of Cash Flows for each of the years ended December
31,
1993 and 1994, and the period from January 1, 1995 to September 22,
1995................................................................... F-22
Notes to Combined Financial Statements.................................. F-23
BARBER-COLMAN MOTORS DIVISION
Report of Independent Auditors.......................................... F-27
Balance Sheets as of March 31, 1995 and December 31, 1995............... F-28
Statements of Divisional Operations for the year ended March 31, 1995,
and the
nine months ended December 31, 1995.................................... F-29
Statements of Cash Flows for the year ended March 31, 1995, and the nine
months
ended December 31, 1995................................................ F-30
Notes to Financial Statements........................................... F-31
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
Report of Independent Auditors.......................................... F-36
Consolidated Balance Sheets as of December 31, 1994 and 1995............ F-37
Consolidated Statements of Income for each of the years ended December
31, 1993,
1994, and 1995......................................................... F-38
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Consolidated Statements of Shareholder's Equity for each of the years
ended
December 31, 1993, 1994 and 1995....................................... F-39
Consolidated Statements of Cash Flows for each of the years ended
December 31, 1993,
1994 and 1995.......................................................... F-40
Notes to Consolidated Financial Statements.............................. F-41
FIR GROUP
(FIR Elettromeccanica S.p.A., CIME S.p.A. and Selin Sistemi S.p.A.)
Report of Independent Auditors.......................................... F-47
Consolidated Balance Sheets as of July 31, 1995 and 1996................ F-48
Consolidated Income Statements for the years ended July 31, 1995 and
1996................................................................... F-49
Consolidated Statement of Changes in Shareholders' Equity for the years
ended
July 31, 1995 and 1996................................................. F-50
Consolidated Statements of Cash Flows for the years ended July 31, 1995
and 1996............................................................... F-51
Notes to Consolidated Financial Statements.............................. F-52
Report of Independent Auditors.......................................... F-58
Consolidated Balance Sheet as of March 31, 1997......................... F-59
Consolidated Income Statement for the eight months ended March 31, 1997. F-60
Consolidated Statement of Changes in Shareholders' Equity for the eight
months ended
March 31, 1997......................................................... F-61
Consolidated Statement of Cash Flows for the eight months ended March
31, 1997............................................................... F-62
Notes to Consolidated Financial Statements.............................. F-63
E. D. AND C. COMPANY, INC.
Report of Independent Auditors.......................................... F-68
Balance Sheet as of December 31, 1996................................... F-69
Statement of Income and Retained Earnings for the year ended December
31, 1996............................................................... F-70
Statement of Cash Flows for the year ended December 31, 1996............ F-71
Notes to Financial Statements........................................... F-72
Balance Sheet as of September 30, 1997 (unaudited)...................... F-75
Statement of Income and Retained Earnings for the nine months ended
September 30, 1997 (unaudited)......................................... F-76
Statement of Cash Flows for the nine months ended September 30, 1997
(unaudited)............................................................ F-77
Notes to Financial Statements (unaudited)............................... F-78
MOTION CONTROL ENGINEERING, INC.
Report of Independent Auditors.......................................... F-79
Balance Sheets as of December 31, 1996 and September 30, 1997........... F-80
Statements of Income for the year ended December 31, 1996 and the nine
months ended September 30, 1997........................................ F-81
Statements of Shareholders' Equity for the year ended December 31, 1996
and the nine months ended September 30, 1997........................... F-82
Statements of Cash Flows for the year ended December 31, 1996 and the
nine months ended September 30, 1997................................... F-83
Notes to Financial Statements for the year ended December 31, 1996 and
the nine months ended September 30, 1997............................... F-84
</TABLE>
2
<PAGE>
UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS AND OTHER DATA
The following unaudited pro forma income statement for the fiscal year ended
December 31, 1996, the nine months ended September 30, 1997 and the pro forma
condensed balance sheet as of September 30, 1997 reflect pro forma adjustments
for (a) the Barber-Colman Acquisition, the purchase accounting and other
acquisition adjustments relating thereto, and the Series A/B Note Offering (b)
the Electrical Design Acquisition, the FIR Acquisition and the Motion Control
Acquisition (the "1997 Acquisitions") and the purchase accounting and other
acquisition adjustments relating thereto and (c) the Old Offering and the
purchase of the Company's common stock by the Parent, in each case, as if they
occurred at the beginning of the relevant period or as of the relevant date.
Unaudited pro forma adjustments are based upon historical information,
preliminary estimates and certain assumptions management deems appropriate. The
unaudited pro forma financial data presented herein are not necessarily
indicative of the results the Company would have obtained had such events
occurred at the beginning of the period, as assumed, or of the future results
of the Company. The pro forma condensed financial statements should be read in
conjunction with the other financial statements and notes thereto appearing
elsewhere herein. See also "Selected Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
P-1
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS AND OTHER DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------------
BARBER 1997 ACQUISITIONS PROFORMA
COMPANY COLMAN THRU ----------------------------- ADJUSTMENTS
HISTORI- MARCH 8, ELECTRICAL MOTION & OLD PRO
CAL(1) 1996(2) FIR(3) DESIGN(3) CONTROL(3) OFFERING FORMA
-------- ----------- ------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $117,571 $4,806 $38,476 $14,566 $34,957 $ -- $210,376
Cost of sales excluding
depreciation........... 75,751 3,559 25,905 10,550 20,541 -- 136,306
-------- ------ ------- ------- ------- -------- --------
Gross profit excluding
depreciation........... 41,820 1,247 12,571 4,016 14,416 -- 74,070
Selling, general and
administrative expenses
excluding depreciation
....................... 8,796 871 3,688 1,236 12,154 (1,871)(4) 24,874
Depreciation and
amortization........... 7,078 203 949 56 308 2,515 (5) 11,109
Management fees......... 2,717 -- -- -- -- (612)(6) 2,105
-------- ------ ------- ------- ------- -------- --------
Operating income........ 23,229 173 7,934 2,724 1,954 (32) 35,982
Interest expense (net of
interest income)....... 10,987 66 2,301 42 275 17,220 (7) 30,891
Other (income) expense.. (68) 2 19 -- (81) 65 (63)
-------- ------ ------- ------- ------- -------- --------
Income (loss) before
income taxes and
minority interest...... 12,310 105 5,614 2,682 1,760 (17,317) 5,154
Provision (benefit) for
income taxes........... 5,291 -- 3,123 107 -- (6,460)(8) 2,061
-------- ------ ------- ------- ------- -------- --------
Income (loss) from
continuing operations.. $ 7,019 $ 105 $ 2,491 $ 2,575 $ 1,760 $(10,857) $ 3,093
======== ====== ======= ======= ======= ======== ========
OTHER DATA:
Capital expenditures.... $ 1,304 $ 118 $ 906 $ 64 $ 453 $ 2,845
Cash interest expense
(9).................... 9,555 29,835
Ratio of earnings to
fixed charges (10)..... 2.1x 1.2x
</TABLE>
P-2
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS AND OTHER DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------------------------
1997 ACQUISITIONS PRO FORMA
------------------------------ ADJUSTMENTS
ELECTRICAL MOTION & OLD
COMPANY FIR(3) DESIGN(3) CONTROL(3) OFFERING PRO FORMA
HISTORICAL(1) ------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $106,379 $20,591 $10,135 $29,308 $ -- $166,413
Cost of sales excluding
depreciation........... 68,349 14,176 6,630 16,595 -- 105,750
-------- ------- ------- ------- ------- --------
Gross profit excluding
depreciation........... 38,030 6,415 3,505 12,713 -- 60,663
Selling, general and
administrative expenses
excluding depreciation
....................... 8,638 2,179 794 6,824 1,639 (4) 20,074
Depreciation and
amortization........... 6,259 626 24 260 1,674 (5) 8,843
Other (income) and
expenses............... 91 16 -- -- -- 107
Management fees ........ 1,064 -- -- -- 599 (6) 1,663
-------- ------- ------- ------- ------- --------
Operating income........ 21,978 3,594 2,687 5,629 (3,912) 29,976
Interest expense (net of
interest income)....... 15,596 1,165 -- 208 5,896 (7) 22,865
Other (income) expense.. -- (70) (24) (55) -- (149)
-------- ------- ------- ------- ------- --------
Income (loss) before
income taxes and
minority interest...... 6,382 2,499 2,711 5,476 (9,808) 7,260
Provision (benefit) for
income taxes .......... 2,805 1,381 114 -- (1,397)(8) 2,903
-------- ------- ------- ------- ------- --------
Income (loss) from
continuing operations.. $ 3,577 $ 1,118 $ 2,597 $ 5,476 $(8,411) $ 4,357
======== ======= ======= ======= ======= ========
OTHER DATA:
Capital expenditures.... $ 739 $ 124 $ 24 $ 363 $ -- $ 1,250
Cash interest expense
(9).................... 15,164 22,391
Ratio of earnings to
fixed charges (10)..... 1.4x 1.3x
</TABLE>
- --------
(1) Historical results of operations for the year ended December 31, 1996 and
the nine months ended September 30, 1997 include the results of Barber-
Colman Motors from the date of its acquisition on March 8, 1996. The
historical results of operations for the nine months ended September 30,
1997 include the results of FIR from the date of its acquisition on June
12, 1997 through July 31, 1997. The results of FIR are included for
periods ending two months prior to the Company's year end and interim
periods to ensure timely preparation of the Consolidated Financial
Statements.
(2) Reflects the historical results of operations of Barber-Colman Motors from
January 1, 1996 to March 8, 1996, the date of its acquisition by the
Company.
(3) Reflects the historical results of operations of the acquired subsidiaries
from January 1 of the relevant period to the earlier of (i) the date of
acquisition, or (ii) the end of the relevant period.
(4) Adjustments to selling, general, and administrative expenses include: (i)
the elimination of $369 relating to the completed headcount reductions and
administrative savings in connection with the Barber-Colman Acquisition by
the Company for the year ended December 31, 1996, (ii) the elimination of
$3,979 for the year ended December 31, 1996 for reductions in executive
compensation expense related to the 1997 Acquisitions (defined as the
acquisitions of FIR, Electrical Design, and Motion Control), and the
addition of $710 for increases in executive compensation expense related
to the 1997 Acquisitions for the nine months ended September 30, 1997, and
(iii) the addition of $2,477 and $929 for the year ended December 31, 1996
and the nine months ended September 30, 1997, respectively, for shared
general, administrative, and overhead expenses of Jordan Industries and
estimated costs of the Motors & Gears Corporate Group.
(5) Includes incremental goodwill amortization and depreciation as a result of
the 1997 Acquisitions and the acquisition of Barber-Colman Motors as if
the acquisitions occurred at the beginning of the relevant periods.
(6) Adjustments to management fees reflect the elimination and termination of
the historical advisory and management fees paid to Jordan Industries
under the JI Properties Services Agreement and the recording of management
fees pursuant to the New Subsidiary Advisory Agreement and JI Properties
Service Agreement (see "Certain Transactions--Services Agreements").
(7) Interest expense is adjusted to reflect the transactions of the Old
Offering and the Series A/B Note Offering as if the transactions occurred
at the beginning of the relevant periods.
P-3
<PAGE>
(8) Pro forma net income reflects income taxes at a rate of 40%.
(9) Pro forma cash interest expense excludes amortization of deferred financing
costs, amortization of premium on the Old Series C Notes and is net of
interest income.
(10) For the purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness and
capitalized interest (which the Company and Predecessor have not incurred
in the respective periods), amortization of deferred financing costs, and
rental expense on operating leases, representing that portion of rental
expense deemed by the Company to be attributable to interest.
P-4
<PAGE>
CONDENSED UNAUDITED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
------------------------------------------------------------
ACQUISITIONS
---------------------
COMPANY MOTION ELECTRICAL PRO FORMA
HISTORICAL CONTROL(1) DESIGN(1) ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 5,104 $ 1 $2,127 $ 19,396(2)(3) $ 26,628
Accounts receivables--
net................... 29,988 9,675 2,526 -- 42,189
Inventories............ 25,442 5,143 1,105 -- 31,690
Prepaid expenses and
other current assets.. 4,301 65 2 -- 4,368
-------- ------- ------ -------- --------
Total current assets. 64,835 14,884 5,760 19,396 104,875
Property and equipment,
net.................... 14,081 1,383 142 -- 15,606
Intangibles, net........ 139,537 -- -- 54,433 (2) 193,970
Other assets............ 9,842 -- -- 5,000 (3) 14,842
-------- ------- ------ -------- --------
Total assets......... $228,295 $16,267 $5,902 $ 78,829 $329,293
======== ======= ====== ======== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
(NET CAPITAL
DEFICIENCY)
Current liabilities..... $ 27,532 $ 6,015 $1,284 $ (801)(2)(3) $ 34,030
Current portion of long-
term debt.............. 20 -- 840 (840)(2) 20
Long-term obligations
Credit Agreement....... 34,000 -- -- (34,000)(3) --
Senior Notes........... 170,000 -- -- 104,500 (3) 274,500
Sellers' Notes......... 5,000 -- -- 4,000 (2) 9,000
Other debt............. 75 209 -- (209)(2) 75
-------- ------- ------ -------- --------
Total long-term
obligations......... 209,075 209 -- 74,291 283,575
Other non-current
liabilities and
deferred income taxes.. 5,129 -- -- -- 5,129
Stockholder's equity
(net capital
deficiency)............ (13,461) 10,043 3,778 6,179 (2)(4) 6,539
-------- ------- ------ -------- --------
Total liabilities and
stockholder's
equity.............. $228,295 $16,267 $5,902 $ 78,829 $329,293
======== ======= ====== ======== ========
</TABLE>
- --------
(1) Reflects the historical consolidated balance sheet of the respective
acquisitions as of September 30, 1997.
(2) Gives effect to the Electrical Design Acquisition and the Motion Control
Acquisition, as if these transactions had occurred on September 30, 1997.
(3) Gives effect to (i) the proceeds from the issuance of the Old Series C
Notes at a price of 104.5%, plus accrued interest from November 16, 1997
of $896, (ii) the purchase of the Company's common stock by the Parent,
the repayment of amounts owing under the Existing Credit Agreement, and
the addition of $5,000 of estimated fees and expenses associated with the
Old Offering, as if such transactions occurred on September 30, 1997.
(4) Gives effect to the proceeds from the purchase of the Company's common
stock by the Parent.
P-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Motors and Gears, Inc.
We have audited the consolidated balance sheets of Motors and Gears, Inc. as
of December 31, 1995 and 1996, and the related consolidated statements of
income, shareholder's equity, and cash flows for the period from September 23,
1995 to December 31, 1995 and for the year ended December 31, 1996. These
consolidated financial statements are the responsibility of the management of
Motors and Gears, Inc. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Motors and Gears, Inc. as of December 31, 1995 and 1996, and the
consolidated results of its operations and its cash flows for the period from
September 23, 1995 to December 31, 1995 and for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 21, 1997
Except for Note 11, as to which the date is December 18, 1997
F-1
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
-------- --------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 2,781 $ 10,011
Accounts receivable, less allowance for doubtful ac-
counts of $29 and $59 at December 31, 1995 and 1996,
respectively.......................................... 13,213 13,056
Inventories............................................ 13,404 16,554
Prepaid expenses and other............................. 402 886
Deferred income taxes.................................. 686 1,159
-------- --------
Total current assets................................. 30,486 41,666
Property, plant and equipment--net....................... 7,166 11,431
Goodwill--net............................................ 103,562 109,103
Covenants not to compete--net............................ 473 1,206
Deferred financing costs--net............................ 3,639 10,181
Other non-current assets................................. 61 81
-------- --------
Total assets......................................... $145,387 $173,668
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable....................................... $ 7,617 $ 5,408
Accrued interest payable............................... 718 3,204
Accrued expenses and other............................. 1,629 3,744
Due to Jordan.......................................... 5,139 1,706
Current portion of capital lease obligations........... 136 18
Revolving credit facility.............................. 500 --
-------- --------
Total current liabilities............................ 15,739 14,080
Senior Notes payable..................................... 69,375 170,000
Subordinated note payable................................ 5,000 5,000
Note payable to Jordan................................... 7,827 --
Capital lease obligations, less current portion.......... 709 49
Deferred income taxes.................................... 759 282
Other non-current liabilities............................ 53 44
Shareholder's equity (net capital deficiency):
Common stock, $.01 par value, 100,000 shares
authorized, issued and outstanding.................... 1 1
Additional paid-in capital............................. 30,005 30,005
Retained earnings (accumulated deficit)................ 15,919 (45,793)
-------- --------
Total shareholder's equity (net capital deficiency).. 45,925 (15,787)
-------- --------
Total liabilities and shareholder's equity (net $145,387 $173,668
capital deficiency)................................. ======== ========
</TABLE>
See accompanying notes.
F-2
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 23, 1995 YEAR ENDED
TO DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Net sales............................... $24,684 $117,571
Cost of sales, excluding depreciation... 16,429 75,751
Selling, general, and administrative
expenses, excluding depreciation....... 1,564 8,796
Depreciation............................ 415 2,960
Amortization of goodwill and other in-
tangibles.............................. 840 4,118
Management fees to Jordan............... 683 2,717
------- --------
Operating income........................ 4,753 23,229
Other income (expense):
Interest expense:
Jordan.............................. (301) (732)
Other............................... (2,111) (10,402)
Miscellaneous, net.................... (33) 215
------- --------
Income before income taxes and extraor-
dinary item............................ 2,308 12,310
Provision for income taxes.............. 948 5,290
------- --------
Income before extraordinary item........ 1,360 7,020
Extraordinary loss, net of income tax
benefit of $1,620...................... -- 2,186
------- --------
Net income.............................. $ 1,360 $ 4,834
======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (NET CAPITAL
DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK RETAINED SHAREHOLDER'S
---------------- ADDITIONAL EARNINGS EQUITY (NET
NUMBER OF PAID-IN (ACCUMULATED CAPITAL
SHARES AMOUNT CAPITAL DEFICIT) DEFICIENCY)
--------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at September 22,
1995................... 100 $-- $ -- $ -- $ --
Equity of Imperial at
date of combination.... -- -- 100 14,559 14,659
Issuance of common
stock.................. 99,900 1 29,905 -- 29,906
Net income.............. -- -- -- 1,360 1,360
------- ---- ------- -------- --------
Balance at December 31,
1995................... 100,000 1 30,005 15,919 45,925
Acquisition of Imperial. -- -- -- (66,546) (66,546)
Net income.............. -- -- -- 4,834 4,834
------- ---- ------- -------- --------
Balance at December 31,
1996................... 100,000 $ 1 $30,005 $(45,793) $(15,787)
======= ==== ======= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 23,
1995 TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 1,360 $ 4,834
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 1,255 7,078
Amortization of deferred financing costs......... 152 799
Provision for bad debts.......................... 14 --
Deferred income taxes............................ (3) 1,496
Extraordinary loss............................... -- 3,806
Changes in assets and liabilities (net of acqui-
sitions):
Accounts receivable............................ 66 3,190
Inventories.................................... 871 128
Prepaid expenses and other..................... 24 187
Accounts payable............................... 363 (3,500)
Accrued expenses and other..................... 1,671 3,564
Other non-current assets and liabilities....... (19) (12)
--------- --------
Net cash provided by operating activities.......... 5,754 21,570
Cash flows from investing activities:
Purchases of property, plant and equipment......... (269) (1,304)
Acquisition of subsidiaries........................ (107,406) (90,692)
Cash acquired in purchase of subsidiaries.......... 696 --
--------- --------
Net cash used in investing activities.............. (106,979) (91,996)
Cash flows from financing activities:
Proceeds from debt issuances--Senior Notes......... 70,000 190,000
Payment of financing costs......................... -- (10,354)
Payments on Senior Notes........................... (625) (89,375)
Proceeds from revolving credit facility............ 2,500 1,700
Payments on revolving credit facility.............. (2,000) (2,200)
Proceeds from debt issuance--Subordinated Note..... 5,000 --
Proceeds from common stock issuance................ 29,906 --
Payments on note payable to Jordan................. (1,635) (7,827)
Payments on capital lease obligations.............. (88) (855)
Increase (decrease) in due to Jordan............... 948 (3,433)
--------- --------
Net cash provided by financing activities.......... 104,006 77,656
--------- --------
Increase in cash and cash equivalents.............. 2,781 7,230
Cash and cash equivalents at beginning of period... -- 2,781
--------- --------
Cash and cash equivalents at end of period......... $ 2,781 $ 10,011
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest:
Jordan......................................... $ 589 $ 1,066
Other.......................................... 23 7,117
Income taxes..................................... 94 781
Non cash investing activities:
Capital leases................................... -- 77
</TABLE>
See accompanying notes.
F-5
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. FORMATION OF THE COMPANY AND ACQUISITIONS
Motors and Gears, Inc. (Company), a wholly-owned subsidiary of Motors and
Gears Holdings, Inc. (Parent), a majority-owned subsidiary of Jordan
Industries, Inc. (Jordan), was formed on September 8, 1995, to combine a group
of companies engaged in the manufacture and sale of reversible, permanent
split-capacitor, shaded-pole, and DC subfractional horsepower motors and gear
motors primarily to customers located throughout the United States.
On September 22, 1995, the Company acquired all of the outstanding shares of
Merkle-Korff Industries, Inc. (Merkle-Korff), Mercury Industries, Inc.
(Mercury) and Elmco Industries, Inc. (Elmco), for $107,406. The purchase
price, including costs incurred directly related to the transaction, was
allocated to working capital of $8,201; property and equipment of $3,652;
covenants not to compete of $500; deferred financing fees of $3,791; and
resulted in an excess purchase price over net identifiable assets of $91,262.
Mercury and Elmco were subsequently merged into Merkle-Korff.
On March 8, 1996, the Company acquired the net assets of Barber-Colman
Motors Division (Division), a division of Barber-Colman Company, which was
wholly-owned by Siebe, plc. The Division consisted of Colman OEM and Colman
Motor Products, wholly-owned subsidiaries of Barber-Colman Company, and the
motors division of Barber-Colman Company. The Division is a vertically
integrated manufacturer of subfractional horsepower AC and DC motors and gear
motors, with applications in such products as vending machines, copiers,
printers, ATM machines, currency changers, X-ray machines, peristaltic pumps,
HVAC actuators, and other products.
The purchase price of $21,700, including costs incurred directly related to
the transaction, has been allocated to working capital of $4,899; property,
plant, and equipment of $5,843; covenants not to compete of $1,000, deferred
financing fees of $793, and resulted in an excess purchase price over net
identifiable assets of $9,165. The acquisition was financed with $21,700 of
new and existing credit facilities. The Division was subsequently merged into
Merkle-Korff. Pro forma results of operations as if the acquisition had
occurred on January 1, 1996 are not materially different than the amounts
reported.
Concurrent with the consummation of a debt offering on November 7, 1996 (see
Note 7), the Company acquired Imperial Electric Company (Imperial), a wholly-
owned subsidiary of Jordan, and Imperial's wholly-owned subsidiaries, Scott
Motors Company (Scott) and Gear Research, Inc. (Gear) (Imperial, Scott and
Gear are hereafter collectively referred to as Imperial), for $75,000 of cash
payments from the offering proceeds, which included the repayment of $6,008 in
Imperial liabilities owed to Jordan, and a contingent payment payable pursuant
to a contingent earnout arrangement. Under the terms of the contingent earnout
arrangement, 50% of Imperial, Scott and Gear's cumulative earnings before
interest, taxes, depreciation and amortization, as defined, exceeding $50,000
during the five fiscal years ended December 31, 1996 through December 31, 2000
will be paid to an affiliate of Jordan. Payments, if any, under the contingent
earnout arrangement will be determined and made on April 30, 2001.
Imperial designs, manufactures, and distributes speciality electric motors,
generators, and gears for industrial and commercial use. Scott manufactures
specialty electric motors. Gear manufactures gears and precision gear
assemblies. Imperial, Scott and Gear's customers are located mainly in the
United States.
The Company and Imperial came under the common control of Jordan on
September 22, 1995, the date the Company acquired a controlling interest in
Merkle-Korff, Mercury and Elmco, and the Company commenced operations. The
consolidated financial statements give retroactive effect to the acquisition
of Imperial, which has
F-6
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
been accounted for in a manner similar to the pooling-of-interests method.
Accordingly, the results of operations of the Company include the historical
results of operations of Imperial since September 22, 1995. As a result of the
Imperial acquisition, the Company recorded a $66,546 charge to retained
earnings in 1996. This amount represents the $75,000 of cash payments to
Jordan, less $6,008 in Imperial liabilities owed to Jordan and $2,446 of
deferred income taxes recorded in connection with the acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Motors and Gears Industries, Inc., Merkle-
Korff, and Imperial. All significant intercompany transactions and accounts
have been eliminated.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with an initial
maturity of three months or less at the time of purchase.
Inventories
Inventories are stated at the lower of cost or market. Inventories are
primarily valued at either average or first-in, first-out (FIFO) cost.
Property, Plant, and Equipment
Property, plant, and equipment is stated at cost, less accumulated
depreciation. Depreciation is provided using either straight-line or
accelerated methods over the estimated useful lives of the assets. Leasehold
improvements and assets under capital leases are amortized using the straight-
line method over the shorter of the lease term or their estimated productive
lives. Amortization of leasehold improvements and assets under capital leases
is included in depreciation expense.
The useful lives of plant and equipment for the purpose of computing book
depreciation are as follows:
<TABLE>
<S> <C>
Buildings 5 to 31 years
Machinery and equipment 3 to 7 years
Dies and tooling 3 years
Furniture and fixtures 5 to 10 years
Vehicles 5 years
Leasehold improvements Life of lease
</TABLE>
Intangible Assets
Goodwill is being amortized using the straight-line method over 30 years at
Merkle-Korff and over 40 years at Imperial. Goodwill at December 31, 1995 and
1996 is net of accumulated amortization of $5,028 and $8,880, respectively.
The covenants not to compete are being amortized using the straight-line
method over the respective terms of the agreements. The covenants not to
compete at December 31, 1995 and 1996 are net of accumulated amortization of
$27 and $294, respectively. Deferred financing costs are amortized using the
straight-line method over the shorter of the terms of the related loans or the
period such loans are expected to be outstanding. Deferred financing costs at
December 31, 1995 and 1996 are net of accumulated amortization of $152 and
$173, respectively. Amortization of deferred financing costs is included in
interest expense.
F-7
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that are expected to be in
effect when the differences reverse. The operating results of the Company are
included in the consolidated federal income tax return of Jordan. In addition,
the Company is party to a tax-sharing agreement with Jordan. However, the
Company's income tax provision has been calculated as if the Company would
have filed a separate federal income tax return.
Fair Value of Financial Instruments
The Company's financial instruments include cash equivalents, the Senior
Notes, the Subordinated Note, the revolving credit facility, and the note
payable to Jordan. The fair values of the Company's financial instruments were
not materially different from their carrying values at December 31, 1996.
Concentration of Credit Risk
Cash and trade receivables may subject the Company to credit risk. The
Company holds cash at highly rated financial institutions which are federally
insured up to prescribed limits. Cash balances may exceed these limits at any
given time. The Company closely monitors the credit quality of its customers.
Credit losses have been insignificant on a historical basis.
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 financial statements and
accompanying notes. Actual results could differ from those estimates.
Adoption of SFAS 121
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS 121 requires, among other things, that the Company consider whether
indicators of impairment of long-lived assets held for use are present. If
such indicators are present, the Company determines whether the sum of the
estimated undiscounted future cash flows attributable to such assets is less
than their carrying amount and, if so, the Company recognizes an impairment
loss based on the excess of the carrying amount of the assets over their fair
value.
The Company adopted the provisions of SFAS 121 during the period from
September 23, 1995 to December 31, 1995. The effect of the adoption was not
material.
Reclassifications
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
3. RELATED PARTY TRANSACTIONS
The Company leases certain plants, warehouses, and offices under net leases
from affiliated entities. Rent expenses, including real estate taxes
attributable to these leases, amounted to $261 and $736 for the period from
September 23, 1995 to December 31, 1995, and for the year ended December 31,
1996, respectively.
F-8
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum rental payments required under these leases are as follows:
<TABLE>
<S> <C>
1997............................................................... $750
1998............................................................... 766
1999............................................................... 781
2000............................................................... 606
</TABLE>
The Company receives consulting services from Jordan in exchange for fees
payable in accordance with terms stipulated in a management consulting
agreement between the two entities. Management fee expenses recorded by the
Company for such services amounted to $683 and $2,717 for the period from
September 23, 1995 to December 31, 1995, and for the year ended December 31,
1996, respectively.
The Company, through its Parent, and TJC Management Corporation (TJC), an
affiliated entity, have entered into a management consulting agreement whereby
TJC is paid an investment banking fee of up to 2%, based on the aggregate
consideration paid or received, for its assistance in acquisitions or sales
undertaken by the Company, and a financial consulting fee not to exceed 1% of
the aggregate debt or equity financing that is arranged by TJC, plus the
reimbursement of out-of-pocket expenses. The Company paid $2,055 to TJC during
the period from September 23, 1995 to December 31, 1995 related to the
acquisition of Merkle-Korff, Mercury, and Elmco. The Company paid $394 to TJC
in 1996 related to the acquisition of Barber--Colman Motors Division.
An individual who is a shareholder, Director, General Counsel and Secretary
of the Parent is also a partner in a law firm used by the Company. The firm
was paid $0 and $201 in fees and expenses during the period from September 23,
1995 to December 31, 1995 and the year ended December 31, 1996, respectively.
The rates charged to the Company were at arms-length.
Due to Jordan consists of:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
------- -------
<S> <C> <C>
Interest on note payable.................................. $ 334 $ --
Management fee............................................ 672 243
Federal income taxes...................................... 3,280 968
Other..................................................... 853 495
------- -------
$ 5,139 $ 1,706
======= =======
4. INVENTORIES
Inventories consist of the following:
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Raw materials............................................. $ 9,766 $ 9,351
Work in process........................................... 1,565 4,668
Finished goods............................................ 2,073 2,535
------- -------
$13,404 $16,554
======= =======
</TABLE>
F-9
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ --------
<S> <C> <C>
Land and improvements.................................... $ 265 $ 265
Building and improvements................................ 2,889 3,206
Machinery and equipment.................................. 12,562 15,690
Dies and tooling......................................... 481 3,881
Furniture and fixtures................................... 553 846
Vehicles................................................. 78 108
------ --------
16,828 23,996
Less: Accumulated depreciation and amortization.......... (9,662) (12,565)
------ --------
$7,166 $ 11,431
====== ========
</TABLE>
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 23, 1995 YEAR ENDED
TO DECEMBER 31,
DECEMBER 31, 1995 1996
------------------ ------------
<S> <C> <C>
Current:
Federal.................................. $827 $1,594
State.................................... 124 572
---- ------
Total current.......................... 951 2,166
Deferred:
Federal.................................. (3) 1,228
State.................................... -- 276
---- ------
Total deferred......................... (3) 1,504
---- ------
Provision for income taxes................ $948 $3,670
==== ======
The provision for income taxes differs from the amount of income tax provision
computed by applying the federal income tax rate to income before income taxes.
A reconciliation of the differences is as follows:
<CAPTION>
PERIOD FROM
SEPTEMBER 23, 1995 YEAR ENDED
TO DECEMBER 31,
DECEMBER 31, 1995 1996
------------------ ------------
<S> <C> <C>
Computed statutory tax provision.......... $785 $2,891
Increase resulting from:
State and local taxes, net of federal
benefit.............................. 82 560
Nondeductible amortization............ 37 145
Other................................. 44 74
---- ------
Provision for income taxes................ $948 $3,670
==== ======
</TABLE>
F-10
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax liabilities and assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------
1995 1996
---- ------
<S> <C> <C>
Deferred tax liabilities:
Goodwill................................................... $-- $1,866
Property, plant and equipment.............................. 759 --
---- ------
Total deferred tax liabilities............................... 759 1,866
Deferred tax assets:
Property, plant and equipment ............................. -- 1,509
Covenants not to compete................................... -- 75
Vacation accrual........................................... 63 136
Franchise tax.............................................. 128 128
Employee benefits.......................................... 53 230
Uniform capitalization..................................... 243 243
Allowance for doubtful accounts............................ -- 17
Inventory obsolescence reserve............................. -- 159
Other...................................................... 199 246
---- ------
Total deferred tax assets.................................... 686 2,743
---- ------
Net deferred tax (liabilities) assets........................ $(73) 877
==== ======
</TABLE>
7. INDEBTEDNESS
On November 7, 1996, the Company issued $170,000 aggregate principal amount
of 10 3/4% Senior Notes (Senior Notes). Interest on the Senior Notes is
payable in arrears on May 15 and November 15 of each year, commencing May 15,
1997. The Senior Notes are unsecured obligations of the Company and mature on
November 15, 2006. The Senior Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after November 15, 2001. In
addition, notwithstanding the foregoing, the Company may redeem up to 35% of
the original aggregate principal amount prior to November 15, 1999 under
certain circumstances.
The Indenture relating to the Senior Notes contains certain covenants which,
among other things, restricts the ability of the Company to incur additional
indebtedness, to declare or pay dividends, to repurchase stock or make other
restricted payments, create liens, engage in transactions with affiliates, or
complete certain mergers or consolidations.
Concurrent with the consummation of the above offering, the Company used a
portion of the net proceeds to repay all of its outstanding indebtedness under
the existing Credit Agreement, canceled the existing Credit Agreement, and
entered into a new Credit Agreement (New Credit Agreement) with a bank.
Accordingly, the unamortized balance of deferred financing costs related to
the previous credit agreement of $3,806 was written-off as an extraordinary
charge. The New Credit Agreement is in the form of a revolving credit facility
and provides for borrowings of up to $75,000 over a five year term. Borrowings
bear interest at a floating rate of LIBOR plus 2.5% or base rate plus 1.5%,
subject to reduction based on the Company's leverage ratio, as defined. Unused
commitments under the revolving credit facility are subject to an availability
fee of 1/2 of 1% per annum, as defined. Borrowings are secured by the stock
and substantially all of the assets of the Company. There were no borrowings
outstanding under the revolving credit facility at December 31, 1996.
The New Credit Agreement contains covenants which, among other things,
provide for a minimum level of interest coverage, as defined, and limit the
Company's ability to incur additional indebtedness, create liens, make
restricted payments, engage in affiliate transactions or mergers and
consolidations, and make asset sales.
F-11
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The subordinated note payable is due to the former shareholder of Merkle-
Korff in installments beginning December 31, 2000 through December 31, 2003
and bears interest at 9% per annum. The note is unsecured.
8. LEASES
The Company leases certain land, buildings, and equipment under capital and
noncancellable operating lease agreements expiring in various years through
2003. Under the terms of one of these operating leases, monthly rental
payments may be adjusted every 36 months. Minimum future lease payments, by
year and in aggregate, under capital and noncancellable operating leases, are
as follows at December 31, 1996:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1997..................................................... $1,796 $22
1998..................................................... 1,326 22
1999..................................................... 1,236 22
2000..................................................... 956 11
2001..................................................... 304 1
Thereafter............................................... 512 --
------ ---
Total minimum lease payments........................... $6,130 78
======
Amount representing interest............................. (11)
---
Present value of net minimum lease payments.............. $67
===
</TABLE>
Total rent expense was $333 and $1,680 for the period from September 23,
1995 to December 31, 1995 and for the year ended December 31, 1996,
respectively.
9. COMMON STOCK
Concurrent with its formation on September 8, 1995, the Company issued 100
shares of its stock for one hundred dollars. On September 22, 1995, the
Company sold an additional 99,900 shares of its common stock for $29,906. The
proceeds were used to finance a portion of the acquisition of all of the
outstanding shares of Merkle-Korff, Mercury, and Elmco, as described in Note
1.
10. BENEFIT PLANS
Merkle-Korff maintains a 401(k) profit sharing plan covering substantially
all of their employees who have satisfied minimum years of service and age
requirements. Merkle-Korff's contribution to the plan was approximately $55
and $181 for the period from September 23, 1995 to December 31, 1995 and for
the year ended December 31, 1996, respectively.
Employees of Imperial who are not covered by collective bargaining
agreements and have satisfied minimum years of service and age requirements
are eligible to participate in a 401(k) savings plan sponsored by Jordan.
Imperial, Scott and Gear also maintain other defined-contribution plans
covering substantially all of their respective employees. Employer
contributions to these plans were approximately $75 and $268 for the period
from September 23, 1995 to December 31, 1995 and for the year ended December
31, 1996, respectively.
F-12
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS
On June 12, 1997, Motors & Gears Industries, Inc. ("MGI"), through its
newly-formed wholly-owned subsidiary, FIR Group Holdings, Inc. and its wholly-
owned subsidiaries, Motors and Gears Amsterdam, B.V. and FIR Group Holdings
Italia, SrL. purchased all of the common stock of the FIR Group Companies,
consisting of CIME S.p.A., SELIN S.p.A., and FIR S.p.A. The FIR Group
Companies are manufacturers of electric motors and pumps for niche
applications such as pumps for commercial dishwashers, motors for industrial
sewing machines, and motors for industrial fans and ventilators.
The purchase price of $50.5 million, including costs directly related to the
transaction, was preliminarily allocated to working capital of $17.5 million,
property, plant, and equipment of $4.9 million, other long term liabilities of
$3.9 million, and resulted in an excess of purchase price over net
identifiable assets of $32.0 million. The cash was provided from borrowings
under MGI's existing Credit Agreement.
On October 27, 1997, MGI acquired all of the outstanding stock of ED&C
Company ("ED&C"). MGI acquired ED&C through its newly formed wholly owned
subsidiary, Electrical Design and Control Company. ED&C is a full-service
electric engineering company which designs, engineers, and manufactures
electrical control systems and panels for material handling systems and other
like applications. ED&C provides comprehensive design, build, and support
services to produce electronic control panels which regulate the speed and
movement of conveyor systems used in a variety of automotive plants and other
industrial applications.
In connection with the acquisition of ED&C MGI paid $15.0 million to the
sellers in cash and the remainder was financed through a $4.0 million
unsecured note which bears an interest rate of 9% with one principal
amortization payment of $4.0 million in 2002. The cash was provided from
borrowings under MGI's existing Credit Agreement.
On December 18, 1997, MGI acquired all of the outstanding stock of Motion
Control Engineering, Inc. ("Motion Control"). MGI acquired Motion Control
through its newly formed wholly-owned subsidiary, Motion Holdings, Inc. Motion
Control is the leading independent supplier of electronic motion and logic
control products to the elevator industry. Motion Control designs, engineers
and assembles custom microprocessor-based control systems primarily used in
modernizing and upgrading existing cable traction and hydraulic elevators (90%
of sales) as well as new building construction (10% of sales).
In connection with the acquisition, MGI paid $51.6 million to the sellers in
cash. The cash was provided through proceeds from the 10 3/4% Series C Senior
Notes due 2006 issued on December 17, 1997.
On December 17, 1997, the Company issued $100.0 million aggregate principal
amount of 10 3/4% Series C Senior Notes. Interest on the Series C Senior Notes
is payable in arrears on May 15 and November 15 of each year commencing May
15, 1998. The Series C Senior Notes are unsecured obligations of the Company
and mature on November 15, 2006. In connection with the issuance of the Series
C Senior Notes, the Company also received $20,000 of proceeds from the
issuance of shares of common stock to its Parent.
F-13
<PAGE>
MOTORS AND GEARS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 5,104
Accounts receivable, net...................................... 29,988
Inventories................................................... 25,442
Prepaid expenses and other current assets..................... 3,142
Deferred income taxes......................................... 1,159
--------
Total current assets........................................ 64,835
Property, plant, and equipment, net............................. 14,081
Goodwill, net................................................... 138,556
Covenants not to compete, net................................... 981
Deferred financing costs, net................................... 9,643
Other assets.................................................... 199
--------
Total assets................................................ $228,295
========
LIABILITIES AND SHAREHOLDER'S EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable.............................................. $ 15,195
Accrued interest payable...................................... 6,965
Accrued expenses and other.................................... 2,602
Due to affiliated company..................................... 2,770
Current portion of capital lease obligations.................. 20
--------
Total current liabilities................................... 27,552
Long-term debt.................................................. 204,000
Subordinated note payable....................................... 5,000
Capital lease obligations, less current portion................. 75
Deferred income taxes........................................... 2,503
Other non-current liabilities................................... 2,626
Shareholder's equity (net capital deficiency):
Common stock.................................................. 1
Additional paid-in capital.................................... 30,005
Accumulated deficit........................................... (43,467)
--------
Shareholder's equity (net capital deficiency)............... (13,461)
--------
Total liabilities and net capital deficiency................ $228,295
========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-14
<PAGE>
MOTORS AND GEARS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1997
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $ 90,153 $ 106,379
Cost of sales, excluding depreciation....................... 58,007 68,349
Selling, general, and administrative expenses............... 6,404 8,226
Depreciation................................................ 2,168 3,003
Amortization of goodwill and other intangibles.............. 2,920 3,256
Management fees and other................................... 2,289 1,567
-------- ---------
Operating income........................................ $ 18,365 $ 21,978
Other (income) and expenses:
Interest expense.......................................... 7,413 15,950
Interest income........................................... -- (354)
-------- ---------
Total other expenses.................................... $ 7,413 $ 15,596
-------- ---------
Income before income taxes.................................. 10,952 6,382
Provision for income taxes.................................. 4,082 2,805
-------- ---------
Net income.................................................. $ 6,870 $ 3,577
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-15
<PAGE>
MOTORS AND GEARS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 6,870 $ 3,577
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 5,978 7,046
Provision for deferred income taxes..................... 516 803
Changes in operating assets and liabilities
Net of effects from acquisitions:
Decrease (Increase) in current assets................... 1,169 (2,527)
Increase in current liabilities......................... 1,295 3,401
Increase in non-current liabilities..................... -- 53
Increase in non-current assets.......................... -- (327)
(Decrease) Increase in payables to affiliated company... (6,235) 1,064
-------- --------
Net cash provided by operating activities.................. 9,593 13,090
Cash flows from investing activities:
Capital expenditures, net................................. (874) (739)
Acquisitions of subsidiaries.............................. (21,700) (50,950)
Cash acquired in purchase of subsidiaries................. -- 890
-------- --------
Net cash used in investing activities...................... (23,574) (50,799)
Cash flows from financing activities:
Proceeds from debt issuance............................... 20,000 --
Net borrowings from revolving credit facilities........... 1,700 34,000
Repayment of long-term debt............................... (6,945) (17)
Other..................................................... 81 70
-------- --------
Net cash provided by financing activities.................. 14,836 34,053
-------- --------
Effect of exchange rate changes on cash.................... -- (1,251)
Net increase (decrease) in cash and cash equivalents....... 1,855 (4,907)
Cash and cash equivalents at beginning of period........... 2,781 10,011
-------- --------
Cash and cash equivalents at end of period................. $ 4,636 $ 5,104
======== ========
Cash paid during the period for:
Interest.................................................. $ 7,183 $ 11,695
Income taxes.............................................. $ 839 $ 319
======== ========
Non-cash paid investing activities:
Capital leases............................................ $ 67 $ 46
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-16
<PAGE>
MOTORS AND GEARS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
A. ORGANIZATION
The unaudited condensed consolidated financial statements, which reflect all
adjustments that management believes necessary to present fairly the results
of interim operations, should be read in conjunction with the Notes to the
Consolidated Financial Statements (including the Summary of Significant
Accounting Policies) included in the Company's audited consolidated financial
statements for the year ended December 31, 1996, which are included elsewhere
herein. The Company conducts its operations exclusively through its
subsidiaries. Results of operations for the interim periods are not
necessarily indicative of annual results of operations.
B. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Raw materials and work in process............................ $22,533
Finished Goods............................................... 2,909
-------
$25,442
=======
</TABLE>
C. ACQUISITION OF SUBSIDIARIES
On March 8, 1996, Merkle-Korff acquired the net assets of Barber-Colman
Motors ("Colman Motors Products", formerly "Barber-Colman"), a division of
Barber-Colman Company, which was wholly-owned by Siebe, plc. This division
consisted of Colman OBM and Colman Motor Products, wholly owned subsidiaries
of Barber-Colman Company, and the motors division of Barber-Colman Company,
collectively, Colman Motor Products ("CMP"). It is a vertically integrated
manufacturer of sub fractional horsepower AC/DC motors and gear motors with
applications in such products as vending machines, copiers, printers, ATM
machines, currency changers, X-ray machines, peristaltic pumps, HVAC
actuators, and other products.
The purchase price of $21,700, which included costs incurred directly
related to the transaction, was allocated to working capital of $5,111,
property, plant and equipment of $6,541, non-compete agreements of $1,000, and
resulted in an excess purchase price over net identifiable assets of $9,048.
The acquisition was financed with $21,700 of new and existing credit
facilities.
On June 12, 1997, Motors & Gears Industries, Inc. ("The Company"), through
its newly-formed wholly-owned subsidiary, FIR Group Holdings, Inc. and its
wholly-owned subsidiaries, Motors and Gears Amsterdam, B.V. and FIR Group
Holdings Italia, SrL, purchased all of the common stock of the FIR Group
Companies, consisting of CIME S.p.A., SELIN S.p.A., and FIR S.p.A. The FIR
Group Companies are manufacturers of electric motors and pumps for niche
applications such as pumps for commercial dishwashers, motors for industrial
sewing machines, and motors for industrial fans and ventilators.
The purchase price of $50.5 million, including costs directly related to the
transaction, was preliminarily allocated to working capital of $17.5 million,
property, plant, and equipment of $4.9 million, other long term liabilities of
$3.9 million, and resulted in an excess of purchase price over net
identifiable assets of $32.0 million. The cash was provided from borrowings
under the Company's existing Credit Agreement.
On October 27, 1997, Motor & Gears Industries, Inc. ("Company") acquired all
of the outstanding stock of ED&C Company ("ED&C"). The Company acquired ED&C
through its newly formed wholly owned
F-17
<PAGE>
MOTORS AND GEARS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
subsidiary, Electrical Design and Control Company. ED&C is a full-service
electric engineering company which designs, engineers, and manufactures
electrical control systems and panels for material handling systems and other
like applications. ED&C provides comprehensive design, build, and support
services to produce electronic control panels which regulate the speed and
movement of conveyor systems used in a variety of automotive plants and other
industrial applications.
In connection with the acquisition of ED&C the Company paid $15.0 million to
the sellers in cash and the remainder was financed through a $4.0 million
unsecured note which bears an interest rate of 9% with one principal
amortization payment of $4.0 million in 2002. The cash was provided from
borrowings under the Company's existing credit agreement.
D. SIGNIFICANT ACCOUNTING POLICIES--CONSOLIDATION PRINCIPLES
The consolidated financial statements include the accounts of Motors &
Gears, Inc. and its subsidiaries. Material intercompany transactions and
balances are eliminated in consolidations. Operations of subsidiaries outside
the United States are included for periods ending two months prior to the
Company's year end and interim periods to ensure timely preparation of the
consolidated financial statements.
F-18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors
Merkle-Korff Industries, Inc.,
Mercury Industries, Inc. and Elmco Industries, Inc.
We have audited the accompanying combined balance sheet of Merkle-Korff
Industries, Inc., Mercury Industries, Inc., and Elmco Industries, Inc. as of
December 31, 1994, and the related combined statements of income and retained
earnings and cash flows for the years ended December 31, 1993 and 1994 and the
period from January 1, 1995 to September 22, 1995. These financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement representation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the combined financial position of Merkle-Korff
Industries, Inc., Mercury Industries, Inc. and Elmco Industries, Inc. as of
December 31, 1994, and the combined results of their operations and their cash
flows for the years ended December 31, 1993 and 1994 and the period from
January 1, 1995 to September 22, 1995, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Chicago, Illinois
February 23, 1996
F-19
<PAGE>
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC. AND
ELMCO INDUSTRIES, INC.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
ASSETS
Current assets:
Cash............................................................. $ 69,574
Short-term investments........................................... 5,539,994
Accounts receivable.............................................. 5,877,107
Inventories...................................................... 4,529,148
Prepaid expenses and other....................................... 139,034
Note receivable.................................................. 11,415
-----------
Total current assets........................................... 16,166,272
Property and equipment--Net........................................ 482,766
Other assets:
Note receivable.................................................. 57,083
Due from related parties......................................... 1,231,426
Other noncurrent assets.......................................... 1,014,845
-----------
Total assets................................................... $18,952,392
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Outstanding checks in excess of bank balance..................... $ 56,857
Accounts payable................................................. 3,086,278
Accrued expenses and other....................................... 1,476,899
-----------
Total current liabilities...................................... 4,620,034
Stockholders' equity:
Common stock..................................................... 2,248,325
Retained earnings................................................ 12,084,033
-----------
Total stockholders' equity..................................... 14,332,358
-----------
Total liabilities and stockholders' equity..................... $18,952,392
===========
</TABLE>
See accompanying notes.
F-20
<PAGE>
MERKLE-KORFF INDUSTRIES, INC., MERCURY INDUSTRIES, INC. AND ELMCO INDUSTRIES,
INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED YEAR ENDED 1995 TO
DECEMBER 31, DECEMBER 31, SEPTEMBER 22,
1993 1994 1995
------------ ------------ -------------
<S> <C> <C> <C>
Net sales............................. $43,766,171 $ 49,340,321 $ 39,294,103
Cost of sales......................... 27,706,529 31,564,365 24,188,376
----------- ------------ ------------
Gross profit.......................... 16,059,642 17,775,956 15,105,727
Selling, general, and administrative
expenses............................. 7,512,421 5,466,521 3,489,567
----------- ------------ ------------
Operating income...................... 8,547,221 12,309,435 11,616,160
Other income (expense):
Interest income..................... 172,186 231,089 273,970
Other............................... (454,117) (448,639) (2,293)
----------- ------------ ------------
Income before income taxes............ 8,265,290 12,091,885 11,887,837
State income taxes.................... 143,255 170,529 283,778
----------- ------------ ------------
Net income............................ 8,122,035 11,921,356 11,604,059
Retained earnings--beginning of
period............................... 9,808,279 10,267,075 12,084,033
Dividends paid........................ (7,663,239) (10,104,398) (16,718,535)
----------- ------------ ------------
Retained earnings--end of period...... $10,267,075 $ 12,084,033 $ 6,969,557
=========== ============ ============
Pro forma income data (unaudited):
Pro forma income taxes, including
amounts recorded................... $ 3,306,116 $ 4,836,754 $ 4,755,135
Pro forma net income................ 4,959,174 7,255,131 7,132,702
</TABLE>
See accompanying notes.
F-21
<PAGE>
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC. AND
ELMCO INDUSTRIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED YEAR ENDED 1995 TO
DECEMBER 31, DECEMBER 31, SEPTEMBER 22,
1993 1994 1995
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income:......................... $ 8,122,035 $ 11,921,356 $ 11,604,059
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization..... 334,584 323,657 101,411
Provision for bad debts........... 72,455 -- --
Changes in operating assets and
liabilities:
Accounts receivable............. (720,101) (954,472) (772,042)
Inventories..................... (62,634) (511,136) (717,088)
Prepaid expenses and other...... 46,353 (82,360) (269,254)
Deposits........................ (135,065) (187,123) --
Outstanding checks in excess of
bank balance................... (321,847) (309,780) (56,857)
Accounts payable................ (461,094) 1,017,562 1,481,436
Accrued expenses and other...... 115,173 6,671 (853,705)
----------- ------------ ------------
Net cash provided by operating
activities......................... 6,989,859 11,224,375 10,517,960
Cash flows from investing activities
(Purchases) sales of property and
equipment........................ (267,279) (190,223) 46,527
Decrease (increase) in short-term
investments...................... 1,009,923 (789,266) 5,539,994
Decrease (increase) in note
receivable....................... 43,388 (23,819) 11,415
(Increase) in accrued interest
receivable....................... -- -- (2,495)
----------- ------------ ------------
Net cash provided by (used in)
investing activities............... 786,032 (1,003,308) 5,595,441
Cash flows from financing activities
(Increase) decrease in due from
related parties.................. (122,673) (113,542) 1,231,426
Dividends paid.................... (7,663,239) (10,104,398) (16,718,535)
----------- ------------ ------------
Net cash (used in) financing
activities......................... (7,785,912) (10,217,940) (15,487,109)
----------- ------------ ------------
(Decrease) increase in cash......... (10,021) 3,127 626,292
Cash at beginning of period......... 76,468 66,447 69,574
----------- ------------ ------------
Cash at end of period............... $ 66,447 $ 69,574 $ 695,866
=========== ============ ============
Supplemental disclosures of cash
flow information
Cash paid during the period for:
Income taxes.................... $ 143,000 $ 171,000 $ 59,673
=========== ============ ============
</TABLE>
See accompanying notes.
F-22
<PAGE>
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC., AND
ELMCO INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 22, 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Merkle-Korff Industries, Inc. (Merkle-Korff), Mercury Industries, Inc.
(Mercury), and Elmco Industries, Inc. (Elmco), collectively referred to as the
"Companies," are owned by an individual and trusts, the beneficiaries of which
are related to the individual. Merkle-Korff manufactures and sells reversible,
permanent split-capacitor, shaded-pole, and DC sub-fractional horsepower
motors and gearmotors primarily to customers located throughout the United
States. Mercury and Elmco manufacture various electro-mechanical products and
components exclusively for Merkle-Korff.
Short-Term Investments
Short-term investments consist of U.S. Treasury bills and are carried at
cost, which approximates market.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first in, first out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
determined using either straight-line or accelerated methods over the
estimated useful lives of the assets. Leasehold improvements are amortized
using the straight-line method over the life of the leasehold improvement.
Research and Development Costs
Research and development costs related to both present and future products
are charged to expense when incurred.
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 financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
The Companies elected to be taxed as S corporations under applicable
provisions of the Internal Revenue Code and, therefore, are generally not
liable for federal and certain state income taxes, as the income of the
Companies is included in the taxable income of its stockholders.
Financial Instruments
Cash and trade receivables may subject the Companies to credit risk. The
Companies hold cash at highly rated financial institutions which are federally
insured up to prescribed limits. Cash balances may exceed the federally
insured limits at any given time.
For the years ended December 31, 1993 and 1994, and for the period from
January 1, 1995 to September 22, 1995, the three largest customers accounted
for 36%, 35% and 37% of sales, respectively. At December 31,
F-23
<PAGE>
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC. AND
ELMCO INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1994, the three largest customers accounted for 29% of trade accounts
receivable. The Companies closely monitor the credit quality of their
customers and credit losses have been insignificant on a historical basis.
2. RESTATED PARTY TRANSACTIONS
Merkle-Korff leases its plants, warehouse, and offices under net leases from
affiliated entities. Rent expenses, including real estate taxes attributable
to these leases, amounted to $361,967, $361,962 and $274,731 for the years
ended December 31, 1993 and 1994, and for the period from January 1, 1995 to
September 22, 1995, respectively. Future annual minimum rental payments
required under this lease amount to $303,480 for 1996.
Mercury leases its plant under a net lease from a corporation which is an
affiliated entity. Rent expenses, including real estate taxes attributable to
this lease, amounted to $196,638, $194,419 and $146,431 for the years ended
December 31, 1993 and 1994, and for the period from January 1, 1995 to
September 22, 1995, respectively. Future minimum rental payments required
under this lease amount to $174,600 for 1996.
Elmco leases its plant under a net lease from a corporation which is an
affiliated entity. Rent expenses, including real estate taxes attributable to
this lease, amounted to $314,702, $334,938 and $162,421 for the years ended
December 31, 1993 and 1994, and for the period from January 1, 1995 to
September 22, 1995, respectively. Future minimum rental payments required
under this lease amount to $254,040 for 1996.
The amount shown as due from related parties at December 31, 1994
principally includes amounts due from related trusts and individuals under
certain insurance agreements entered into for the benefit of certain officers
of the Companies. The Companies are entitled to be reimbursed by the trusts
for the lesser of all premiums paid relating to these policies or their cash
surrender values upon either payment of the face value of the policies or
termination of the policies for any reason. As of December 31, 1994, these
amounts were secured by the cash surrender value of the related life insurance
policies.
The Companies contributed $450,000 to a foundation controlled by a related
party during each of the years ended December 31, 1993 and 1994.
Transactions and accounts existing between the Companies have been
eliminated in the combined financial statements.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Raw materials................................................... $2,796,630
Work in process................................................. 764,058
Finished goods.................................................. 968,460
----------
$4,529,148
==========
</TABLE>
F-24
<PAGE>
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC. AND
ELMCO INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Machinery and equipment........................................ $ 4,088,405
Dies and tooling............................................... 1,687,477
Furniture and fixtures......................................... 834,661
Vehicles....................................................... 205,304
Leasehold improvements......................................... 740,135
-----------
7,555,982
Less: Accumulated depreciation and amortization................ (7,073,216)
-----------
$ 482,766
===========
5. NOTE RECEIVABLE
Note receivable consists of the following:
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
9.75% note receivable due in monthly installments of $1,466
including interest through November 1999...................... $ 68,498
Less: Current portion.......................................... (11,415)
-----------
$ 57,083
===========
6. COMMON STOCK
Common stock consists of the following:
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Merkle-Korff Industries, Inc.
Common stock; no par value; 1,000,000 shares authorized;
803,250 shares
issued and outstanding...................................... $ 2,222,235
Mercury Industries, Inc.
Common stock; no par value; 2,500 shares authorized; 1,000
shares issued and outstanding............................... 25,000
Elmco Industries, Inc.
Common stock; $10 par value; 100,000 shares authorized; 100
shares issued and outstanding............................... 1,000
-----------
$ 2,248,325
===========
</TABLE>
7. PROFIT-SHARING PLANS
The Companies maintain profit-sharing plans with a 401(k) provision. The
plans cover all eligible employees with specified years of service and
attainment of minimum age requirements. The Companies' voluntary contributions
to the plans were $99,047 and $98,765 for the years ended December 31, 1993
and 1994, respectively. The Companies did not make any voluntary contributions
to the plans during the period from January 1, 1995 to September 22, 1995.
F-25
<PAGE>
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC. AND
ELMCO INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. SUBSEQUENT EVENT
On September 22, 1995, Motors and Gears, Inc., formerly MK Group, Inc., a
wholly-owned subsidiary of M&G Holdings, Inc., a majority-owned subsidiary of
Jordan Industries, Inc., acquired all of the outstanding common stock of the
Companies for approximately $107,406,000.
F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Barber-Colman Company
We have audited the accompanying balance sheets of Barber-Colman Company--
Barber-Colman Motors Division (the Division) as of March 31, 1995 and December
31, 1995, and the related statements of divisional operations and cash flows
for the year ended March 31, 1995 and the nine month period ended December 31,
1995. These financial statements are the responsibility of the Division's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Barber-Colman Company--Barber-Colman Motors Division is a part of Barber-
Colman Company, a wholly owned subsidiary of Siebe, plc., and has no separate
legal status or existence. Transactions with Barber-Colman Company and other
affiliates are described in Note 1.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Barber-Colman Company--
Barber-Colman Motors Division at March 31, 1995 and December 31, 1995, and the
results of its operations and its cash flows for the year ended March 31, 1995
and the nine months ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, the Division changed its
method of accounting for advertising costs on April 1, 1995 to conform with
Statement of Position 93-7, "Reporting on Advertising Costs."
Ernst & Young LLP
Chicago, Illinois
January 19, 1996
F-27
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A
WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 6,000 $ 6,000
Accounts receivable from third parties, less allow-
ance of $33,000.................................... 3,129,000 1,586,000
Accounts receivable from related entities........... 507,000 428,000
Inventories......................................... 2,908,000 2,726,000
Prepaid expenses and other current assets........... 837,000 599,000
Deferred income taxes............................... 78,000 128,000
----------- -----------
Total current assets.............................. 7,465,000 5,473,000
Property, equipment, and leasehold improvements--Net.. 7,265,000 6,989,000
Goodwill, less accumulated amortization of $626,000 at
March 31, 1995; $687,000 at December 31, 1995........ 2,652,000 2,591,000
----------- -----------
Total assets...................................... $17,382,000 $15,053,000
=========== ===========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable to third parties................... $ 2,501,000 $ 591,000
Accounts payable to related entities................ 362,000 119,000
Accrued expenses and other current liabilities...... 650,000 551,000
----------- -----------
Total current liabilities......................... 3,513,000 1,261,000
Deferred income taxes................................. 2,042,000 1,971,000
Commitments (Note 8)
Division equity....................................... 11,827,000 11,821,000
----------- -----------
Total liabilities and division equity............. $17,382,000 $15,053,000
=========== ===========
</TABLE>
See accompanying notes.
F-28
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
STATEMENTS OF DIVISIONAL OPERATIONS
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1995 1995
----------- ------------
<S> <C> <C>
Net sales:
Third parties....................................... $21,362,000 $14,890,000
Related entities.................................... 2,090,000 1,452,000
----------- -----------
23,452,000 16,342,000
Cost of sales:
Third parties....................................... 15,296,000 11,105,000
Related entities.................................... 1,497,000 1,083,000
----------- -----------
16,793,000 12,188,000
----------- -----------
Gross profit........................................ 6,659,000 4,154,000
Selling, general, and administrative expenses:
Allocated by parent................................. 981,000 886,000
Other............................................... 3,953,000 2,935,000
----------- -----------
4,934,000 3,821,000
----------- -----------
Operating income...................................... 1,725,000 333,000
Other expense......................................... 11,000 18,000
Allocated interest expense............................ 425,000 321,000
----------- -----------
Income (loss) before income taxes and cumulative
effect of change in accounting for advertising
costs................................................ 1,289,000 (6,000)
Provision for income taxes............................ 671,000 130,000
----------- -----------
Income (loss) before cumulative effect of change in
accounting for advertising costs..................... 618,000 (136,000)
Cumulative effect of change in accounting for
advertising costs (Note 1)........................... -- 122,000
----------- -----------
Divisional income (loss) ............................. $ 618,000 $ (258,000)
=========== ===========
</TABLE>
See accompanying notes.
F-29
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Cash flows from operating activities
Divisional income (loss) ............................ $ 618,000 $ (258,000)
Adjustments to reconcile divisional income (loss) to
net cash provided by operating activities:
Depreciation and amortization...................... 831,000 641,000
Deferred income taxes.............................. (590,000) (39,000)
Cumulative effect of change in accounting for
advertising costs................................. -- 122,000
Changes in operating assets and liabilities:
Accounts receivable.............................. (507,000) 1,622,000
Inventories...................................... (567,000) 182,000
Prepaid expenses and other current assets........ 35,000 34,000
Accounts payable................................. 340,000 (2,153,000)
Accrued expenses and other current liabilities... (60,000) (99,000)
---------- -----------
Net cash provided by operating activities............ 100,000 52,000
Cash flows from investing activities
Purchases of property, equipment, and leasehold im-
provements........................................ (699,000) (458,000)
Proceeds from disposals of property, equipment, and 1,433,000 154,000
leasehold improvements............................ ---------- -----------
Net cash provided by (used for) investing activi-
ties................................................ 734,000 (304,000)
Cash flows from financing activities
(Distributions to) contributions by Parent......... (834,000) 252,000
---------- -----------
Net cash (used for) provided by financing activi- (834,000) 252,000
ties................................................ ---------- -----------
Net change in cash................................... -- --
Cash at beginning of period.......................... 6,000 6,000
---------- -----------
Cash at end of period................................ $ 6,000 $ 6,000
========== ===========
</TABLE>
See accompanying notes.
F-30
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A WHOLLY OWNED SUBSIDIARY OF SIEBE,
PLC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Barber-Colman Motors Division (the Division) is a division of Barber-Colman
Company, which is a wholly owned subsidiary of Siebe, plc. (collectively, the
Parent). The Division consists of Colman OEM and Colman Motor Products, wholly
owned subsidiaries of Barber-Colman Company, and the motors division of
Barber-Colman Company. The Division is a vertically integrated manufacturer of
subfractional horsepower AC and DC motors and gear motors and sells its
products to customers located in North America.
Basis of Presentation
These financial statements present the assets, liabilities, and results of
operations of the Division. Costs related to functions performed by the Parent
and certain other costs which are attributable to the Division are allocated
to the Division by the Parent. Costs related to these functions performed by
the Parent include legal, property and casualty insurance, human resources,
financial reporting, general accounting, and other administrative services. In
addition, interest expense is allocated by the Parent. Refer to Note 9 for a
summary of allocated costs.
The Division is part of a consolidated group and as such has significant
transactions with related entities. The terms of these transactions were
determined between related parties and may, therefore, differ from terms which
would have occurred between wholly unrelated parties and may also differ from
the costs which would have been incurred had the Division operated as a
completely autonomous entity.
The assets, liabilities, income, and expenses shown on the Division's
financial statements are only part of those of a larger entity and are not
subject to the constraints of law and custom applicable to legal entities.
Consequently, they may be available to satisfy claims unrelated to and not
reflected in the financial statements of the nonlegal entity.
Cash Management
The Division transfers its cash to the Parent and the Parent advances funds
to the Division to finance its operations, the expansion of its business, and
its working capital requirements. The net activity in the regard is reflected
as a part of Division equity.
Inventories
Inventories are valued at the lower of cost or market. The Division costs
certain inventories using the last in, first out (LIFO) method and other
inventories using the first in, first out (FIFO) method.
Property, Equipment, and Leasehold Improvements
Property and equipment are stated at cost, less accumulated depreciation.
Provisions for depreciation of property and equipment are determined using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are stated at cost, less accumulated amortization. Amortization
is determined using the straight-line method over the life of the leasehold
improvement.
Goodwill
Goodwill is being amortized over 40 years using the straight-line method.
All of the goodwill was allocated by the Parent to the Division after the
acquisition of Barber-Colman Company in 1987.
F-31
<PAGE>
BARBER-COLMAN MOTOR DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A
WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Financial Instruments
Trade receivables may subject the Division to credit risk. Credit risk
associated with trade receivables is limited by the large number of customers
in the Division's customer base. The Division monitors the credit quality of
its customers and maintains allowances for potential credit losses which,
historically, have been within the range of the Division's expectations.
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 financial statements and
accompanying notes. Actual results could differ from those estimates.
Advertising Costs
On April 1, 1995, the Division adopted Statement of Position 93-7,
"Reporting on Advertising Costs" (SOP 93-7). The adoption of SOP 93-7 changes
the Division's method of accounting for advertising costs. Previously, the
Division deferred advertising costs and amortized them over the related period
of advertising. Advertising costs are now expensed as incurred. The cumulative
effect of this change in accounting was to increase the divisional loss for
the nine months ended December 31, 1995 by $122,000, net of an $82,000 income
tax benefit.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Raw materials....................................... $ 152,000 $ 62,000
Work in process..................................... 3,341,000 3,220,000
Finished goods...................................... 135,000 199,000
Inventory obsolescence reserve...................... (451,000) (451,000)
---------- ----------
3,177,000 3,030,000
LIFO reserve........................................ (269,000) (304,000)
---------- ----------
$2,908,000 $2,726,000
========== ==========
</TABLE>
Inventories with a current cost of approximately $1,842,000 and $1,944,000,
respectively, have been costed using the LIFO method.
F-32
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A
WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Property, equipment, and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1995
----------- ------------
<S> <C> <C>
Machinery and equipment.............................. $10,132,000 $10,468,000
Furniture and fixtures............................... 503,000 514,000
Construction in process.............................. 534,000 386,000
Leasehold improvements............................... 421,000 432,000
Allocated software costs............................. 1,093,000 1,079,000
Other fixed assets................................... 46,000 57,000
----------- -----------
12,729,000 12,936,000
Less: Accumulated depreciation and amortization...... (5,512,000) (5,995,000)
----------- -----------
7,217,000 6,941,000
Allocated building costs, net........................ 48,000 48,000
----------- -----------
$ 7,265,000 $ 6,989,000
=========== ===========
</TABLE>
Allocated building costs, net represents the portion of the cost of Barber-
Colman Company's headquarters facility allocated to the Division. This
facility was disposed of during the year ended March 31, 1995 and the related
allocation was reversed.
4. DIVISION EQUITY
Division equity consists of the following:
<TABLE>
<S> <C>
Balance at April 1, 1994........................................ $12,043,000
Divisional income............................................... 618,000
Distributions to Parent, net.................................... (834,000)
-----------
Balance at March 31, 1995....................................... 11,827,000
Divisional loss................................................. (258,000)
Contributions by Parent, net.................................... 252,000
-----------
Balance at December 31, 1995.................................... $11,821,000
===========
</TABLE>
Distributions to/Contributions by Parent represent the change in net assets
of the Division, net of divisional income or loss during each respective
period.
5. INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Current:
Federal.............................................. $ 977,000 $131,000
State................................................ 284,000 38,000
---------- --------
1,261,000 169,000
Deferred............................................... (590,000) (39,000)
---------- --------
$ 671,000 $130,000
========== ========
</TABLE>
F-33
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A
WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The primary reasons for the difference between the statutory federal income
tax rate and the effective tax rate are state income taxes and amortization of
goodwill and other expenses not deductible for tax purposes.
The Division's operating results are included in the Parent's income tax
returns. The provision for current income taxes is based on the Division's
taxable income calculated on a separate return basis.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes.
Significant components of the Division's deferred tax assets and liabilities
consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1995
----------- ------------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts.................... $ 13,000 $ 13,000
Inventory obsolescence reserve..................... 180,000 180,000
Accrued vacation................................... 32,000 11,000
Accrued warranty................................... 10,000 10,000
Other.............................................. 14,000 84,000
----------- -----------
249,000 298,000
Deferred income tax liabilities:
Book value in excess of tax basis
of property, equipment, and
leasehold improvements............................ (2,042,000) (1,971,000)
Prepaid expenses................................... (171,000) (170,000)
----------- -----------
(2,213,000) (2,141,000)
----------- -----------
$(1,964,000) $(1,843,000)
=========== ===========
</TABLE>
6. RETIREMENT BENEFITS
Substantially all of the Division's employees are covered by a qualified
retirement savings and/or profit sharing plan of the Parent. The Division is
charged for its share of the Parent's contributions to the plans. The Division
was charged approximately $214,000 and $161,000 for these contributions during
year ended March 31, 1995 and nine months ended December 31, 1995,
respectively.
7. MAJOR CUSTOMERS
During the year ended March 31, 1995 and the nine months ended December 31,
1995, the same three customers accounted for approximately 31% and 34% of
sales, respectively. At March 31, 1995 and December 31, 1995, these same three
customers accounted for approximately 37% and 31% of trade accounts
receivable, respectively.
One of these customers is a related entity which accounted for approximately
9% of sales during both the year ended March 31, 1995 and the nine months
ended December 31, 1995. At March 31, 1995 and December 31, 1995, this related
entity accounted for approximately 14% and 21% of trade accounts receivable,
respectively.
F-34
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A
WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS
The Division leases manufacturing, office, and storage facilities and
certain equipment under noncancelable operating leases expiring in various
years through 2000. The leases require the Division to pay real estate taxes
and maintenance costs.
Commitments for future minimum payments under noncancelable leases are as
follows as of December 31, 1995:
<TABLE>
<S> <C>
1996........................................................... $1,244,000
1997........................................................... 1,031,000
1998........................................................... 960,000
1999........................................................... 762,000
2000 and thereafter............................................ 386,000
</TABLE>
Rental expense for the year ended March 31, 1995 and the nine months ended
December 31, 1995 was approximately $984,000 and $842,000, respectively.
Included in these amounts is related party rental expense of approximately
$158,000 and $132,000 for the year ended March 31, 1995 and the nine months
ended December 31, 1995, respectively.
9. ALLOCATED COSTS
Costs related to functions performed by the Parent and certain other costs
which are attributable to the Division are allocated to the Division by the
Parent as follows:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1995 1995 BASIS FOR ALLOCATION
--------- ------------ --------------------
<S> <C> <C> <C>
Cost of sales*:
Building rent......... $ 38,000 $ 31,000 Square feet occupied
Data processing....... 157,000 124,000 Hourly use
Insurance............. 168,000 112,000 Actual experience
-------- --------
$363,000 $267,000
======== ========
Selling, general and ad-
ministrative expenses:
Building rent......... $120,000 $101,000 Square feet occupied
Data processing....... 31,000 23,000 Hourly use
Insurance............. 63,000 68,000 Actual experience
Royalties............. 216,000 147,000 Actual third-party sales
Management fees....... 78,000 98,000 Budgeted sales
Other................. 473,000 449,000 Budgeted sales, headcount, and
actual use of corporate services
-------- --------
$981,000 $886,000
======== ========
Interest................ $425,000 $321,000 Average net assets
======== ========
</TABLE>
- --------
* These costs are included in cost of sales of both third parties and related
entities.
F-35
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
The Imperial Electric Company and Subsidiaries
We have audited the accompanying consolidated balance sheets of The Imperial
Electric Company and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of income, shareholder's equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of The Imperial Electric Company and subsidiaries at December 31, 1994 and
1995, 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.
Ernst & Young LLP
Akron, Ohio
October 1, 1996
F-36
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 56 $ 36
Accounts receivable, net of allowance for doubtful
accounts of $15 in 1994 and 1995........................ 5,434 7,378
Inventories.............................................. 7,000 8,481
Prepaid expenses......................................... 287 272
--------- ---------
Total current assets................................... 12,777 16,167
Property, plant and equipment--Net......................... 3,010 3,615
Goodwill less accumulated amortization of $3,748 in 1994
and $4,172 in 1995........................................ 13,434 13,005
Other non-current assets................................... 29 27
--------- ---------
Total assets........................................... $ 29,250 $ 32,814
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable......................................... $ 2,313 $ 2,911
Accrued expenses and other current liabilities........... 469 594
Current portion of capital lease obligations............. 163 136
Current portion of note payable to Parent................ 2,200 3,357
Due to parent............................................ 3,551 4,802
--------- ---------
Total current liabilities.............................. 8,696 11,800
Long-term capital lease obligations........................ 348 709
Deferred income taxes...................................... 83 73
Note payable to Parent..................................... 7,827 4,470
Other non-current liabilities.............................. 157 53
Shareholder's equity:
Common stock, Class A, $100 per share stated value, 50
shares authorized, issued and outstanding............... 5 5
Common stock, Class B, $100 per share stated value, 950
shares authorized, issued and outstanding............... 95 95
Retained earnings........................................ 12,039 15,609
--------- ---------
Total shareholder's equity............................. 12,139 15,709
--------- ---------
Total liabilities and shareholder's equity............. $29,250 $32,814
========= =========
</TABLE>
See accompanying notes.
F-37
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales........................................... $32,242 $36,243 $40,090
Cost of sales, excluding depreciation............... 21,217 23,461 27,055
Selling, general and administrative expenses, ex-
cluding depreciation............................... 2,425 2,267 2,239
Depreciation........................................ 912 595 707
Amortization of goodwill and other intangibles...... 687 474 431
Management fees to Parent........................... 1,967 2,065 2,168
------- ------- -------
Operating income.................................... 5,034 7,381 7,490
Other (income) and expenses:
Interest expense:
Parent............................................ 2,285 1,813 1,352
Other............................................. 6 45 85
Miscellaneous--Net................................. (49) (45) (9)
------- ------- -------
2,242 1,813 1,428
------- ------- -------
Income before income taxes.......................... 2,792 5,568 6,062
Provision for income taxes.......................... 1,185 2,254 2,492
------- ------- -------
Net income.......................................... $ 1,607 $ 3,314 $ 3,570
======= ======= =======
</TABLE>
See accompanying notes.
F-38
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES (A SUBSIDIARY OF JORDAN
INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON COMMON
STOCK STOCK RETAINED
CLASS A CLASS B EARNINGS TOTAL
------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1993.................... $ 5 $95 $ 7,118 $ 7,218
Net income................................... -- -- 1,607 1,607
--- --- ------- -------
Balance at December 31, 1993.................. 5 95 8,725 8,825
Net income................................... -- -- 3,314 3,314
--- --- ------- -------
Balance at December 31, 1994.................. 5 95 12,039 12,319
Net income................................... -- -- 3,570 3,570
--- --- ------- -------
Balance at December 31, 1995.................. $ 5 $95 $15,609 $15,709
=== === ======= =======
</TABLE>
See accompanying notes.
F-39
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income......................................... $ 1,607 $ 3,314 $ 3,570
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 1,599 1,069 1,138
Deferred income taxes............................ (211) 31 (10)
Changes in assets and liabilities:
Accounts receivable............................. 297 (505) (1,944)
Inventories..................................... 42 (1,070) (1,481)
Prepaid expenses................................ (240) 18 15
Accounts payable, accrued expenses and other
account liabilities............................ (233) 1,214 722
Non-current liabilities......................... 44 63 (104)
------- ------- -------
Net cash provided by operating activities.......... 2,905 4,134 1,906
Cash flows from investing activities
Net additions to property, plant and equipment... (291) (194) (731)
------- ------- -------
Net cash used in investing activities.............. (291) (194) (731)
Cash flows from financing activities
Increase in due to Parent........................ 889 265 1,251
Payments on note payable to Parent............... (3,503) (4,031) (2,200)
Payment of capital lease obligations............. -- (118) (246)
------- ------- -------
Net cash used in financing activities.............. (2,614) (3,884) (1,195)
------- ------- -------
Increase (decrease) in cash........................ -- 56 (20)
Cash and cash equivalents at beginning of year..... -- -- 56
------- ------- -------
Cash and cash equivalents at end of year........... $ -- $ 56 $ 36
======= ======= =======
Supplemental cash flow disclosure:
Interest:
Parent........................................... $ 2,582 $ 1,933 $ 1,432
Other............................................ 6 45 85
Income taxes paid................................. 65 89 142
Property acquired under capital leases............ -- 556 581
</TABLE>
See accompanying notes.
F-40
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Imperial Electric Company ("Imperial") designs, manufactures and
distributes specialty electric motors, generators and gears for industry and
commercial use. Sales are principally in the United States. Imperial is owned
100% by Jordan Industries, Inc. ("Parent" or "Jordan Industries").
Principles of Consolidation
The consolidated financial statements include the accounts of Imperial and
its wholly-owned subsidiaries, Scott Motors Company ("Scott"), a manufacturer
of specialty electric motors; and Gear Research Inc. ("Gear"), a manufacturer
of gears and precision gear assemblies. Imperial and its subsidiaries are
referred to collectively as "the Company". All significant intercompany
transactions and accounts have been eliminated.
Cash and cash equivalents
Cash equivalents consist of highly liquid investments with an initial
maturity of three months or less at the time of purchase.
Inventories
Inventories are stated at the lower of cost or market. Inventories are
primarily valued at either average or first-in, first-out (FIFO) cost.
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accumulated
depreciation. Depreciation is provided on the straight-line and accelerated
methods over the estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5 to 30 years
Machinery and equipment..................................... 3 to 7 years
Furniture and fixtures...................................... 5 to 10 years
</TABLE>
Leasehold improvements and assets under capital leases are amortized using
the straight-line method over the lower of the lease term or their estimated
productive lives. Amortization of leasehold improvements and capital leased
assets is included in depreciation expense.
Goodwill
Goodwill is the excess of cost over net assets acquired from the acquisition
of Imperial by the Parent, and the acquisitions of Scott and Gear by Imperial.
Goodwill is being amortized on the straight-line method over forty years. The
carrying amount of goodwill is reviewed if facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the Company's carrying value
of the goodwill will be reduced by the estimated shortfall of cash flows.
Adoption of FAS 121
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
SFAS 121 requires, among other things, that the Company consider whether
F-41
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
indicators of impairment of long-lived assets held for use are present, that
if such indicators are present the Company determines whether the sum of the
estimated undiscounted future cash flows attributable to such assets is less
than their carrying amount, and if so, that the Company recognizes an
impairment at loss based on the excess of the carrying amount of the assets
over their fair value.
The Company adopted the provisions of SFAS 121 in the fourth quarter of
1995. Accordingly, the Company evaluated the ongoing value of its property,
plant and equipment and other long-lived assets at that time. From this
evaluation, the Company determined that there were no indications of
impairment significant enough to warrant recognition of an impairment loss,
and as such, no impairment loss has been recognized for the year ended
December 31, 1995.
Income Taxes
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under the provisions of this statement, deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. A valuation allowance is
provided when it is more likely than not that some portion of the deferred tax
assets arising from temporary differences and net operating losses will not be
realized. The adoption of SFAS No. 109 did not have a material effect on the
financial condition or results of operations of the Company.
Concentration of Credit Risk
Credit is extended based on an evaluation of the customer's financial
condition and generally collateral is not required. Credit terms are
consistent with the industry, and credit losses are provided for in the
financial statements and consistently have been within management's
expectations.
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 financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments include trade accounts receivable,
accounts payable, accrued expenses, and notes payable to Jordan Industries.
The fair values of all financial instruments were not materially different
from their carrying values.
2. INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Raw materials.................................................. $5,613 $6,598
Work-in-process................................................ 736 867
Finished goods ................................................ 651 1,016
------ ------
$7,000 $8,481
====== ======
</TABLE>
F-42
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements...................................... $ 265 $ 265
Buildings.................................................. 2,492 2,648
Machinery and equipment.................................... 8,827 9,826
Furniture and fixtures..................................... 287 298
------- -------
11,871 13,037
Less accumulated depreciation and amortization............. (8,861) (9,422)
------- -------
Net property, plant and equipment.......................... $ 3,010 $ 3,615
======= =======
</TABLE>
4. LEASE
The Company leases certain land, buildings and equipment under capital and
noncancelable operating lease agreements expiring in various years through
2003. Under the terms of one of these operating leases, monthly rental payments
may be adjusted every 36 months. Minimum future lease payments, by year and in
aggregate, under capital and noncancelable operating leases are as follows at
December 31, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1996...................................................... $ 342 $ 272
1997...................................................... 281 272
1998...................................................... 216 198
1999...................................................... 136 198
2000...................................................... 31 198
Thereafter................................................ -- 398
------ ------
Total minimum lease payments.............................. 1,006 $1,536
======
Amount representing interest.............................. (161)
------
Present value of net minimum lease payments............... $ 845
======
</TABLE>
Total rent expense related to operating leases for 1993, 1994 and 1995
amounted to $275, $276 and $288, respectively.
F-43
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES
The Company's taxable income is included in the consolidated federal income
tax return of Jordan Industries, Inc. The amount of income taxes allocated to
the Company is based on the amount of taxes determined as if the Company filed
a separate federal income tax return.
Significant components of the provision for income taxes attributable to
operations are as follows for the years ended December 31:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $ 1,208 $ 1,931 $ 2,194
State............................................ 188 292 308
------- ------- -------
Total current.................................. 1,396 2,223 2,502
Deferred:
Federal.......................................... (211) 31 (10)
State............................................ -- -- --
------- ------- -------
Total deferred................................. (211) 31 (10)
------- ------- -------
$ 1,185 $ 2,254 $ 2,492
======= ======= =======
</TABLE>
The provision for income taxes differs from the amount of income tax
provision computed by applying the federal income tax rate to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Computed statutory tax provision.................... $ 949 $ 1,893 $ 2,061
Increase (decrease) resulting from:
State and local taxes, net of federal benefit..... 110 193 203
Nondeductible amortization........................ 145 145 146
Other--Net........................................ (19) 23 82
------- ------- -------
Provision for income taxes.......................... $ 1,185 $ 2,254 $ 2,492
======= ======= =======
</TABLE>
Deferred tax liabilities and assets are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1994 1995
----- -----
(IN
THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Depreciation.................................................. $ 783 $ 759
----- -----
Total deferred tax liabilities.............................. 783 759
Deferred tax assets:
Vacation accrual.............................................. 55 63
Franchise tax................................................. 146 128
Employee benefits............................................. 94 53
Uniform capitalization........................................ 201 243
Other......................................................... 204 199
----- -----
Total deferred tax assets................................... 700 686
----- -----
Net deferred tax liabilities.................................... $ 83 $ 73
===== =====
</TABLE>
F-44
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RELATED PARTY TRANSACTION
During the years ended December 31, 1993, 1994 and 1995, the Company engaged
in various related party transactions with its parent, Jordan Industries, Inc.
Following are the details of material transactions between the Company and
Jordan Industries.
The Company's note payable to Parent is primarily financed through a
revolving credit arrangement with Jordan Industries, Inc. Borrowings under the
arrangement are due on demand and bear interest at 14.5%. The borrowings were
used primarily to purchase Imperial, Scott, and Gear. The Parent has
represented that it does not intend to call this note in any part during the
year ended December 31, 1996. The portion of the note payable which the
Company has repaid or intends to repay within the next year has been
classified as current in the financial statements.
Jordan Industries, Inc. provides consulting services to the Company in
exchange for annual fees which are payable in accordance with terms stipulated
in the management consulting agreement between the Company and Jordan
Industries. Management fee expenses recorded by the Company for such services
amounted to $1,967, $2,065 and $2,168 for the years ended December 31, 1993,
1994 and 1995, respectively.
Due to Parent at December 31 consists of:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Interest under revolving credit agreement..................... $ 414 $ 334
Management fee................................................ 516 542
Taxes payable................................................. 2,008 3,073
Other......................................................... 613 853
------ ------
$3,551 $4,802
====== ======
</TABLE>
7. BENEFIT PLANS
The Company has several employee benefit plans covering substantially all
employees. The Company makes contributions to the plans equal to the amounts
determined by accepted actuarial methods for the defined benefit plan and on a
cents-per-hour basis for certain defined contribution plans.
Benefits under the defined benefit plan are based on years of service and
employee compensation.
The following table sets forth the status of the defined benefit plan of the
Company at December 31:
<TABLE>
<CAPTION>
1994 1995
----- -----
(IN
THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested...................................................... $ 151 $ 72
Non-vested.................................................. 9 8
----- -----
Projected benefit obligation.................................. 160 80
Plan assets at fair value primarily invested in money market
accounts, equity securities, loans and mortgages............. 128 32
----- -----
Under-funded projected benefit obligation..................... (32) (48)
Unrecognized net gain......................................... (40) (6)
----- -----
Accrued pension cost recorded as a current liability.......... $ (72) $ (54)
===== =====
</TABLE>
F-45
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net pension cost of the defined benefit plan includes the following
components for the years ended December 31:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Interest cost..................................... $ 16 $ 17 $ 8
Return on assets.................................. (21) 17 (4)
Net amortization of deferral...................... 8 (31) (3)
-------- -------- -------
Net periodic pension cost....................... $ 3 $ 3 $ 1
======== ======== =======
</TABLE>
The following actuarial assumptions were used in determining the projected
benefit at December 31:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate............................. 7.00% 7.75% 6.00%
Expected long-term rate on plan assets..................... 8.00% 8.00% 7.75%
</TABLE>
Certain employees not covered by collective bargaining agreements
participate in 401(k) plans sponsored by the Company or Jordan Industries,
Inc. The plans provide for employer contributions either based on a formula or
at the discretion of the Board of Directors. Employer contributions to their
401(k) and other defined contribution plans amounted to approximately $416,
$401 and $299 in 1993, 1994 and 1995, respectively.
8. RESTRICTED SUBSIDIARIES
The Company is a wholly-owned subsidiary of Jordan Industries and is one of
the "Restricted Subsidiaries" of Jordan Industries under the JII Indentures
relating to the Senior Notes and Senior Subordinated Discount Debentures of
Jordan Industries (the "JII Indentures"). As a result, certain covenants in
the JII Indentures are applicable to the Company and will limit its ability to
make dividends, distributions and investments in entities that are not
"Restricted Subsidiaries", incur indebtedness, grant liens, enter into
affiliate transactions, and enter into agreements which limit the Company's
ability to make dividends and distributions and make asset sales. The JII
Indentures are also collateralized by all of the assets of the Company.
F-46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
FIR Group
We have audited the accompanying consolidated balance sheets of FIR Group
(the "Company"), composed of FIR Elettromeccanica S.p.A., CIME S.p.A. and
Selin Sistemi S.p.A., as of July 31, 1995 and 1996 and the related
consolidated statements of income, changes in stockholder's equity and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial position of the
Company as of July 31, 1995 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Chicago, Illinois
June 9, 1997
F-47
<PAGE>
FIR GROUP
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 631 $ 2,790
Accounts receivable, net of allowance for doubtful accounts
of $148 in 1995 and $153 in 1996............................. 14,474 14,086
Other receivables............................................. 816 1,081
Prepaid assets................................................ 129 243
Inventories................................................... 9,124 10,487
Deferred income taxes......................................... 5,449 2,948
------- -------
Total current assets........................................ 30,623 31,635
Property, plant and equipment, net.............................. 4,483 5,179
Goodwill, net of $322 and $671 accumulated amortization in
1995 and 1996, respectively.................................... 9,328 9,366
Other intangible assets, net of $28 and $94 accumulated
amortization in 1995 and 1996, respectively.................... 170 277
Other assets.................................................... 201 125
------- -------
Total assets................................................ $44,805 $46,582
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................. $ 2,901 $ 3,028
Bank debt..................................................... 2,951 1,992
Accounts payable.............................................. 5,342 6,576
Accrued interest.............................................. 426 1,603
Accrued liabilities........................................... 593 808
Taxes payable................................................. 214 499
------- -------
Total current liabilities................................... 12,427 14,506
Long-term debt, net............................................. 14,768 15,733
Deferred taxes.................................................. 939 1,106
Staff severance liability....................................... 2,234 2,680
------- -------
Total liabilities........................................... 30,368 34,025
Total shareholders' equity.................................. 14,437 12,557
------- -------
Total liabilities and shareholders' equity.................. $44,805 $46,582
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-48
<PAGE>
FIR GROUP
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED JULY 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Net sales..................................................... $31,811 $37,040
Cost of sales................................................. 22,180 25,333
------- -------
Gross profit................................................ 9,631 11,707
Selling, general and administrative expenses.................. 2,645 3,594
Amortization of intangible assets............................. 343 385
Net exchange (gain) loss...................................... (134) 98
------- -------
Income from operations...................................... 6,777 7,630
Other expense (income), net................................... 632 263
------- -------
Income before interest and taxes............................ 6,145 7,367
Interest expense, net......................................... 2,303 2,433
------- -------
Income before taxes......................................... 3,842 4,934
Income tax (provision) benefit................................ 3,944 (2,977)
------- -------
Profit before minority interest............................. 7,786 1,957
Minority interest............................................. -- (96)
------- -------
Net income.................................................. $ 7,786 $ 1,861
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-49
<PAGE>
FIR GROUP
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN- RETAINED TREASURY TRANSLATION
STOCK CAPITAL EARNINGS STOCK ADJUSTMENT TOTAL
------ ---------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1994.. $1,756 $ 291 $ -- $ -- $ -- $ 2,047
Net income, fiscal
1995.................. -- -- 7,786 -- -- 7,786
Capital contribution... -- 4,390 -- -- -- 4,390
Translation adjustment. -- -- -- -- 214 214
------ ------ ------ ------- ------ -------
Balance, July 31, 1995 1,756 4,681 7,786 -- 214 14,437
Net income, fiscal
1996.................. -- -- 1,861 -- -- 1,861
Share buyback.......... -- -- -- (4,656) -- (4,656)
Translation adjustment. -- -- -- -- 925 925
------ ------ ------ ------- ------ -------
Balance, July 31, 1996.. $1,756 $4,681 $9,647 $(4,656) $1,139 $12,567
====== ====== ====== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-50
<PAGE>
FIR GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Cash flow from operating activities:
Net income................................................. $ 7,785 $ 1,861
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 631 806
Increase (decrease) in deferred taxes..................... (81) 122
Changes in assets and liabilities, net of effects from
purchase of SELIN and FIR:
Decrease (increase) in accounts receivable and other..... (1,198) 975
(Increase) decrease in other receivables................. 41 (221)
(Increase) decrease in prepaid assets.................... 60 (104)
Decrease (increase) in other assets...................... (154) 81
Decrease (increase) in income tax receivable............. (5,553) 2,635
Increase in inventory.................................... (1,129) (934)
Increase in accounts payable............................. 575 967
Increase (decrease) in accrued liabilities............... (492) 165
Increase in accrued interest............................. 400 1,132
Increase (decrease) in income tax payable................ (1,010) 266
Increase (decrease) in staff severance liability and
other long-term liabilities............................. (57) 337
-------- -------
Net cash provided by operating activities................... (182) 8,088
-------- -------
Cash flows from investing activities:
Net fixed asset acquisitions............................... (543) (906)
Acquisition of intangibles................................. (86) (130)
Payment for purchase of FIR, net of cash acquired.......... (23,521) --
Payment for purchase of SELIN, net cash acquired........... (358) --
-------- -------
Net cash provided by investing activities................... (24,508) (1,036)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt................... 17,894 --
Payment of long-term debt.................................. -- 311
Change in short-term bank debt............................. 2,811 (1,047)
Purchase of treasury stock................................. -- (4,344)
Proceeds from capital contribution......................... 4,454 --
-------- -------
Net cash provided by financing activities................... 25,159 (5,080)
-------- -------
Effect of exchange rate on changes in cash.................. 46 187
-------- -------
Net change in cash.......................................... 515 2,159
Cash, beginning of year..................................... 116 631
-------- -------
Cash, end of year........................................... $ 631 $ 2,790
======== =======
Supplemental disclosure of cash flow information:
Interest paid.............................................. $ 1,144 $ 879
======== =======
Income taxes paid.......................................... $ -- $ 67
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-51
<PAGE>
FIR GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. NATURE OF BUSINESS AND ORGANIZATION
Description of Business and Operating Structure
The FIR Group (the "Company"), composed of FIR Elettromeccanica S.p.A.
("FIR"), CIME S.p.A. ("CIME") and Selin Sistemi S.p.A. ("Selin"), is engaged
in the design, production, and assembly of special electric motors employed in
several industrial applications such as gasoline pumps, industrial sewing
machines, and construction machines. Approximately 50% of its sales are within
Italy and 40% are within the rest of Europe. No customer comprises more than
10% of consolidated sales.
The consolidated financial statements include all accounts of the FIR Group
and related entities under common control including FIR, CIME, and Selin. All
significant intercompany balances and transactions have been eliminated.
In July, 1994, MEVA S.r.l. and SEPI S.r.l. were acquired through a buy-out
group of institutional investors. In September, 1994, FIR Elettromeccanica
S.p.A. was acquired by MEVA and in March, 1995, MEVA, FIR and SEPI were merged
into a single company under the FIR name.
Cime S.p.A. was created in 1995 by the FIR shareholders and the managing
director of FIR to lease certain production activities formerly performed by
FIR Elettromeccanica S.p.A. before the March 1995 merger.
In May, 1995, Nike S.r.l. ("Nike") was created by the FIR shareholders and
the managing director of FIR to lease certain production activities performed
by Selin S.p.A., a company in receivership. In May, Nike changed its name to
Selin Sistemi, S.p.A. In January, 1996, Selin acquired the Selin S.p.A. and
ended the leasing arrangement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Translation of Financial Statements Denominated in a Foreign Currency
The functional currency is the Italian lire. The balance sheets have been
translated into U.S. dollars using the year-end exchange rates, while the
income statements have been translated using the average exchange rates each
year. Translation gains and losses are reported as a part of consolidated
shareholder's equity.
Cash and Cash Equivalents
All highly liquid debt instruments purchased with an initial maturity of
three months or less are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first out (LIFO) method.
Property, Plant and Equipment
Property, plant and equipment are recorded at purchase cost. Depreciation is
provided on the straight-line method over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 10-33 years
Plant and equipment......................................... 6-10 years
Commercial and industrial tools............................. 4-5 years
</TABLE>
F-52
<PAGE>
FIR GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Repairs and maintenance are charged to expense when incurred, and
expenditures for improvements are capitalized. Upon sale or retirement, the
related cost and accumulated depreciation or amortization are removed from the
respective accounts and any resulting gain or loss is included in operations.
Intangible Assets
Goodwill is being amortized using the straight-line method over thirty
years. Other intangibles consists of patents and other intangibles assets and
are amortized using the straight-line method over four to five years.
Revenue Recognition
Revenue from the sale of products are recognized on the transfer of
ownership, which generally coincides with the time of shipment.
Research and Development
Research and development costs related to both present and future products
are charged to expense when incurred.
Interest Rate Swaps
As discussed in Note 14, the Company uses interest rate swaps to hedge its
long-term debt. The Company recognizes the differentials to be received or
paid under the contracts as an adjustment to interest expense over the life of
the contracts.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
Income taxes are accounted for as prescribed in Statement of Financial
Accounting Standards ("SFAS") No. 109--Accounting for Income Taxes. Under the
asset and liability method SFAS No. 109, the Company recognizes the amount of
income taxes payable. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities, and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years those
temporary differences are expected to be recovered or settled.
3. RELATED PARTY TRANSACTIONS
Commercial relationships are in place between FIR and TEA, which is
partially owned by the managing director of FIR. TEA buys motors from FIR,
which totaled $65 in 1995 and $158 in 1996 TEA also provides some
subcontracted production services to FIR, which totaled $33 in 1995 and $113
in 1996.
The controlling shareholder group performs certain managerial and corporate
finance functions for the Company. During 1995 and 1996, fees paid to these
controlling shareholders totaled $527 and $105, respectively. These fees were
included in other income/expenses.
As discussed in Note 10, the majority shareholder has guaranteed certain
debts of the Group.
F-53
<PAGE>
FIR GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INVENTORIES
Inventories consist of the following, valued of LIFO cost:
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1995 1996
------ -------
<S> <C> <C>
Raw Materials............................................... $6,103 $ 6,955
Work-in-Process............................................. 2,550 2,891
Finished Goods.............................................. 471 641
------ -------
$9,124 $10,487
====== =======
</TABLE>
Inventories are accounted for using the LIFO cost method. LIFO cost
approximates replacement cost.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1995 1996
------ ------
<S> <C> <C>
Land and building.......................................... $2,931 $3,124
Plant and machinery........................................ 1,086 1,451
Commercial and industrial tools............................ 761 1,348
------ ------
4,778 5,923
Less accumulated depreciation and amortization............. (295) (744)
------ ------
$4,483 $5,179
====== ======
</TABLE>
6. SHAREHOLDERS' EQUITY
In September, 1995, the shareholders made an additional capital contribution
of $4,390. This amount was recorded directly to Additional Paid-in-Capital.
In March 1996, the Company re-acquired common stock from certain
shareholders for $4,656. The transaction was recorded as a Treasury Stock
acquisition.
7. GAINS AND LOSSES ON FOREIGN SALES
Approximately 50% of the Company's sales are to customers outside of Italy
and 10% of these sales are to customers outside of Europe. These sales are
denominated in the customer's local currency. Gains and losses on the currency
translation of these sales are recorded in the income statement when the
Company receives remittance. Gains/losses on amounts in accounts receivable at
year end are immaterial. Net gains and losses on the settlement of foreign
currency sales were $134 gain and $98 loss for the years ending July 31, 1995
and 1996, respectively.
8. LEASE COMMITMENTS
The Company leases certain production facilities under operating leases
expiring through 2002. In most cases, management expects that in the normal
course of business these leases will be renewed or replaced by other leases.
F-54
<PAGE>
FIR GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental expense under noncancelable operating leases was approximately $5 and
$21 for the years ended July 31, 1995 and 1996, respectively. Future minimum
commitments under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
--------------------
<S> <C>
1997................................... $134
1998................................... 130
1999................................... 130
2000................................... 130
2001................................... 130
Thereafter.............................. 130
</TABLE>
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the Italian tax basis of assets and liabilities and their carrying
amounts for financial reporting purposes. The more significant components of
the net deferred income tax assets and liabilities resulted from differences
in the timing of expenses for financial statement purposes and deductibility
for income taxes principally related to the future benefit of an Italian tax
credit and for differences in depreciation and amortization methods.
The income tax (provision) benefit for the years ended July 31, 1995 and
1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Current................................................... $ (566) $ (289)
Deferred.................................................. 4,510 (2,688)
------ -------
$3,944 $(2,977)
====== =======
</TABLE>
The 1995 benefit results principally from an Italian tax credit arising from
an intercompany merger transaction. The credit carryforward is reflected as a
deferred tax asset as its realizability is considered by management to be more
likely than not.
F-55
<PAGE>
FIR GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. DEBT ARRANGEMENTS
The Company has a number of short-term borrowing facilities available from
approximately 25 banks. The total amount available under overdraft facilities
is $4,147 at interest rates between 9.5% and 12.75% at July 31, 1996. These
facilities are not collateralized and do not contain significant financial
covenants. In addition, the Company has a number of export and domestic sales
facilities whereby the banks loan against accounts receivable. Total available
receivable lines of credit are $15,273 at July 31, 1996 and carry interest at
9.5% to 12.75%.
Long-term debt consists of the following at July 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
CARIPLO and other banks pool senior loan to FIR, due
September 15, 1999. Indexed interest rate at Roman Interbank
Offering Rate ("RIBOR") plus 1.5%. No penalty for
anticipated reimbursements.................................. $14,513 $12,112
Subordinated debt from Banca Popolare di Cremona to FIR, due
September 9, 1999. Indexed interest rate at RIBOR plus 1.5%. 1,578 1,646
Subordinated debt from Credit Lyonnais (Milan) to FIR, due
September 9, 1999. Indexed rate at RIBOR 1.5%. No penalty
for anticipated reimbursement .............................. 1,578 1,646
Senior debt from Credit Lyonnais to Selin, due February 26,
2001. Indexed interest rate at RIBOR plus 0.5%.............. -- 3,357
------- -------
Total...................................................... 17,669 18,761
Less current maturities...................................... (2,901) (3,028)
------- -------
Long-term debt, net........................................ $14,768 $15,733
======= =======
</TABLE>
RIBOR was 11.375% and 8.5625% at July 31, 1995 and 1996, respectively.
In accordance with the pool senior loan, the Company is unable to declare
dividends or make a reduction in share capital. In addition, the bank has the
right to request the repayment of the debt in the event of certain changes in
ownership. There are no significant financial covenants on the subordinated
debt. None of the debt facilities are collateralized.
The controlling shareholder has guaranteed the subordinated debt from Banca
Popolare di Cremona, the subordinated debt from credit Lyonnais, and the
senior debt from Credit Lyonnais.
Maturities of net long-term debt as of July 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.................... $3,028
1998.................... 3,028
1999.................... 3,028
2000.................... 6,320
2001.................... 3,357
</TABLE>
Based upon the borrowing rates currently available to the Company for debt,
management estimates that the recorded principle amount is deemed to be the
same as current fair value.
F-56
<PAGE>
FIR GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. STAFF SEVERANCE
The staff severance liability is similar to a pension fund. It is accrued by
the Company per Italian law for all employees at 13.5% of annual gross salary.
In addition to the annual accrual, the total fund is revalued each year
according to an official index (equivalent to the retail price index plus
1.5%). This fund is payable to employees when they leave the Company.
12. SUBSEQUENT EVENTS
In May, 1997, the Company entered into an agreement to acquire the common
stock of TEA, referred to in Note 3, for approximately $1,100 in cash and
assumed debt. The transaction will be accounted for under the purchase method
of accounting.
In May, 1997, the Company's shareholders entered into an agreement to sell
their shares to a subsidiary of Motors and Gears, Inc.
13. COMMITMENTS AND CONTINGENCIES
FIR issued a guarantee in favor of Banca di Roma, which in turn had issued a
bank guarantee in favor of third parties for a commercial obligation of Selin
Sistemi. Such obligation is related to a $1,970 supply contract for an Indian
government body. As of July 31, 1996, approximately $99 remained on the
guarantee.
The Company is evaluating potential environmental remediation liabilities.
As of April, 1997, the Company has identified a site which may require
remediation. The Company is presently unable to determine what, if any,
liability it may incur in this matter.
14. INTEREST RATE SWAP
In order to hedge the Company's $14,500 loan, the Company has entered into
four interest swap agreements with San Paolo Torini as follows:
<TABLE>
<CAPTION>
NOMINAL AMOUNT
EXPIRATION DATE $000'S RATE RECEIVED RATE PAID
--------------- -------------- ------------- ---------
<S> <C> <C> <C> <C>
Contract 1....... September 1996 $3,291 LIBOR at 6 months 11.28%
Contract 2....... September 1997 $3,291 LIBOR at 6 months 11.70%
Contract 3....... September 1998 $3,291 LIBOR at 6 months 11.85%
Contract 4....... September 1999 $3,291 LIBOR at 6 months 11.91%
</TABLE>
The 6 month LIBOR rate was 10.94% at July 31, 1995 and 8.67% at July 31,
1996. The LIBOR rate may continue to decline, thereby creating larger losses
on the interest rate swaps. The Company records the differentials to be
received or paid under the contracts as an adjustment to interest expense over
the life of the contracts. An additional $44 and $172 was expensed for the
loss on the swap contract in 1995 and 1996, respectively.
15. SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
During 1995, noncash investing activities consisted of the following:
<TABLE>
<S> <C>
Acquisition of FIR
Assets acquired............................................... $50,027
Liabilities assumed........................................... 13,222
Acquisition of SELIN
Assets acquired............................................... 631
Liabilities assumed........................................... --
</TABLE>
F-57
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
FIR Group
We have audited the accompanying consolidated balance sheet of FIR Group
(the "Company"), composed of FIR Elettromeccanica S.p,.A., CIME S.p.A. and
Selin Sistemi S.p.A., as of March 31, 1997 and the related consolidated
statements of income, changes in stockholder's equity and cash flows for the
eight months then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of March 31, 1997, and the results of its operations and its cash
flows for the eight months then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
July 25, 1997
F-58
<PAGE>
FIR GROUP
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 2,337
Accounts receivable, net of allowance for doubtful accounts of $341... 11,108
Other receivables..................................................... 2,341
Prepaid assets........................................................ 174
Inventories........................................................... 9,263
Deferred income taxes................................................. 1,759
-------
Total current assets................................................ 26,982
Property, plant and equipment net....................................... 4,575
Goodwill, net of $810 accumulated amortization.......................... 8,280
Other intangible assets, net of $138 accumulated amortization........... 133
Other assets............................................................ 49
-------
Total assets........................................................ $40,019
=======
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities:
Current portion of long-term debt.................................... $ 5,783
Bank debt............................................................ 1,193
Accounts payable..................................................... 6,852
Accrued interest..................................................... 1,172
Accrued liabilities.................................................. 619
Taxes payable........................................................ 244
-------
Total current liabilities.......................................... 15,863
Long-term debt, net.................................................... 8,467
Deferred taxes......................................................... 1,145
Staff severance liability.............................................. 2,551
-------
Total liabilities.................................................. 28,026
Total shareholders' equity......................................... 11,993
-------
Total liabilities and shareholders' equity......................... $40,019
=======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-59
<PAGE>
FIR GROUP
CONSOLIDATED INCOME STATEMENT
FOR THE EIGHT MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales.............................................................. $21,241
Cost of sales.......................................................... 14,898
-------
Gross profit....................................................... 6,343
Selling, general and administrative expenses........................... 2,337
Amortization of intangible assets...................................... 274
Net exchange loss...................................................... 20
-------
Income from operations............................................. 3,712
Other expense, net..................................................... 489
-------
Income before interest and taxes................................... 3,223
Interest expense, net.................................................. 1,294
-------
Income before taxes................................................ 1,929
Income tax provision................................................... 1,247
-------
Net income......................................................... $ 682
=======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-60
<PAGE>
FIR GROUP
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE EIGHT MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON ADDITIONAL RETAINED TREASURY TRANSLATION
STOCK PAID-IN-CAPITAL EARNINGS STOCK ADJUSTMENT TOTAL
------ --------------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1996.. $1,756 $4,681 $ 9,647 $(4,656) $ 1,139 $12,567
Net income, eight
months ended March
31, 1997............. -- -- 682 -- -- 682
Translation
adjustment........... -- -- -- -- (1,256) (1,256)
------ ------ ------- ------- ------- -------
Balance, March 31, 1997. $1,756 $4,681 $10,329 $(4,656) $ (117) $11,993
====== ====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-61
<PAGE>
FIR GROUP
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flow from operating activities:
Net income.......................................................... $ 682
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization..................................... 614
Increase (decrease) in deferred taxes............................. 153
Changes in assets and liabilities:
Decrease in accounts receivable................................. 1,774
Increase in other receivables................................... (1,349)
Decrease in prepaid assets...................................... 49
Increase in other assets........................................ (45)
Decrease in income tax receivable............................... 980
Increase in inventory........................................... 253
Increase in accounts payable.................................... 962
Decrease in accrued liabilities................................. (119)
Decrease in accrued interest.................................... (301)
Decrease in income tax payable.................................. (223)
Increase in staff severance liability and other long-term
liabilities.................................................... 134
-------
Net cash provided by operating activities..................... 3,564
-------
Cash flows from investing activities:
Net fixed assets acquisitions....................................... (152)
Acquisition of intangibles.......................................... (12)
-------
Net cash provided by investing activities..................... (164)
-------
Cash flows from financing activities:
Payment of long-term debt........................................... (6,216)
Change in short-term bank debt...................................... 2,611
-------
Net cash provided by financing activities..................... (3,605)
-------
Effect of exchange rate on changes in cash............................ (248)
-------
Net change in cash.................................................... (453)
Cash, beginning of year............................................... 2,790
-------
Cash, end of year..................................................... $ 2,337
=======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-62
<PAGE>
FIR GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. NATURE OF BUSINESS AND ORGANIZATION
Description of Business and Operating Structure
The FIR Group (the "Company"), composed of FIR Elettromeccanica S.p.A.
("FIR"), CIME S.p.A. ("CIME") and Selin Sistemi S.p.A. ("Selin"), is engaged
in the design, production, and assembly of special electric motors employed in
several industrial applications such as gasoline pumps, industrial sewing
machines, and construction machines. Approximately 50% of its sales are within
Italy and 40% are within the rest of Europe. No customer comprises more than
10% of consolidated sales.
The consolidated financial statements include all accounts of the FIR Group
and related entities under common control including FIR, CIME and Selin. All
significant intercompany balances and transactions have been eliminated.
In July, 1994, MEVA S.r.l. and SEPI S.r.l. were acquired through a buy-out
group of institutional investors. In September, 1994, FIR Elettromeccanica
S.p.A. was acquired by MEVA and in March, 1995, MEVA, FIR and SEPI were merged
into a single company under the FIR name.
Cime S.p.A. was created in 1995 by the FIR shareholders and the managing
director of FIR to lease certain production activities formerly performed by
FIR Elettromeccanica S.p.A. before the March 1995 merger.
In May 1995, Nike S.r.l. ("Nike") was created by the FIR shareholders and
the managing director of FIR to lease certain production activities performed
by Selin S.p.A., a company in receivership. In May, Nike changed its name to
Selin Sistemi, S.p.A. In January, 1996, Selin acquired Selin S.p.A. and ended
the leasing arrangement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Translation of Financial Statements Denominated in a Foreign Currency
The functional currency is the Italian lire. The balance sheet has been
translated into U.S. dollars using the year-end exchange rates, while the
income statement has been translated using the average exchange rates each
year. Translation gains and losses are reported as a part of consolidated
shareholders' equity.
Cash and Cash Equivalents
All highly liquid debt instruments purchased with an initial maturity of
three months or less are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first out (LIFO) method.
Property, Plant and Equipment
Property, plant and equipment are recorded at purchase cost. Depreciation is
provided on the straight-line method over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................... 10-33 years
Plant and equipment........................................... 6-10 years
Commercial and industrial tools............................... 4-5 years
</TABLE>
F-63
<PAGE>
FIR GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Repairs and maintenance are charged to expense when incurred, and
expenditures for improvements are capitalized. Upon sale or retirement, the
related cost and accumulated depreciation or amortization are removed from the
respective accounts and any resulting gain or loss is included in operations.
Intangible Assets
Goodwill is being amortized using the straight-line method over thirty
years. Other intangibles consists of patents and other intangible assets and
are amortized using the straight-line method over four to five years.
Revenue Recognition
Revenue from the sale of products is recognized on the transfer of
ownership, which generally coincides with the time of shipment.
Research and Development
Research and Development costs related to both present and future products
are charged to expense when incurred.
Interest Rate Swaps
As discussed in Note 11, the Company used interest rate swaps to hedge its
long-term debt. The Company recognizes the differentials to be received or
paid under the contracts as an adjustment to interest expense over the life of
the contracts.
The Interest Rate Swap contracts have been canceled and the related
termination cost of $568 has been recorded as a component of Other Expense in
the March 31, 1997 financial statements.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
Income taxes are accounted for as prescribed in Statement of Financial
Accounting Standards ("SFAS") No. 109--Accounting for Income Taxes. Under the
asset and liability method SFAS No. 109, the Company recognizes the amount of
income taxes payable. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities, and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years those
temporary differences are expected to be recovered or settled.
3. INVENTORIES
Inventories as of March 31, 1997 consist of the following, valued at LIFO
cost:
<TABLE>
<S> <C>
Raw Materials...................................................... $4,831
Work-in-Process.................................................... 3,442
Finished Goods..................................................... 990
------
$9,263
======
</TABLE>
Inventories are accounted for using the LIFO cost method. LIFO cost
approximates replacement cost.
F-64
<PAGE>
FIR GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of March 31, 1997:
<TABLE>
<S> <C>
Land and building................................................. $2,917
Plant and machinery............................................... 1,245
Commercial and industrial tools................................... 1,404
------
5,566
Less accumulated depreciation and amortization.................... (991)
------
$4,575
======
</TABLE>
5. GAINS AND LOSSES ON FOREIGN SALES
Sales to customers outside of Italy are denominated in the customer's local
currency. Gains and losses on the currency translation of these sales are
recorded in the income statement when the Company receives remittance.
Gains/losses on amounts in accounts receivable at year end are immaterial. The
net loss on the settlement of foreign currency sales was $20 for the eight
months ended March 31, 1997.
6. LEASE COMMITMENTS
The Company leases certain production facilities under operating leases
expiring through 2002. In most cases, management expects that in the normal
course of business these leases will be renewed or replaced by other leases.
Rental expense under noncancelable operating leases was approximately $93
for the eight months ended March 31, 1997. Future minimum commitments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
<S> <C>
1997....................................... $ 24
1998....................................... 117
1999....................................... 117
2000....................................... 117
2001....................................... 117
Thereafter................................. 117
</TABLE>
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the Italian tax basis of assets and liabilities and their carrying
amounts for financial reporting purposes. The more significant components of
the net deferred income tax assets and liabilities resulted from differences
in the timing of expenses for financial statement purposes and deductibility
for income taxes principally related to the future benefit of an Italian tax
credit and for differences in depreciation and amortization methods.
The income tax (provision) benefit for the eight months ended March 31, 1997
consists of the following:
<TABLE>
<S> <C>
Current.................................. $(1,329)
Deferred................................. 82
-------
$(1,247)
=======
</TABLE>
F-65
<PAGE>
FIR GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. DEBT ARRANGEMENTS
The Company has a number of short-term borrowing facilities available from
approximately 25 banks. The total amount available under overdraft facilities
is $5,096 at interest rates between 9.00% and 11.25% at March 31, 1997. These
facilities are not collateralized and do not contain significant financial
covenants. In addition, the Company has a number of export and domestic sales
facilities whereby the banks loan against accounts receivable. Total available
receivable lines of credit are $10,187 at March 31, 1997 and carry interest at
7.5% to 9.5%.
Long-term debt consists of the following at March 31, 1997:
<TABLE>
<S> <C>
September 15, 1999. Indexed interest rate at Roman Interbank Offering
Rate ("RIBOR") plus 1.5%. No penalty for anticipated reimbursements.. $ 8,228
Subordinated debt from Banca Popolare di Cremona to FIR, due September
9, 1999. Indexed interest rate at RIBOR plus 1.5%.................... 1,491
Subordinated debt from Credit Lyonnais (Milan) to FIR, due September
9, 1999. Indexed rate at RIBOR plus 1.5%. No penalty for anticipated
reimbursement........................................................ 1,491
Senior debt from Credit Lyonnais to Selin, due February 26, 2001.
Indexed interest rate at RIBOR plus 0.5%............................. 3,040
-------
Total............................................................. 14,250
Less current maturities............................................... (5,783)
-------
Long-term debt, net............................................... $ 8,467
=======
</TABLE>
RIBOR was 7.75% at March 31, 1997.
In accordance with the pool senior loan, the Company is unable to declare
dividends or make a reduction in share capital. In addition, the bank has the
right to request the repayment of the debt in the event of certain changes in
ownership. There are no significant financial covenants on the subordinated
debt. None of the debt facilities are collateralized.
The controlling shareholder has guaranteed the subordinated debt from Banca
Popolare di Cremona, the subordinated debt from Credit Lyonnais, and the
senior debt from Credit Lyonnais.
Maturities of net long-term debt as of March 31, 1997 are as follows:
<TABLE>
<S> <C>
1998....................................... $5,783
1999....................................... 2,743
2000....................................... 2,684
2001....................................... 3,040
</TABLE>
Based upon the borrowing rates currently available to the Company for debt,
management estimates that the recorded principal amount is deemed to be the
same as current fair value.
9. STAFF SEVERANCE
The staff severance liability is similar to a pension fund. It is accrued by
the Company per Italian law for all employees at 13.5% of annual gross salary.
In addition to the annual accrual, the total fund is revalued each year
according to an official index (equivalent to the retail price index plus
1.5%). This fund is payable to employees when they leave the Company.
F-66
<PAGE>
FIR GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
10. RELATED PARTY TRANSACTIONS
Commercial relationships are in place between FIR and TEA S.r.l. Tecnologia
Elettromeccanica ("TEA"), which is partially owned by the managing director of
FIR. TEA buys motors from FIR, which totaled $105 during the eight month
period ended March 31, 1997. TEA also provides subcontracted production
services to FIR, which totaled $75 during the eight month period ended March
31, 1997. The Company has a receivable from TEA of $894 at MArch 31, 1997.
11. INTEREST RATE SWAP
In order to hedge the Company's senior loan, the Company entered into
interest swap agreements with San Paolo Torini as follows:
<TABLE>
<CAPTION>
NOMINAL
EXPIRATION AMOUNT RATE
DATE $000'S RATE RECEIVED PAID
-------------- ------- ----------------- ------
<S> <C> <C> <C> <C>
Contract 1...................... September 1997 $3,291 LIBOR at 6 months 11.70%
Contract 2...................... September 1998 $3,291 LIBOR at 6 months 11.85%
Contract 3...................... September 1999 $3,291 LIBOR at 6 months 11.91%
</TABLE>
The Company records the differentials to be received or paid under the
contracts as an adjustment to interest expense over the life of the contracts.
These Interest Rate Swap contracts were cancelled and the related
termination cost of $568 has been recorded as a component of Other Expense in
the March 31, 1997 financial statements.
13. SUBSEQUENT EVENTS
In May 1997, the Company entered into an agreement to purchase TEA for
approximately $1,100 in cash and assumed debt. The transaction will be
accounted for under the purchase method of accounting.
In May 1997, the Company's shareholders entered into an agreement to sell
their shares to a subsidiary of Motors and Gears, Inc.
14. COMMITMENTS AND CONTINGENCIES
The Company is evaluating potential environmental remediation liabilities.
As of April, 1997, the Company has identified a site which may require
remediation. The Company is presently unable to determine what, if any,
liability it may incur in this matter.
F-67
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
E. D. and C. Company, Inc.
Members of the Board:
We have audited the accompanying balance sheet of E. D. and C. Company, Inc.
as of December 31, 1996, and the related statements of income, retained
earnings, and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of E. D. and C. Company, Inc. as
of December 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
Janz & Knight P.L.C.
Certified Public Accountants
Bloomfield Hills, Michigan
March 18, 1997, except for Note J
as to which the date is September 16, 1997
F-68
<PAGE>
E. D. AND C. COMPANY, INC.
(A MICHIGAN CORPORATION)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash on hand and in banks....................................... $1,173,195
Accounts receivable:
Trade.......................................................... 2,300,923
Less allowance for non-collection.............................. (15,000)
----------
2,285,923
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note A)................................. 852,425
Inventory (Note A).............................................. 225,000
----------
Total current assets.......................................... 4,536,543
Property equipment--at cost:
Shop equipment.................................................. 35,544
Office furniture and fixtures................................... 244,469
Automotive equipment............................................ 106,843
Leasehold improvements.......................................... 55,329
----------
442,185
Less allowance for depreciation................................. (284,442)
----------
Total property and equipment.................................. 157,743
Deposits.......................................................... 1,800
----------
Total assets.................................................. $4,696,086
==========
LIABILITIES
Current liabilities:
Loans payable (Note D).......................................... $ 840,000
Accounts payable:
Trade.......................................................... 410,216
Employees withheld taxes....................................... 32,320
----------
442,536
Accrued expenses:
Salaries and bonuses........................................... 22,216
Pension plan................................................... 73,185
Interest....................................................... 5,600
----------
101,001
Michigan single business tax.................................... 31,000
----------
Total current liabilities..................................... 1,414,537
STOCKHOLDERS' EQUITY
Capital stock, common, no par value; authorized 6,000 shares;
issued and outstanding 2,640 shares.............................. 26,400
Retained earnings--statement annexed.............................. 3,255,149
----------
Total stockholders' equity.................................... 3,281,549
----------
Total liabilities and stockholders' equity.................... $4,696,086
==========
</TABLE>
The attached notes are an integral part of the financial statements.
F-69
<PAGE>
E. D. AND C. COMPANY, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Sales.............................................................. $14,566,016
Cost of sales:
Material.......................................................... 5,625,085
Direct Labor...................................................... 1,097,765
Manufacturing expenses:
Supervision salaries............................................. 262,545
Engineering salaries............................................. 1,376,160
Payroll taxes.................................................... 244,829
Outside services................................................. 1,187,005
Employee benefits................................................ 186,710
Freight.......................................................... 21,623
Engineering supplies............................................. 54,360
Shop supplies.................................................... 12,710
Office supplies.................................................. 10,501
Repairs and maintenance.......................................... 43,246
Rent............................................................. 85,650
Utilities........................................................ 20,303
Depreciation (Note A)............................................ 55,689
Insurance........................................................ 109,558
Travel........................................................... 212,351
-----------
Total cost of sales............................................ 10,606,090
-----------
Gross profit................................................... 3,959,926
Administrative and selling expenses................................ 1,236,357
-----------
Income from operations......................................... 2,723,569
Other income (expense):
Interest income................................................... 37,760
Interest expense.................................................. (79,626)
-----------
Income before provision for taxes.............................. 2,681,703
Provision for taxes:
Single business tax............................................... 107,279
-----------
Net income..................................................... 2,574,424
Retained earnings at beginning of year (as restated, Note J)....... 1,911,986
Dividends paid..................................................... (1,231,262)
-----------
Retained earnings at end of year................................... $ 3,255,148
===========
</TABLE>
The attached notes are an integral part of the financial statements.
F-70
<PAGE>
E. D. AND C. COMPANY, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Cash flows from operating activities:
Net income........................................................ $2,574,424
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 55,689
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable...................... 444,003
(Increase) decrease in costs in excess of billings.............. (282,977)
(Increase) decrease in prepaid expenses......................... 15,112
Increase (decrease) in accounts payable......................... (47,350)
Increase (decrease) in billing in excess of costs............... (33,929)
Increase (decrease) in accrued expenses......................... (8,674)
Increase (decrease) in single business tax...................... 17,056
----------
Total adjustments.............................................. 158,930
----------
Net cash provided by operating activities.......................... 2,733,354
Cash flows from investing activities:
Purchase of property and equipment................................ (63,659)
Cash flows from financing activities:
Proceeds from line of credit borrowings, net of repayments........ (500,000)
Dividends paid.................................................... (1,231,262)
----------
Net cash used in financing activities.............................. (1,731,262)
----------
Increase in cash and cash equivalents.............................. 938,433
Cash and cash equivalents--beginning of year....................... 234,762
----------
Cash and cash equivalents--end of year............................. $1,173,195
==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest......................................................... $ 80,806
==========
Single business tax.............................................. $ 90,223
==========
</TABLE>
The attached notes are an integral part of the financial statements.
F-71
<PAGE>
E. D. AND C. COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. The corporation engineers and manufacturers control panels for assembly
line processes.
The corporation's sales are both domestic and international. For 1996 the
corporation had three customers that meet the criteria of major customers as
defined by FASB 30. These are detailed as follows:
<TABLE>
<CAPTION>
CUSTOMER'S 1996
INDUSTRY SALES
---------- -----
<S> <C>
1. Manufacturing......... $3,573,501
2. Manufacturing......... 2,606,629
3. Manufacturing ........ 2,444,591
</TABLE>
2. Revenue and Cost Recognition: Revenues from construction contracts are
recognized on the percentage-of-completion method, measured by the percentage
of costs incurred to date to estimated total cost for each contract. This
method is used because management considers expended costs to be the best
available measure of progress on the contracts.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor,
supplies, repairs and maintenance and depreciation costs. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions and
estimated profitability, including those arising from contract penalty
provisions, and final contract settlements may result in revisions to cost and
income and are recognized in the period in which the revisions are determined.
An amount equal to contract costs attributable to claims is included in
revenues when realization is probable and the amount can be reliably
estimated.
The assets, "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of amounts
billed.
3. Inventory consists of shop supplies and is valued at cost, under the
first-in first-out method.
4. Depreciation was computed as follows:
<TABLE>
<CAPTION>
USEFUL
LIFE
PROPERTY AND EQUIPMENT (YEARS) METHOD 1996
---------------------- ------- ------ ----
<S> <C> <C> <C>
Office furniture and fixtures................ 5 ACRS & MACRS $25,898
Machinery and equipment...................... 7 MACRS 15,370
Automotive equipment......................... 5 MACRS 12,949
Leasehold improvements....................... 31 Straight-Line 1,472
-------
Totals..................................... $55,689
=======
</TABLE>
5. For purposes of the statement of cash flows, the corporation considers
all highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
6. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
F-72
<PAGE>
E. D. AND C. COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--LEASE COMMITMENTS:
1. The corporation leases facilities located at 2545 Industrial Row, Troy,
Michigan on a month to month basis at a monthly rate of $5,000, exclusive of
taxes, insurance, maintenance and repairs which are also payable by the
corporation as lessee. Total rent paid on this lease for 1996 was $60,000.
2. The corporation leases additional office facilities for $1,800 per month
plus utilities. Total rent paid on this lease for 1996 was $21,600.
3. The corporation leases parking space for $225 per month.
NOTE C--RETAINED EARNINGS:
Retained earnings at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
S Corporation earnings............ $2,726,092
C Corporation earnings............ 529,056
----------
$3,255,148
==========
</TABLE>
NOTE D--LOANS PAYABLE:
The corporation has demand loans payable to related parties in the amount of
$840,000 at December 31, 1996. The loans bear interest at a rate of 8%. Total
interest paid on these loans during 1996 amounted to $67,200.
NOTE E--LOAN PAYABLE--LINE OF CREDIT:
The company has available an unsecured line of credit with First of America
Bank in the total amount of $2,000,000, of which there was no amount
outstanding at December 31, 1996. The line of credit expires June 1, 1997 and
carries a variable interest rate based on First of America Bank's base lending
rate.
NOTE F--RELATED PARTY TRANSACTION:
1. The lessor of the property referenced in Note B is related to the
shareholders of the corporation. Rent paid to this party was $60,000 for the
year ended December 31, 1996.
2. The note holders referenced in Note D are related to the shareholders.
Total interest paid to these parties for the year ended December 31, 1996 was
$67,200.
NOTE G--RETIREMENT PLANS:
The company established a Simplified Employee Pension (SBP) Plan effective
July 1, 1992 for employees not covered by a collective bargaining agreement.
Corporate contributions are discretionary and are determined by the Board of
Directors. During the year ended December 31, 1996 the corporation contributed
$73,185, which represents 4% of eligible employee wages.
The corporation has established a 401K Plan for employees covered under the
International Brotherhood of Electrical Workers contract. The corporation will
match $.50 for each $1.00 up to 4% of gross wages the employee elects to
defer. The corporation contributed $7,840 under this plan for the year ended
December 31, 1996.
F-73
<PAGE>
E. D. AND C. COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE H--INCOME TAXES:
The corporation has elected under Section 1372(a) of the Internal Revenue
Code to be treated as an "electing small business corporation." The
corporation will pay no federal income taxes as any income will be taxed
directly to the stockholders.
NOTE I--CREDIT RISK:
Included in the balance sheet under the caption "cash" are liquid short-term
investments. At the end of the year the carrying amount of the corporation's
deposit was $1,173,044 (reconciled). The unreconciled balance was $1,209,887
of which $1,149,887 was not insured by the Federal Deposit Insurance
Corporation.
NOTE J--PRIOR PERIOD ADJUSTMENT:
During September, 1997 it was determined that inventory as of December 31,
1995 was understated by approximately $150,000. The retained earnings and
inventory as of January 1, 1996 have been restated to reflect this adjustment.
This adjustment has no effect on the net income of the corporation for the
year ended December 31, 1996.
In addition, the original Independent Auditor's Report dated March 18, 1997,
included a qualification for a depreciation method not computed under GAAP.
The difference between this depreciation method and GAAP has been determined
to be immaterial and therefore this qualification has been removed.
F-74
<PAGE>
E. D. AND C. COMPANY, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
ASSETS 1997
------ --------------
(IN THOUSANDS,
EXCEPT PER
SHARE AMOUNTS)
<S> <C>
Current assets:
Cash and cash equivalents..................................... $2,127
Accounts receivable, less allowance for doubtful accounts of
$65.......................................................... 2,526
Costs and estimated earnings in excess of billings on
uncompleted contracts........................................ 880
Inventory..................................................... 225
Other assets.................................................. 2
------
Total current assets........................................ 5,760
Property and equipment, net..................................... 142
------
Total assets................................................ $5,902
======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities:
Notes payable to related party................................ $ 840
Accounts payable.............................................. 810
Accrued compensation and related liabilities.................. 361
Accrued expenses and other current liabilities................ 113
------
Total current liabilities................................... 2,124
Stockholders' equity:
Common Stock, no par value: 6,000 shares authorized; 2,640
shares issued and outstanding................................ 26
Retained earnings............................................. 3,752
------
Total stockholders' equity.................................. 3,778
------
$5,902
======
</TABLE>
See accompanying notes.
F-75
<PAGE>
E. D. AND C. COMPANY, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
------------------
(IN THOUSANDS)
<S> <C>
Net sales.................................................... $10,135
Cost of sales excluding depreciation......................... 6,630
-------
Gross profit................................................. 3,505
Administrative and selling expenses.......................... 908
Depreciation................................................. 24
-------
Income from operations....................................... 2,573
Interest income, net....................................... 24
-------
Net income................................................... 2,597
Retained earnings at beginning of period..................... 3,255
Dividends paid............................................... (2,100)
-------
Retained earnings at end of period........................... $ 3,752
=======
</TABLE>
See accompanying notes.
F-76
<PAGE>
E. D. AND C. COMPANY, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
--------------
(IN THOUSANDS)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 2,597
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................. 24
Loss on sale of equipment.................................... 4
Changes in operating assets and liabilities:
Accounts receivable........................................ (240)
Costs and estimated earnings in excess of billings......... (27)
Accounts payable........................................... 400
Accrued expenses........................................... 310
-------
Net cash provided by operating activities...................... 3,067
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment......................................... (24)
Proceeds from sale of equipment................................ 12
-------
Net cash used in investing activities.......................... (12)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid................................................. (2,100)
-------
Net cash used in financing activities.......................... (2,100)
-------
Net increase in cash and cash equivalents...................... 954
Cash and cash equivalents at beginning of period............... 1,173
-------
Cash and cash equivalents at end of period..................... $ 2,127
=======
</TABLE>
See accompanying notes.
F-77
<PAGE>
E.D. AND C. COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
(IN THOUSANDS)
SEPTEMBER 30, 1997
1. BASIS OF PRESENTATION
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission.Certain information
and footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes these disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments
necessary for a fair presentation for the period presented have been reflected
and are of a normal recurring nature. These financial statements should be
read in conjunction with the financial statements and the notes thereto for
the year ended December 31, 1996.
Results of operations for the nine months ended September 30, 1997 is not
necessarily indicative of the results that may be achieved for the entire year
ending December 31, 1997.
F-78
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Motion Control Engineering, Inc.:
We have audited the accompanying balance sheets of MOTION CONTROL
ENGINEERING, INC. (a California corporation) as of December 31, 1996 and
September 30, 1997, and the related statements of income, shareholders' equity
and cash flows for the year ended December 31, 1996 and the nine months ended
September 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Motion Control
Engineering, Inc. as of December 31, 1996 and September 30, 1997 and the
results of its operations and its cash flows for the periods then ended in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Sacramento, California
October 24, 1997
F-79
<PAGE>
MOTION CONTROL ENGINEERING, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................ $ 1,638 $ 855
Accounts receivable, net of allowance for doubtful
accounts of
$425,421 and $371,242 for 1996 and 1997,
respectively........................................ 7,693,836 9,674,721
Inventories.......................................... 3,633,240 5,142,910
Other current assets................................. 76,973 64,946
----------- -----------
Total current assets............................... 11,405,687 14,883,432
Property and equipment, net............................ 1,305,736 1,382,689
Deposits............................................... 1,000 1,000
----------- -----------
Total assets....................................... $12,712,423 $16,267,121
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit....................................... $ 4,051,566 $ 0
Accounts payable..................................... 1,056,200 2,704,385
Accrued expenses..................................... 875,800 1,294,662
Accrued retirement contribution...................... 400,000 285,571
Current portion of notes payable..................... 318,373 427,425
Current portion of notes payable to shareholders..... 0 1,302,906
----------- -----------
Total current liabilities.......................... 6,701,939 6,014,949
Notes payable.......................................... 250,480 209,469
Notes payable to shareholders.......................... 1,200,000 0
----------- -----------
Total liabilities.................................. 8,152,419 6,224,418
----------- -----------
Commitments and Contingencies (Notes 3, 5, 6 and 7)
Shareholders' Equity:
Common stock, no par value--10,000 shares authorized,
issued and outstanding.............................. 62,000 62,000
Retained earnings.................................... 4,498,004 9,980,703
----------- -----------
Total shareholders' equity......................... 4,560,004 10,042,703
----------- -----------
Total liabilities and shareholders' equity......... $12,712,423 $16,267,121
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-80
<PAGE>
MOTION CONTROL ENGINEERING, INC.
STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Net sales............................................. $34,956,469 $29,308,245
Cost of goods sold.................................... 20,541,184 16,595,753
----------- -----------
Gross margin...................................... 14,415,285 12,712,492
----------- -----------
Operating expenses:
General and administrative.......................... 4,580,843 4,089,479
Research and development............................ 2,673,841 2,348,959
Selling and distribution............................ 828,689 645,250
Shareholders' compensation.......................... 4,387,938 0
----------- -----------
Total operating expenses.......................... 12,471,311 7,083,688
----------- -----------
Operating income.................................. 1,943,974 5,628,804
----------- -----------
Other income (expense):
Interest expense.................................... (283,467) (201,782)
Other income........................................ 98,952 55,677
----------- -----------
Total other expense............................... (184,515) (146,105)
----------- -----------
Net income............................................ $ 1,759,459 $ 5,482,699
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-81
<PAGE>
MOTION CONTROL ENGINEERING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997
<TABLE>
<CAPTION>
COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
------ ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995............ 160 $62,000 $3,578,545 $ 3,640,545
Exchange of new for existing stock.... 9,840 0 0 0
Dividends to shareholders............. 0 0 (840,000) (840,000)
Net income............................ 0 0 1,759,459 1,759,459
------ ------- ---------- -----------
Balance at December 31, 1996............ 10,000 $62,000 $4,498,004 $ 4,560,004
Net income............................ 0 0 5,482,699 5,482,699
------ ------- ---------- -----------
Balance at September 30, 1997........... 10,000 $62,000 $9,980,703 $10,042,703
====== ======= ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-82
<PAGE>
MOTION CONTROL ENGINEERING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income.......................................... $ 1,759,459 $ 5,482,699
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 308,374 286,383
Gain on asset dispositions........................ (50) 0
Changes in operating assets and liabilities:
Accounts receivable.............................. (1,530,741) (1,980,885)
Inventories...................................... (167,040) (1,509,670)
Other current assets............................. (28,650) 12,027
Accounts payable................................. (384,064) 1,648,185
Accrued expenses................................. 286,256 418,862
Accrued retirement contribution.................. 10,000 (114,429)
----------- -----------
Net cash provided by operating activities............ 253,544 4,243,172
----------- -----------
Cash Flows From Investing Activities:
Proceeds from asset dispositions.................... 50 0
Acquisitions of property and equipment.............. (453,076) (363,336)
----------- -----------
Net cash used for investing activities............... (453,026) (363,336)
----------- -----------
Cash Flows From Financing Activities:
Net borrowings (repayments) under line-of-credit
agreements......................................... 1,036,742 (4,051,566)
Net borrowings (repayments) under notes payable..... 3,391 68,041
Net borrowings (repayments) under notes payable to
shareholders....................................... 0 102,906
Distributions to shareholders....................... (840,000) 0
----------- -----------
Net cash provided by (used for) financing activities. 200,133 (3,880,619)
----------- -----------
Net increase (decrease) in cash...................... 651 (783)
Cash and Cash Equivalents, beginning of period....... 987 1,638
----------- -----------
Cash and Cash Equivalents, end of period............. $ 1,638 $ 855
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest.............................. $ 283,467 $ 201,782
</TABLE>
The accompanying notes are an integral part of these statements.
F-83
<PAGE>
MOTION CONTROL ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
THE YEAR ENDED DECEMBER 31, 1996
1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
Description of the Company
Motion Control Engineering, Inc. (the Company) was incorporated in
California on September 24, 1981. The Company manufacturers and sells
microcomputer elevator control systems both domestically and internationally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reporting of amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue when the product is shipped.
Customer Concentration
Historically, approximately 25 percent of the Company's customer base is
concentrated in the New York City metro area. Due to a work stoppage by a
union group in late 1996 through early 1997, the Company had a slow down of
revenue from this geographic region. The Company continues to sell a similar
amount of its products to this area.
Income Tax Status
The Company has elected to be taxed as an S corporation for federal and
state income tax purposes. As a result, the Company's earnings are attributed
to the shareholders for tax purposes. California does require that all S
corporations pay a minimum franchise tax. This amount is not significant and
is included in general and administrative expense in the accompanying
statements of income.
Reclassifications
Certain reclassification have been made to 1996 balances to conform to the
1997 presentation.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
receivable, deposits, accounts payable and variable rate debt instruments. The
carrying amounts of cash, accounts receivable, deposits, accounts payable and
variable rate debt instruments are considered to estimate their respective
fair values due to the short-term nature of the instruments, the current
interest rate environment and the variable rate nature of the debt
instruments. The fair value of the Company's fixed rate debt instruments are
estimated using discounted cash flows based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
F-84
<PAGE>
MOTION CONTROL ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
The Company considers all investments with original maturities of less than
three months to be cash equivalents.
Inventories
Inventories of finished goods, work-in-process and raw materials are valued
at the lower of cost or market with cost being determined using a moving
average method which approximates the first-in, first-out (FIFO) method.
Inventories at December 31, 1996 and September 30, 1997 consisted of the
following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Raw materials and purchased parts.................... $2,449,112 $3,056,906
Work-in-process...................................... 1,184,128 1,168,435
Inventory at subcontractor........................... 0 917,569
---------- ----------
$3,633,240 $5,142,910
========== ==========
</TABLE>
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method. The estimated useful lives are three to ten years.
Maintenance and repair costs are expensed as incurred, while betterments are
capitalized and depreciated over their estimated useful lives.
Property and equipment is comprised of the following at December 31, 1996
and September 30, 1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Equipment and furniture.......................... $ 2,271,887 $ 2,399,123
Shop equipment................................... 233,714 304,427
Leasehold improvements........................... 128,318 201,427
Other............................................ 204,649 296,927
----------- -----------
2,838,568 3,201,904
Less--accumulated depreciation................... (1,532,832) (1,819,215)
----------- -----------
$ 1,305,736 $ 1,382,689
=========== ===========
</TABLE>
Depreciation expense for the periods ended December 31, 1996 and September
30, 1997 was $308,374 and $286,383, respectively.
Shareholders' Compensation
Shareholders (3 individuals) have chosen to forego any compensation for
their services for the nine-month period ended September 30, 1997.
Accordingly, no expense has been recorded for the period ended September 30,
1997 in the accompanying statements of income. Shareholder compensation for
the year ended December 31, 1996 was $4,387,938.
F-85
<PAGE>
MOTION CONTROL ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. DEBT:
The Company's borrowings at December 31, 1996 and September 30, 1997
consisted of the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Line of credit with a financial institution, maximum
borrowing $6,000,000, interest due monthly at the
bank's reference rate (8.5% at September 30, 1997),
secured by current assets, due July 1, 1998........ $ 4,051,566 $ 0
Note payable to financial institution bearing
interest at Libor plus 1.5% (8.38% at September 30,
1997), secured by current assets, principle
payments including interest made in equal monthly
installments through July 1, 2000.................. 0 275,000
Note payable to financial institution bearing
interest at the bank's reference rate plus .75%
(9.25% at September 30, 1997), secured by current
assets, principle payments including interest made
in equal monthly installments through June 1, 1998. 170,853 80,402
Note payable to financial institution bearing
interest at a fixed rate of 9.2%, secured by
current assets, principle payments including
interest made in equal monthly installments through
July 1, 1998....................................... 148,000 74,000
Note payable to financial institution bearing
interest at a fixed rate of 9.0%, secured by
current assets, principle payments including
interest made in equal monthly installments through
July 1, 1999....................................... 250,000 175,000
Note payable to GMAC, bearing interest at a fixed
rate of 3.9%, principle payments including interest
made monthly through January 10, 2002.............. 0 32,492
Notes payable to shareholders, unsecured, bearing
interest at the bank's reference rate (8.5% at
September 30, 1997), due January 1, 1998........... 1,200,000 1,302,906
----------- -----------
$ 5,820,419 $ 1,939,800
----------- -----------
Less: Current portion............................... (4,369,939) (1,730,331)
----------- -----------
$ 1,450,480 $ 209,469
=========== ===========
</TABLE>
The above line of credit contains a provision whereby the Company can choose
an interest rate of LIBOR plus 1.5% (8.38% at September 30, 1997.) Should the
Company choose this option, it must be for a minimum of $1,000,000 of the
outstanding balance. The agreement also contains provisions whereby the
Company can choose a fixed rate on portions of the outstanding balance in
increments of $250,000. The line of credit contains various covenants which
require, among other things the maintenance of certain ratios and net worth
levels.
In addition, the above line of credit contains a provision whereby the
financial institution may finance sales of equipment to the Company'
customers. The Company guarantees customers' loans, which cannot exceed
$1,000,000 at any time and reduces the Company's availability under the line
by the amounts outstanding. The balance outstanding and guaranteed by the
Company at December 31, 1996 and September 30, 1997 was $133,780 and $134,934,
respectively.
The Company also has a nonrevolving line of credit with a financial
institution, with a maximum borrowing of $300,000, bearing interest at .25%
above the bank's reference rate (8.5% at September 30, 1997). The line is
secured by current assets and personally guaranteed by the shareholders. It is
available until July 1, 1998. There was no amount outstanding on this line at
December 31, 1996 or September 30, 1997.
The fair value of the Company's fixed rate debt instruments is $279,839.
F-86
<PAGE>
MOTION CONTROL ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Aggregate principal payments required under all borrowing agreements for
periods subsequent to September 30, 1997 are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31 AMOUNT
------------- ----------
<S> <C>
1997............................. $ 106,542
1998............................. 1,609,585
1999............................. 157,361
2000............................. 57,654
2001............................. 7,978
2002............................. 680
----------
$1,939,800
==========
</TABLE>
4. EMPLOYEE BENEFIT PLANS:
The Company has a profit sharing plan. In 1995, a 401(k) provision was added
to the profit sharing plan, whereby the Company will match up to $275 per
employee per year under a 25 percent matching provision. Total employer
matching contributions for the periods ended December 31, 1996 and September
30, 1997 totaled $37,196 and $39,662, respectively. Profit sharing
contributions to the plan are made at management's discretion. Employees who
have completed one year of service, are 21 years of age and are not covered by
a collective bargaining agreement are eligible to participate in the plan.
Employees vest in the plan over a six-year period. The Company's contribution
to the plan for the periods ended December 31, 1996 and September 30, 1997
totaled $400,000 and $285,571, respectively.
5. RELATED PARTY TRANSACTIONS:
The Company leases substantially all of its production and office space
under noncancellable operating leases, which expire in 2002, from a limited
partnership whose partners include shareholders of the Company. Rents under
the lease were $601,390 and $473,854 for the periods ended December 31, 1996
and September 30, 1997, respectively. The future minimum lease payments for
periods subsequent to September 30, 1997 are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31 AMOUNT
------------- ----------
<S> <C>
1997............................. $ 139,704
1998............................. 558,816
1999............................. 558,816
2000............................. 558,816
2001............................. 469,216
2002............................. 284,712
----------
$2,570,080
==========
</TABLE>
6. CONTINGENCIES:
The Company is the subject of litigation arising in the normal course of
business. In the opinion of management, the Company's ultimate liability, if
any, related to pending litigation would not materially affect its financial
position or results of operations.
7. SUBSEQUENT EVENT (UNAUDITED):
Subsequent to September 30, 1997, the Company signed a non-binding letter of
intent to sell all outstanding shares of its common stock to Motors & Gears,
Inc.
F-87
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRE-
SENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN SECURITIES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SE-
CURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAW-
FUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 1
Risk Factors.............................................................. 14
The Company............................................................... 19
Use of Proceeds........................................................... 21
Capitalization............................................................ 22
Selected Historical Financial Data........................................ 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 28
Management................................................................ 38
Principal Stockholders.................................................... 41
The Exchange Offer........................................................ 42
Description of Senior Notes............................................... 51
Description of Certain Indebtedness....................................... 78
Certain Transactions...................................................... 79
Plan of Distribution...................................................... 82
Federal Income Tax Consequences .......................................... 83
Legal Matters............................................................. 84
Experts................................................................... 84
Available Information..................................................... 85
Index to Financial Statements............................................. I-1
</TABLE>
UNTIL , 1998, DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES,
WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS OBLIGATION IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$270,000,000
MOTORS AND GEARS, INC.
10 3/4% SERIES D SENIOR NOTES
DUE 2006
----------------------
PROSPECTUS
----------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) the Delaware General Corporation Law (Section 145) gives Delaware
corporations broad powers to 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
by reason of the fact that the person is or was a director, officer, employee
or agent of the registrant, or is or was serving at the request of the
registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, so long as 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 registrant. For actions, or suits by or in the right of the
registrant, no indemnification is permitted in respect of any claim, issue or
matter as to which such person is adjudged to be liable to the registrant,
unless, and only to the extent that, the Delaware Court of Chancery or the
court in which such action or suit was brought determines 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
indemnify for such expenses which the Court of Chancery or such other court
deems proper.
Section 145 also authorizes the registrant to buy directors' and officers'
liability insurance and gives a director, officer, employee or agent of the
registrant who has been successful on the merits or otherwise in defense of
any action, suit or proceeding of a type referred in the preceding paragraph
the right to be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith. Any
indemnification (unless ordered by a court) will be made by the registrant
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because the person has note the applicable standard of conduct
set forth above. Such determination shall be made (1) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) if there are no such directors, or is such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders. Such indemnification is not exclusive of any other rights
to which those indemnified my be entitled under any by-laws, agreement, vote
of stockholders or otherwise.
(b) The Restated Certificate of Incorporation of the registrant requires,
and the By-laws of the registrant provides for, indemnification of directors,
officers, employees and agents to the full extent permitted by law.
(c) The Purchase Agreement and the Registration Rights Agreement (which are
included as Exhibits 1 and 4.6 to this registration statement) provide for the
indemnification under certain circumstances of the registrant, its directors
and certain of its officers by the Initial Purchasers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
A list of the exhibits included as part of this registration statement is
contained on the Exhibit Index and is incorporated herein by reference.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required, amounts which would otherwise be required to be
shown with respect to any item are not material, are inapplicable or the
required information has already been provided elsewhere in the registration
statement.
II-1
<PAGE>
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:
(i) To include any prospectus in which offers or sales are being
made, a post-effective amendment to this registration statement:
(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 and 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 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(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.
(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 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.
(d) The registrant had not entered into any arrangement or understanding with
any person to distribute the securities to be received in the Exchange Offer
and to the best of the registrant's information and belief, each person
participating in the Exchange Offer is acquiring the securities in its ordinary
course of business and has no arrangement or understanding with any person to
participate in the distribution of the securities to be received in the
Exchange Offer. In this regard, the registrant will make each person
participating in the Exchange Offer aware (through the Exchange Offer
Prospectus or otherwise) that if the Exchange Offer is being registered for the
purpose of secondary resales, any security holder using the exchange offer to
participate in a distribution of the securities to be acquired in the
registered exchange offer (1) could not rely on the staff position enunciated
in Exxon Capital Holdings Corporation (available April 13, 1989) or similar
letters and (2) must comply with registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. The registration acknowledges that such a secondary resale
transaction should be covered by an effective registration statement containing
the selling securityholder information required by Item 4\507 of Regulation S-
K.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAD DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO,
STATE OF ILLINOIS, ON JANUARY 9, 1998.
Jordan Telecommunication Products,
Inc.
/s/ Ron A. Sansom
By___________________________________
Ron A. Sansom
Chief Executive Officer and
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS RON A. SANSOM, THOMAS H. QUINN, NORMAN BATES
AND JONATHAN BOUCHER, AND EACH OF THEM SINGLY, HIS TRUE AND LAWFUL ATTORNEYS-
IN-FACT AND AGENTS, 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 ANY AND ALL
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM ANY AND ALL ACTS AND THINGS
REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL
INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND
CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR ANY OF THEM, OR HIS
SUBSTITUTE OR NOMINEE, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JANUARY 9, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Thomas H. Quinn Chairman and a Director
___________________________________________
Thomas H. Quinn
/s/ Ron A. Sansom Chief Executive Officer and a Director
___________________________________________ (Principal Executive Officer)
Ron A. Sansom
/s/ Norman Bates Vice President and Chief Financial Officer
___________________________________________ (Principal Financial and Accounting
Norman Bates Officer)
/s/ Jonathan F. Boucher Vice President and a Director
___________________________________________
Jonathan F. Boucher
/s/ John W. Jordan II Director
___________________________________________
John W. Jordan II
/s/ David W. Zalaznick Director
___________________________________________
David W. Zalaznick
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
1 Purchase Agreement, dated December 10, 1997, by and among
Motors and Gears, Inc., Jefferies & Company, Inc. and BT
Alex. Brown Incorporated
2.1 Contingent Earnout Agreement, dated as of November 7,
1996, by and among Motors and Gears, Inc., Motors and
Gears Industries, Inc., The New Imperial Electric
Company, The New Scott Motors Company, New Gear Research,
Inc., The Imperial Electric Company, The Scott Motors
Company and Gear Research, Inc. (incorporated by
reference to Exhibit 2.2 to Motors and Gears Inc.'s Form
S-4 Registration Statement (File No. 333-19257, the
"Motors and Gears S-4")
3.1 Restated Certificate of Incorporation of Motors and
Gears, Inc.
3.2 Bylaws of Motors and Gears, Inc. (incorporated by
reference to Exhibit 3.2 to the Motors and Gears S-4)
4.1 Indenture, dated November 7, 1996, between Motors and
Gears, Inc. and Fleet National Bank (incorporated by
reference to Exhibit 4.1 to the Motors and Gears S-4)
4.2 First Supplemental Indenture, dated December 17, 1997,
between Motors and Gears, Inc. and State Street Bank and
Trust Company, as Trustee
4.3 Indenture, dated December 17, 1997, between Motors and
Gears, Inc. and State Street Bank and Trust Company, as
Trustee
4.4 Global Series C Senior Note
4.5 Form of Global Series D Senior Note
4.6 Registration Rights Agreement, dated December 17, 1997,
by and among Motors and Gears, Inc., Jefferies & Company,
Inc. and BT Alex. Brown Incorporated
5 Opinion of Mayer, Brown & Platt
10.1 Credit Agreement, dated November 7, 1996 by and among
Motors and Gears Industries, Inc., the lenders listed
thereto and Bankers Trust Company, as Agent (incorporated
by reference to Exhibit 4.5 to the Motors and Gears S-4)
10.2 Amendment No. 1 to Credit Agreement, dated June 3, 1997,
by and among Motors and Gears Industries, Inc., the
lenders listed thereto and Bankers Trust Company, as
Agent
10.3 Amendment No. 2 to Credit Agreement, dated October 27,
1997, by and among Motors and Gears Industries, Inc., the
lenders listed thereto and Bankers Trust Company, as
Agent
10.4 Amendment No. 3 to Credit Agreement, dated November 21,
1997, by and among Motors and Gears Industries, Inc., the
lenders listed thereto and Bankers Trust Company, as
Agent
10.5 Tax Sharing Agreement, dated June 28, 1994, by and among
Jordan Industries, Inc. and each other corporation which
is a signatory thereto (incorporated by reference to
Exhibit 10.3 to the Motors and Gears S-4)
10.6 Management Consulting Agreement, dated November 7, 1996,
by and among Motors and Gears, Inc. and TJC Management
Corporation and the other signatories thereto
(incorporated by reference to Exhibit 10.5 to the Motors
and Gears S-4)
10.7 Properties Services Agreement, dated July 25, 1997, by
and among JI Properties, Inc., Jordan Industries, Inc.
and the other signatories thereto
10.8 Transition Agreement, dated July 25, 1997, by and between
Motors and Gears Holdings, Inc. and Jordan Industries,
Inc.
10.9 New Subsidiary Advisory Agreement, dated July 25, 1997,
by and among Motors and Gears Holdings, Inc., Jordan
Industries, Inc. and the other signatories thereto
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
10.10 New Subsidiary Consulting Agreement, dated July 25,
1997, by and among Motors and Gears Holdings, Inc.,
Jordan Industries, Inc. and the other signatories
thereto
10.11(a) Indemnification Agreement, dated November 7, 1996,
between Motors and Gears, Inc. and Thomas H. Quinn
(incorporated by reference to Exhibit 10.1(a) to the
Motors and Gears S-4)
10.11(b) Indemnification Agreement, dated November 7, 1996,
between Motors and Gears, Inc. and Jonathan F. Boucher
(incorporated by reference to Exhibit 10.1(b) to the
Motors and Gears S-4)
10.11(c) Indemnification Agreement, dated November 7, 1996,
between Motors and Gears, Inc. and David W. Zalaznick
(incorporated by reference to Exhibit 10.1(c) to the
Motors and Gears S-4)
10.11(d) Indemnification Agreement, dated November 7, 1996,
between Motors and Gears, Inc. and John W. Jordan II
(incorporated by reference to Exhibit 10.1(d) to the
Motors and Gears S-4)
10.11(e) Indemnification Agreement, dated November 7, 1996,
between Motors and Gears, Inc. and Ron A. Sansam
(incorporated by reference to Exhibit 10.1(e) to the
Motors and Gears S-4)
10.12 Merkle-Korff Industries, Inc. Non-negotiable
Subordinated Note in the principal aggregate amount of
$5,000,000 payable to John D. Simms Revocable Trust
Under Agreement (incorporated by reference to Exhibit
10.9 to the Motors and Gears S-4)
10.13 Electrical Design and Control Company, Inc. Non-
negotiable Subordinated Note in the principal aggregate
amount of $1,333,333 payable to Tina Lavire
10.14 Electrical Design and Control Company, Inc. Non-
negotiable Subordinated Note in the principal aggregate
amount of $1,333,333 payable to Marta Monson
10.15 Electrical Design and Control Company, Inc. Non-
negotiable Subordinated Note in the principal aggregate
amount of $1,333,334 payable to Eric Monson
10.16 Industrial Building Leases, each dated as of September
22, 1996, by and between Merkle-Korff Industries, Inc.
and the signatory thereto (incorporated by reference to
Exhibits 10.16-10.19 to the Motors and Gears S-4)
10.17 Employment and Non Competition Agreement, dated as of
September 22, 1995, by and between Merkle-Korff
Industries, Inc. and John D. Simms (incorporated by
reference to Exhibit 10.20 to the Motors and Gears S-4)
10.18 Employment and Non Competition Agreement, dated as of
September 22, 1995, by and between Merkle-Korff
Industries, Inc. and John W. Brown (incorporated by
reference to Exhibit 10.21 to the Motors and Gears S-4)
12 Statement re: Computation of Ratios
21 Subsidiaries of Motors and Gears, Inc.
23.1 Consent of Mayer, Brown & Platt (included in the
opinion filed as Exhibit 5)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Coopers & Lybrand LLP
23.4 Consent of Janz & Knight
23.5 Consent of Arthur Andersen LLP
24 Power of Attorney (included on the signature page in
Part II of the Registration Statement)
25 Statement of Eligibility of Trustee
27 Financial Data Schedule (incorporated by reference to
Exhibit 27 to Motors and Gears Inc.'s 10-Q for the
quarter ended September 30, 1997)
99 Form of Letter of Transmittal
</TABLE>
<PAGE>
EXHIBIT 1
================================================================================
MOTORS AND GEARS, INC.
________________________________________
$100,000,000
10 3/4% SERIES C SENIOR NOTES DUE 2006
________________________________________
___________________
PURCHASE AGREEMENT
DATED AS OF DECEMBER 10, 1997
___________________
JEFFERIES & COMPANY, INC. BT ALEX. BROWN INCORPORATE
================================================================================
<PAGE>
December 10, 1997
JEFFERIES & COMPANY, INC.
BT ALEX. BROWN INCORPORATED
c/o Jefferies & Company, Inc.
11100 Santa Monica Boulevard
10th Floor
Los Angeles, California 90025
Ladies and Gentlemen:
Motors and Gears, Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell an aggregate of $100,000,000 in principal amount of
10 3/4% Series C Senior Notes due 2006 (the "Senior Notes") of the Company, to
Jefferies & Company, Inc. ("JEFFERIES") and BT Alex. Brown Incorporated ("BT"
and, together with Jefferies, the "INITIAL PURCHASERS"). The Senior Notes will
be issued pursuant to an indenture (the "INDENTURE") among the Company and State
Street Bank and Trust Company, as trustee (the "TRUSTEE"). Concurrently with the
sale of the Senior Notes to the Initial Purchasers, Motors and Gears Holdings,
Inc., a Delaware corporation and the sole shareholder of the Company
("HOLDINGS"), proposes to purchase $20,000,000 of additional shares of common
stock of the Company (the "ADDITIONAL Common Stock").
The proceeds to the Company from the sale to the Initial Purchasers of
the Senior Notes and the sale to Holdings of the Additional Common Stock (the
"PROCEEDS") will be used (i)to fund the acquisition of Motion Control
Engineering, Inc. ("MOTION Control") (the "ACQUISITION") pursuant to an
acquisition agreement dated as of November 17, 1997 (the "ACQUISITION
AGREEMENT") among the Company, Motion Holdings, Inc. and the other parties
listed on the signature page thereto. In addition, the Company will use the
Proceeds to repay, in full, all outstanding indebtedness under that certain
revolving credit agreement dated as of November 7, 1997 (the "EXISTING Credit
Agreement"), by and among Motors and Gears Industries, Inc., a wholly-owned
subsidiary of the Company ("MGI"), Bankers Trust Company, as agent, and the
other lenders thereunder, (iii) to pay fees and expenses incurred in connection
with the Offering and the consent solicitation by the Company of holders of the
Company's outstanding 10 3/4% Series A/B Senior Notes due 2006 (the "SERIES A/B
Senior Notes"), to certain amendments to the indenture relating to the Series
A/B Senior Notes (the "CONSENT Solicitation") and (iv) to provide additional
--------------------
working capital.
<PAGE>
1. ISSUANCE OF SECURITIES. The Senior Notes will be offered and sold
to the Initial Purchasers pursuant to an exemption from the registration
requirements under the Securities Act of 1933, as amended (the "ACT"). The
Company has prepared an offering circular, dated December 10, 1997 (the
"OFFERING CIRCULAR"), relating to the Company and the Senior Notes.
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Act, the Senior Notes
(and all securities issued in exchange therefor or in substitution thereof)
shall bear the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTIONS IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS (OR
SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) AS
PERMITTING RESALES BY NON-AFFILIATES OR RESTRICTED SECURITIES WITHOUT
RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE
ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) EXCEPT (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SENIOR NOTES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR IN
OFFSHORE TRANSACTION AND WITHOUT DIRECTED SELLING EFFORTS WITHIN THE MEANINGS OF
SUCH TERMS AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION
WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER PURSUANT TO
2
<PAGE>
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN
EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON
THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, (i) the Company agrees to issue and sell the
Senior Notes to the Initial Purchasers and (ii) each Initial Purchaser agrees,
severally and not jointly, to purchase Senior Notes from the Company in the
principal amount set forth opposite the name of such Initial Purchaser in
Schedule I at a price of 102.5% of the principal amount of the Senior Notes (the
"PURCHASE PRICE").
3. TERM OF OFFERING. The Initial Purchasers have advised the Company
that the Initial Purchasers will make offers (the "EXEMPT RESALES") of the
Senior Notes purchased by the Initial Purchasers hereunder on the terms set
forth in the Offering Circular, as amended or supplemented, solely to (i)
persons (each, a "144A PURCHASER") whom the Initial Purchasers reasonably
believe to be "QUALIFIED institutional buyers" as defined in Rule 144A under the
Act ("QIBs") and (ii) a limited number of other institutional "ACCREDITED
investors," as defined in Rule 501(a) (1), (2), (3) and (7) under the Act, that
make certain representations and agreements to the Company (each, an "ACCREDITED
INSTITUTION") (such persons specified in clauses (i) and (ii) being referred to
herein as the "ELIGIBLE PURCHASERS"). The Initial Purchasers will offer the
Senior Notes to Eligible Purchasers initially at a price equal to 104.5% of the
principal amount thereof. Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Senior Notes will have
the registration rights set forth in the registration rights agreement (the
"REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date (as defined
below), in substantially the form of Exhibit A hereto, for so long as such
Senior Notes constitute "TRANSFER RESTRICTED SECURITIES" (as defined in the
Registration Rights Agreement). Pursuant to the Registration Rights Agreement,
the Company will agree to file with the Securities and Exchange Commission (the
"COMMISSION") under the circumstances set forth therein, (i) a registration
statement under the Act (the "EXCHANGE OFFER REGISTRATION STATEMENT") relating
to (A) the Company's 10 3/4% Series D Senior Notes due 2006 (the "SERIES D
SENIOR NOTES") to be offered in exchange for the Senior Notes and the Series A/B
Senior Notes (such offer to exchange being referred to as the "REGISTERED
EXCHANGE OFFER") and/or (ii) a shelf registration statement pursuant to Rule 415
under the Act (the "SHELF REGISTRATION STATEMENT" and together with the Exchange
Offer Registration Statement, the "REGISTRATION STATEMENTS") relating to the
resale by certain holders of the Senior Notes, and to use their best efforts to
cause such Registration Statements to be declared effective. This Agreement,
the Indenture and the Registration Rights Agreement are hereinafter referred to
collectively as the "OPERATIVE DOCUMENTS."
-3-
<PAGE>
4. DELIVERY AND PAYMENT. Delivery to the Initial Purchasers by the
Company of, and payment by the Initial Purchasers for, the Senior Notes shall be
made at 10:00 A.M., New York City time, on December 17, 1997 (the "CLOSING
DATE") or such other date as the Company and the Initial Purchasers may agree,
at the offices of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago,
Illinois, 60603.
One or more Senior Notes in definitive form, registered in the name of
Cede & Co., as nominee of the Depository Trust Company ("DTC"), or such other
names as the Initial Purchasers may request upon at least one business days'
notice to the Company, having an aggregate principal amount corresponding to the
aggregate principal amount of Senior Notes sold pursuant to Exempt Resales to
QIBs, shall be delivered by the Company to the Initial Purchasers, against
payment by the Initial Purchasers of the purchase price thereof by wire transfer
in same day funds to the order of the Company or as the Company may direct. In
addition, the Company shall deliver to the Initial Purchasers, against payment
by the Initial Purchasers of the purchase price thereof by wire transfer in same
day funds to the order of the Company or as the Company may direct, one or more
Senior Notes in definitive form, registered in such names and in such amounts as
the Initial Purchasers shall request upon at least one business days' notice to
the Company, having an aggregate principal amount of Senior Notes sold pursuant
to Exempt Resales to Accredited Institutions. The Senior Notes in definitive
form shall be made available to the Initial Purchasers for inspection not later
than 9:30 a.m. on the business day immediately preceding the Closing Date.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the Initial
Purchasers:
(a) To advise the Initial Purchasers promptly and, if requested by
the Initial Purchasers, to confirm such advice in writing, (i) of receipt of any
notification with respect to the issuance by any state securities commission of
any stop order suspending the qualification or exemption from qualification of
any of the Senior Notes for offering or sale in any jurisdiction designated by
the Initial Purchasers pursuant to Section 5(f), or the initiation of any
proceeding for such purpose by any state securities commission or other
regulatory authority, and (ii) of the happening of any event that makes any
statement of a material fact made in the Offering Circular (or any amendment or
supplement thereto) untrue or that requires the making of any additions to or
changes in the Offering Circular (or any amendment or supplement thereto) in
order to make the statements therein, in the light of the circumstances in which
they are made, not misleading. The Company shall use its best efforts to prevent
the issuance of any stop order or order suspending the qualification or
exemption from qualification of the Senior Notes under any state securities or
Blue Sky laws, and, if at any time any state securities commission or other
regulatory authority shall issue any stop order or order suspending the
qualification or exemption from qualification of any of the Senior Notes under
any state securities or Blue Sky laws, the Company shall use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible time.
-4-
<PAGE>
(b) Subject to paragraph (e) below, to furnish to the Initial
Purchasers, without charge, as many copies of the Offering Circular, and any
amendments or supplements thereto, as the Initial Purchasers may reasonably
request. The Company consents to the use of the Offering Circular, and any
amendments or supplements thereto, by the Initial Purchasers in connection with
Exempt Resales.
(c) Not to amend or supplement the Offering Circular, whether before
or after the Closing Date, unless (i) the Initial Purchasers have been
previously advised thereof, and (ii) the Initial Purchasers have not reasonably
objected thereto (unless in the opinion of counsel to the Company such amendment
or supplement is necessary, in the judgment of counsel to the Company, to make
the statements made in the Offering Circular not misleading); and to prepare,
promptly upon the Initial Purchasers' request, any amendment or supplement to
the Offering Circular that the Initial Purchasers deem necessary or advisable in
connection with Exempt Resales (except to the extent any such amendment or
supplement requested would, in the judgment of counsel to the Company, render
the statements made in the Offering Circular, as proposed to be amended or
supplemented, misleading).
(d) Subject to paragraph (e) below, if, after the date hereof and
prior to the completion of Exempt Resales of the Senior Notes by the Initial
Purchasers, any event shall occur as a result of which it becomes necessary to
amend or supplement the Offering Circular to comply with any law or to make the
statements therein, in the light of the circumstances at the time that the
Offering Circular is delivered to an Eligible Purchaser which is a prospective
purchaser, not misleading, to promptly (i) prepare an appropriate amendment or
supplement to the Offering Circular so that the statements in the Offering
Circular, as so amended or supplemented, will comply with all applicable laws
and will not, in the light of the circumstances at the time it is so delivered,
be misleading, and (ii) furnish each Initial Purchaser with such number of
copies of the Offering Circular, as amended or supplemented, as such Initial
Purchaser may reasonably request.
(e) Prior to the earlier of the consummation of the Exchange Offer or
the effectiveness of an applicable shelf registration statement if, in the
reasonable judgment of the Initial Purchasers, the Initial Purchasers or any of
their affiliates (as such term is defined in the rules and regulations under the
Securities Act) are required to deliver an offering circular in connection with
sales of, or market-making activities with respect to, the Senior Notes, (A) to
periodically amend or supplement the Offering Circular so that the information
contained in the Offering Circular complies with the requirements of Rule 144A
of the Securities Act, (B) to amend or supplement the Offering Circular when
necessary to reflect any material changes in the information provided therein so
that the Offering Circular will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances existing as of the date the
Offering Circular is so delivered, not misleading and (C) to provide the Initial
Purchasers with copies of each such amended or supplemented Offering Circular,
as the Initial Purchasers may reasonably request.
-5-
<PAGE>
Following the consummation of the Exchange Offer or the effectiveness
of an applicable shelf registration statement and for so long as the Senior
Notes are outstanding if, in the reasonable judgment of the Initial Purchasers,
the Initial Purchasers or any of their affiliates (as such term is defined in
the rules and regulations under the Securities Act) are required to deliver a
prospectus in connection with sales of, or market-making activities with respect
to, such securities, (A) to periodically amend the applicable registration
statement so that the information contained therein complies with the
requirements of Section 10(a) of the Securities Act, (B) to amend the applicable
registration statement or supplement the related prospectus or the documents
incorporated therein when necessary to reflect any material changes in the
information provided therein so that the registration statement and the
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances existing as of the date the prospectus is so
delivered, not misleading and (C) to provide the Initial Purchasers with copies
of each amendment or supplement filed and such other documents as the Initial
Purchasers may reasonably request.
The Company hereby expressly acknowledges that the indemnification and
contribution provisions of Section 8 hereof are specifically applicable and
relate to each offering circular, registration statement, prospectus, amendment
or supplement referred to in this Section 5(e).
(f) To (i) cooperate with the Initial Purchasers and counsel for the
Initial Purchasers in connection with the qualification of the Senior Notes for
offer and sale by the Initial Purchasers under the state securities or Blue Sky
laws of such jurisdictions as the Initial Purchasers may request, (ii) continue
such qualification in effect so long as required for Exempt Resales of the
Senior Notes and (iii) file such consents to service of process or other
documents as may be necessary in order to effect such qualification; provided
that in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified, or take any action which would
subject it to general service of process in any jurisdiction where it is not now
so subject.
(g) So long as any of the Senior Notes are outstanding, to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT"), and, during the period of three years following
the date of this Agreement, to deliver to the Initial Purchasers, promptly upon
their becoming available, (i) copies of all current, regular and periodic
reports filed by the Company with any securities exchange or with the Commission
or any governmental authority succeeding to any of the Commission's functions,
and (ii) copies of each report or other publicly available information of the
Company mailed to the holders of Senior Notes and such other publicly available
information concerning the Company and its subsidiaries as the Initial
Purchasers may request.
(h) To use the Proceeds from the sale of the Senior Notes in the
manner specified in the Offering Circular (and any amendments or supplements
thereto) under the caption "Use of Proceeds."
-6-
<PAGE>
(i) Not to voluntarily claim, and to resist actively any attempts to
claim, the benefit of any usury laws against the holders of the Senior Notes.
(j) Except as otherwise agreed to by the parties hereto, to pay all
costs, expenses, fees and taxes incident to,
(1) the preparation, printing, filing and distribution of the
Offering Circular (including financial statements and exhibits) and all
amendments and supplements thereto,
(2) the printing and delivery of the Operative Documents, the
Senior Notes, the Blue Sky memorandum and all other agreements, memoranda,
correspondence and other documents printed and delivered in connection
herewith and with the Exempt Resales (including in each case any
disbursements of counsel to the Initial Purchasers relating to such
printing and delivery),
(3) the issuance and delivery by the Company of the Senior Notes,
(4) the registration or qualification of the Senior Notes for
offer and sale under the securities or Blue Sky laws of the several states
(including in each case the fees and disbursements of counsel to the
Initial Purchasers relating to such registration or qualification and
memoranda relating thereto),
(5) furnishing such copies of the Offering Circular (including
all documents incorporated by reference therein) and all amendments and
supplements thereto as may be requested for use in connection with the
Exempt Resales,
(6) the rating of the Senior Notes by rating agencies, if any,
(7) all expenses and listing fees in connection with the
application for quotation of the Senior Notes in the National Association
of Securities Dealers, Inc. Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") market,
(8) all fees and expenses (including fees and expenses of
counsel) of the Company in connection with approval of the Senior Notes by
DTC for "book-entry" transfer, and
(9) the performance by the Company of its other obligations under
this Agreement.
(k) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than a default by the Initial Purchasers) or if for
any reason the Company shall be unable or unwilling to perform their obligations
hereunder, the Company shall, except as otherwise agreed by the parties hereto,
reimburse the Initial Purchasers for the fees and expenses to be paid or
reimbursed pursuant to Section 5(j) above, and reimburse the Initial Purchasers
for
-7-
<PAGE>
all out-of-pocket expenses (including the fees and expenses of counsel to the
Initial Purchasers) reasonably incurred by the Initial Purchasers in connection
with the transactions contemplated by this Agreement.
(l) Prior to the Closing Date, to furnish to the Initial Purchasers,
as soon as they have been prepared by the Company, a copy of any consolidated
financial statements of the Company for any period subsequent to the period
covered by the financial statements appearing in the Offering Circular.
(m) Not to distribute prior to the Closing Date any offering material
in connection with the offering and sale of the Senior Notes other than the
Offering Circular.
(n) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act) that would be
integrated with the sale of the Senior Notes in a manner that would require the
registration under the Act of the sale to the Initial Purchasers or the Eligible
Purchasers of Senior Notes.
(o) For so long as any of the Senior Notes remain outstanding and
during any period in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act, to make available to any Eligible Purchaser or beneficial
owner of Senior Notes in connection with any sale thereof and any prospective
purchaser of such Senior Notes from such Eligible Purchaser or beneficial owner,
the information required by Rule 144A(d)(4) under the Act.
(p) To comply with their agreements in the Registration Rights
Agreement, and all agreements set forth in the representation letters of the
Company to DTC relating to the approval of the Senior Notes by DTC for "book-
entry" transfer.
(q) On the Closing Date, to deliver to the Initial Purchasers true
and correct copies of (i) the amended revolving credit agreement by and among
MGI, Bankers Trust Company, as agent, and the other lenders thereunder (the
"AMENDED CREDIT AGREEMENT"), (ii) the New Subsidiary Advisory Agreement, (iii)
the New Subsidiary Consulting Agreement, (iv) the transition Agreement, (v) the
JI Properties Services Agreement and (vi) the Tax Sharing Agreement.
(r) To use its best efforts to effect the inclusion of the Senior
Notes in PORTAL.
(s) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date and to satisfy all conditions precedent to the delivery of the
Senior Notes.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Initial Purchaser that:
-8-
<PAGE>
(a) The Offering Circular has been prepared in connection with the
Exempt Resales. The Offering Circular as of its date does not and as of the
Closing Date will not, and any amendment or supplement thereto will not, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that the representations and
warranties contained in this paragraph (a) shall not apply to statements or
omissions in the Offering Circular (or any amendment or supplement thereto)
based upon information relating to the Initial Purchasers furnished to the
Company in writing by the Initial Purchasers expressly for use therein. No stop
order preventing the use of the Offering Circular, or any amendment or
supplement thereto, or any order asserting that any of the transactions
contemplated by this Agreement are subject to the registration requirements of
the Securities Act, have been issued.
(b) The Company and each of its subsidiaries (1) is duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation, (2) has full corporate power and authority to
carry on its respective business as it is currently being conducted and to own,
lease and operate its respective properties, and (3) except as otherwise agreed
to by the parties hereto, is duly qualified and in good standing as a foreign
corporation registered to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the condition (financial or other), business,
property, prospects, net worth or results of operations of the Company and its
subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT").
(c) All of the outstanding capital stock of the Company and each of
its subsidiaries has been duly authorized and validly issued, is fully paid and
nonassessable, is not and, as a result of the Offering or the consummation of
the Acquisition pursuant to the Acquisition Agreement, will not be, subject to
preemptive or similar rights and, except as described in the Offering Circular,
(i) all of the Company's subsidiaries' capital stock is owned by the Company,
free and clear of any security interest, claim, lien or encumbrance, except as
described in the Offering Circular and (ii) there are no outstanding rights,
warrants or options to acquire, or instruments convertible into or exchangeable
for, any shares of capital stock or other equity interest in any such
subsidiary.
(d) The Company has all necessary corporate power and authority to
enter into and perform its obligations under the Operative Documents and to
issue, sell and deliver the Senior Notes to the Initial Purchasers.
(e) Neither the Company nor any of its subsidiaries is (1) in
violation of its respective charter or bylaws or (2) in default in any material
respect in the performance of any obligation, agreement or condition contained
in any bond, debenture, note or any other evidence of indebtedness or in any
other agreement, indenture or instrument material to the conduct of the business
of the Company and its subsidiaries taken as a whole, to which the Company or
any of its subsidiaries is a party or by which it or any of its subsidiaries or
their respective property is bound.
-9-
<PAGE>
(f) None of (A) the execution, delivery or performance by the Company
of this Agreement, the Amended Credit Agreement and the other Operative
Documents, (B) the performance by the Company of the Acquisition Agreement and
consummation of the Acquisition pursuant to the terms of the Acquisition
Agreement, (C) the issuance and sale of the Senior Notes by the Company and (D)
the consummation by the Company of the transactions described in the Offering
Circular under the caption "Use of Proceeds," will conflict with or constitute a
breach of any of the terms or provisions of, or a default under, or result in
the imposition of a lien or encumbrance on any properties of the Company or any
of its subsidiaries, or an acceleration of indebtedness pursuant to, (1) the
charter or bylaws of the Company or any of its subsidiaries, (2) any bond,
debenture, note, indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which any of them or their property is bound, the violation of which would
reasonably be expected to result in a Material Adverse Effect, or (3) any law or
administrative regulation applicable to the Company, any of its subsidiaries or
any of their assets or properties, or any judgment, order or decree of any court
or governmental agency or authority entered in any proceeding to which the
Company or any of its subsidiaries was or is now a party or to which any of them
or their respective properties may be subject. No consent, approval,
authorization or order of, or filing or registration with, any regulatory body,
administrative agency, or other governmental agency (except as securities or
Blue Sky laws of the various states may require) that has not been made or
obtained is required for (1) the execution, delivery and performance of the
Operative Documents and the valid issuance and sale of the Senior Notes or (2)
the performance by the Company of the Acquisition Agreement, the Amended Credit
Agreement and all documents or agreements related thereto and the transactions
contemplated hereby and thereby. No consents or waivers from any person are
required to consummate the transactions contemplated by the Operative Documents
or the Offering Circular, other than such consents and waivers as have been or
will be obtained prior to the Closing Date or, in the case of the Registration
Rights Agreement and the transactions contemplated thereby, will be obtained and
made) under the Act, the Trust Indenture Act of 1939, as amended (the "Trust
-----
Indenture Act") and state securities or Blue Sky and regulations.
- -------------
(g) This Agreement has been duly authorized and validly executed by
the Company and (assuming the due execution and delivery thereof by the Initial
Purchasers) is a legally valid and binding obligation of the Company,
enforceable against it in accordance with its terms, except as the
enforceability thereof may be (i) subject to applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws in effect which affect the
enforcement of creditors rights generally, (ii) limited by general principles of
equity (whether considered in a proceeding at law or in equity) and (iii)
limited by securities laws prohibiting or limiting the availability of, and
public policy against, indemnification or contribution.
(h) The Company has duly authorized the Indenture, and when the
Company has duly executed and delivered it (assuming the due authorization,
execution and delivery thereof by the Trustee), the Indenture will be a legally
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, except as the enforceability thereof may be (i)
subject to applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws in
-10-
<PAGE>
effect which affect the enforcement of creditors rights generally and (ii)
limited by general principles of equity (whether considered in a proceeding at
law or in equity).
(i) The Company has duly authorized the Senior Notes and, when issued
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 hereof, the
Senior Notes will conform to the description thereof in the Offering Circular,
and will be the legally valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as the
enforceability thereof may be (i) subject to applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws in effect which affect the
enforcement of creditors rights generally and (ii) limited by general principles
of equity (whether considered in a proceeding at law or in equity).
(j) The Company has duly authorized the Series D Senior Notes and,
when issued and authenticated in accordance with the terms of the Registered
Exchange Offer and the Indenture, the Series D Senior Notes will conform to the
description thereof in the applicable Registration Statement, and will be the
legally valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as the enforceability thereof may
be (i) subject to applicable bankruptcy, insolvency, moratorium, reorganization
or similar laws in effect which affect the enforcement of creditors rights
generally and (ii) limited by general principles of equity (whether considered
in a proceeding at law or in equity).
(k) The Registration Rights Agreement has been duly authorized and
validly executed by the Company and (assuming the due execution and delivery
thereof by the Initial Purchasers) is a legally valid and binding obligation of
the Company, enforceable against it in accordance with its terms, except as the
enforceability thereof may be (i) subject to applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws in effect which affect the
enforcement of creditors rights generally, (ii) limited by general principles of
equity (whether considered in a proceeding at law or in equity) and (iii)
limited by securities laws prohibiting or limiting the availability of, and
public policy against, indemnification or contribution.
(l) There is (i) no action, suit or proceeding before or by any
court, arbitrator or governmental agency, body or official, domestic or foreign,
now pending, threatened, or, to the knowledge of the Company, contemplated to
which the Company or any of its subsidiaries is or may be a party or to which
the business or property of the Company or any of its subsidiaries is subject,
(ii) no statute, rule, regulation or order that has been enacted, adopted or
issued by any governmental agency or, to the best knowledge of any Company,
proposed by any governmental body or (iii) no injunction, restraining order or
order of any nature by a federal or state court of competent jurisdiction to
which the Company or any of its subsidiaries is or may be subject issued that,
in the case of clauses (i), (ii) and (iii) above, (1) is required to be
disclosed in the Offering Circular and that is not so disclosed, (2) might have
a Material Adverse Effect, (3) would interfere with or adversely affect the
issuance of the Senior Notes or (4) in any manner draw into question the
validity of the Operative Documents or the Senior Notes.
-11-
<PAGE>
(m) No holder of any security of the Company or any of its
subsidiaries has any right or, by reason of the execution by the Company of this
Agreement or any other Operative Document or the Acquisition Agreement or the
consummation of the transactions contemplated hereby or and thereby, have the
right to require registration of any security of the Company.
(n) Neither the Company nor any of its subsidiaries is involved in
any material labor dispute nor, to the knowledge of the Company or any of its
subsidiaries, is any material dispute threatened which, if such dispute were to
occur, could have a Material Adverse Effect.
(o) Neither the Company nor any of its subsidiaries has violated any
safety or similar law applicable to its business, nor any federal or state law
relating to discrimination in the hiring, promotion or pay of employees nor any
applicable federal or state wages and hours laws, nor any provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the
rules and regulations promulgated thereunder, except for such instances of
noncompliance that, either singly or in the aggregate, could not have a Material
Adverse Effect.
(p) Except as set forth in the Offering Circular, the Company and its
subsidiaries are in compliance with all applicable existing federal, state,
local and foreign laws and regulations (collectively, "ENVIRONMENTAL LAWS")
relating to protection of human health or the environment or imposing liability
or standards of conduct concerning any Hazardous Material (as defined below),
except for such instances of noncompliance that, either singly or in the
aggregate, could not have a Material Adverse Effect. The term "HAZARDOUS
MATERIAL" means (i) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, (ii)
any "hazardous waste" as defined by the Resource Conservation and Recovery Act,
as amended, (iii) any petroleum or petroleum product, (iv) any polychlorinated
biphenyl and (v) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material, waste or substance regulated under or within the meaning of
any other Environmental Law. Except as set forth in the Offering Circular,
there is no alleged liability, or, to the best knowledge and information of the
Company, potential liability (including, without limitation, alleged or
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries,
or penalties) of the Company or any of its subsidiaries arising out of, based
on, or resulting from (1) the presence or release into the environment of any
Hazardous Material at any location currently or previously owned by the Company
or any of its subsidiaries at any location currently or previously used or
leased by the Company or any of its subsidiaries or (2) any violation or alleged
violation of any Environmental Law, except in each case with respect to clause
(1) and (2), alleged or potential liabilities that, singly or in the aggregate,
could not have a Material Adverse Effect.
(q) The Company and each of its subsidiaries owns or possesses the
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names (collectively, "INTELLECTUAL PROPERTY") presently employed by it in
connection with the businesses now operated by it, except where the
-12-
<PAGE>
failure to own or possess such Intellectual Property could not, either singly or
in the aggregate, have a Material Adverse Effect, and neither the Company nor
any of its subsidiaries has received any notice that its use of any Intellectual
Property allegedly infringes upon, or conflicts with, rights asserted by others,
except for such instances that, singly or in the aggregate, could not have a
Material Adverse Effect if an unfavorable decision, judgment, ruling or finding
is rendered against the Company or any of its subsidiaries.
(r) Except as set forth in the Offering Circular, all tax returns
required to be filed by the Company and each of its subsidiaries in any
jurisdiction have been filed, and all material taxes (including, but not limited
to, withholding taxes, penalties and interest, assessments, fees and other
charges due or claimed to be due from any taxing authority) have been paid other
than those (i) being contested in good faith and for which adequate reserves
have been provided, or (ii) currently payable without penalty or interest.
(s) Except as set forth in the Offering Circular or that, singly or
in the aggregate, could not have a Material Adverse Effect, (i) the Company and
each of its subsidiaries has (1) such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("PERMITS") as are
necessary to own, lease and operate its respective properties and to conduct its
business as presently conducted, and (2) fulfilled and performed all of its
material obligations with respect to the Permits, and (ii) no event has occurred
that could allow, or after notice or lapse of time could allow, revocation or
termination of any Permit or that could result in any other material impairment
of the rights granted to the Company or any of its subsidiaries under any
Permit, and the Company has no reason to believe that any governmental body or
agency is considering limiting, suspending or revoking any Permit.
(t) Except as set forth in the Offering Circular or that, singly or
in the aggregate, could not have a Material Adverse Effect, (i) the Company and
each of its subsidiaries has good and marketable title, free and clear of all
liens, claims, encumbrances and restrictions except liens for taxes not yet due
and payable, to all property and assets described in the Offering Circular as
being owned by it, (ii) each lease to which the Company and each of its
subsidiaries is a party is valid and binding and no default has occurred or is
continuing thereunder and (iii) the Company and its subsidiaries enjoy peaceful
and undisturbed possession under all such leases to which it is a party as
lessee.
(u) The Company and each of its subsidiaries maintains adequate
insurance for their respective businesses and the value of their respective
properties (including, without limitation, public liability insurance, third
party property damage insurance and replacement value insurance), and all such
insurance is outstanding and in force as of the date hereof.
(v) The financial statements, together with related notes forming
part of the Offering Circular (and any amendment or supplement thereto), present
fairly the consolidated financial position, results of operations and changes in
financial position of the Company and its subsidiaries on the basis stated in
the Offering Circular at the respective dates or for the respective periods to
which they apply, and such financial statements and related schedules and notes
have been prepared in accordance with generally accepted accounting principles
consistently
-13-
<PAGE>
applied throughout the periods involved, except as disclosed therein. The pro
forma financial statements, together with related notes forming part of the
Offering Circular (and any amendment or supplement thereto), are, in all
material respects, accurately presented and prepared in good faith on the basis
of the assumptions described therein, and such assumptions are reasonable and
the adjustments used therein are appropriate to give effect to the transactions
and circumstances referred to therein.
(w) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide assurance that:
(1) transactions are executed in accordance with management's
general or specific authorizations;
(2) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; and
(3) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect thereto.
(x) Subsequent to the dates for which information is given in the
Offering Circular and up to the Closing Date, unless set forth in the Offering
Circular or the Company has notified the Initial Purchasers:
(1) none of the Company or its subsidiaries has incurred any
liabilities or obligations, direct or contingent, which are material,
individually or in the aggregate, to the Company and its subsidiaries taken
as a whole, nor entered into any material transactions not in the ordinary
course of business;
(2) there has not been any decrease in the Company's capital
stock or the capital stock of the Company's subsidiaries or any increase in
long-term indebtedness to meet working capital requirements or any material
increase in short-term indebtedness of the Company or its subsidiaries or
any payment of or declaration to pay any dividends or any other
distribution with respect to the Company's or any of its subsidiaries'
capital stock, as the case may be; and
(3) there has not been any event or series of events that would
have a Material Adverse Effect.
(y) Prior to and after the issuance of the Senior Notes, (i) the
present fair salable value of the assets of the Company and its subsidiaries
exceeded and will exceed the amount that will be required to be paid on, or in
respect of, the debts and other liabilities (including contingent liabilities)
of the Company and its subsidiaries as they become absolute and matured, (ii)
the assets of the Company and its subsidiaries do not constitute and will not
constitute unreasonably small capital to carry out their businesses as conducted
or as proposed
-14-
<PAGE>
to be conducted, and (iii) the Company and its subsidiaries do not intend to, or
believe that they will, incur debts or other liabilities beyond their ability to
pay such debts and liabilities as they mature. The Company does not intend to
permit any of its subsidiaries to incur debts or other liabilities beyond their
respective ability to pay such debts and liabilities as they mature.
(z) Neither the Company nor any agent thereof acting on its behalf,
has taken or will take any action that might cause this Agreement or the
issuance or sale of the Senior Notes to violate Regulation G (12 C.F.R. Part
207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or
Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal
Reserve System, in each case as in effect now or as the same may hereafter be in
effect on the Closing Date.
(aa) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(bb) Each of Ernst & Young LLP, Coopers & Lybrand LLP, Janz & Knight
PLLC and Arthur Andersen LLP are independent public accountants with respect to
the Company as required by the Act.
(cc) When the Senior Notes are issued and delivered pursuant to this
Agreement, such Senior Notes will not be of the same class (within the meaning
of Rule 144A under the Act) as securities of the Company that are listed on a
national securities exchange registered under Section 6 of the Exchange Act or
that are quoted in a United States automated inter-dealer quotation system.
(dd) Assuming (i) that the representations and warranties of the
Initial Purchasers in Section 7 hereof are true, (ii) that the representations
of the Accredited Institutions set forth in the certificates of such Accredited
Institutions in the form set forth in Annex A to the Offering Circular are true,
(iii) compliance by the Initial Purchasers with their covenants set forth in
Section 7 hereof, (iv) that none of the Eligible Purchasers is an affiliate of
the Company and (v) that each of the Eligible Purchasers is a QIB or an
Accredited Institution, the purchase and resale of the Senior Notes pursuant
hereto (including pursuant to the Exempt Resales) is exempt from the
registration requirements of the Act. No form of general solicitation or
general advertising (as these terms are defined in Regulation D under the Act)
was used by the Company or any of their representatives (other than the Initial
Purchasers, as to whom the Company makes no representation) in connection with
the offer and sale of the Senior Notes, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine, or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
No securities of the same class as the Senior Notes have been issued and sold by
the Company within the six-month period immediately prior to the date hereof.
(ee) The Company has no direct or indirect subsidiaries other than
those listed on Schedule A hereto.
-15-
<PAGE>
(ff) Set forth on Schedule B hereto is a list of each employee pension
or benefit plan with respect to which the Company is a party in interest or
disqualified person. The execution and delivery of this Agreement, the other
Operative Documents and the sale of the Senior Notes to be purchased by the
Eligible Purchasers will not involve any prohibited transaction within the
meaning of Section 406 of ERISA or Section 4975 of the Code. The representation
made by the Company in the preceding sentence is made in reliance upon and
subject to the accuracy of, and compliance with, the representations and
covenants made or deemed made by the Eligible Purchasers as set forth in the
Offering Circular under the caption "Notice to Investors."
7. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE INITIAL
PURCHASERS.
(a) Each Initial Purchaser, severally and not jointly, represents and
warrants to the Company as follows:
(1) Each Initial Purchaser represents and warrants with respect
to itself that such Initial Purchaser is either a QIB or an Accredited
Institution, in either case with such knowledge and experience in financial
and business matters as are necessary in order to evaluate the merits and
risks of an investment in the Senior Notes.
(2) Such Initial Purchaser (i) is not acquiring the Senior Notes
with a view to any distribution thereof or with any present intention of
offering or selling any of the Senior Notes in a transaction that would
violate the Act or the securities laws of any State of the United States or
any other applicable jurisdiction, (ii) will be reoffering and reselling
the Senior Notes only to QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A under the Act
and to a limited number of Accredited Institutions that execute and deliver
a letter containing certain representations and agreements in the form
attached as Annex A to the Offering Circular and (iii) has not solicited
and, unless and until the Senior Notes are registered under the Act, will
not solicit any offer to buy or offer to sell the Senior Notes by means of
any form of general solicitation or general advertising (as such terms are
defined in Regulation D under the Act) or in any manner involving a public
offering within the meaning of the Act.
(3) Each Initial Purchaser also understands that the Company and,
for purposes of the opinions to be delivered to the Initial Purchasers
pursuant to Sections 9(d) and (e) hereof, counsel to the Company and
counsel to the Initial Purchasers will rely upon the accuracy and truth of
the foregoing representations and the Initial Purchasers hereby consent to
such reliance.
(b) The Initial Purchasers agree that, in connection with the Exempt
Resales, the Initial Purchasers will solicit offers to buy the Senior Notes only
from, and will offer to sell the Senior Notes only to, the Eligible Purchasers.
The Initial Purchasers further agree that they will offer to sell the Senior
Notes only to, and will solicit offers to buy the Senior Notes only
-16-
<PAGE>
from, persons who in purchasing such Senior Notes will be deemed to have
represented and agreed (1) if such Eligible Purchaser is a QIB, that they are
purchasing the Senior Notes for their own account or an account with respect to
which they exercise sole investment discretion and that they or such accounts
are QIBs, (2) that such Senior Notes will not have been registered under the Act
and may be resold, pledged or otherwise transferred, only (A) (I) inside the
United States to a person who the seller reasonably believes is a "qualified
institutional buyer" within the meaning of Rule 144A under the Act in a
transaction meeting the requirements of Rule 144A, (II) in a transaction meeting
the requirements of Rule 144 under the Act, (III) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Act or (IV) in accordance with another exemption from the registration
requirements of the Act (and based upon an opinion of counsel if the Company so
requests), (B) to the Company or (C) pursuant to an effective registration
statement under the Act, in each case, in accordance with any applicable
securities laws of any State of the United States or any other applicable
jurisdiction, and (3) that the holder will, and each subsequent holder is
required to, notify any purchaser from it of the security evidenced thereby of
the resale restrictions set forth in (2) above.
(c) Each Initial Purchaser further represents and agrees that (1) it
has not offered or sold and will not offer or sell any Senior Notes to persons
in the United Kingdom prior to the expiry of the period of six months from the
issue date of the Senior Notes, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their business or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Senior Notes in, from or otherwise
involving the United Kingdom, and (iii) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issuance of the Senior Notes to a person who is of a kind
described in Article 11(3) of the Financial Services Act of 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom the document may
otherwise lawfully be issued or passed on.
(d) Each Initial Purchaser agrees that it will not offer, sell or
deliver any of the Senior Notes in any jurisdiction outside the United States
except under circumstances that will result in compliance with the applicable
laws thereof, and that it will take at its own expense whatever action is
required to permit its purchase and resale of the Senior Notes in such
jurisdictions. The Initial Purchaser understands that no action has been taken
to permit a public offering in any jurisdiction outside the United States where
action would be required for such purpose.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Initial
Purchaser and each person, if any, who controls any Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages,
-17-
<PAGE>
liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in the Offering Circular (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
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, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to such Initial Purchaser
furnished in writing to the Company by such Initial Purchaser expressly for use
therein.
(b) In case any action shall be brought against any Initial Purchaser
or any person controlling such Initial Purchaser, based upon the Offering
Circular or any amendment or supplement thereto and with respect to which
indemnity may be sought against the Company, such Initial Purchaser shall
promptly notify the Company in writing and the Company shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
indemnified party and payment of all fees and expenses. Any Initial Purchaser
or any such controlling person shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the reasonable
fees and expenses of such counsel shall be at the expense of such Initial
Purchaser or such controlling person unless (i) the employment of such counsel
has been specifically authorized in writing by the Company, (ii) the Company has
failed to assume the defense and employ counsel or (iii) the named parties to
any such action (including any impleaded parties) include both such Initial
Purchaser or such controlling person and the Company, and such Initial Purchaser
or such controlling person shall have been advised by such counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to assume the defense of such action on behalf of such
Initial Purchaser or such controlling person, it being understood, however, that
the Company shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all such Initial Purchasers and controlling persons, which firm
shall be designated in writing by Jefferies, and that all such fees and expenses
shall be reimbursed as they are incurred). The Company shall not be liable for
any settlement of any such action effected without the written consent of the
Company but if settled with the Company's written consent, the Company agrees to
indemnify and hold harmless any Initial Purchaser and any such controlling
person from and against any loss or liability by reason of such settlement. 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 indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(c) Each Initial Purchaser agrees, severally and not jointly, to
indemnify and hold harmless the Company, their directors and officers, and any
person controlling them within
-18-
<PAGE>
the meaning of Section 15 of the Act or Section 20 of the Exchange Act
(collectively the "COMPANY INDEMNIFIED PARTIES"), to the same extent as the
foregoing indemnity from the Company to each Initial Purchaser but only with
reference to information relating to such Initial Purchaser furnished in writing
by such Initial Purchaser expressly for use in the Offering Circular. In case
any action shall be brought against any Company Indemnified Party in respect of
which indemnity may be sought against an Initial Purchaser, such Initial
Purchaser shall have the rights and duties given to the Company (except that if
the Company shall have assumed the defense thereof, such Initial Purchaser shall
not be required to do so, but may employ separate counsel therein and
participate in the defense thereof but the fees and expenses of such counsel
shall be at the expense of such Initial Purchaser), and the Company Indemnified
Parties shall have the rights and duties given to such Initial Purchaser by
Section 8(b) hereof.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand from the offering of the Senior Notes or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and the Initial Purchasers in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. Except in the
case of any indemnity arising under the last paragraph of Section 5(e) hereof,
the relative benefits received by the Company and the Initial Purchasers shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Senior Notes (before deducting expenses) received by the
Company, and the total discounts and commissions received by the Initial
Purchasers, bear to the total price to investors of the Senior Notes, in each
case as set forth in the table on the cover page of the Offering Circular. The
relative fault of the Company and the Initial Purchasers shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company or the Initial Purchasers and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this paragraph were determined by pro
rata allocation (even if the Initial Purchasers were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The losses, claims, damages, liabilities or judgments of an
indemnified party referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, no Initial Purchaser shall be required to
-19-
<PAGE>
contribute any amount in excess of the amount by which the discounts and
commissions received by it exceeds the amount of any damages which such Initial
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Initial Purchasers' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
principal amount of Senior Notes purchased by each of the Initial Purchasers
hereunder and not joint.
(e) The Company hereby designates The Jordan Company, 9 West 57th
Street, New York, New York 10019, as their authorized agent, upon which process
may be served in any action, suit or proceeding which may be instituted in any
state or federal court in the State of New York by any Initial Purchaser or
person controlling such Initial Purchaser asserting a claim for indemnification
or contribution under or pursuant to this Section 8, and the Company will accept
the jurisdiction of such court in such action, and waive, to the fullest extent
permitted by applicable law, any defense based upon lack of personal
jurisdiction or venue. A copy of any such process shall be sent or given to the
Company, at the address for notices specified in Section 11(a) hereof.
(f) The indemnity and contribution agreements contained in this
Section 8 are in addition to any liability which the indemnifying persons may
otherwise have to the indemnified persons referred to above.
9. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS.
The several obligations of the Initial Purchasers to purchase the
Senior Notes under this Agreement are subject to the satisfaction of each of the
following conditions:
(a) All the representations and warranties of the Company, after
giving effect to the Amended Credit Agreement and the Acquisition pursuant to
the terms of the Acquisition Agreement contained in this Agreement shall be true
and correct on the date hereof and on the Closing Date, with the same force and
effect as if made on and as of the date hereof and the Closing Date,
respectively. The Company shall have performed or complied with all of its
agreements herein and satisfied all conditions to be performed, complied with or
satisfied by it on or prior to the Closing Date.
(b) (1) The Offering Circular shall have been printed and copies
distributed to the Initial Purchasers not later than 9:00 a.m., New York City
time, on December 12, 1997, or at such later date and time as the Initial
Purchasers may approve in writing;
(2) no injunction, restraining order or order of any nature by a
federal or state court of competent jurisdiction shall have been
issued as of the Closing Date which would prevent the issuance of the
Senior Notes; and
-20-
<PAGE>
(3) at the Closing Date, no stop order preventing the use of the
Offering Circular, or any amendment or supplement thereto, or
suspending the qualification or exemption from qualification of the
Senior Notes for sale in any jurisdiction designated by the Initial
Purchasers pursuant to Section 5(f) hereof shall have been issued and
no proceedings for that purpose shall have been commenced or shall be
pending before or, to the knowledge of the Company, be contemplated.
(c) (1) Since the date of the latest balance sheet included in the
Offering Circular, there shall not have been any event that had a Material
Adverse Effect, or any development involving a prospective change that could
have a Material Adverse Effect, whether or not arising in the ordinary course of
business;
(2) since the date of the latest balance sheet included in the
Offering Circular, there has not been any change, or any development
involving a prospective change, in the capital stock or in the long-
term debt of the Company and its subsidiaries from that set forth in
the Offering Circular;
(3) the Company and its subsidiaries shall have no material
liability or obligation, direct or contingent, other than those
reflected in the Offering Circular;
(4) there shall not have been any material adverse change, or
development that is reasonably likely to result in a material adverse
change, in the assets of Motion Control; and
(5) on the Closing Date, the Initial Purchasers shall have
received certificates dated the Closing Date, signed on behalf of the
Company by the President and the Chief Financial Officer of the
Company, confirming all matters set forth in Sections 9(a), (b), and
(c) hereof with respect to the Company.
(d) The Initial Purchasers shall have received on the Closing Date an
opinion (satisfactory to the Initial Purchasers and counsel to the Initial
Purchasers) dated the Closing Date, of Mayer, Brown & Platt, special securities
law counsel for the Company, to the effect that:
(1) The Company has all necessary corporate power and authority
to enter into and perform its obligations under the Operative Documents and
to issue, sell and deliver the Senior Notes to the Initial Purchasers to be
sold by the Initial Purchasers pursuant hereto;
(2) No consent, approval, authorization or order of, or filing
or registration with, any regulatory body, administrative agency, or other
governmental agency (except as securities or Blue Sky laws of the various
states may require) which has not been made or obtained is required for (1)
the execution, delivery and performance of this Agreement and the other
Operative Documents and the valid issuance and sale of the Senior Notes or,
such as to which the failure to be obtained or made would not
-21-
<PAGE>
reasonably be expected, either individually or in the aggregate, to have a
Material Adverse Effect;
(3) To the best of such counsel's knowledge, no consents or
waivers from any person are required to consummate the transactions
contemplated by the Operative Documents or the Offering Circular, other
than such consents and waivers as have been or will be obtained prior to
the Closing Date or, in the case of the Registration Rights Agreement and
the transactions contemplated thereby, will be obtained and made under the
Act, the Trust Indenture Act and state securities or Blue Sky laws and
regulations.
(4) This Agreement has been duly authorized and validly executed
by the Company.
(5) The Company has duly authorized the Indenture and when the
Company has duly executed and delivered it (assuming due authorization,
execution and delivery thereof by the Trustee), the Indenture will be a
legally valid and binding obligation of the Company, enforceable against it
in accordance with its terms, except as the enforceability thereof may be
(i) subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws in effect which affect the enforcement of
creditors rights generally and (ii) limited by general principles of equity
(whether considered in a proceeding at law or in equity).
(6) The Company has duly authorized the Senior Notes and, when
issued 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 hereof, the Senior Notes will conform to the description thereof in
the Offering Circular, and will be the legally valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except as the enforceability thereof may be (i) subject
to applicable bankruptcy, insolvency, moratorium, reorganization or similar
laws in effect which affect the enforcement of creditors rights generally
and (ii) limited by general principles of equity (whether considered in a
proceeding at law or in equity).
(7) The Company has duly authorized the Series D Senior Notes
and, when issued and authenticated in accordance with the terms of the
Registered Exchange Offer and the Indenture, the Series D Senior Notes will
conform to the description thereof in the Offering Circular, and will be
the legally valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as the
enforceability thereof may be (i) subject to applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws in effect which
affect the enforcement of creditors rights generally and (ii) limited by
general principles of equity (whether considered in a proceeding at law or
in equity).
-22-
<PAGE>
(8) The Registration Rights Agreement has been duly authorized
and validly executed by the Company and (assuming the due execution and
delivery thereof by the Initial Purchasers) is a legally valid and binding
obligation of the Company, enforceable against it in accordance with its
terms, except as the enforceability thereof may be (i) subject to
applicable bankruptcy, insolvency, moratorium, reorganization or similar
laws in effect which affect the enforcement of creditors rights generally,
(ii) limited by general principles of equity (whether considered in a
proceeding at law or in equity) and (iii) limited by securities laws
prohibiting or limiting the availability of, and public policy against,
indemnification or contribution.
(9) The Amended Credit Agreement has been duly authorized and
validly executed by the Company and (assuming the due execution and
delivery thereof by the Initial Purchasers) is a legally valid and binding
obligation of the Company, enforceable against it in accordance with its
terms, except as the enforceability thereof may be (i) subject to
applicable bankruptcy, insolvency, moratorium, reorganization or similar
laws in effect which affect the enforcement of creditors rights generally,
(ii) limited by general principles of equity (whether considered in a
proceeding at law or in equity) and (iii) limited by securities laws
prohibiting or limiting the availability of, and public policy against,
indemnification or contribution.
(10) The statements under the captions "Certain Transactions,"
"Description of Senior Notes" and "Description of Certain Indebtedness" in
the Offering Circular, insofar as such statements constitute a summary of
legal matters, documents or proceedings referred to therein, are correct in
all material respects;
(11) The Company is not and, after giving effect to the Offering,
will not be, an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940, as amended;
(12) When the Senior Notes are issued and delivered pursuant to
this Agreement, such Senior Notes will not be of the same class (within the
meaning of Rule 144A under the Act) as securities of the Company that are
listed on a national securities exchange registered under Section 6 of the
Exchange Act or that are quoted in a United States automated inter-dealer
quotation system;
(13) Neither the Company nor any of its subsidiaries or (any
agent thereof acting on the behalf of any of them) has taken, and none of
them will take, any action that might cause this Agreement or the issuance
or sale of the Senior Notes to violate Regulation G (12 C.F.R. Part 207),
Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or
Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal
Reserve System, in each case as in effect now or as the same may hereafter
be in effect on the Closing Date;
-23-
<PAGE>
(14) The Indenture is not required to be qualified under the
Trust Indenture Act prior to the first to occur of (i) the Registered
Exchange Offer and (ii) the effectiveness of the Shelf Registration
Statement; and
(15) No registration under the Act of the Senior Notes is
required for the sale of the Senior Notes to the Initial Purchasers as
contemplated hereby or for the Exempt Resales as described in the Offering
Circular (assuming (i) that the Eligible Purchasers who buy the Senior
Notes in the Exempt Resales are QIBs or Accredited Institutions, (ii) the
accuracy of, and compliance with, the representations of the Initial
Purchasers and those of the Company contained in Sections 6 and 7 hereof
and (iii) the accuracy of the representations made by each Accredited
Institution who purchases Senior Notes pursuant to an Exempt Resale as set
forth in the letters of representation executed by such Accredited
Institutions in the form of Annex A to the Offering Circular).
In addition, such counsel shall state that it has participated in
conferences with representatives of the Company, representatives of the
Company's accountants, the Initial Purchasers' representatives and counsel for
the Initial Purchasers, at which conferences the contents of the Offering
Circular and related matters were discussed, and, although such counsel has not
independently verified and is not passing upon and assumes no responsibility for
the accuracy, completeness or fairness of the statements contained in the
Offering Circular, no facts have come to such counsel's attention which led it
to believe that the Offering Circular, on the date thereof or on the date of
such opinion, contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no view with
respect to the financial statements and data and related notes, the financial
statement schedules and other financial, statistical and accounting data
included in the Offering Circular).
(e) The Initial Purchasers shall have received on the Closing Date an
opinion (satisfactory to the Initial Purchasers and counsel to the Initial
Purchasers) dated the Closing Date, of Bryan Cave LLP, counsel for the Company,
to the effect that:
(1) Each of the Company and each of its subsidiaries (A) is a
corporation duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation, (B) has, and after
giving effect to the Amended Credit Agreement and the Acquisition, will
have, full corporate power and authority to carry on its respective
business as it is currently being conducted and to own, lease and operate
its respective properties, and (C) to the best of such counsel's knowledge,
is and, after giving effect to the Amended Credit Agreement and the
Acquisition, will be, duly qualified and is in good standing as a foreign
corporation registered to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of property requires
such qualification, except where the failure to be so qualified would not
have a Material Adverse Effect;
-24-
<PAGE>
(2) All of the outstanding capital stock of the Company and each
of its subsidiaries has been duly authorized and validly issued and is
fully paid and nonassessable, is not subject to preemptive or similar
rights and all of the Company's subsidiaries' capital stock is directly or
indirectly owned by the Company, and, to the best of such counsel's
knowledge, except as described in the Offering Circular, is free and clear
of any security interest, claim, lien or encumbrance;
(3) To the best of such counsel's knowledge, except as disclosed
in the Offering Circular, there are and, after giving effect to the Amended
Credit Agreement and the Acquisition pursuant to the Acquisition Agreement,
will not be, any outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, any shares of capital
stock in the Company or any of its subsidiaries;
(4) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or bylaws, as the case may be, and, to
the best knowledge of such counsel after due inquiry, neither the Company
nor any of its subsidiaries is in default in the performance of any
obligation, agreement or condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any other agreement, indenture
or instrument material to the conduct of the business of the Company and
its subsidiaries taken as a whole, to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective property is bound, except where such default would not have a
Material Adverse Effect;
(5) None of (A) the execution, delivery or performance by the
Company of this Agreement, the Amended Credit Agreement and the other
Operative Documents, (B) the performance by the Company of the Acquisition
Agreement and consummation of the Acquisition pursuant to the terms of the
Acquisition Agreement, (C) the issuance and sale of the Senior Notes by the
Company and (D) the consummation by the Company of the transactions
described in the Offering Circular under the caption "Use of Proceeds,"
will conflict with or constitute a breach of any of the terms or provisions
of, or a default under, or result in the imposition of a lien or
encumbrance on any properties of the Company or any of its subsidiaries, or
an acceleration of indebtedness pursuant to, (1) the charter or bylaws of
any of the Company or the Company's subsidiaries, (2) any bond, debenture,
note, indenture, mortgage, deed of trust or other agreement or instrument
known to such counsel after due inquiry to which the Company or any of its
subsidiaries is a party or by which any of them or their property is bound,
or (3) to the best of such counsel's knowledge, any law or administrative
regulation applicable to the Company, any of its subsidiaries or any of
their assets or properties, or any judgment, order or decree of any court
or governmental agency or authority entered in any proceeding to which the
Company or any of its subsidiaries was or is now a party or to which any of
them or their respective properties may be subject and which is known to
such counsel;
(6) The Acquisition Agreement has been duly and validly
authorized by the Company and is a valid and binding agreement of the
Company, enforceable
-25-
<PAGE>
against it in accordance with its terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
moratorium, reorganization or other similar laws and court decisions
affecting or relating to the rights of creditors generally or by general
principles of equity, and except as rights to indemnification may be
limited by applicable law.
(7) To the best knowledge of such counsel, after due inquiry,
there is (i) no action, suit or proceeding before or by any court,
arbitrator or governmental agency, body or official, domestic or foreign,
now pending, threatened or contemplated to which the Company or any of its
subsidiaries is or may be a party or to which the business or property of
the Company or any of its subsidiaries is or may be subject, (ii) no
statute, rule, regulation or order that has been enacted, adopted or issued
by any governmental agency or proposed by any governmental body, or (iii)
no injunction, restraining order or order of any nature by a federal or
state court of competent jurisdiction applicable to the Company or any of
its subsidiaries has been issued that, in the case of clauses (i), (ii) and
(iii) above, (a) is required to be disclosed in the Offering Circular and
that is not so disclosed, (b) would interfere with or adversely affect the
issuance of the Senior Notes, or (c) might invalidate any provision or the
validity of the Operative Documents or the Senior Notes;
(8) To the best knowledge of such counsel, there is no contract
or document concerning the Company or any of its subsidiaries that is not
described in the Offering Circular, that would be required to be described
or filed in a registration statement on Form S-4 if the Senior Notes were
registered pursuant to the Securities Act;
(9) To the best knowledge of such counsel, after due inquiry of
the principal executive officers of the Company, no holder of any security
of the Company has any right to require registration of any of the
Company's securities by virtue of the execution of the Operative Documents
or the Acquisition Agreement by the Company, the issuance and sale of the
Senior Notes by the Company or the transactions contemplated hereby and
thereby, other than such rights as will be waived prior to the Closing
Date;
(f) The Initial Purchasers shall have received on the Closing Date an
opinion, dated the Closing Date, of Latham & Watkins, in form and substance
satisfactory to the Initial Purchasers, and the Company shall have provided
Latham & Watkins such papers and information as it requests to enable it to pass
upon the matters contained in such opinion.
(g) The Initial Purchasers shall have received letters from each of
(i) Ernst & Young LLP, independent public accountants, (ii) Coopers & Lybrand
LLP, independent public accountants, (iii) Janz & Knight PLLC, independent
public accounts, and (iv) Arthur Andersen LLP, independent public accountants,
on the date hereof and on the Closing Date, in form and substance satisfactory
to the Initial Purchasers, with respect to the financial statements and certain
financial information contained in the Offering Circular.
-26-
<PAGE>
(h) The Company and the Trustee shall have entered into the Indenture
and the Initial Purchasers shall have received counterparts, conformed as
executed, thereof.
(i) The Company and the Initial Purchasers shall have entered into
the Registration Rights Agreement and the Initial Purchaser shall have received
counterparts, conformed as executed, thereof.
(j) MGI shall have entered into the Amended Credit Agreement (the
form and substance of which shall be reasonably acceptable to the Initial
Purchasers) and the Initial Purchasers shall have received counterparts,
conformed as executed, thereof and all other documents and agreements entered
into in connection therewith.
The Company shall have fully performed or complied with any of the
agreements herein contained and required to be performed or complied with by the
Company on or prior to the Closing Date.
10. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. This Agreement shall
become effective at the time that the Company and the Initial Purchasers execute
this Agreement.
(a) The Initial Purchasers may terminate this Agreement at any time
prior to the Closing Date by written notice to the Company if any of the
following has occurred:
(b) Since the respective dates as of which information is given in
the Offering Circular, any adverse change or development involving a prospective
adverse change which would cause a Material Adverse Effect, on the earnings,
affairs, or business prospects of the Company or any of its subsidiaries,
whether or not arising in the ordinary course of business, which would, in the
Initial Purchasers' judgment, make it impracticable to market the Senior Notes
on the terms and in the manner contemplated in the Offering Circular;
(c) Any outbreak or escalation of hostilities or other national or
international calamity or crisis or material change in economic conditions, if
the effect of such outbreak, escalation, calamity, crisis or change on the
financial markets of the United States or elsewhere would, in the Initial
Purchasers' judgment, be material and adverse and make it impracticable to
market the Senior Notes on the terms and in the manner contemplated in the
Offering Circular;
(d) The suspension or material limitation of trading in securities on
the New York Stock Exchange, the American Stock Exchange or the NASDAQ National
Market System or limitation on prices for securities on any such exchange or
National Market Systems;
(e) The enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in the Initial Purchasers' opinion causes or will
cause a Material Adverse Effect;
-27-
<PAGE>
(f) The declaration of a banking moratorium by either federal or New
York State authorities;
(g) The taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Initial Purchasers' opinion has a material adverse effect on the financial
markets in the United States; or
(h) Any of the Company's securities shall have been downgraded or
placed on any "watch list" for possible downgrading by any nationally recognized
statistical rating organization, provided that in the case of such "watch list"
placement, termination shall be permitted only if such placement would, in the
judgment of any Initial Purchaser, make it impracticable or inadvisable to
market the Senior Notes or to enforce contracts for the sale of the Senior Notes
or materially impair the investment quality of the Senior Notes.
If on the Closing Date either of the Initial Purchasers shall fail or
refuse to purchase the Senior Notes, which it has agreed to purchase hereunder
on such date and arrangements satisfactory to the Company for purchase of such
Senior Notes are not made within 48 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Initial
Purchaser. In any such case that does not result in termination of this
Agreement, the Company shall have the right to postpone the Closing Date, but in
no event for longer than seven days, in order that the required changes, if any,
in the Offering Circular or any other documents or arrangements may be effected.
Any action taken under this paragraph shall not relieve any defaulting Initial
Purchaser from liability in respect of any default by it under this Agreement.
11. AGREEMENT OF THE INITIAL PURCHASERS.
Each Initial Purchaser agrees, severally and not jointly, that, upon
its receipt of any written notice from the Company of the existence of any fact
or the happening of any event that requires the making of any additions to or
changes in any offering circular, registration statement or prospectus, or
amendment or supplement thereto, referred to in Section 5(e) hereof in order
that such document will not contain any untrue statement of a material fact or
omission to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing as of the date such document
was delivered, not misleading, such Initial Purchaser shall forthwith
discontinue disposition of the applicable Senior Notes pursuant to such document
until (i) such Initial Purchaser receives from the Company copies of an amended
or supplemented document that the Company states in writing may be used by such
Initial Purchaser or (ii) such Initial Purchaser is advised in writing by the
Company that the use of such document may be resumed.
12. MISCELLANEOUS.
(a) Notices given pursuant to any provision of this Agreement shall
be addressed as follows: (i) if to the Company, to Motors and Gears, Inc., Arbor
Lake Centre, Suite
-28-
<PAGE>
550, 1751 Lake Cook Road, Deerfield, IL 60015, Attention: Chief Financial
Officer, with a copy to Mayer, Brown & Platt, 190 South LaSalle Street, Chicago,
Illinois 60603, Attention: Philip J. Niehoff, (ii) if to the Initial Purchasers,
c/o Jefferies & Company, Inc., 11100 Santa Monica Boulevard, 10th Floor, Los
Angeles, California 90025, Attention: Syndicate Department, and (iii) if to the
Initial Purchasers pursuant to Section 11 hereof, (A) to Jefferies & Company,
Inc., 11100 Santa Monica Boulevard, Los Angeles, California 90025, Attention:
Syndicate Department & Compliance Department, (B) to BT Alex. Brown,
Incorporated, 130 Liberty Street, 30th Floor, New York, NY 10062, Attention:
Syndicate Department, or in any case to such other address as the person to be
notified may have requested in writing.
(b) The respective indemnities, contribution agreements,
representations, warranties and other statements set forth in or made pursuant
to this Agreement shall remain operative and in full force and effect, and will
survive delivery of and payment for the Senior Notes, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
any such person, (ii) acceptance of the Senior Notes and payment for them
hereunder and (iii) termination of this Agreement.
(c) Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Initial
Purchasers, any controlling persons referred to herein and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Senior Notes from any of the several Initial Purchasers merely
because of such purchase.
(d) This Agreement shall be construed, interpreted and the rights of
the parties determined in accordance with the laws of the State of New York
without reference to its choice of law provisions.
(e) This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
-29-
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Initial Purchasers.
Very truly yours,
MOTORS AND GEARS, INC.
By: /s/ R.A. Sansom
Name: R.A. Sansom
Title: President & CEO
JEFFERIES & COMPANY, INC.
By: ___________________________
Name:
Title:
BT ALEX. BROWN INCORPORATED
By: ___________________________
Name:
Title:
-30-
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Initial Purchasers.
Very truly yours,
MOTORS AND GEARS, INC.
By: ________________________
Name:
Title:
JEFFERIES & COMPANY, INC.
By: /s/ Andrew Whittaker
Name: Andrew Whittaker
Title: Managing Director
BT ALEX. BROWN INCORPORATED
By: ___________________________
Name:
Title:
-31-
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Initial Purchasers.
Very truly yours,
MOTORS AND GEARS, INC.
By: ________________________
Name:
Title:
JEFFERIES & COMPANY, INC.
By: ___________________________
Name:
Title:
BT ALEX. BROWN INCORPORATED
By: /s/ Bruce Tully
Name: Bruce Tully
Title: Managing Director
<PAGE>
SCHEDULE I
----------
PRINCIPAL AMOUNT
OF SERIES C SENIOR
INITIAL PURCHASERS NOTES TO BE PURCHASED
- ------------------ ---------------------
Jefferies & Company, Inc................ 65,000,000
BT Alex. Brown Incorporated............. 35,000,000
------------
$100,000,000
============
<PAGE>
SCHEDULE A
----------
Subsidiaries of the Company
1. Merkle-Korff Industries, Inc. (an Illinois corporation)
2. Motors and Gears Industries, Inc. (a Delaware corporation)
3. Gear Research, Inc. (a Delaware corporation)
4. The Imperial Electric Company (a Delaware corporation)
5. Motion Holdings, Inc. (a Delaware corporation)
6. The Scott Motors Company (a Delaware corporation)
7. FIR Group Companies (Italian corporations)
a. CIME, S.p.A.
b. Selin Sistemi, S.p.A.
c. FIR Elettromeccanica, S.p.A.
8. Electrical Design and Control Company (a Delaware corporation)
9. Barber-Colman Motors
<PAGE>
SCHEDULE B
----------
Employee Pension and Benefit Plans of the Company
PENSION PLANS
- -------------
NONE
WELFARE PLANS
- -------------
1. The Jordan Industries, Inc. 401-(k) Savings Plan, as adopted effective
January 1, 1993 (this plan applies to all operating companies except Merkle-
Korff and Electrical Design and Control).
2. The Gear Research, Inc. Retirement Income Plan; restated January 1,
1993 (applies only to Gear Research).
3. Datair Mass-Submitter Prototype Defined Contribution Plan and Trust,
revised May 6, 1992, as amended (this plan applies to Merkle-Korff Industries,
Inc.)
4. Employee Benefit Plan for certain hourly rated employees at
Middlesport, Ohio; pension plan for certain hourly employees of PM Motor
Operations, Cuyahoga Falls; and Pension Plan for Salaried Employees effective
date January 1, 1970 as Amended and Restated January 1, 1976 (all applicable to
the employees of Imperial Electric company).
5. The E.D. & C. Union Employees Savings Plan (applicable to employees of
Electrical Design & Control).
<PAGE>
EXHIBIT A
---------
Registration Rights Agreement
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MOTORS AND GEARS HOLDINGS, INC.
The undersigned, a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, as amended (the "GCL"),
DOES HEREBY CERTIFY as follows:
1. The Certificate of Incorporation of Motors and Gears Holdings, Inc. (the
"Corporation") was filed in the Office of the Secretary of State of the State of
Delaware on October 17, 1996.
2. In the manner prescribed by Sections 242 and 245 of the GCL, resolutions
were duly adopted by the Board of Directors and the stockholders of the
Corporation, respectively, duly adopting this Amended and Restated Certificate
of Incorporation and amending the Certificate of Incorporation of the
Corporation as herein provided.
3. The text of the Certificate of Incorporation, as amended and restated
herein, shall read as follows:
* * *
FIRST: The name of the Corporation is Motors and Gears Holdings, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Company, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purpose to be conducted or 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, as amended (the "GCL").
<PAGE>
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Twenty Four Thousand Two Hundred Fifty, (24,250)
shares, consisting of:
(i) Twenty Thousand (20,000) shares of Common Stock, par value $0.01
per share (the "Common Stock");
(ii) Two Thousand Seven Hundred Fifty (2,750) shares of Senior
Cumulative Preferred Stock, par value $1.00 per share (the "Preferred
Stock"); and
(iii) One Thousand Five Hundred (1,500) shares of Cumulative Non-
Voting Preferred Stock, par value $1.00 per share (the "Non-Voting
Preferred Stock") (the Preferred Stock and the Non-Voting Preferred Stock
are collectively referred to as the "Preferred Shares").
A statement of the powers, designations, preferences, and relative
participating, optional or other special rights and the qualifications,
limitations and restrictions of the Common Stock and the Preferred Shares is as
follows:
I. Common Stock.
(a) General. The Common Stock shall be subject to the terms of the
Preferred Shares. Each share of Common Stock shall be equal to each other
share of Common Stock.
(b) Liquidation Rights. In the event of a voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the Corporation
and after payment in full of the Liquidation Value (as hereinafter defined)
of the Preferred Shares, the holders of Common Stock shall be entitled to
share in the distribution of any remaining assets available for
distribution to the holders of Common Stock ratably in proportion to the
total number of shares of Common Stock then issued and outstanding.
(c) Voting Rights. Except as otherwise provided in this Certificate of
Incorporation or by applicable law, the holders of Common Stock shall be
entitled to vote, together with the Preferred Stock, voting together as a
single class, on the election of directors and on each matter on which the
stockholders of the Corporation shall be entitled to vote, and each holder
of Common Stock shall be entitled to one vote for each share of such stock
held by him.
II. Preferred Stock.
(a) Dividends. Subject to paragraphs (c), (e) and (f) below, and
commencing upon the earlier to occur of the Mandatory Redemption Date or
the Early Redemption Date (as hereinafter defined) if, at such Date, the
Preferred Stock is not redeemed in full in accordance with paragraph (c)
below, whether or not due to any default or event of
2
<PAGE>
default under any Financing Obligations (as hereinafter defined), the
holders of Preferred Stock shall be entitled to receive, and the Board of
Directors shall declare and pay (or accrue and add to the then Liquidation
Value of each share of Preferred Stock, as provided below), annual
dividends of 10% of the Liquidation Value of each share of Preferred Stock,
payable in quarterly dividends equal to 2.5% of such Liquidation Value on
March 31, June 30, September 30 and December 31 of each year ("Dividend
Payment Date"), commencing on the Dividend Payment Date next following such
Mandatory Redemption Date or the Early Redemption Date, provided that if
dividends are due and payable for a period of less than a full quarter, the
dividend payable for such period shall be prorated based upon the actual
number of days in such period. Dividends on the Preferred Stock shall be
cumulative and payable, whether or not declared, from and after the
foregoing commencement of such preferred dividends. Dividends, if declared
by the Board of Directors on Preferred Stock, shall be paid only in cash.
Any preferred dividends in respect of the Preferred Stock accrued prior to
the date hereof are hereby canceled and nullified.
(b) Liquidation. Upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holder of each share
of Preferred Stock shall be entitled, after any distribution or payment is
made upon the Non-Voting Preferred Stock and before any distribution or
payment is made upon any shares of Common Stock or any other class of stock
of the Corporation, to be paid an amount equal to the sum of the
Liquidation Value plus any accrued and unpaid dividends thereon since the
last Dividend Payment Date (such sum being herein called the "Preferred
Stock Liquidation Payment"), and the holders of Preferred Stock shall not
be entitled to any further distribution or payment. If upon such
liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, the assets of the Corporation to be distributed
among the holders of the capital stock of the Corporation shall be
insufficient to permit payment to the holders of Preferred Stock of the
amount distributable as aforesaid, then the entire assets of the
Corporation to be distributed to the holders of the Preferred Stock shall
be distributed ratably among the holders of the Preferred Stock in
proportion to the Preferred Stock Liquidation Payment due under this
paragraph (b) to each such holder. Upon any such liquidation, dissolution
or winding-up of the Corporation, but only after each holder of the
Preferred Stock shall have been paid in full the Preferred Stock
Liquidation Payment to which such holder is entitled, the remaining assets
of the Corporation shall be distributed to the holders of the Common Stock.
Written notice of such liquidation, dissolution or winding-up, stating a
payment date, the amount of the Preferred Stock Liquidation Payment and the
place where the amounts distributed shall be payable, shall be given by
mail, postage prepaid, not less than ten days prior to the payment date
stated therein, to the holders of record of the Preferred Stock, such
notice to be addressed to each stockholder at his or its post office
address as shown by the records of the Corporation. Neither the
consolidation nor merger of the Corporation into or with any other
corporation or corporations, nor the sale or transfer by the Corporation of
all or any part of its assets, nor the reduction of the capital stock of
the
3
<PAGE>
Corporation, shall be deemed to be a liquidation, dissolution or winding-up
of the Corporation within the meaning of any of the provisions of this
paragraph (b).
(c) Redemption.
1. Redemption Price. Subject to paragraph (f) and subparagraph
(c)(4), the Preferred Stock shall be redeemable as provided in this
paragraph (c) by paying for each share in cash on the redemption date
the sum of the then Liquidation Value thereof plus any accrued and
unpaid dividends thereon since the last Dividend Payment Date through
the redemption payment date (such sum being herein called the
"Redemption Price"). Subject to subparagraph (c)(4) below, redemption
payments shall be accrued but not paid if the payment thereof would
result in a default or event of default under any agreement,
instrument or commitment (a "Financing Obligation") of the
Corporation, any subsidiary of the Corporation or Jordan Industries,
Inc. (for so long as the Company is reported as a subsidiary of Jordan
Industries, Inc. in connection with its financial statements) for
borrowed money or any other extensions of credit, whether now existing
or hereafter created, including but not limited to any default or
event of default under the Credit Agreement (as hereinafter defined),
the Senior Note Indenture (as hereinafter defined) or the Jordan
Industries Indentures (as hereinafter defined) for so long as the
Company is reported as a subsidiary of Jordan Industries, Inc. in
connection with its financial statements).
2. Redeemed or Otherwise Acquired Shares to be Retired. Any
shares of Preferred Stock redeemed pursuant to this paragraph (c) or
otherwise acquired by the Corporation in any manner whatsoever shall
be permanently retired immediately on the acquisition thereof and
shall not under any circumstances be reissued.
3. Shares to be Redeemed. In case of a redemption of only a part
of the outstanding shares of the Preferred Stock, there shall be so
redeemed from each registered holder as nearly as practicable, that
proportion of all of the shares of Preferred Stock to be redeemed
which the number of shares held of record by such holder bears to the
total number of shares of Preferred Stock at the time outstanding.
4. Mandatory Redemptions.
(A) On March 31, 2002 (the "Mandatory Redemption Date"), the
Corporation shall purchase and redeem all of the outstanding
shares of Preferred Stock for their Redemption Price as of March
31, 2002, provided, however, that if the Corporation fails to pay
the Redemption Price for all outstanding shares of Preferred
Stock on the Mandatory Redemption Date because the payment
thereof would result in a default or
4
<PAGE>
event of default under any Financing Obligation, the Preferred
Stock will thereafter be subject to preferred dividends pursuant
to paragraph (a) and the Corporation shall have the obligation to
make such payment in cash upon the earlier of (x) the date when
such payment would no longer result in any default or event of
default by any Financing Obligation and (y) March 31, 2008 (the
"Final Redemption Date").
(B) On the closing of an Early Redemption Event (as
hereinafter defined) ("Early Redemption Date"), the Corporation
shall purchase and redeem all of the outstanding shares of
Preferred Stock for their Early Redemption Price (as hereinafter
defined) as of such closing; provided, however, that if the
Corporation fails to pay the Early Redemption Price for all of
the outstanding shares of Preferred stock upon an Early
Redemption Event because the payment thereof would result in a
default or event of default under any Financing Obligation, the
Preferred Stock will thereafter be subject to preferred dividends
pursuant to paragraph (a) and the Corporation shall have the
obligation to make such payment upon the earlier of (x) the date
when such payment would no longer result in any default or event
of default under any Financing Obligation, or (y) the Final
Redemption Date.
5. Optional Redemptions. The Preferred Stock shall not be
subject to optional redemption or repurchase by the Corporation.
(d) Notice of Redemption. Notice of each redemption of Preferred
Stock pursuant to paragraph (c), specifying the date and place of
redemption and the number of shares which are to be redeemed, shall be
mailed to each holder of record of shares to be redeemed at such holder's
address as shown by the records of the Corporation not more than ninety nor
less than thirty days prior to the date on which such redemption is to be
made.
(e) Dividends After Redemption Date. Notice of redemption having been
so mailed or a redemption having occurred, and provision for payment of the
Redemption Price or the Early Redemption Price, as applicable, for such
shares on the specified redemption date having been made by the
Corporation, then, unless default be made in the payment of the Redemption
Price or the Early Redemption Price, as applicable, for such shares when
and as due (i) the shares of Preferred Stock designated for redemption
shall not be entitled to any dividends accruing after the redemption date
specified, (ii) on such redemption date all rights of the respective
holders of such shares, as shareholders of the Corporation by reason of the
ownership of such shares, shall cease, except the right to receive the
Redemption Price or the Early Redemption Price, as applicable, for such
shares without interest upon presentation, and (iii) such shares shall not
after such redemption date be deemed to be outstanding. In case less than
all the shares represented
5
<PAGE>
by any such certificate are redeemed, a new certificate shall be issued
without cost to the holder thereof representing the unredeemed shares.
(f) All Past Annual Dividends Must Be Declared Prior to Redemption.
Except as set forth in this paragraph (f), the Corporation shall not
purchase, or redeem shares of any Preferred Stock or pay or distribute
dividends on the Preferred Stock, unless (i) the Non-Voting Preferred Stock
has been previously or concurrently redeemed in full, and (ii) all
dividends on all Preferred Stock for all past periods shall have been
declared and paid (or accrued and added to the Liquidation Value of each
share, as provided above). If applicable laws relating to the sources of
funds for the payment of accrued and unpaid dividends on any shares of
Preferred Stock would prohibit the payment in full on a Redemption Date or
Early Redemption Date, as applicable, of the dividends for any shares of
Preferred Stock required to be redeemed by paragraph (c), (i)
notwithstanding any provision herein to the contrary, the aggregate
Redemption Price or Early Redemption Price, as applicable, payable in
respect of all shares of Preferred Stock to be redeemed shall be deemed
reduced by the amount of accrued and unpaid dividends that the Corporation
is prohibited by law from paying, (ii) shares of Preferred Stock to be
redeemed on the applicable Redemption Date or Early Redemption Date, as
applicable, shall otherwise be redeemed in accordance with the requirements
of this paragraph (f), and (iii) the amount of such unpayable accrued and
unpaid dividends shall be added in equal amounts per share to the accrued
and unpaid dividends on the shares of Preferred Stock remaining outstanding
in the hands of the holder thereof. If applicable laws would prohibit the
payment in full on the Redemption Date or Early Redemption Price, as
applicable, of the Redemption Price, or Early Redemption Date, as
applicable, for the shares of Preferred Stock required to be redeemed
pursuant to paragraph (c), (a) no such shares shall be redeemed, (b) the
Corporation shall nevertheless, to the extent legally permissible, pay to
the holders of such shares on the Final Redemption Date the highest
permissible amount per share up to an amount equal to the Preferred Stock
Liquidation Payment less $1.00, (c) the Redemption Price or Early
Redemption Date, as applicable, and the Preferred Stock Liquidation Payment
of each such share shall thereupon be reduced by the amount per share so
paid pursuant to the immediately preceding clause (b), (d) the Corporation
shall purchase and redeem all such shares on the soonest next date on which
dividends are required to be paid pursuant to paragraph (a) and on which
the Corporation is no longer prohibited by law from paying in full the
Redemption Price for such shares, and (e) the obligation of the Corporation
to pay dividends under paragraph (a) shall continue until all outstanding
shares of Preferred Stock are redeemed in accordance with clause (c),
except that dividends thereafter payable with respect to outstanding shares
of Preferred Stock shall be reduced by the same percentage reduction as the
percentage reduction in the Redemption Price or Early Redemption Date, as
applicable, that takes place pursuant to this paragraph (f). In no event
shall the Corporation purchase or redeem the last share of Preferred Stock
held by any holder unless the Corporation shall have paid to the last
holder of Preferred Stock all accrued and unpaid dividends on all shares of
Preferred Stock held by such holder at any time.
6
<PAGE>
(g) Voting Rights. In addition to the requirements of applicable law,
the holders of the Preferred Stock shall be entitled to vote on the
election of directors and on each matter which the stockholders of the
Corporation shall be entitled to vote, voting together with the Common
Stock as a single class, with each share of Preferred Stock being entitled
to 34.286 votes for each share of Preferred Stock held by him, so that the
Preferred stock is entitled to 82.5% of the outstanding votes of the Common
Stock and Preferred Stock, voting together as a single class.
III. Non-Voting Preferred Stock. The shares of Non-Voting Preferred Stock
shall be subject to the following provisions:
(a) Dividends. Subject to paragraphs (c) and (e) below, the holders
of Non-Voting Preferred Stock shall be entitled to receive, and the Board
of Directors shall declare and pay (or accrue and add to the Liquidation
Value of each share, as provided below), annual dividends of 8% of $1,000
per share payable in quarterly dividends equal to 2.0% of $1,000 per share
on March 31, June 30, September 30 and December 31 of each year ("Dividend
Payment Date"), commencing on June 30, 1997, provided that if dividends are
due and payable for a period of less than a full quarter, the dividend
payable for such period shall be prorated based upon the actual number of
days in such period. Dividends on the Non-Voting Preferred Stock shall be
cumulative and payable, whether or not declared, from and after the date of
issue of the Non-Voting Preferred Stock. Dividends, if declared by the
Board of Directors on Non-Voting Preferred Stock, shall be paid only in
cash.
(b) Liquidation. Upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holder of each share
of Non-Voting Preferred Stock shall be entitled, before any distribution or
payment is made upon any shares of any other class of stock of the
Corporation, including the Preferred Stock, to be paid an amount equal to
the sum of the Liquidation Value plus any accrued and unpaid dividends
thereon since the last Dividend Payment Date (such sum being herein called
the "Non-Voting Preferred Stock Liquidation Payment"), and the holders of
Non-Voting Preferred Stock shall not be entitled to any further
distribution or payment. If upon such liquidation, dissolution or winding-
up of the Corporation, whether voluntary or involuntary, the assets of the
Corporation to be distributed among the holders of the capital stock of the
Corporation shall be insufficient to permit payment to the holders of Non-
Voting Preferred Stock of the amount distributable as aforesaid, then the
entire assets of the Corporation to be distributed to the holders of the
capital stock of the Corporation shall be distributed ratably among the
holders of the Non-Voting Preferred Stock in proportion to the Non-Voting
Preferred Stock Liquidation Payment due under this paragraph (b) to each
such holder. Upon any such liquidation, dissolution or winding-up of the
Corporation, but only after each holder of the Non-Voting Preferred Stock
shall have been paid in full the Non-Voting Preferred Stock Liquidation
Payment to which such holder is entitled, the remaining assets of the
Corporation shall be
7
<PAGE>
distributed to the holders of the Common Stock. Written notice of such
liquidation, dissolution or winding-up, stating a payment date, the amount
of the Non-Voting Preferred Stock Liquidation Payment and the place where
the amounts distributed shall be payable, shall be given by mail, postage
prepaid, not less than ten days prior to the payment date stated therein,
to the holders of record of the Non-Voting Preferred Stock, such notice to
be addressed to each stockholder at his or its post office address as shown
by the records of the Corporation. Neither the consolidation nor merger of
the Corporation into or with any other corporation or corporations, nor the
sale or transfer by the Corporation of all or any part of its assets, nor
the reduction of the capital stock of the Corporation, shall be deemed to
be a liquidation, dissolution or winding-up of the Corporation within the
meaning of any of the provisions of this paragraph (b).
(c) Redemption.
1. Non-Voting Redemption Price. Subject to paragraph (f), the
Non-Voting Preferred Stock shall be redeemable as provided in this
paragraph (c) by paying for each share in cash on the redemption date
the sum of the then Liquidation Value thereof plus any accrued and
unpaid dividends thereon since the last Dividend Payment Date through
the redemption payment date, (such sum being herein called the "Non-
Voting Preferred Redemption Price." Subject to subparagraph (c)(4)
below, redemption payments shall be accrued but not paid if the
payment thereof would result in a default or event of default under
any Financing Obligation.
2. Redeemed or Otherwise Acquired Shares to be Retired. Any
shares of Non-Voting Preferred Stock redeemed pursuant to this
paragraph (c) or otherwise acquired by the Corporation in any manner
whatsoever shall be permanently retired immediately on the acquisition
thereof and shall not under any circumstances be reissued.
3. Shares to be Redeemed. In case of a redemption of only a
part of the outstanding shares of the Non-Voting Preferred Stock,
there shall be so redeemed from each registered holder as nearly as
practicable, that proportion of all of the shares of Non-Voting
Preferred Stock to be redeemed which the number of shares held of
record by such holder bears to the total number of shares of Non-
Voting Preferred Stock at the time outstanding.
4. Mandatory Redemptions.
(A) On the Mandatory Redemption Date, the Corporation shall
purchase and redeem all of the outstanding shares of Non-Voting
Preferred Stock for their Non-Voting Preferred Redemption Price
as of March 31, 2002, provided, however, that if the Corporation
fails to pay the Non-Voting Preferred Redemption Price for all
outstanding shares of Non-
8
<PAGE>
Voting Preferred Stock on the Mandatory Redemption Date because
the payment thereof would result in a default or event of default
under any Financing Obligation, the Non-Voting Preferred Stock
will be subject to preferred dividends pursuant to paragraph (a)
and the Corporation shall have the obligation to make such
payment in cash upon the earlier of (x) the date when such
payment would no longer result in any default or event of default
under any Financing Obligation and (y) the Final Redemption Date.
(B) On the Early Redemption Date, the Corporation shall
purchase and redeem, at the Non-Voting Preferred Redemption
Price, all of the outstanding shares of the Non-Voting Preferred
Stock upon the closing of an Early Redemption Event provided,
however, that if the Corporation fails to pay the Non-Preferred
Redemption Price for all outstanding shares of Non-Voting
Preferred Stock on the Early Redemption Date because the payment
thereof would result in a default or event of default under any
Financing Obligation, the Non-Voting Preferred Stock will be
subject to preferred dividends pursuant to paragraph (a) and the
Corporation shall have the obligation to make such payment in
cash upon the earlier of (x) the date when such payment would no
longer result in any default or event of default under any
Financing Obligation and (y) the Final Redemption Date.
5. Optional Redemptions. Subject to subparagraphs 1 and 3
above, the Corporation may purchase and redeem shares of Non-Voting
Preferred Stock on any date provided that (i) all accrued and unpaid
dividends shall be declared and paid (or accrued and added to the
Liquidation Value of each share, as provided above), with respect to
the shares of Non-Voting Preferred Stock to be redeemed for each full
month since the immediately prior payment date up to the date of
redemption, and (ii) any consent required for such redemption shall
have been obtained.
(d) Notice of Redemption. Notice of each redemption of Non-Voting
Preferred Stock pursuant to paragraph (c), specifying the date and place of
redemption and the number of shares which are to be redeemed, shall be
mailed to each holder of record of shares to be redeemed at such holder's
address as shown by the records of the Corporation not more than ninety nor
less than thirty days prior to the date on which such redemption is to be
made.
(e) Dividends After Redemption Date. Notice of redemption having been
so mailed or a Mandatory Redemption having occurred, and provision for
payment of the Non-Voting Preferred Redemption Price for such shares on the
specified redemption date having been made by the Corporation, then, unless
default be made in the payment of the Non-Voting Preferred Redemption Price
for such shares when and as due (i) the shares of
9
<PAGE>
Non-Voting Preferred Stock designated for redemption shall not be entitled
to any dividends accruing after the redemption date specified, (ii) on such
redemption date all rights of the respective holders of such shares, as
shareholders of the Corporation by reason of the ownership of such shares,
shall cease, except the right to receive the Non-Voting Preferred
Redemption Price for such shares without interest upon presentation, and
(iii) such shares shall not after such redemption date be deemed to be
outstanding. In case less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued without cost to
the holder thereof representing the unredeemed shares.
(f) All Past Annual Dividends Must Be Declared Prior to Redemption.
Except as set forth in this paragraph (f), the Corporation shall not
purchase or redeem shares of any Non-Voting Preferred Stock at the time
outstanding unless all dividends on all Non-Voting Preferred Stock for all
past periods shall have been declared and paid (or accrued and added to the
Liquidation Value of each share, as provided above). If applicable laws
relating to the sources of funds for the payment of accrued and unpaid
dividends on any shares of Non-Voting Preferred Stock would prohibit the
payment in full on a Redemption Date of the dividends for any shares of
Non-Voting Preferred Stock required to be redeemed by paragraph (c), (i)
notwithstanding any provision herein to the contrary, the aggregate Non-
Voting Redemption Price payable in respect of all shares of Non-Voting
Preferred Stock to be redeemed shall be deemed reduced by the amount of
accrued and unpaid dividends that the Corporation is prohibited by law from
paying, (ii) shares of Non-Voting Preferred Stock to be redeemed on the
applicable Redemption Date shall otherwise be redeemed in accordance with
the requirements of this paragraph (f), and (iii) the amount of such
unpayable accrued and unpaid dividends shall be added in equal amounts per
share to the accrued and unpaid dividends on the shares of Non-Voting
Preferred Stock remaining outstanding in the hands of the holder thereof.
If applicable laws would prohibit the payment in full on the Redemption
Date of the Non-Voting Redemption Price for the shares of Non-Voting
Preferred Stock required to be redeemed pursuant to paragraph (c), (a) no
such shares shall be redeemed, (b) the Corporation shall nevertheless, to
the extent legally permissible, pay to the holders of such shares on the
final Redemption Date the highest permissible amount per share up to an
amount equal to the applicable Liquidation Payment less $1.00, (c) the Non-
Voting Redemption Price and applicable Liquidation Payment of each such
share shall thereupon be reduced by the amount per share so paid pursuant
to the immediately preceding clause (b), (d) the Corporation shall purchase
and redeem all such shares on the soonest next date on which dividends are
required to be paid pursuant to paragraph (a) and on which the Corporation
is no longer prohibited by law from paying in full the Redemption Price for
such shares, and (e) the obligation of the Corporation to pay dividends
under paragraph (a) shall continue until all outstanding shares of Non-
Voting Preferred Stock are redeemed in accordance with clause (c), except
that dividends thereafter payable with respect to outstanding shares of
Non-Voting Preferred Stock shall be reduced by the same percentage
reduction as the percentage reduction in the Redemption Price that takes
place pursuant to this paragraph (f). In no event shall the Corporation
purchase or
10
<PAGE>
redeem the last share of Non-Voting Preferred Stock held by any holder
unless the Corporation shall have paid to the last holder of Non-Voting
Preferred Stock all accrued and unpaid dividends on all shares of Non-
Voting Preferred Stock held by such holder at any time.
(g) Voting Rights. The Non-Voting Preferred Stock shall not have
voting rights except as expressly required by law or on any amendment to
this Amended and Restated Certificate of Incorporation to alter or change
the respective powers, designations, preferences or special rights of the
shares of such Non-Voting Preferred Stock.
IV. Definitions.
"Credit Agreement" means that certain Credit Agreement, dated as of
November 7, 1996, among Motors and Gears Industries, Inc., various banks named
therein and Bankers Trust Company, as agent, as amended, refinanced, or
replaced.
"Early Redemption Event" means any of the following which occur prior to
March 31, 2002: (i) the sale by the Corporation or its stockholders of shares
of Common Stock pursuant to a registration statement (other than a registration
statement on Form S-4 or S-8, or any successor form thereto) that is filed and
declared effective under the Securities Act of 1933, as amended, and provides
for an aggregate public offering involving gross proceeds of at least
$25,000,000, (ii) the closing of any merger, combination, consolidation or
similar business transaction involving the Corporation in which the holders of
Common Stock immediately prior to such closing are not the holders, directly or
indirectly, of a majority of the ordinary voting securities of the surviving
person in such transaction immediately after such closing, (iii) the closing of
any sale or transfer by the Corporation of all or substantially all of its
assets to an acquiring person in which the holders of Common Stock immediately
prior to such closing are not the holders of a majority of the ordinary voting
securities of the acquiring person immediately after such closings, or (iv) the
closing of any sale by the holders of Common Stock of an amount of Common Stock
that equals or exceeds a majority of the shares of Common Stock immediately
prior to such closing to a person in which the holders of the Common Stock
immediately prior to such closing are not the holders of a majority of the
ordinary voting securities of such person immediately after such closing.
"Early Redemption Price" shall equal the sum of (i) the Liquidation Value
of the Preferred Stock immediately prior to the closing of the Early Redemption
Event plus (ii) the present value of 80% of the projected Net Income (Loss) of
the Corporation for the period between such closing and March 31, 2002, with
such present value determined using a discount rate equal to the weighted
average cost of indebtedness representing borrowed money of the Corporation at
the time of the Early Redemption Event, provided, that the amount in this clause
(ii) will not be less than zero. The projected Net Income (Loss) will be (i)
determined by the Board of Directors of the Corporation in its reasonable good
faith based upon the projections of the Corporation's financial results which
shall be calculated on the basis of management's good
11
<PAGE>
faith and reasonable assumptions and (ii) calculated without giving effect to
the Early Redemption Event and any related refinancing, recapitalization or
other transactions.
"Jordan Industries Indentures" means each of Jordan Industries, Inc.'s
Indentures, dated July 15, 1993, in respect of the 10-3/8% Senior Notes due 2005
and the 11-3/4% Senior Subordinated Discount Debentures due 2005, and dated
April 2, 1997, in respect of the 11-3/4% Series A and Series B Senior
Subordinated Discount Debentures due 2009, as each such Indentures are amended,
refinanced or replaced.
"Liquidation Value" of all of the shares of Preferred Stock will be equal
to the sum of (i) $42.0 million plus (ii) (A) for the period from March 31, 1997
through March 31, 2002, 80% of the cumulative Net Income (Loss) for such period,
so that, if such Net Income (Loss) is positive and reflects profits the
Liquidation Value will be increased on a dollar-for-dollar basis and if such Net
Income (Loss) is negative and reflects losses, the Liquidation Value will be
decreased on a dollar-for-dollar basis, and (B) for the period from March 31,
2002 and thereafter, the amount of any preferred dividends thereon not paid on
any Dividend Payment Date, whether or not declared, which shall be added to the
Liquidation Value at such Dividend Payment Date; provided that, and
notwithstanding the foregoing, upon, in connection with and after the Early
Redemption Date, the Liquidation Value of the Preferred Stock shall be the Early
Redemption Price and the amount of any preferred dividends thereon not paid on
any subsequent Dividend Payment date, whether or not declared, which shall be
added to such Liquidation Value as of such Dividend Payment Date. The
Liquidation Value of each share of Preferred Stock will be the result of the
Liquidation Value of all of the outstanding Preferred Stock divided by the
number of outstanding shares of Preferred Stock.
The "Liquidation Value" of each share of Non-Voting Preferred Stock will be
equal to the sum of $1,000 plus the amount of any preferred dividends thereon
not paid on any Dividend Payment Date. There will be added to the Liquidation
Value of each share of Non-Voting Preferred Stock as of any Dividend Payment
Date, the amount of any preferred dividends thereon payable on such share on
that Divided Payment Date but not paid on that Dividend Payment Date, whether or
not such dividends are declared.
"Net Income (Loss)" means, for any period, the cumulative consolidated net
income (or net loss), of the Corporation and its subsidiaries, after (i) giving
effect to preferred dividends (whether accrued or paid) in respect of the Non-
Voting Preferred Stock, (ii) excluding any effect, reduction or charge to
preferred dividends (whether accrued or paid) in respect of the Preferred Stock,
and (iii) excluding any effect, reduction or charge relating to the Early
Redemption Transaction and related refinancing, recapitalization or other
transactions. Net Income (Loss) will be determined by the Board of Directors of
the Corporation by reference to the consolidated financial statements of the
Corporation for the applicable period, prepared in accordance with generally
accepted accounting principles, consistently applied.
"Senior Note Indenture" means that certain Indenture, dated as of November
7, 1996, among Motors and Gears, Inc. and Fleet National Bank, as Trustee,
relating to the Series A and
12
<PAGE>
Series B 10 3/4% Senior Notes due 2006 of Motors and Gears, Inc., as amended,
refinanced or replaced.
FIFTH:
1. Limits of Director Liability. Directors of the Corporation shall have
no personal liability to the Corporation or its stockholders for monetary
damages for breach of a fiduciary duty as a director; provided that nothing
contained in this ARTICLE FIFTH shall eliminate or limit the liability of a
director (i) for any breach of a 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 knowing violations of law, (iii) under Section
174 of the GCL, or (iv) for any transaction from which a director derived an
improper personal benefit. If the GCL is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then by
virtue of this ARTICLE FIFTH the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the GCL, as so
amended.
2. Indemnification. The Corporation shall indemnify, in accordance with
the By-laws of the Corporation, to the fullest extent permitted from time to
time by the GCL or any other applicable laws as presently or hereafter in
effect, 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, including, without limitation, an
action by or in the right of the Corporation, by reason of his acting as a
director or officer of the Corporation (and the Corporation, in the discretion
of the Board of Directors, may so indemnify a person by reason of the fact that
he is or was an employee or agent of the Corporation or is or was serving at the
request of the Corporation in any other capacity for or on behalf of the
Corporation) against any liability or expense actually and reasonably incurred
by such person in respect thereof; provided, however, the Corporation shall be
required to indemnify an officer or director in connection with an action. suit
or proceeding (or part thereof) initiated by such person only if (i) such
action, suit or proceeding (or part thereof) was authorized by the Board of
Directors or (ii) the indemnification does not relate to any liability arising
under Section 16 (b) of the Securities Exchange Act of 1934, as amended, or any
of the rules or regulations promulgated thereunder. Such indemnification in
not exclusive of any other right to indemnification provided by law or
otherwise. The right to indemnification conferred by this Section (2) shall be
deemed to be a contract between the Corporation and each person referred to
herein.
If a claim under Section (2) of this ARTICLE FIFTH is not paid in full by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where any undertaking required by
the By-laws of the Corporation has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the GCL and Section 2 of this ARTICLE
13
<PAGE>
FIFTH for the Corporation to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, legal counsel, or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
GCL, nor an actual determination by the Corporation (including its Board of
Directors, legal counsel, or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
Indemnification shall include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this ARTICLE FIFTH, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
ARTICLE FIFTH shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of this Certificate of
incorporation, by-law, agreement, contract, vote of stockholders or
disinterested directors, or otherwise.
3. Additional Indemnification. The Corporation may, by action of its
Board of Directors, provide indemnification to such of the directors, officers,
employees and agents of the Corporation to such extent and to such effect as the
Board of Directors shall determine to be appropriate and authorized by Delaware
law.
4. Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who 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 any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this ARTICLE FIFTH, the GCL, or
otherwise.
5. Effect of Amendments. Neither the amendment, change, alteration nor
repeal of this ARTICLE FIFTH, nor the adoption of any provision of this
Certificate of Incorporation or the by-laws of the Corporation, nor, to the
fullest extent permitted by Delaware Law, any modification of law, shall
eliminate or reduce the effect of this ARTICLE FIFTH or the rights or any
protections afforded under this ARTICLE FIFTH in respect of any acts or
omissions occurring prior to such amendment, repeal, adoption or modification.
14
<PAGE>
SIXTH: At all meetings of stockholders, each stockholder shall be
entitled to vote, in person or by proxy, the shares of voting stock owned by
such stockholders of record on the record date for the meeting. When a quorum
is present or represented at any meeting, the vote of the holders of a majority
in interest of the stockholders present in person or by proxy at such meeting
and entitled to vote thereon shall decide any question, matter or proposal
brought before such meeting unless the question is one upon which, by express
provision of law, this Certificate of Incorporation or the By-laws applicable
thereto, a different vote is required, in which case such express provision
shall govern and control the decision of such question.
SEVENTH:
1. Number of Directors. The number of directors of the Corporation shall
be fixed from time to time by the vote of a majority of the entire Board of
Directors, but such number shall in no case be less than three (3) nor more than
seven (7). Any such determination made by the Board of Directors shall continue
in effect unless and until changed by the Board of Directors, but no such
changes shall affect the term of any directors then in office.
2. Term of Office; Quorum; Vacancies. A director shall hold office until
the annual meeting for the year in which his or her term expires and until his
or her successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
Subject to the By-laws, a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business. Any vacancies and newly
created directorships resulting from an increase in the number of directors
shall be filed by majority of the Board of Directors then in office even though
less than a quorum and shall hold office until his successor is elected and
qualified or until his earlier death, resignation, retirement, disqualification
or removal from office.
3. Removal. Any director may be removed upon the affirmative vote of the
holders of a majority of the votes which could be cast by the holders of all
outstanding shares of capital stock entitled to vote for the election of
directors, voting together as a class, given at a duly called annual or special
meeting of stockholders.
EIGHT: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
(1) The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
(2) The directors shall have the power to make, adopt, alter, amend,
change, add to or repeal the By-laws of the Corporation.
15
<PAGE>
(3) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered
to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the GCL, this Certificate of Incorporation, and any By-laws
adopted by the stockholders; provided, however, that no By-laws hereafter
adopted by the stockholders shall invalidate any prior act of the directors
which would have been valid if such By-laws had not been adopted.
NINTH:
1. Stockholder Meetings: Keeping of Books and Records. Meetings of
stockholders may be held within or outside the State of Delaware an the By-laws
may provide. The books of the Corporation may be kept (subject to any provision
contained in the GCL) outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the By-laws
of the Corporation.
2. Special Stockholders Meetings. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by law, may be called
by the President or the Chairman of the Board, if one is elected, and shall be
called by the Secretary at the direction of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the Company issued and outstanding and
entitled to vote.
3. No Written Ballot. Elections of directors need not be by written
ballot unless the By-laws of the Corporation shall so provide.
TENTH: The Corporation reserves the right to repeal, alter or amend this
Certificate of Incorporation in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation. No repeal, alteration or amendment of this Certificate of
Incorporation shall be made unless the same is first approved by the Board of
Directors of the Corporation pursuant to a resolution adopted by the directors
then in office in accordance with the By-laws and applicable law and thereafter
approved by the stockholders.
ELEVENTH: The Corporation expressly elects not to be governed under
Section 203 of the GCL.
16
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its Chief Executive Officer and
attested to by its Assistant Secretary.
MOTORS AND GEARS HOLDINGS, INC.
/s/ Thomas H. Quinn
(Corporate Seal) By _________________________________
Name: Thomas H. Quinn
Title: Chief Executive Officer
ATTEST:
/s/ James B. Carlson
By ___________________________
Name: James B. Carlson
Title: Assistant Secretary
17
<PAGE>
Exhibit 4.2
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of December 17, 1997, is
between MOTORS & GEARS, INC., a Delaware corporation (the "Company"), and STATE
STREET BANK AND TRUST COMPANY, as trustee (herein called the "Trustee").
PRELIMINARY STATEMENT
The Company and the Trustee have entered into an Indenture, dated as of
November 7, 1996 (the "Indenture"), with respect to the Company's 10 3/4% Senior
Notes due 2006. Capitalized terms used herein, not otherwise defined herein,
shall have the meanings given them in the Indenture.
Section 9.02 of the Indenture provides that, under certain circumstances, a
supplemental indenture may be entered into by the Company and the Trustee with
the written consent of the Holders of at least a majority in principal amount of
the then outstanding Senior Notes. In accordance with the terms of Sections
9.02 and 9.06 of the Indenture, the Company has, by resolution of the Board of
Directors, authorized this First Supplemental Indenture. The Trustee has
determined that this First Supplemental Indenture is in form satisfactory to it.
The Company has solicited consents to proposed amendments to the Indenture,
pursuant to the Consent Solicitation Statement, dated December 10, 1997 (as the
same may be amended, supplemented or otherwise modified from time to time, the
"Consent Solicitation"). This First Supplemental Indenture evidences the
proposed amendments described in the Consent Solicitation.
All things necessary to make this First Supplemental Indenture a valid
agreement of the Company and the Trustee and a valid amendment of and supplement
to the Indenture have been done.
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders of the Securities
issued under the Indenture from and after the date of this First Supplemental
Indenture, as follows:
Section 1. Amendment to the Indenture
--------------------------
(a) Section. Definitions. The following definitions are amended and
restated in their entirety, or added to Section 1.01
<PAGE>
of the Indenture in their alphabetically appropriate place, as applicable, to
read as follows:
"Cash Flow" means, for any given period and Person, the sum of, without
duplication, Consolidated Net Income, plus (a) the portion of Net Income
attributable to the minority interests in its Subsidiaries, to the extent not
included in calculating Consolidated Net Income, plus (b) any provision for
taxes based on income or profits to the extent such income or profits were
included in computing Consolidated Net Income, plus (c) Consolidated Interest
Expense, to the extent deducted in computing Consolidated Net Income, plus (d)
the amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, debt and financing costs, and Incentive
Arrangements), plus (e) any non-capitalized transaction costs incurred in
connection with financings, acquisitions or divestitures (including, but not
limited to, financing and refinancing fees, including those in connection with
the Offering, the Series C Offering and the Refinancing Plan, in each case, to
the extent deducted in computing Consolidated Net Income), plus (f) all
depreciation and all other non-cash charges (including, without limitation,
those charges relating to purchase accounting adjustments and LIFO adjustments),
to the extent deducted in computing Consolidated Net Income, plus (g) any
interest income, to the extent such income was not included in computing
Consolidated Net Income, plus (h) all dividend payments on preferred stock
(whether or not paid in cash) to the extent deducted in computing Consolidated
Net Income, plus (i) any extraordinary or non-recurring charge or expense
arising out of the implementation of SFAS 106 or SFAS 109 to the extent deducted
in computing Consolidated Net Income, plus (j) to the extent not covered in
clause (e) above, fees paid or payable in respect of the TJC Agreement to the
extent deducted in computing Consolidated Net Income, plus (k) the net loss of
any Person, other than those of a Restricted Subsidiary, to the extent deducted
in computing Consolidated Net Income, plus (l) net losses in respect of any
discontinued operations as determined in accordance with GAAP, to the extent
deducted in computing Consolidated Net Income; provided, however, that if any
such calculation includes any period during which an acquisition or sale of a
Person or the incurrence or repayment of Indebtedness occurred, then such
calculation for such period shall be made on a Pro Forma Basis.
"Consolidated Interest Expense" means, for any given period and Person, the
aggregate of the interest expense in respect of all Indebtedness of such Person
and its Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP (including amortization of original issue discount on any
such Indebtedness, all non-cash interest payments, the interest
2
<PAGE>
portion of any deferred payment obligation and the interest component of capital
lease obligations, but excluding amortization of deferred financing fees if such
amortization would otherwise be included in interest expense); provided,
however, that for the purpose of the Cash Flow Coverage Ratio, Consolidated
Interest Expense shall be calculated on a Pro Forma Basis; provided further that
any premiums, fees and expenses (including the amortization thereof) payable in
connection with the Offering, the Series C Offering and the Refinancing Plan and
the application of the net proceeds therefrom or any other refinancing of
Indebtedness will be excluded.
"JI Properties Services Agreement" means the properties services agreement,
dated as of July 25, 1997, between the Company and each of its Subsidiaries and
Jordan Industries, as in effect on the date of original issuance of the Series C
Senior Notes.
"Junior Seller Notes" mean the subordinated promissory note, dated
September 22, 1995, issued by Merkle-Korff Industries, Inc., in the principal
amount of $5.0 million, and maturing on December 31, 2003 and the subordinated
promissory note, dated October 27, 1997, issued by Electrical Design Company, in
the principal amount of $4.0 million, and maturing on December 31, 2002, each as
in effect on the date of the original issuance of the Series C Senior Notes.
"New Subsidiary Advisory Agreement" means the advisory agreement, dated
July 25, 1997, between the Company and each of its subsidiaries and Jordan
Industries, as in effect on the date of the original issuance of the Series C
Senior Notes.
"New Subsidiary Consulting Agreement" means the management consulting
agreement, dated July 25, 1997, between the Company and each of its Subsidiaries
and Jordan Industries, as in effect on the date of the original issuance of the
Series C Senior Notes.
"New TJC Management Consulting Agreement" means the management consulting
agreement, dated July 25, 1997, between Jordan Industries and TJC Management
Corp., as in effect on the date of the original issuance of the Series C Senior
Notes.
"Offering Circular" means the Offering Circular, dated December 10, 1997,
relating to the Company's offering and placement of the Series C Senior Notes.
"Other Permitted Indebtedness" means: (i) Indebtedness of the Company and
its Restricted Subsidiaries existing as of the date of original issuance of the
Series C Senior Notes; (ii) Indebtedness of the Company and its Restricted
Subsidiaries in
3
<PAGE>
respect of bankers acceptances and letters of credit (including, without
limitation, letters of credit in respect of workers' compensation claims) issued
in the ordinary course of business, or other Indebtedness in respect to
reimbursement-type obligations regarding workers' compensation claims; (iii)
Refinancing Indebtedness, provided that: (A) the principal amount of such
Refinancing Indebtedness shall not exceed the outstanding principal amount of
Indebtedness (including unused commitments) extended, refinanced, renewed,
replaced, substituted or refunded plus any amounts incurred to pay premiums,
fees and expenses in connection therewith, (B) 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 extended,
refinanced, renewed, replaced, substituted or refunded; provided, however, that
this limitation in this clause (B) does not apply to Refinancing Indebtedness of
Senior Indebtedness, and (C) in the case of Refinancing Indebtedness of
Subordinated Indebtedness, such Refinancing Indebtedness shall be subordinated
to the Senior Notes at least to the same extent as the Subordinated Indebtedness
being extended, refinanced, renewed, replaced, substituted or refunded; (iv)
intercompany Indebtedness of and among the Company and its Restricted
Subsidiaries (excluding guarantees by Restricted Subsidiaries of Indebtedness of
the Company not issued in compliance with Section 4.15; (v) Indebtedness of the
Company and its Restricted Subsidiaries incurred in connection with making
permitted Restricted Payments under clauses (iii) or (iv), but only to the
extent that such Indebtedness is provided by the Company or a Restricted
Subsidiary, or (xi) of Section 4.05(b); (vi) Indebtedness of any Non-Restricted
Subsidiary created after the date of original issuance of the Series C Senior
Notes, provided that such Indebtedness is nonrecourse to the Company and its
Restricted Subsidiaries and the Company and its Restricted Subsidiaries have no
Obligations with respect to such Indebtedness; (vii) Indebtedness of the Company
and its Restricted Subsidiaries under Hedging Obligations; (viii) Indebtedness
of the Company and its Restricted Subsidiaries arising from the honoring by a
bank or other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts, which will not be, and
will not be deemed to be, inadvertent) drawn against insufficient funds in the
ordinary course of business; (ix) Indebtedness of any Person at the time it is
acquired as a Restricted Subsidiary, provided that such Indebtedness was not
issued by such Person in connection with or in anticipation of such acquisition;
(x) guarantees by Restricted Subsidiaries of Indebtedness of any Restricted
Subsidiary if such Indebtedness so guaranteed is permitted under the Indenture;
(xi) guarantees by a Restricted Subsidiary of Indebtedness of the Company if the
Indebtedness so guaranteed is permitted under the Indenture and the Senior Notes
are guaranteed by such Restricted Subsidiary to the extent required by Section
4.15; (xii)
4
<PAGE>
guarantees by the Company of Indebtedness of any Restricted Subsidiary if the
Indebtedness so guaranteed is permitted under the Indenture; (xiii) Indebtedness
of the Company and its Restricted Subsidiaries in connection with performance,
surety, statutory, appeal or similar bonds in the ordinary course of business;
(xiv) Indebtedness of the Company and its Restricted Subsidiaries in connection
with agreements providing for indemnification, purchase price adjustments and
similar obligations in connection with the sale or disposition of any of their
business, properties or assets; (xv) Indebtedness of the Restricted Subsidiaries
in respect of the Junior Seller Notes; (xvi) Indebtedness of the Restricted
Subsidiaries in respect of the MK Installment Note and the MK Installment Note
LC Facility; and (xvii) Indebtedness of the Company and its Restricted
Subsidiaries in respect of the Contingent Earnout Agreement.
"Senior Indebtedness" means: (i) all Obligations (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of the
Company, whether outstanding on the date of issuance of the Senior Notes or
thereafter created, incurred or assumed, of the following types: (A) all
Indebtedness of the Company (including without limitation the Senior Notes and
the Series C Senior Notes) for money borrowed, and (B) all Indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which the Company is responsible or liable; (ii) all capitalized
lease obligations of the Company; (iii) all Obligations of the Company: (A) for
the reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (B) all constituting Hedging Obligations, or (C)
issued as the deferred purchase price of property and all conditional sale
Obligations of the Company and all Obligations of the Company under any title
retention agreement; (iv) all guarantees of the Company with respect to
Obligations of other Persons of the type referred to in clauses (ii) and (iii)
and with respect to the payment of dividends of other Persons; and (v) all
Obligations of the Company consisting of modifications, renewals, extensions,
replacements and refundings of any Obligations described in clauses (i), (ii),
(iii) or (iv) unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is expressly provided that such
Obligations are subordinated or junior in right of payment to the Senior Notes;
provided, however, that Senior Indebtedness shall not be deemed to include: (1)
any Obligation of the Company to any Subsidiary, (2) any liability for federal,
state, local or other taxes owed or owing by the Company, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness, guarantee or Obligation
5
<PAGE>
of the Company that is contractually subordinated or junior in any respect to
any other Indebtedness, guarantee or Obligation of the Company, or (5) any
Indebtedness to the extent the same is incurred in violation of the Indenture.
Senior Indebtedness shall include all Obligations in respect of the Senior Notes
and the Series C Senior Notes and the Indenture.
To the extent any payment on the Senior Notes, whether by or on behalf of
the Company, as proceeds of security or enforcement of any right of setoff or
otherwise, is declared to be fraudulent or preferential, set aside or required
to be paid to a trustee, receiver or other similar party under any bankruptcy,
insolvency, receivership or similar law, then if such payment is recovered by,
or paid over to, such trustee, receiver or other similar party, the Senior Notes
or part thereof originally intended to be satisfied by such payment shall be
deemed to be reinstated and outstanding as if such payment had not occurred.
"Series C Offering" means the offer and sale of the Series C Senior Notes
as contemplated by the Offering Circular.
"Series C Senior Notes" means the Company's 10 3/4% Series C and Series D
Notes due 2006.
"Transition Agreement" means the transition agreement, dated as of July 25,
1997, between the Company and Jordan Industries, as in effect on the date of
original issuance of the Series C Senior Notes.
(b) The following Sections of the Indenture are hereby amended and restated
in their entirety, or added to the Indenture in their numerically predetermined
place, to read as follows:
Section 4.05. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, (i) declare or pay any dividend or make any
distribution on account of the Company's or such Restricted Subsidiary's Capital
Stock or other Equity Interests (other than dividends or distributions payable
in Capital Stock or other Equity Interests (other than Disqualified Stock) of
the Company or a Restricted Subsidiary and other than dividends or distributions
payable by a Restricted Subsidiary to another Restricted Subsidiary or to the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock or other Equity Interests of the Company or any of its Restricted
Subsidiaries (other than any such Equity Interest purchased from the Company or
any Restricted Subsidiary for fair market value (as determined by the Board of
Directors in good faith); (iii) voluntarily prepay Subordinated Indebtedness,
whether any such Subordinated Indebtedness is outstanding on, or
6
<PAGE>
issued after, the date of original issuance of the Senior Notes except as
specifically permitted by the covenants of this Indenture; (iv) make any
Restricted Investment (all such dividends, distributions, purchases,
redemptions, acquisitions, retirements, prepayments and Restricted Investments,
being collectively referred to as "Restricted Payments"), if, at the time of
such Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing or
shall occur as a consequence thereof, or
(B) immediately after such Restricted Payment and after giving effect
thereto on a Pro Forma basis, the Company shall not be able to issue
$1.00 of additional Indebtedness pursuant to Section 4.07(a), or
(C) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after the date of original issuance of the
Series C Senior Notes, without duplication, exceeds the sum of (1) 50%
of the aggregate Consolidated Net Income (including, for this purpose,
gains from Asset Sales and, to the extent not included in Consolidated
Net Income, any gain from a sale or disposition of a Restricted
Investment) of the Company (or, in case such aggregate is a loss, 100%
of such loss) for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing immediately after the
date of original issuance of the Series C Senior Notes and ended as of
the Company's most recently ended fiscal quarter at the time of such
Restricted Payment, plus (2) 100% of the aggregate net cash proceeds
and the fair market value of any property or securities (as determined
by the Board of Directors in good faith) received by the Company from
the issue or sale of Capital Stock or other Equity Interests of the
Company subsequent to the date of original issuance of the Series C
Senior Notes (other than (x) Capital Stock or other Equity Interests
issued or sold to a Restricted Subsidiary and (y) the issuance or sale
of Disqualified Stock), plus (3) $5,000,000, plus (4) the amount by
which the principal amount of and any accrued interest on either (x)
Senior Indebtedness of the Company or (y) any Indebtedness of any
Restricted Subsidiary is reduced on the Company's consolidated balance
sheet upon the conversion or exchange other than by a Restricted
Subsidiary subsequent to the date of original issuance of the Series C
Senior Notes of any Indebtedness of the Company or any Restricted
Subsidiary (not held by the Company or any Restricted Subsidiary) for
Capital Stock
7
<PAGE>
or other Equity Interests (other than Disqualified Stock) of the
Company or any Restricted Subsidiaries (less the amount of any cash,
or the fair market value of any other property or securities (as
determined by the Board of Directors in good faith), distributed by
the Company or any Restricted Subsidiary (to Persons other than the
Company or any other Restricted Subsidiary) upon such conversion or
exchange), plus (5) if any Non-Restricted Subsidiary is redesignated
as a Restricted Subsidiary, the value of the deemed Restricted Payment
resulting therefrom and determined in accordance with the second
sentence of Section 4.16; provided, however, that for purposes of this
clause (5), the value of any redesignated Non-Restricted Subsidiary
shall be reduced by the amount that any such redesignation replenishes
or increases the amount of Restricted Investments permitted to be made
pursuant to Section 4.05(b)(iii).
(b) Notwithstanding Section 4.05(a), the following Restricted Payments may
be made: (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would comply
with all the provisions hereof (including, but not limited to, this Section
4.05); (ii) making Restricted Investments at any time, and from time to time, in
an aggregate outstanding amount of $20,000,000 after the date of original
issuance of the Series C Senior Notes (it being understood that if any
Restricted Investment after the date of original issuance of the Series C Senior
Notes pursuant to this clause (ii) is sold, transferred or otherwise conveyed to
any Person other than the Company or a Restricted Subsidiary, the portion of the
net cash proceeds or fair market value of securities or properties paid or
transferred to the Company and its Restricted Subsidiaries in connection with
such sale, transfer or conveyance that relates or corresponds to the repayment
or return of the original cost of such a Restricted Investment will replenish or
increase the amount of Restricted Investments permitted to be made pursuant to
this Section 4.05(b)(ii), so that up to $20,000,000 of Restricted Investments
may be outstanding under this Section 4.05(b)(ii) at any given time; provided
that any Restricted Investment in a Restricted Subsidiary made pursuant to this
clause (ii) is made for fair market value (as determined by the Board of
Directors in good faith); (iii) the repurchase, redemption, retirement or
acquisition of the Company's stock from the executives, management, employees or
consultants of the Company or its Subsidiaries pursuant to the terms of any
subscription, stockholder or other agreement or plan, up to an aggregate amount
not to exceed $5,000,000; (iv) any loans, advances, distributions or payments
from the Company to its Restricted Subsidiaries, or any loans, advances,
distributions or payments by a Restricted
8
<PAGE>
Subsidiary to the Company or to another Restricted Subsidiary, in each case
pursuant to intercompany Indebtedness, intercompany management agreements and
other intercompany agreements and obligations; (v) investments in marketable
securities and other negotiable instruments through the William Penn Funds
(including the William Penn Interest Income Fund); (vi) the purchase,
redemption, retirement or other acquisition of (A) any Senior Indebtedness of
the Company or any Indebtedness of a Restricted Subsidiaries required by its
terms to be purchased, redeemed, retired or acquired with the net proceeds from
asset sales (as defined in the instrument evidencing such Senior Indebtedness or
Indebtedness) or upon a change of control (as defined in the instrument
evidencing such Senior Indebtedness or Indebtedness) and (B) the Senior Notes
pursuant to Sections 4.13 and 4.14; (vii) the payment of (A) consulting,
financial and investment banking fees under the TJC Agreement, provided, that no
Default or Event of Default shall have occurred and be continuing or shall occur
as a consequence thereof, and the Company's Obligations to pay such fees under
the TJC Agreement shall be subordinated expressly to the Company's Obligations
in respect of the Senior Notes, and (B) indemnities, expenses and other amounts
under the TJC Agreement; (viii) to the extent constituting Restricted Payments,
payments under the Tax Sharing Agreement, New Subsidiary Consulting Agreement,
Transition Agreement and the JI Properties Services Agreement; (ix) to the
extent constituting Restricted Payments, payments under the New Subsidiary
Advisory Agreement, provided such payments will not be made and shall be accrued
so long as any Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof, and the Company's obligations to pay
such fees under the New Subsidiary Advisory Agreement shall be subordinated
expressly to the Company's Obligations in respect of the Senior Notes and
indemnities, expenses and other amounts under the New Subsidiary Advisory
Agreement; (x) the redemption, repurchase, retirement or the acquisition of any
Capital Stock or other Equity Interests of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Capital
Stock or other Equity Interests of the Company or any Restricted Subsidiary
(other than any Disqualified Stock); provided that any net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition, and any Net Income resulting therefrom, shall be excluded from this
Section 4.05(a)(iv)(c)(1) and (c)(2); (xi) the defeasance, redemption or
repurchase of pari passu or Subordinated Indebtedness with the net cash proceeds
from an issuance of permitted Refinancing Indebtedness or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Capital Stock or
other Equity Interests of the Company or of a Restricted Subsidiary (other than
Disqualified Stock); provided that any net cash proceeds that are utilized for
any such defeasance, redemption or repurchase, and any Net Income
9
<PAGE>
resulting therefrom, shall be excluded from this Section 4.05(a)(iv)(c)(1) and
(c)(2); (xii) payments of fees, expenses and indemnities in respect of the
Company's and its Subsidiaries' directors and such payments to Parent (and its
parent companies) in respect of their directors, provided that the aggregate
amount of such fees payable to all such directors does not exceed $250,000 in
any fiscal year; (xiii) payments to Parent (and its parent companies) in respect
of accounting, legal or other professional or administrative expenses or
reimbursements or franchise or similar taxes and governmental charges incurred
by them relating to the business, operations or finances of the Company and its
Subsidiaries and in respect of fees and related expenses associated with their
registration statements filed with the Commission and subsequent ongoing public
reporting requirements; (xiv) so long as Parent files consolidated income tax
returns which include the Company, payments to Parent (and its parent companies)
pursuant to the Tax Sharing Agreement; (xv) payments in respect of the Junior
Seller Notes, the MK Installment Note and the MK Installment Note LC Facility;
(xvi) payments in connection with the Imperial Acquisitions, the Offering, the
Series C Offering and the Refinancing Plan; (xvii) payments in respect of the
Contingent Earnout Agreement; (xviii) Restricted Investments made or received in
connection with the sale, transfer or disposition of any business, properties or
assets of the Company or any Restricted Subsidiary, provided, that if such sale,
transfer or disposition constitutes an Asset Sale, the Company complies with
Section 4.14; (xix) any Restricted Investment constituting securities or
instruments of a Person issued in exchange for trade or other claims against
such Person in connection with a financial reorganization or restructuring of
such Person; and (xx) any Restricted Investment constituting an equity
investment in a Receivables Subsidiary.
Section 4.07. Limitation on Incurrence of Indebtedness.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, issue any Indebtedness (other than the Indebtedness represented by the
Senior Notes and the Series C Senior Notes in an amount not to exceed $270
million in the aggregate) unless the Company's Cash Flow Coverage Ratio for its
four full fiscal quarters next preceding the date such additional Indebtedness
is issued would have been at least 2.00 to 1, if such date is on or prior to
November 15, 1998, and 2.25 to 1 thereafter, in each case determined on a Pro
Forma basis (including, for this purpose, any other Indebtedness incurred since
the end of the applicable four quarter period) as if such additional
Indebtedness and any other Indebtedness issued since the end of such four-
quarter period had been issued at the beginning of such four-quarter period.
10
<PAGE>
(b) Section 4.07(a) shall not apply to the issuance of (i) Indebtedness of
the Company and/or its Restricted Subsidiaries as measured on such date of
issuance in an aggregate principal amount outstanding on any such date of
issuance not exceeding the greater of (A) $115,000,000 aggregate principal
amount pursuant to the New Credit Agreement and (B) an aggregate principal
amount up to the sum of (1) 85% of the book value of the Receivables of the
Company and its Restricted Subsidiaries on a consolidated basis and (2) 65% of
the book value of the inventories of the Company and its Restricted Subsidiaries
on a consolidated basis; provided that the aggregate principal amount of
Indebtedness outstanding under this clause (i) together with the aggregate
principal amount of Indebtedness outstanding under clause (iv) below shall not
exceed $120.0 million in aggregate principal amount at any one time outstanding;
(ii) Indebtedness of the Company and its Restricted Subsidiaries pursuant to any
Receivables Financing; (iii) Indebtedness of the Company and its Restricted
Subsidiaries in connection with capital leases, sale and leaseback transactions,
purchase money obligations, capital expenditures or similar financing
transactions relating to (A) their properties, assets and rights as of the date
of original issuance of the Series C Senior Notes up to $5,000,000 in aggregate
principal amount or (B) their properties, assets and rights acquired after the
date of original issuance of the Series C Senior Notes, provided that the
aggregate principal amount of such Indebtedness under this Section
4.07(b)(iii)(B) does not exceed 100% of the cost of such properties, assets and
rights; (iv) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount up to $25,000,000 (all or any
portion of which may be issued as additional Indebtedness under the New Credit
Agreement); provided that the aggregate principal amount of Indebtedness
outstanding under this clause (iv) together with the aggregate principal amount
of Indebtedness outstanding under clause (i) above shall not exceed $120.0
million in aggregate principal amount at any one time outstanding; and (v) Other
Permitted Indebtedness.
(c) Notwithstanding Sections 4.07(a) and (b), no Restricted Subsidiary
shall under any circumstances issue a guarantee of any Indebtedness of the
Company except for guarantees issued by Restricted Subsidiaries pursuant to
Section 4.15, provided, however, that the foregoing will not limit or restrict
guarantees issued by Restricted Subsidiaries in respect of Indebtedness of other
Restricted Subsidiaries.
Section 4.08. Limitation on Transactions With Affiliates.
(a) Except as otherwise set forth herein, neither the Company nor any of
its Restricted Subsidiaries shall make any loan, advance, guarantee or capital
contribution to, or for the benefit of, or sell, lease, transfer or dispose of
any properties
11
<PAGE>
or assets to, or for the benefit of, or purchase or lease any property or assets
from, or enter into or amend any contract, agreement or understanding with, or
for the benefit of, an Affiliate (each such transaction or series of related
transactions that are part of a common plan, an "Affiliate Transaction"), except
in good faith and on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction on an arm's length basis from an unrelated Person.
(b) The Company shall not, and shall not permit any Restricted Subsidiary
to, engage in any Affiliate Transaction involving aggregate payments or other
transfers by the Company and its Restricted Subsidiaries in excess of $5,000,000
(including cash and non-cash payments and benefits valued at their fair market
value by the Board of Directors of the Company in good faith), unless the
Company delivers to the Trustee: (i) a resolution of the Board of Directors
stating that the Board of Directors (including a majority of the disinterested
directors, if any) has, in good faith, determined that such Affiliate
Transaction complies with the provisions of this Indenture; and (ii)(A) with
respect to any Affiliate Transaction involving the incurrence of Indebtedness, a
written opinion of a nationally recognized investment banking or accounting firm
experienced in the review of similar types of transactions, (B) with respect to
any Affiliate Transaction involving the transfer of real property, fixed assets
or equipment, either directly or by a transfer of 50% or more of the Capital
Stock of a Restricted Subsidiary which holds any such real property, fixed
assets or equipment, a written appraisal from a nationally recognized appraiser
experienced in the review of similar types of transactions or (C) with respect
to any Affiliate Transaction not otherwise described in (A) or (B) above, a
written certification from a nationally recognized professional experienced in
evaluating similar types of transactions, in each case, stating that the terms
of such transaction are fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view.
(c) Notwithstanding Sections 4.08(a) and (b), this Section 4.08 shall not
apply to (i) transactions between the Company and any Restricted Subsidiary or
between Restricted Subsidiaries; (ii) payments under the New Subsidiary
Advisory Agreement, the New Subsidiary Consulting Agreement, the Transition
Agreement, the JII Properties Services Agreement and the Tax Sharing Agreement;
(iii) payments under the Contingent Earnout Agreement; (iv) any other payments
or transactions permitted pursuant to Section 4.05; (v) reasonable compensation
paid to officers, employees or consultants of the Company or any Subsidiary as
determined in good faith by the Company's Board of Directors or executives; (vi)
transactions in connection with a Receivables
12
<PAGE>
Financing; or (vii) payments and transactions in connection with the Imperial
Acquisitions, the Refinancing Plan, the Offering and the Series C Offering.
Section 2. Effectiveness; Termination
--------------------------
(a) This First Supplemental Indenture is entered into pursuant to and
consistent with Section 9.02 of the Indenture, and nothing herein shall
constitute an amendment, supplement or waiver requiring the approval of each
Holder pursuant to clauses (1) through (6) of the last paragraph of Section
9.02.
(b) This First Supplemental Indenture shall become effective and binding on
the Company, the Trustee and the Holders of the Senior Notes upon the execution
and delivery by the parties to this First Supplemental Indenture; provided,
however, that the provisions of the Indenture referred to in Section 1 above
(such provisions being referred to as the "Amended Provisions") will remain in
effect in the form they existed prior to the execution of this First
Supplemental Indenture, the deletions the amendments of the Amended Provisions
will not become operative, and the terms of the Indenture will not be amended,
modified or deleted, in each case until the date and time (the "Payment Date")
that the Company pays the Consent Payments to the Trustee. Upon the Payment
Date, the Amended Provisions will automatically be deleted or modified as
contemplated by Section 1 above.
Section 3. Reference to and Effect on the Indenture.
----------------------------------------
(a) On and after the Payment Date, each reference in the Indenture to "the
Indenture," "this Indenture," "hereunder," "hereof" or "herein" shall mean and
be a reference to the Indenture as supplemented by this First Supplemental
Indenture unless the context otherwise requires.
(b) Except as specifically amended above, the Indenture shall remain in
full force and effect and is hereby ratified and confirmed.
Section 4. Governing Law.
-------------
This First Supplemental Indenture shall be construed and enforced in
accordance with, and interpreted under, the internal laws of the State of New
York, without reference to the conflict of laws provisions thereof.
Section 5. Counterparts and Methods of Execution.
-------------------------------------
This First Supplemental Indenture may be executed in several counterparts,
all of which together shall constitute one
13
<PAGE>
agreement binding on all parties, notwithstanding that all parties have not
signed the same counterpart.
Section 6. Titles.
------
Section titles are for descriptive purposes only and shall not control or
alter the meaning of this First Supplemental Indenture as set forth in the text.
14
<PAGE>
IN WITNESS WHEREOF, the Company and the Trustee have caused this First
Supplemental Indenture to be duly executed by their respective officers
thereunto duly authorized all as of the day and year first above written.
MOTORS & GEARS
By: /s/ Norman Bates
---------------------------
Its: CFO
--------------------------
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: /s/ Jacqueline Connor
---------------------------
Its: Assistant Vice President
--------------------------
15
<PAGE>
EXHIBIT 4.3
MOTORS AND GEARS, INC.
________________________________________
$100,000,000 10 3/4% SERIES C SENIOR NOTES DUE 2006
AND
$270,000,000 10 3/4% SERIES D SENIOR NOTES DUE 2006
________________________________________
___________________
INDENTURE
DATED AS OF DECEMBER 17, 1997
___________________
STATE STREET BANK AND TRUST COMPANY
Trustee
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE........................ 1
SECTION 1.01. DEFINITIONS............................................. 1
SECTION 1.02. OTHER DEFINITIONS....................................... 14
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST
INDENTURE ACT......................................... 15
SECTION 1.04. RULES OF CONSTRUCTION................................... 15
ARTICLE 2 THE NOTES........................................................ 15
SECTION 2.01. PRINCIPAL AMOUNT, FORM AND DATING....................... 15
SECTION 2.02. EXECUTION AND AUTHENTICATION............................ 16
SECTION 2.03. REGISTRAR AND PAYING AGENT.............................. 16
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST..................... 17
SECTION 2.05. HOLDER LISTS............................................ 17
SECTION 2.06. TRANSFER AND EXCHANGE................................... 17
SECTION 2.07. REPLACEMENT SENIOR NOTES................................ 24
SECTION 2.08. OUTSTANDING SENIOR NOTES................................ 24
SECTION 2.09. TREASURY SENIOR NOTES................................... 24
SECTION 2.10. TEMPORARY SENIOR NOTES.................................. 24
SECTION 2.11. CANCELLATION............................................ 25
SECTION 2.12. DEFAULTED INTEREST...................................... 25
SECTION 2.13. RECORD DATE............................................. 25
SECTION 2.14. CUSIP NUMBER............................................ 25
ARTICLE 3 OPTIONAL REDEMPTION AND MANDATORY OFFERS TO PURCHASE.............. 25
SECTION 3.01. NOTICES TO TRUSTEE...................................... 25
SECTION 3.02. SELECTION OF SENIOR NOTES TO BE
REDEEMED OR PURCHASED................................. 26
SECTION 3.03. NOTICE OF REDEMPTION.................................... 26
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.......................... 27
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE............................. 28
SECTION 3.06. SENIOR NOTES REDEEMED IN PART........................... 28
SECTION 3.07. OPTIONAL REDEMPTION PROVISIONS.......................... 28
SECTION 3.08. MANDATORY PURCHASE PROVISIONS........................... 29
ARTICLE 4 COVENANTS......................................................... 30
SECTION 4.01. PAYMENT OF SENIOR NOTES................................. 30
SECTION 4.02. SEC REPORTS............................................. 31
SECTION 4.03. COMPLIANCE CERTIFICATE.................................. 31
SECTION 4.04. STAY, EXTENSION AND USURY LAWS.......................... 32
SECTION 4.05. LIMITATION ON RESTRICTED PAYMENTS....................... 32
SECTION 4.06. CORPORATE EXISTENCE..................................... 35
SECTION 4.07. LIMITATION ON INCURRENCE OF INDEBTEDNESS................ 35
SECTION 4.08. LIMITATION ON TRANSACTIONS WITH AFFILIATES.............. 36
SECTION 4.09. LIMITATION ON LIENS..................................... 37
SECTION 4.10. COMPLIANCE WITH LAWS, TAXES............................. 37
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 4.11. LIMITATION ON DIVIDENDS AND OTHER PAYMENT
RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES........ 37
SECTION 4.12. MAINTENANCE OF OFFICE OR AGENCIES....................... 38
SECTION 4.13. CHANGE OF CONTROL....................................... 38
SECTION 4.14. LIMITATION ON ASSET SALES............................... 39
SECTION 4.15. LIMITATION ON GUARANTEES OF COMPANY
INDEBTEDNESS BY RESTRICTED SUBSIDIARIES............... 40
SECTION 4.16. DESIGNATION OF RESTRICTED AND
NON-RESTRICTED SUBSIDIARIES........................... 41
ARTICLE 5 SUCCESSORS........................................................ 41
SECTION 5.01. MERGER OR CONSOLIDATION................................. 41
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED....................... 42
ARTICLE 6 DEFAULTS AND REMEDIES............................................. 42
SECTION 6.01. EVENTS OF DEFAULT....................................... 42
SECTION 6.02. ACCELERATION............................................ 44
SECTION 6.03. OTHER REMEDIES.......................................... 45
SECTION 6.04. WAIVER OF PAST DEFAULTS................................. 45
SECTION 6.05. CONTROL BY MAJORITY..................................... 45
SECTION 6.06. LIMITATION ON SUITS..................................... 45
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.................... 46
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.............................. 46
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM........................ 46
SECTION 6.10. PRIORITIES.............................................. 46
SECTION 6.11. UNDERTAKING FOR COSTS................................... 47
ARTICLE 7 TRUSTEE........................................................... 47
SECTION 7.01. DUTIES OF TRUSTEE....................................... 47
SECTION 7.02. RIGHTS OF TRUSTEE....................................... 48
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE............................ 49
SECTION 7.04. TRUSTEE'S DISCLAIMER.................................... 49
SECTION 7.05. NOTICE TO HOLDERS OF DEFAULTS AND
EVENTS OF DEFAULT..................................... 49
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS........................... 49
SECTION 7.07. COMPENSATION AND INDEMNITY.............................. 50
SECTION 7.08. REPLACEMENT OF TRUSTEE.................................. 50
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC........................ 51
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION........................... 51
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS
AGAINST THE COMPANY................................... 52
ARTICLE 8 DISCHARGE OF INDENTURE............................................ 52
SECTION 8.01. DISCHARGE OF LIABILITY ON SENIOR NOTES;
DEFEASANCE............................................ 52
SECTION 8.02. CONDITIONS TO DEFEASANCE................................ 52
SECTION 8.03. APPLICATION OF TRUST MONEY.............................. 54
SECTION 8.04. REPAYMENT TO THE COMPANY................................ 54
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS.................... 54
SECTION 8.06. REINSTATEMENT........................................... 54
ARTICLE 9 AMENDMENTS........................................................ 55
SECTION 9.01. AMENDMENTS AND SUPPLEMENTS PERMITTED
WITHOUT CONSENT OF HOLDERS............................ 55
SECTION 9.02. AMENDMENTS AND SUPPLEMENTS REQUIRING
CONSENT OF HOLDERS.................................... 55
SECTION 9.03. COMPLIANCE WITH TIA..................................... 56
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS....................... 56
SECTION 9.05. NOTATION ON OR EXCHANGE OF SENIOR NOTES................. 56
SECTION 9.06. TRUSTEE PROTECTED....................................... 57
ARTICLE 10 MISCELLANEOUS.................................................... 57
SECTION 10.01. TRUST INDENTURE ACT CONTROLS........................... 57
SECTION 10.02. NOTICES................................................ 57
SECTION 10.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS............ 58
SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT..... 58
SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.......... 59
SECTION 10.06. RULES BY TRUSTEE AND AGENTS............................ 59
SECTION 10.07. LEGAL HOLIDAYS......................................... 59
SECTION 10.08. NO RECOURSE AGAINST OTHERS............................. 59
SECTION 10.09. COUNTERPARTS........................................... 59
SECTION 10.10. VARIABLE PROVISIONS.................................... 60
SECTION 10.11. GOVERNING LAW.......................................... 60
SECTION 10.12. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.......... 60
SECTION 10.13. SUCCESSORS............................................. 60
SECTION 10.14. SEVERABILITY........................................... 60
SECTION 10.15. TABLE OF CONTENTS, HEADINGS, ETC....................... 60
</TABLE>
iii
<PAGE>
This Indenture, dated as of December 17, 1997, is between Motors and
Gears, Inc., a Delaware corporation (the "Company"), and State Street Bank and
Trust Company, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the holders of the Company's 10 3/4% Series
C Senior Notes due 2006 ("Series C Senior Notes")and the Company's 10 3/4%
Series D Senior Notes due 2006("Series D Senior Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Affiliate" means any of the following: (i) any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company, (ii) any spouse, immediate family member or other
relative who has the same principal residence as any Person described in clause
(i) above, (iii) any trust in which any such Persons described in clause (i) or
(ii) above has a beneficial interest, and (iv) any corporation or other
organization of which any such Persons described above collectively own 50% or
more of the equity of such entity.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Amended Credit Agreement" means the credit agreement, dated November
7, 1996, as amended as of the date hereof among M&G Industries, Inc., certain of
its subsidiaries and the lenders party thereto in their capacities as lenders
thereunder and Bankers Trust Company, as agent, together with all loan documents
and instruments thereunder (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without limitation, increasing the amount of available borrowings thereunder,
and all Obligations with respect thereto, in each case, to the extent permitted
by Section 4.07, or adding Subsidiaries of the Company as additional borrowers
or guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Asset Sale" means the sale, lease, conveyance or other disposition by
the Company or a Restricted Subsidiary of assets or property whether owned on
the date of original issuance of the Senior Notes or thereafter acquired, in a
single transaction or in a series of related transactions, that are outside of
the ordinary course of business of the Company or such Restricted Subsidiary;
provided that Asset Sales will not include such sales, leases, conveyances or
dispositions in connection with (i) the sale or disposition of any Restricted
Investment, (ii) any Equity Offering by (a) the Company or (b) any Restricted
Subsidiary if the proceeds therefrom are used to make mandatory prepayments of
Indebtedness under the Amended Credit Agreement or Indebtedness of the
Restricted Subsidiaries or redeem Senior Notes as described in Section 3.07,
(iii) the sale or lease of equipment, inventory, accounts receivable or other
assets in the ordinary course of business, (iv) Receivables Financings, (v) the
surrender or waiver of contract rights or the settlement, release or surrender
of contract, tort or other claims of any kind, (vi) the grant of any license of
patents, trademarks, registration therefor and other similar intellectual
property, (vii) a transfer of assets by the Company or a Restricted Subsidiary
to any of the Company, a Restricted Subsidiary or a Non-Restricted Subsidiary,
(viii) the designation of a Restricted Subsidiary as a Non-Restricted Subsidiary
pursuant to
<PAGE>
Section 4.17, (ix) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company as permitted under Section 5.01,
(x) the sale or disposition of obsolete equipment or other obsolete assets, or
(xi) Restricted Payments permitted by Section 4.05.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Company's board of directors or any
authorized committee of such board of directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock, including any
preferred stock.
"Cash Flow" means, for any given period and Person, the sum of,
without duplication, Consolidated Net Income, plus (a) the portion of Net Income
attributable to the minority interests in its Subsidiaries, to the extent not
included in calculating Consolidated Net Income, plus (b) any provision for
taxes based on income or profits to the extent such income or profits were
included in computing Consolidated Net Income, plus (c) Consolidated Interest
Expense, to the extent deducted in computing Consolidated Net Income, plus (d)
the amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, debt and financing costs, and Incentive
Arrangements), plus (e) any non-capitalized transaction costs incurred in
connection with financings, acquisitions or divestitures (including, but not
limited to, financing and refinancing fees, including those in connection with
the Offering, in each case, to the extent deducted in computing Consolidated Net
Income), plus (f) all depreciation and all other non-cash charges (including,
without limitation, those charges relating to purchase accounting adjustments
and LIFO adjustments), to the extent deducted in computing Consolidated Net
Income, plus (g) any interest income, to the extent such income was not included
in computing Consolidated Net Income, plus (h) all dividend payments on
preferred stock (whether or not paid in cash) to the extent deducted in
computing Consolidated Net Income, plus (i) any extraordinary or non-recurring
charge or expense arising out of the implementation of SFAS 106 or SFAS 109 to
the extent deducted in computing Consolidated Net Income, plus (j) to the extent
not covered in clause (e) above, fees paid or payable in respect of the New TJC
Management Consulting Agreement to the extent deducted in computing Consolidated
Net Income, plus (k) the net loss of any Person, other than those of a
Restricted Subsidiary, to the extent deducted in computing Consolidated Net
Income, plus (l) net losses in respect of any discontinued operations as
determined in accordance with GAAP, to the extent deducted in computing
Consolidated Net Income; provided, however, that if any such calculation
includes any period during which an acquisition or sale of a Person or the
incurrence or repayment of Indebtedness occurred, then such calculation for such
period shall be made on a Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and Person, the
ratio of: (i) Cash Flow, divided by (ii) the sum of Consolidated Interest
Expense and the amount of all dividend payments on any series of preferred stock
of such Person (except dividends paid or payable in additional shares of Capital
Stock (other than Disqualified Stock)), in each case, without duplication;
provided, however, that if any such calculation includes any period during which
an acquisition or sale of a Person or the incurrence or repayment of
Indebtedness occurred, then such calculation for such period shall be made on a
Pro Forma Basis.
2
<PAGE>
"Change of Control" means the occurrence of each of the following: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), excluding the Jordan Stockholders, is or becomes 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
securities 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 more than 50% of the total Voting Stock of the Company; and (ii)
the Company consolidates with, or merges with or into, another Person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Redeemable Capital Stock) of
the surviving or transferee corporation or (2) cash, securities and other
property in an amount which could be paid by the Company as a Restricted Payment
under the Indenture and (B) immediately after such transaction no "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), excluding the Jordan Stockholders, is 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 securities 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 more than 50% of the total
Voting Stock of the surviving or transferee corporation; and (iii) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of a majority
of the directors then still in office who are entitled to vote to elect such new
director and were either directors at the beginning of such period or Persons
whose election as directors or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Senior Notes to require the Company to repurchase such Senior Notes as
a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of the Company and its subsidiaries to another Person may
be uncertain. Furthermore, an acquisition of the Company by the Jordan
Stockholders including pursuant to a spin-off to the Jordan Stockholders by
Jordan Industries, Inc., directly or indirectly of its investment in the
Company, would not constitute a Change of Control.
"Commission" means the Securities and Exchange Commission.
"Company" means Motors and Gears, Inc., a Delaware corporation.
"Consolidated Interest Expense" means, for any given period and
Person, the aggregate of the interest expense in respect of all Indebtedness of
such Person and its Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP (including amortization of original issue
discount on any such Indebtedness, all non-cash interest payments, the interest
portion of any deferred payment obligation and the interest component of capital
lease obligations, but excluding amortization of deferred financing fees if such
amortization would otherwise be included in interest expense); provided,
however, that for the purpose of the Cash Flow Coverage Ratio, Consolidated
Interest Expense shall be calculated on a Pro Forma Basis; provided further that
any premiums, fees and expenses (including the amortization thereof)
3
<PAGE>
payable in connection with the Offering and the application of the net proceeds
therefrom or any other refinancing of Indebtedness will be excluded.
"Consolidated Net Income" means, for any given period and Person, the
aggregate of the Net Income of such Person and its Subsidiaries for such period,
on a consolidated basis, determined in accordance with GAAP; provided, however,
that: (i) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, and (ii) Consolidated Net Income of any Person will not include,
without duplication, any deduction for: (A) any increased amortization or
depreciation resulting from the write-up of assets pursuant to Accounting
Principles Board Opinion Nos. 16 and 17, as amended or supplemented from time to
time, (B) the amortization of all intangible assets (including amortization
attributable to inventory write-ups, goodwill, debt and financing costs, and
Incentive Arrangements), (C) any non-capitalized transaction costs incurred in
connection with financings, acquisitions or divestitures (including, but not
limited to, financing and refinancing fees), (D) any extraordinary or
nonrecurring charges relating to any premium or penalty paid, write-off of
deferred financing costs or other financial recapitalization charges in
connection with redeeming or retiring any Indebtedness prior to its stated
maturity, and (E) any Restructuring Charges; provided, however, that for
purposes of determining the Cash Flow Coverage Ratio, Consolidated Net Income
shall be calculated on a Pro Forma Basis.
"Consolidated Net Worth" with respect to any Person means, as of any
date, the consolidated equity of the common stockholders of such Person
(excluding the cumulated foreign currency translation adjustment), all
determined on a consolidated basis in accordance with GAAP, but without any
reduction in respect of the payment of dividends on any series of such Person's
preferred stock if such dividends are paid in additional shares of Capital Stock
(other than Disqualified Stock); provided, however, that Consolidated Net Worth
shall also include, without duplication: (a) the amortization of all write-ups
of inventory, (b) the amortization of all intangible assets (including
amortization of goodwill, debt and financing costs, and Incentive Arrangements),
(c) any non-capitalized transaction costs incurred in connection with
financings, acquisitions or divestitures (including, but not limited to,
financing and refinancing fees), (d) any increased amortization or depreciation
resulting from the write-up of assets pursuant to Accounting Principles Board
Opinion Nos. 16 and 17, as amended and supplemented from time to time, (e) any
extraordinary or nonrecurring charges or expenses relating to any premium or
penalty paid, write-off of deferred financing costs or other financial
recapitalization charges incurred in connection with redeeming or retiring any
Indebtedness prior to its stated maturity, (f) any Restructuring Charges, and
(g) any extraordinary or non-recurring charge arising out of the implementation
of SFAS 106 or SFAS 109; provided, however, that Consolidated Net Worth shall be
calculated on a Pro Forma Basis.
"Contingent Earnout Agreement" means the Contingent Earnout Agreement,
among the Company and certain of its Restricted Subsidiaries and Jordan
Industries, Inc. and certain of its Restricted Subsidiaries, as in effect on
November 7, 1996.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Definitive Notes" means Senior Notes that are in the form of Exhibit
A attached hereto (but without including the text referred to in footnotes 1 and
2 thereto).
"Disqualified Stock" means 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,
4
<PAGE>
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part on, or prior to, the maturity date of the Senior Notes.
"Equity Interests" means Capital Stock or partnership interests or
warrants, options or other rights to acquire Capital Stock or partnership
interests (but excluding (i) any debt security that is convertible into, or
exchangeable for, Capital Stock or partnership interests, and (ii) any other
Indebtedness or Obligation) provided, however, that Equity Interests will not
include any Incentive Arrangements or obligations or payments thereunder.
"Equity Offering" means a public or private offering by the Company
and/or its Subsidiaries for cash of Capital Stock or other Equity Interests and
all warrants, options or other rights to acquire Capital Stock, other than (i)
an offering of Disqualified Stock or (ii) Incentive Arrangements or obligations
or payments thereunder.
"Exchange Offer" means the offer by the Company to each holder of
Series C Senior Notes and to each holder of Series A/B Senior Notes to exchange
all Series C Senior Notes or Series A/B Senior Notes held by such holder for
Series D Senior Notes that have been registered under the Securities Act in an
aggregate principal amount equal to the aggregate principal amount of the Series
C Senior Notes or Series A/B Senior Notes held by such holder, all in accordance
with the terms and conditions of the Registration Rights Agreement.
"GAAP" means generally accepted accounting principles, consistently
applied, as of the date of original issuance of the Senior Notes. All financial
and accounting determinations and calculations under the Indenture will be made
in accordance with GAAP.
"Global Note" means a Senior Note that contains the paragraph referred
to in footnote 1 and the additional schedule referred to in footnote 2 to the
form of the Senior Note attached hereto as Exhibit A.
"Hedging Obligations" means, with respect to any Person, the
Obligations of such Persons under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, (ii) foreign exchange
contracts, currency swap agreements or similar agreements, and (iii) other
agreements or arrangements designed to protect such Person against fluctuations,
or otherwise to establish financial hedges in respect of, exchange rates,
currency rates or interest rates.
"Incentive Arrangements" means any earn-out agreements, stock
appreciation rights, "phantom" stock plans, employment agreements, non-
competition agreements, subscription and stockholders agreements and other
incentive and bonus plans and similar arrangements made in connection with
acquisitions of Persons or businesses by the Company or the Restricted
Subsidiaries or the retention of executives, officers or employees by the
Company or the Restricted Subsidiaries.
"Indebtedness" means, with respect to any Person, any indebtedness,
whether or not contingent, in respect of borrowed money or evidenced by bonds,
notes, debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the deferred and unpaid balance
of the purchase price of any property (including pursuant to capital leases),
except any such balance that constitutes an accrued expense or a trade payable,
and any Hedging Obligations, if and to the extent such indebtedness (other than
a Hedging Obligation) would appear as a liability upon a balance sheet of such
Person prepared on a consolidated basis in accordance with GAAP, and also
includes, to the extent not otherwise included, the guarantee of items that
would be included within this definition; provided, however, that "Indebtedness"
will not include any Incentive Arrangements or obligations or payments
thereunder.
5
<PAGE>
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy or similar case or proceeding, or any reorganization, receivership,
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, or (ii) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company.
"Investment" means any capital contribution to, or other debt or
equity investment in, any Person.
"Issue" means create, issue, assume, guarantee, incur or otherwise
become directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be issued
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
For this definition, the terms "issuing," "issuer," "issuance" and "issued" have
meanings correlative to the foregoing.
"JI Properties Services Agreement" means the properties services
agreement, dated July 25, 1997, between JI Properties, Inc., the Company and
each of its Subsidiaries and Jordan Industries, Inc., as in effect on the date
of original issuance of the Senior Notes.
"Jordan Stockholders" means Jordan Industries, Inc., The Jordan
Company and Jordan/Zalaznick Capital Corporation and their respective
affiliates, principals, partners and employees, family members of any of the
foregoing and trusts for the benefit of any of the foregoing, including, without
limitation, MCIT PLC and Leucadia National Corporation and their respective
Subsidiaries.
"Junior Seller Notes" means the subordinated promissory note, dated
September 22, 1995, issued by Merkle-Korff Industries, Inc., in the principal
amount of $5.0 million, and maturing on December 31, 2003 and the subordinated
promissory note, dated October 27, 1997, issued by Electrical Design and Control
Company, a wholly owned Subsidiary of the Company, in the principal amount of
$4.0 million, and maturing on December 31, 2002, each as in effect on the date
of original issuance of the Senior Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, the city in which the principal corporate
trust office of the Trustee is located or at a place of payment are authorized
by law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"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 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 then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP, excluding, however, any gain
or loss, together with any related
6
<PAGE>
provision for taxes, realized in connection with any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate
amount of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either such
case, only as and when so received) received by the Company or any of its
Restricted Subsidiaries in respect of such Asset Sale, net of: (i) the cash
expenses of such Asset Sale (including, without limitation, the payment of
principal of, and premium, if any, and interest on, Indebtedness required to be
paid as a result of such Asset Sale (other than the Senior Notes) and legal,
accounting, management and advisory and investment banking fees and sales
commissions), (ii) taxes paid or payable as a result thereof, (iii) any portion
of cash proceeds that the Company determines in good faith should be reserved
for post-closing adjustments, it being understood and agreed that on the day
that all such post-closing adjustments have been determined, the amount (if any)
by which the reserved amount in respect of such Asset Sale exceeds the actual
post-closing adjustments payable by the Company or any of its Restricted
Subsidiaries shall constitute Net Proceeds on such date, (iv) any relocation
expenses and pension, severance and shutdown costs incurred as a result thereof,
and (v) any deduction or appropriate amounts to be provided by the Company or
any of its Restricted Subsidiaries as a reserve in accordance with GAAP against
any liabilities associated with the asset disposed of in such transaction and
retained by the Company or such Restricted Subsidiary after such sale or other
disposition thereof, including, without limitation, pension and other post-
employment benefit liabilities and liabilities related to environmental matters
or against any indemnification obligations associated with such transaction.
"New Subsidiary Advisory Agreement" means the advisory agreement,
dated as of July 25, 1997, between the Company and each of its Subsidiaries and
Jordan Industries, Inc., as in effect on the date of original issuance of the
Senior Notes.
"New Subsidiary Consulting Agreement" means the management consulting
agreement, dated as of July 25, 1997, between the Company and each of its
Subsidiaries and Jordan Industries, Inc., as in effect on the date of original
issuance of the Senior Notes.
"New TJC Management Consulting Agreement" means the management
consulting agreement, dated as of July 25, 1997, between Jordan Industries, Inc.
and TJC Management Corp., as in effect on the date of original issuance of the
Senior Notes.
"Non-Restricted Subsidiary" means any Subsidiary of the Company other
than a Restricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, all principal,
interest, premiums, penalties, fees, indemnities, expenses (including legal fees
and expenses), reimbursement obligations and other liabilities payable to the
holder of such Indebtedness under the documentation governing such Indebtedness,
and any other claims of such holder arising in respect of such Indebtedness.
"Offering" means the offer and sale of the Series C Senior Notes as
contemplated by the Offering Circular.
7
<PAGE>
"Offering Circular" means the Offering Circular, dated December 10,
1997, relating to the Company's offering and placement of the Series C Senior
Notes.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
"Officer's Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 10.04 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
10.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Other Permitted Indebtedness" means: (i) Indebtedness of the Company
and its Restricted Subsidiaries existing as of the date of original issuance of
the Senior Notes; (ii) Indebtedness of the Company and its Restricted
Subsidiaries in respect of bankers acceptances and letters of credit (including,
without limitation, letters of credit in respect of workers' compensation
claims) issued in the ordinary course of business, or other Indebtedness in
respect to reimbursement-type obligations regarding workers' compensation
claims; (iii) Refinancing Indebtedness, provided that: (A) the principal amount
of such Refinancing Indebtedness shall not exceed the outstanding principal
amount of Indebtedness (including unused commitments) extended, refinanced,
renewed, replaced, substituted or refunded plus any amounts incurred to pay
premiums, fees and expenses in connection therewith, (B) 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 extended,
refinanced, renewed, replaced, substituted or refunded; provided, however, that
this limitation in this clause (B) does not apply to Refinancing Indebtedness of
Senior Indebtedness, and (C) in the case of Refinancing Indebtedness of
Subordinated Indebtedness, such Refinancing Indebtedness shall be subordinated
to the Senior Notes at least to the same extent as the Subordinated Indebtedness
being extended, refinanced, renewed, replaced, substituted or refunded; (iv)
intercompany Indebtedness of and among the Company and its Restricted
Subsidiaries (excluding guarantees by Restricted Subsidiaries of Indebtedness of
the Company not issued in compliance with Section 4.15; (v) Indebtedness of the
Company and its Restricted Subsidiaries incurred in connection with making
permitted Restricted Payments under clauses (iii) or (iv), but only to the
extent that such Indebtedness is provided by the Company or a Restricted
Subsidiary, or (x) of Section 4.05(b); (vi) Indebtedness of any Non-Restricted
Subsidiary created after the date of original issuance of the Senior Notes,
provided that such Indebtedness is nonrecourse to the Company and its Restricted
Subsidiaries and the Company and its Restricted Subsidiaries have no Obligations
with respect to such Indebtedness; (vii) Indebtedness of the Company and its
Restricted Subsidiaries under Hedging Obligations; (viii) Indebtedness of the
Company and its Restricted Subsidiaries arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts, which will not be, and
will not be deemed to be, inadvertent) drawn against insufficient funds in the
ordinary course of business; (ix) Indebtedness of any Person at the time it is
acquired as a Restricted Subsidiary, provided that such Indebtedness was not
issued by such Person in connection with or in anticipation of such acquisition;
(x) guarantees by Restricted Subsidiaries of Indebtedness of any Restricted
Subsidiary if such Indebtedness so guaranteed is permitted under the Indenture;
(xi) guarantees by a Restricted Subsidiary of Indebtedness of the Company if the
Indebtedness so guaranteed is permitted under the Indenture and the Senior Notes
are guaranteed by such
8
<PAGE>
Restricted Subsidiary to the extent required by Section 4.15; (xii) guarantees
by the Company of Indebtedness of any Restricted Subsidiary if the Indebtedness
so guaranteed is permitted under the Indenture; (xiii) Indebtedness of the
Company and its Restricted Subsidiaries in connection with performance, surety,
statutory, appeal or similar bonds in the ordinary course of business; (xiv)
Indebtedness of the Company and its Restricted Subsidiaries in connection with
agreements providing for indemnification, purchase price adjustments and similar
obligations in connection with the sale or disposition of any of their business,
properties or assets; (xv) Indebtedness of the Restricted Subsidiaries in
respect of the Junior Seller Notes; and (xvi) Indebtedness of the Company and
its Restricted Subsidiaries in respect of the Contingent Earnout Agreement.
"Parent" means Motors and Gears Holdings, Inc., a Delaware corporation
and corporate parent of the Company.
"Permitted Liens" means:
(a) with respect to the Company and its Restricted Subsidiaries, (i)
Liens for taxes, assessments, governmental charges or claims which are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and if a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made therefor; (ii)
statutory Liens of landlords and carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business and with respect to amounts not yet delinquent or
being contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if-any as shall be required in conformity with GAAP shall
have been made therefor; (iii) Liens incurred on deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred on deposits
made to secure the performance of tenders, bids, leases, statutory obligations,
surety and appeal bonds, government contracts, performance and return of money
bonds and other obligations of a like nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (v)
easements, rights-of-way, zoning or other restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of the Company or any of
its Restricted Subsidiaries incurred in the ordinary course of business; (vi)
Liens (including extensions, renewals and replacements thereof) upon property
acquired (the "Acquired Property") after the date of original issuance of the
Senior Notes, provided that: (A) any such Lien is created solely for the purpose
of securing Indebtedness representing, or issued to finance, refinance or
refund, the cost (including the cost of construction) of the Acquired Property,
(B) the principal amount of the Indebtedness secured by such Lien does not
exceed 100% of the cost of the Acquired Property, (C) such Lien does not extend
to or cover any property other than the Acquired Property and any improvements
on such Acquired Property, and (D) the issuance of the Indebtedness to purchase
the Acquired Property is permitted by Section 4.07; (vii) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods; (viii) judgment and
attachment Liens not giving rise to an Event of Default; (ix) leases or
subleases granted to others not interfering in any material respect with the
business of the Company or any of its Restricted Subsidiaries; (x) Liens
securing Indebtedness under Hedging Obligations; (xi) Liens encumbering deposits
made to secure obligations arising from statutory, regulatory, contractual or
warranty requirements; (xii) Liens arising out of consignment or similar
arrangements for the sale of goods entered into by the Company or its Restricted
Subsidiaries in the ordinary course of business; (xiii) any interest or title of
a lessor in property subject to any capital lease obligation or operating lease;
(xiv) Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xv) Liens existing on the date of original issuance of the
Senior Notes and any extensions, refinancings, renewals, replacements,
substitutions or refundings
9
<PAGE>
thereof; (xvi) any Lien granted to the Trustee and any substantially equivalent
Lien granted to any trustee or similar institution under any indenture for
Senior Indebtedness permitted by the terms of the Indenture; and (xvii)
additional Liens at any one time outstanding in respect of properties or assets
where aggregate fair market value does not exceed $10,000,000 (the fair market
value to be determined on the date such Lien is granted on such properties or
assets);
(b) with respect to the Restricted Subsidiaries, (i) Liens securing
Restricted Subsidiaries' reimbursement Obligations with respect to letters of
credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (ii) Liens securing Indebtedness
issued by Restricted Subsidiaries if such Indebtedness is (A) under the Amended
Credit Agreement, or (B) permitted by Section 4.07(a), clauses (i), (ii), (iii)
or (iv) of Section 4.07(b), or clauses (i), (iii) (to the extent the
Indebtedness subject to such Refinancing Indebtedness was subject to Liens),
(vi), (vii), (ix), (x) or (xvi) of the definition of Other Permitted
Indebtedness; (iii) Liens securing intercompany Indebtedness issued by any
Restricted Subsidiary to the Company or another Restricted Subsidiary; and (iv)
Liens securing guarantees by Restricted Subsidiaries of Indebtedness issued by
the Company if such guarantees permitted by clause (xi) (but only in respect of
the property, rights and assets of the Restricted Subsidiaries issuing such
guarantees) of the definition of Other Permitted Indebtedness;
(c) with respect to the Company, (i) Liens securing Indebtedness
issued by the Company if such Indebtedness is (A) under the Amended Credit
Agreement, or (B) if such Indebtedness is permitted by Section 4.07 (including,
but not limited to, Indebtedness issued by the Company under the Amended Credit
Agreement pursuant to clause (i) and/or clause (iv) of Section 4.07(b)); (ii)
Liens securing Indebtedness of the Company if such Indebtedness is permitted by
clauses (i), (iii) (to the extent the Indebtedness subject to such Refinancing
Indebtedness was subject to Liens) or (vii) of the definition of Other Permitted
Indebtedness; (iii) Liens securing guarantees by the Company of Indebtedness
issued by Restricted Subsidiaries if such Indebtedness is permitted by Section
4.07 (including, but not limited to, Indebtedness issued by Restricted
Subsidiaries under the Amended Credit Agreement pursuant to clause (i) and/or
clause (iv) of Section 4.07(b)) and if such guarantees are permitted by clause
(xii) (but only in respect of Indebtedness issued by the Restricted Subsidiaries
under the Amended Credit Agreement pursuant to Section 4.07) of the definition
of Other Permitted Indebtedness; and (iv) Liens securing the Company's
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the products
and proceeds thereof; provided, however, that, notwithstanding any of the
foregoing, the Permitted Liens referred to in clause (c) of this definition
shall not include any Lien on Capital Stock of Restricted Subsidiaries held
directly by the Company (as distinguished from Liens on Capital Stock of
Restricted Subsidiaries held by other Restricted Subsidiaries) other than Liens
securing (A) Indebtedness of the Company issued under the Amended Credit
Agreement pursuant to Section 4.07 and any permitted Refinancing Indebtedness of
such Indebtedness, and (B) guarantees by the Company of Indebtedness issued by
Restricted Subsidiaries under the Amended Credit Agreement pursuant to Section
4.07 and any permitted Refinancing Indebtedness of such Indebtedness.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pro Forma Basis" means, for purposes of determining Consolidated Net
Income in connection with the Cash Flow Coverage Ratio (including in connection
with Section 4.05, Section 4.16, Section 5.01, the incurrence of Indebtedness
pursuant to Section 4.07(a) and Consolidated Net Worth for purposes of Section
5.01, giving pro forma effect to (x) any acquisition or sale of a Person,
business or asset,
10
<PAGE>
related incurrence, repayment or refinancing of Indebtedness or other related
transactions, including any Restructuring Charges which would otherwise be
accounted for as an adjustment permitted by Regulation S-X under the Securities
Act or on a pro forma basis under GAAP, or (y) any incurrence, repayment or
refinancing of any Indebtedness and the application of the proceeds therefrom,
in each case, as if such acquisition or sale and related transactions,
restructurings, consolidations, cost savings, reductions, incurrence, repayment
or refinancing were realized on the first day of the relevant period permitted
by Regulation S-X under the Securities Act or on a pro forma basis under GAAP.
Furthermore, in calculating the Cash Flow Coverage Ratio, (1) interest on
outstanding Indebtedness determined on a fluctuating basis as of the
determination date and which will continue to be so determined thereafter shall
be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the determination date; (2) if
interest on any Indebtedness actually incurred on the determination date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the determination date will be deemed to have been in
effect during the relevant period; and (3) notwithstanding clause (1) above,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to interest rate swaps or similar
interest rate protection Hedging Obligations, shall be deemed to accrue at the
rate per annum resulting after giving effect to the operation of such
agreements.
"Receivables" means, with respect to any Person, all of the following
property and interests in property of such Person, whether now existing or
existing in the future or hereafter acquired or arising: (i) accounts, (ii)
accounts receivable (including, without limitation, all rights to payment
created by or arising from sales of goods, leases of goods or leased or the
rendition of services rendered no matter how evidenced, whether or not earned by
performance), (iii) all unpaid seller's or lessor's rights (including, without
limitation, recession, replevin, reclamation and stoppage in transit, relating
to any of the foregoing or arising therefrom), (iv) all rights to any goods or
merchandise represented by any of the foregoing (including, without limitation,
returned or repossessed goods), (v) all reserves and credit balances with
respect to any such accounts receivable or account debtors, (vi) all letters of
credit, security or guarantees of any of the foregoing, (vii) all insurance
policies or reports relating to any of the foregoing, (viii) all collection or
deposit accounts relating to any of the foregoing, (ix) all proceeds of any of
the foregoing, and (x) all books and records relating to any of the foregoing.
"Receivables Financing" means (i) the sale, factoring or other
disposition of Receivables that arise in the ordinary course of business, or
(ii) the sale, factoring or other disposition of Receivables that arise in the
ordinary course of business to a Receivables Subsidiary followed by a financing
transaction in connection with such sale or disposition of such Receivables.
"Receivables Subsidiary" means any Subsidiary of the Company or any
other corporation trust or entity that is exclusively engaged in Receivables
Financings and activities reasonably related thereto.
"Redeemable Preferred Stock" means preferred stock that by its terms
or otherwise is required to be redeemed or is redeemable at the option of the
holder thereof on, or prior to, the maturity date of the Senior Notes.
"Refinancing Indebtedness" means (i) Indebtedness of the Company and
its Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund any
Indebtedness permitted under this Indenture or any Indebtedness issued to so
extend, refinance, renew, replace, substitute or refund such Indebtedness, (ii)
any refinancings of
11
<PAGE>
Indebtedness issued under the Amended Credit Agreement, and (iii) any additional
Indebtedness issued to pay premiums and fees in connection with clauses (i) and
(ii).
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of December 17, 1997, by and among the Company and the
Initial Purchasers.
"Representative" means the agent or other representative in respect of
the Amended Credit Agreement, with the Representative originally being Bankers
Trust Company.
"Restricted Investment" means Investment in any Person, provided that
Restricted Investments will not include: (i) Investments in marketable
securities and other negotiable instruments permitted by this Indenture; (ii)
any Incentive Arrangements; (iii) Investments in the Company; or (iv)
Investments in any Restricted Subsidiary (provided that any Investment in a
Restricted Subsidiary was made for fair market value (as determined by the Board
of Directors in good faith)). The amount of any Restricted Investment shall be
the amount of cash and the fair market value at the time of transfer of all
other property (as determined by the Board of Directors in good faith) initially
invested or paid for such Restricted Investment, plus all additions thereto,
without any adjustments for increases or decreases in value of or write-ups,
write-downs or write-offs with respect to, such Restricted Investment.
"Restricted Subsidiary" means: (i) any Subsidiary of the Company
existing on the date of issuance of the Series A/B Senior Notes, and (ii) any
other Subsidiary of the Company formed, acquired or existing after the date of
issuance of the Series A/B Senior Notes that is designated as a "Restricted
Subsidiary" by the Company pursuant to a resolution approved a majority of the
Board of Directors, provided, however, that the term Restricted Subsidiary shall
not include any Subsidiary of the Company that has been redesignated by the
Company pursuant to a resolution approved by a majority of the Board of
Directors as a Non-Restricted Subsidiary in accordance with Section 4.16 unless
such Subsidiary shall have subsequently been redesignated a Restricted
Subsidiary in accordance with clause (ii) of this definition.
"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any Persons
or businesses either alone or together with the Company or any Restricted
Subsidiary, as permitted by GAAP or Regulation S-X under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means: (i) all Obligations (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of the
Company, whether outstanding on the date of original issuance of the Senior
Notes or thereafter created, incurred or assumed, of the following types: (A)
all Indebtedness of the Company (including without limitation the Senior Notes
and the Series A/B Senior Notes) for money borrowed, and (B) all Indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which the Company is responsible or liable; (ii) all capitalized
lease obligations of the Company; (iii) all Obligations of the Company: (A) for
the reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (B) all constituting Hedging Obligations, or (C)
issued as the deferred purchase price of property and all conditional sale
Obligations of the Company and all Obligations of the Company under any title
retention
12
<PAGE>
agreement; (iv) all guarantees of the Company with respect to Obligations of
other Persons of the type referred to in clauses (ii) and (iii) and with respect
to the payment of dividends of other Persons; and (v) all Obligations of the
Company consisting of modifications, renewals, extensions, replacements and
refundings of any Obligations described in clauses (i), (ii), (iii) or (iv)
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is expressly provided that such Obligations are
subordinated or junior in right of payment to the Senior Notes; provided,
however, that Senior Indebtedness shall not be deemed to include: (1) any
Obligation of the Company to any Subsidiary, (2) any liability for federal,
state, local or other taxes owed or owing by the Company, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness, guarantee or Obligation of the Company that
is contractually subordinated or junior in any respect to any other
Indebtedness, guarantee or Obligation of the Company, or (5) any Indebtedness to
the extent the same is incurred in violation of the Indenture. Senior
Indebtedness shall include all Obligations in respect of the Senior Notes and
this Indenture and the Series A/B Senior Notes and. the Series A/B Indenture.
To the extent any payment on the Senior Notes, whether by or on behalf
of the Company, as proceeds of security or enforcement of any right of setoff or
otherwise, is declared to be fraudulent or preferential, set aside or required
to be paid to a trustee, receiver or other similar party under any bankruptcy,
insolvency, receivership or similar law, then if such payment is recovered by,
or paid over to, such trustee, receiver or other similar party, the Senior Notes
or part thereof originally intended to be satisfied by such payment shall be
deemed to be reinstated and outstanding as if such payment had not occurred.
"Senior Notes" means the 10 3/4% Series C/D Senior Notes due 2006 of
the Company.
"Series A/B Indenture" means the Indenture dated as of November 7,
1996, as amended and supplemented, between the Company and Fleet National Bank
as Trustee, providing for the issuance of the Series A/B Senior Notes in the
aggregate principal amount of $170,000,000, as such may be amended and
supplemented from time to time.
"SFAS 106" means Statement of Financial Accounting Standards No. 106.
"SFAS 109" means Statement of Financial Accounting Standards No. 109.
"Significant Subsidiary" means any Restricted Subsidiary of the
Company that would be a "significant subsidiary" as defined in clause (2) of the
definition of such term in Rule 1-02 of Regulation S-X under the Securities Act
and the Exchange Act.
"Subordinated Indebtedness" means all Obligations of the type referred
to in clauses (i) through (v) of the definition of Senior Indebtedness, if the
instrument creating or evidencing the same, or pursuant to which the same is
outstanding, designates such Obligations as subordinated or junior in right of
payment to Senior Indebtedness.
"Subsidiary" of any Person means any entity of which the Equity
Interests entitled to cast at least a majority of the votes that may be cast by
all Equity Interests having ordinary voting power for the election of directors
or other governing body of such entity are owned by such Person (regardless of
whether such Equity Interests are owned directly by such Person or through one
or more Subsidiaries).
13
<PAGE>
"Transfer Restricted Senior Notes" means securities that bear or are
required to bear the legend set forth in Section 2.06.
"Transition Agreement" means the transition agreement, dated as of
July 25, 1997, between the Company and Jordan Industries, Inc., as in effect on
the date of original issuance of the Senior Notes.
"Trustee" means State Street Bank and Trust Company until a successor
replaces it in accordance with the applicable provisions of this Indenture, and
thereafter means the successor.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the then
outstanding principal amount of such Indebtedness into (ii) the sum of the
product(s) obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other requirement payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
SECTION 1.02. OTHER DEFINITIONS
Term Defined in
Section
"Affiliate Transaction".................. 4.08
"Asset Sale Disposition Date"............ 4.14
"Asset Sale Trigger Date"................ 4.14
"Change of Control Trigger Date"......... 4.13
"covenant defeasance option"............. 8.01
"Disposition"............................ 5.01
"DTC".................................... 2.03
"Event of Default"....................... 6.01
"Excess Proceeds"........................ 4.14
"legal defeasance option"................ 8.01
"Notice of Default"...................... 6.01
"Offer".................................. 3.08
"Other Indebtedness"..................... 4.15
"Other Indebtedness Guarantee"........... 4.15
"Paying Agent"........................... 2.03
"Purchase Date".......................... 3.08
14
<PAGE>
"Registrar".............................. 2.03
"Restricted Payments".................... 4.05
"Successor Corporation".................. 5.01
"Trustee Expenses"....................... 6.08
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in, and made a part of, this Indenture. Any terms
incorporated by reference in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them therein.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein;
(2) an accounting term not otherwise defined herein has the
meaning assigned to it under GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2.
THE NOTES
SECTION 2.01. PRINCIPAL AMOUNT, FORM AND DATING.
(a) Principal Amount
The aggregate principal amount of Senior Notes which may be issued,
executed, authenticated and outstanding under this Indenture is $270,000,000,
provided that $170,000,000 shall be reserved for issuance and shall be available
for issuance only in connection with the exchange of the Series A/B Senior Notes
for Series D Senior Notes.
(b) Form and Dating
The Senior Notes and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A, which is part of this Indenture. The
Senior Notes may have notations, legends or
15
<PAGE>
endorsements required by law, stock exchange rule or usage. Each Senior Note
shall be dated the date of its authentication. The Senior Notes shall be in
denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Senior Notes 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.
Each Global Note shall represent such of the outstanding Senior Notes
as shall be specified therein and each shall provide that it shall represent the
aggregate amount of outstanding Senior Notes from time to time endorsed thereon
and that the aggregate amount of outstanding Senior Notes represented thereby
may from time to time be reduced or increased, as appropriate, to reflect
exchanges and redemptions. Any endorsement of a Global Note to reflect the
amount of any increase or decrease in the amount of outstanding Senior Notes
represented thereby shall be made by the Trustee or the Note Custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.06.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer shall sign the Senior Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Senior Notes
and may be in facsimile form.
If an Officer whose signature is on a Senior Note no longer holds that office at
the time a Senior Note is authenticated, the Senior Note shall nevertheless be
valid.
A Senior Note shall not be valid until authenticated by the manual
signature of an authorized signatory of the Trustee, and the Trustee's signature
shall be conclusive evidence that the Senior Note has been authenticated under
this Indenture. The form of Trustee's certificate of authentication to be borne
by the Senior Notes shall be substantially as set forth in Exhibit A.
The Trustee shall, upon a written order of the Company signed by two
Officers directing the Trustee to authenticate the Senior Notes and certifying
that all conditions precedent to the issuance of the Senior Notes contained
herein have been complied with, authenticate Senior Notes for original issuance
up to an aggregate principal amount stated in paragraph 4 of the Senior Notes
(the aggregate principal amount of outstanding Senior Notes may not exceed that
amount at any time, except as provided in Section 2.07). The Trustee may appoint
an authenticating agent acceptable to the Company to authenticate Senior Notes.
Unless limited by the terms of such appointment, an authenticating agent may
authenticate Senior Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with the
Company or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency (the "Registrar") where
Senior Notes may be presented for registration of transfer or for exchange and
an office or agency (the "Paying Agent") where Senior Notes may be presented for
payment. The Registrar shall keep a register of the Senior Notes and of their
transfer and exchange. The Company may appoint one or more co-registrars and
one or more additional paying agents. The term "Registrar" includes any co-
registrar, and the term "Paying Agent" includes any additional paying agent.
The Company may change any Paying Agent or Registrar without prior notice to any
Holder. The Company shall notify in writing the Trustee and the Trustee shall
notify the Holders in writing of the name and address of any Agent not a party
to this Indenture. If the Company fails to appoint or maintain another entity
as Registrar or Paying Agent, the Trustee shall act as such. The Company shall
16
<PAGE>
enter into an appropriate agency agreement with any Agent not a party to this
Indenture, and such agreement shall incorporate the TIA's provisions and
implement the provisions of this Indenture that relate to such Agent.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depository with respect to the Global Notes.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands in connection with the Senior Notes
and as Note Custodian with respect to the Global Notes. The Company or any of
its Subsidiaries may act as Paying Agent, Registrar or co-registrar. If the
Company fails to appoint or maintain a Registrar and Paying Agent, the Trustee
shall act as such, and shall be entitled to appropriate compensation in
accordance with Section 7.07.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the Holders'
benefit or the Trustee all money the Paying Agent holds for redemption or
purchase of the Senior Notes or for the payment of principal of, or premium, if
any, or interest on, or Liquidated Damages, if any, with respect to the Senior
Notes, and will promptly notify the Trustee of any Default by the Company in
providing the Paying Agent with sufficient funds to (i) purchase Senior Notes
tendered pursuant to an Offer arising under Section 4.13, (ii) redeem Senior
Notes called for redemption, or (iii) make any payment of principal, premium,
interest or Liquidated Damages due on the Senior Notes. While any such Default
continues, the Trustee may require the Paying Agent to pay all money it holds to
the Trustee and to account for any funds disbursed. The Company at any time may
require the Paying Agent to pay all money it holds to the Trustee and to account
for any funds disbursed. Upon payment over to the Trustee, the Paying Agent (if
other than the Company or any of its Subsidiaries) shall have no further
liability for the money it delivered to the Trustee. If the Company or any of
its Subsidiaries acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the Holders' benefit or the Trustee all money it holds as Paying
Agent.
SECTION 2.05. HOLDER 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
all Holders and shall otherwise comply with TIA (S)312(a). If the Trustee is not
the Registrar, the Company shall furnish to the Trustee at least seven Business
Days before each interest payment date and at such other times as the Trustee
may request in writing, a list in such form and as of such date as the Trustee
may reasonably require that sets forth the names and addresses of, and the
aggregate principal amount of Senior Notes held by, each Holder, and the Company
shall otherwise comply with Section 312(a) of the TIA.
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Definitive Notes. When Definitive Notes are
presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Definitive Notes; or
17
<PAGE>
(y) to exchange such Definitive Notes for an equal principal amount
of Definitive Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Notes presented or surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by
such Holder or by his attorney, duly authorized in writing; and
(ii) in the case of a Definitive Note that is a Transfer Restricted
Senior Note, such request shall be accompanied by the following
additional information and documents, as applicable:
(A) if such Transfer Restricted Senior Note is being delivered
to the Registrar by a Holder for registration in the name of
such Holder, without transfer, a certification to that
effect from such Holder (in substantially the form of
Exhibit B hereto); or
(B) if such Transfer Restricted Senior Note is being transferred
(1) to a "qualified institutional buyer" (as defined in Rule
144A under the Securities Act) in accordance with Rule 144A
under the Securities Act or (2) pursuant to an exemption
from registration in accordance with Rule 144 under the
Securities Act (and based on an opinion of counsel if the
Company so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a
certification to that effect from such Holder (in
substantially the form of Exhibit B hereto);
(C) if such Transfer Restricted Senior Note is being transferred
to an institutional "accredited investor," within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement exemption
from the registration requirements of the Securities Act
(and based on an opinion of counsel if the Company so
requests), a certification to that effect from such Holder
(in substantially the form of Exhibit B hereto) and a
certification from the applicable transferee (in
substantially the form of Exhibit C hereto);
(D) if such Transfer Restricted Senior Note is being transferred
pursuant to an exemption from registration in accordance
with Rule 904 under the Securities Act (and based on an
opinion of counsel if the Company so requests),
certifications to that effect from such Holder (in
substantially the form of Exhibits B and D hereto); or
(E) if such Transfer Restricted Senior Note is being transferred
in reliance on another exemption from the registration
requirements of the Securities Act (and based on an opinion
of counsel if the Company so requests), a
18
<PAGE>
certification to that effect from such Holder (in
substantially the form of Exhibit B hereto).
(b) Transfer of a Definitive Note for a Beneficial Interest in a Global
Note. A Definitive Note may not be exchanged for a beneficial interest in a
Global Note except upon satisfaction of the requirements set forth below. Upon
receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Trustee,
together with:
(i) if such Definitive Note is a Transfer Restricted Senior Note, a
certification from the Holder thereof (in substantially the form
of Exhibit B hereto) to the effect that such Definitive Note is
being transferred by such Holder to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act; and
(ii) whether or not such Definitive Note is a Transfer Restricted
Senior Note, written instructions from the Holder thereof
directing the Trustee to make, or to direct the Note Custodian to
make, an endorsement on the Global Note to reflect an increase in
the aggregate principal amount of the Senior Notes represented by
the Global Note,
the Trustee shall cancel such Definitive Note in accordance with Section 2.11
and cause, or direct the Note Custodian to cause, in accordance with the
standing instructions and procedures existing between the Depository and the
Note Custodian, the aggregate principal amount of Senior Notes represented by
the Global Note to be increased accordingly. If no Global Notes are then
outstanding, the Company shall issue and, upon receipt of an authentication
order in accordance with Section 2.02, the Trustee shall authenticate a new
Global Note in the appropriate principal amount.
(c) Transfer and Exchange of Global Notes. The transfer and exchange of
Global Notes or beneficial interests therein shall be effected through the
Depository, in accordance with this Indenture and the procedures of the
Depository therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Note for a Definitive
Note.
(i) Any Person having a beneficial interest in a Global Note may upon
request exchange such beneficial interest for a Definitive Note.
Upon receipt by the Trustee of written instructions or such other
form of instructions as is customary for the Depository, from the
Depository or its nominee on behalf of any Person having a
beneficial interest in a Global Note, and, in the case of a
Transfer Restricted Senior Note, the following additional
information and documents (all of which may be submitted by
facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depository as being the beneficial
owner, a certification to that effect from such Person (in
substantially the form of Exhibit B hereto); or
(B) if such beneficial interest is being transferred (1) to a
"qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in accordance
19
<PAGE>
with Rule 144A under the Securities Act or (2) pursuant to
an exemption from registration in accordance with Rule 144
under the Securities Act (and based on an opinion of counsel
if the Company so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a
certification to that effect from the transferor (in
substantially the form of Exhibit B hereto); or
(C) if such beneficial interest is being transferred to an
institutional "accredited investor," within the meaning of
Rule 501(a)(1), (2), (3) or (7) under the Securities Act
pursuant to a private placement exemption from the
registration requirements of the Securities Act (and based
on an opinion of counsel if the Company so requests), a
certification to that effect from such Holder (in
substantially the form of Exhibit B hereto) and a
certification from the applicable transferee (in
substantially the form of Exhibit C hereto);
(D) if such beneficial interest is being transferred pursuant to
an exemption from registration in accordance with Rule 904
under the Securities Act (and based on an opinion of counsel
if the Company so requests), certifications to that effect
from such Holder (in substantially the form of Exhibits B
and D hereto); or
(E) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of
the Securities Act (and based on an opinion of counsel if
the Company so requests), a certification to that effect
from such Holder (in substantially the form of Exhibit B
hereto).
the Trustee or the Note Custodian, at the direction of the Trustee, shall, in
accordance with the standing instructions and procedures existing between the
Depository and the Note Custodian, cause the aggregate principal amount of
Global Notes to be reduced accordingly and, following such reduction, the
Company shall execute and, upon receipt of an authentication order in accordance
with Section 2.02 hereof, the Trustee shall authenticate and deliver to the
transferee a Definitive Note in the appropriate principal amount.
(ii) Definitive Notes issued in exchange for a beneficial interest in
a Global Note pursuant to this Section 2.06(d) shall be
registered in such names and in such authorized denominations as
the Depository, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee.
The Trustee shall deliver in accordance with the standard
procedures of the Depository such Definitive Notes to the Persons
in whose names such Senior Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding
any other provision of this Indenture (other than the provisions set forth in
subsection (f) of this Section 2.06), a Global Note may not be transferred as a
whole except by the Depository to a nominee of the Depository or by a nominee of
the Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor Depository or a nominee of such
successor Depository.
(f) Authentication of Definitive Notes in Absence of Depository. If at any
time:
20
<PAGE>
(i) the Depository for the Senior Notes notifies the Company that the
Depository is unwilling or unable to continue as Depository for
the Global Notes and a successor Depository for the Global Notes
is not appointed by the Company within 90 days after delivery of
such notice; or
(ii) The Company, at its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of Definitive Notes
under this Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02, authenticate and deliver,
Definitive Notes in an aggregate principal amount equal to the principal amount
of the Global Notes in exchange for such Global Notes and registered in such
names as the Depository shall instruct the Trustee or the Company in writing.
(g) Legends.
(i) Except for any Transfer Restricted Senior Note sold or
transferred (including any Transfer Restricted Senior Note
represented by a Global Note) as described in (ii) below, each
Senior Note certificate evidencing Global Notes and Definitive
Notes (and all Senior Notes issued in exchange therefor or
substitution thereof) shall bear legends in substantially the
following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE
THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A
FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
21
<PAGE>
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY
ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE
RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Senior Note
(including any Transfer Restricted Senior Note represented by a
Global Note) pursuant to an effective registration statement
under the Securities Act, pursuant to Rule 144 under the
Securities Act or pursuant to an opinion of counsel reasonably
satisfactory to the Company and the Registrar that no legend is
required:
(A) in the case of any Transfer Restricted Senior Note that is a
Definitive Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Senior Note for
a Definitive Note that does not bear the legend set forth in
(i) above and rescind any restriction on the transfer of
such Transfer Restricted Senior Note; and
(B) in the case of any Transfer Restricted Senior Note
represented by a Global Note, such Transfer Restricted
Senior Note shall not be required to bear the legend set
forth in (i) above if all other interests in such Global
Note have been or are concurrently being sold or transferred
pursuant to Rule 144 under the Securities Act or pursuant to
an effective registration statement under the Securities
Act, but such Transfer Restricted Senior Note shall continue
to be subject to the provisions of Section 2.06(c);
provided, however, that with respect to any request for an
exchange of a Transfer Restricted Senior Note that is
represented by a Global Note for a Definitive Note that does
not bear the legend set forth in (i) above, which request is
made in reliance upon Rule 144, the Holder thereof shall
certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B hereto).
(iii) Notwithstanding the foregoing, upon consummation of the Exchange
Offer, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02, the
Trustee shall authenticate, Series D Senior Notes in exchange
for Series C Senior Notes and Series A/B Senior Notes accepted
for exchange in the Exchange Offer, which Series D Senior Notes
shall not bear the legend set forth in (i) above, and the
Registrar shall rescind any restriction on the transfer of such
Senior Notes, in each case unless the Holder of such Series D
Senior Notes is either (A) a broker-dealer, (B) a Person
participating in the distribution of the Series D Senior Notes
or (C) a Person who is an affiliate (as defined in Rule 144A) of
the Company. The Company shall identify to the Trustee such
Holders of the Series D Senior Notes in a written certification
signed by an Officer of the Company and, absent certification
from the Company to such effect, the Trustee shall assume that
there are no such Holders.
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in Global Notes have been exchanged for Definitive Notes,
redeemed, repurchased or canceled, all Global Notes shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11. At any
time
22
<PAGE>
prior to such cancellation, if any beneficial interest in a Global Note is
exchanged for Definitive Notes, redeemed, repurchased or canceled, the principal
amount of Senior Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note, by the Trustee
or the Note Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Definitive
Notes and Global Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder 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 exchange or transfer pursuant to Sections 3.07, 4.13, 4.14
and 9.05).
(iii) Neither the Company nor the Registrar shall be required to
register the transfer of or exchange any Senior Note selected
for redemption in whole or in part, except the unredeemed
portion of any Senior Note being redeemed in part.
(iv) All Definitive Notes and Global Notes issued upon any
registration of transfer or exchange of Definitive Notes or
Global Notes in accordance with this Indenture (including any
increase in the aggregate principal amount of the Senior Notes
represented by the Global Note pursuant to subsection (b) above)
shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this
Indenture, as the Definitive Notes or Global Notes surrendered
upon such registration of transfer or exchange.
(v) Company shall not be required to issue Senior Notes and the
Registrar shall not be required to register the transfer of or
to exchange Senior Notes during a period beginning at the
opening of business 15 days before the day of any selection of
Senior Notes for redemption under Section 3.02 and ending at the
close of business on the day of selection, or to register the
transfer of or to exchange a Senior Note between a record date
and the next succeeding interest payment date.
(vi) Prior to due presentment for the registration of a transfer of
any Senior Note, the Trustee, any Agent and the Company may deem
and treat the Person in whose name any Senior Note is registered
as the absolute owner of such Senior Note for the purpose of
receiving payment of principal of, premium, if any, accrued and
unpaid interest, and Liquidated Damages, if any, on such Senior
Notes, and neither the Trustee, any Agent nor the Company shall
be affected by notice to the contrary.
(vii) The Trustee shall authenticate Definitive Notes and Global Notes
in accordance with the provisions of Section 2.02.
23
<PAGE>
SECTION 2.07. REPLACEMENT SENIOR NOTES.
If any mutilated Senior Note is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Senior Note, the Company shall issue and the
Trustee, upon the Company's written order signed by two Officers, shall
authenticate a replacement Senior Note if the Trustee's requirements are met.
If the Trustee or the Company requires it, the Holder must supply an indemnity
bond that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee, any Agent or any authenticating agent from any
loss that any of them may suffer if a Senior Note is replaced. The Company and
the Trustee may charge for their expenses in replacing a Senior Note. Every
replacement Senior Note is an additional Obligation of the Company.
SECTION 2.08. OUTSTANDING SENIOR NOTES.
The Senior Notes outstanding at any time are all the Senior Notes the
Trustee has authenticated except for those it has canceled, those delivered to
it for cancellation, those representing reductions in the interest in a Global
Note effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding.
If a Senior Note is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that a bona
fide purchaser holds the replaced Senior Note.
If the entire principal of, and premium, if any, and accrued interest on, and
Liquidated Damages, if any, with respect to any Senior Note is considered paid
under Section 4.01, it ceases to be outstanding and interest and Liquidated
Damages on it cease to accrue.
Subject to Section 2.09, a Senior Note does not cease to be
outstanding because the Company or an Affiliate holds the Senior Note.
SECTION 2.09. TREASURY SENIOR NOTES.
In determining whether the Holders of the required principal amount of
Senior Notes have concurred in any direction, waiver or consent, Senior Notes
owned by the Company or an Affiliate shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Senior Notes that a Trust Officer of the Trustee knows are so owned shall be so
disregarded. Notwithstanding the foregoing, Senior Notes that the Company or an
Affiliate offers to purchase or acquires pursuant to an Offer, exchange offer,
tender offer or otherwise shall not be deemed to be owned by the Company or an
Affiliate until legal title to such Senior Notes passes to the Company or such
Affiliate, as the case may be.
SECTION 2.10. TEMPORARY SENIOR NOTES.
Until Definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Senior Notes. Temporary Senior
Notes shall be substantially in the form of Definitive Notes but may have
variations that the Company considers appropriate for temporary Senior Notes.
Without unreasonable delay, the Company shall prepare and the Trustee, upon
receipt of the Company's written order signed by two Officers which shall
specify the amount of temporary Senior Notes to be authenticated and the date on
which the temporary Senior Notes are to be authenticated, shall authenticate
Definitive Notes and deliver them in exchange for temporary Senior Notes. Until
such exchange, Holders of temporary Senior Notes shall be entitled to the same
rights, benefits and privileges as Definitive Notes.
24
<PAGE>
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Senior Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Senior Notes surrendered to them for registration of transfer, exchange,
replacement, payment (including all Senior Notes called for redemption and all
Senior Notes accepted for payment pursuant to an Offer) or cancellation, and the
Trustee shall cancel all such Senior Notes and shall destroy all canceled Senior
Notes (subject to the Exchange Act's record retention requirements) and deliver
a certificate of their destruction to the Company unless by written order,
signed by two Officers of the Company, the Company shall direct that canceled
Senior Notes be returned to it. The Company may not issue new Senior Notes to
replace any Senior Notes that have been canceled by the Trustee or that have
been delivered to the Trustee for cancellation. If the Company or an Affiliate
acquires any Senior Notes (other than by redemption or pursuant to an Offer),
such acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Senior Notes unless and until such Senior Notes
are delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Senior Notes,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to Holders on a subsequent
special record date, in each case at the rate provided in the Senior Notes and
in Section 4.01. The Company shall fix or cause to be fixed each such special
record date and payment date. As early as practicable prior to the special
record date, the Company (or the Trustee, in the name of and at the expense of
the Company) shall mail a notice that states the special record date, the
related payment date and the amount of interest to be paid.
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of Holders of
Senior Notes entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be determined as provided for
in section 316(c) of the TIA.
SECTION 2.14. CUSIP NUMBER.
A "CUSIP" number shall be printed on the Senior Notes, and the Trustee
shall use the CUSIP number in notices of redemption, purchase or exchange as a
convenience to Holders, provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Senior Notes and that reliance may be placed
only on the other identification numbers printed on the Senior Notes. The
Company shall promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3.
OPTIONAL REDEMPTION AND MANDATORY OFFERS TO PURCHASE
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Senior Notes pursuant to Section 3.07,
it shall furnish to the Trustee, at least 40 days prior to the redemption date
and at least 10 days prior to the date that notice of the redemption is to be
mailed by the Company to Holders, an Officers' Certificate stating that the
Company
25
<PAGE>
has elected to redeem Senior Notes pursuant to Section 3.07(a) or 3.07(b), as
the case may be, the date notice of redemption is to be mailed to Holders, the
redemption date, the aggregate principal amount of Senior Notes to be redeemed,
the redemption price for such Senior Notes and the amount of accrued and unpaid
interest on and Liquidated Damages, if any, with respect to such Senior Notes as
of the redemption date. If the Trustee is not the Registrar, the Company shall,
concurrently with delivery of its notice to the Trustee of a redemption, cause
the Registrar to deliver to the Trustee a certificate (upon which the Trustee
may rely) setting forth the name of, and the aggregate principal amount of
Senior Notes held by, each Holder.
If the Company is required to offer to purchase Senior Notes pursuant
to Section 4.13 or 4.14, it shall furnish to the Trustee, at least 2 Business
Days before notice of the Offer is to be mailed to Holders, an Officers'
Certificate setting forth that the Offer is being made pursuant to Section 4.13
or 4.14, as the case may be, the Purchase Date, the maximum principal amount of
Senior Notes the Company is offering to purchase pursuant to the Offer, the
purchase price for such Senior Notes, and the amount of accrued and unpaid
interest on and Liquidated Damages, if any, with respect to such Senior Notes as
of the Purchase Date.
The Company will also provide the Trustee with any additional
information that the Trustee reasonably requests in connection with any
redemption or Offer.
SECTION 3.02. SELECTION OF SENIOR NOTES TO BE REDEEMED OR PURCHASED.
If less than all outstanding Senior Notes are to be redeemed or if
less than all Senior Notes tendered pursuant to an Offer are to be accepted for
payment, the Trustee shall select the outstanding Senior Notes to be redeemed or
accepted for payment pro rata, by lot or by a method that complies with the
requirements of any stock exchange on which the Senior Notes are listed and that
the Trustee considers fair and appropriate. If the Company elects to mail
notice of a redemption to Holders, the Trustee shall at least 5 business days
prior to the date notice of redemption is to be mailed, (i) select the Senior
Notes to be redeemed from Senior Notes outstanding not previously called for
redemption and (ii) notify the Company of the names of each Holder of Senior
Notes selected for redemption, the principal amount of Senior Notes held by each
such Holder and the principal amount of such Holder's Senior Notes that are to
be redeemed. If less than all Senior Notes tendered pursuant to an Offer on the
Purchase Date are to be accepted for payment, the Trustee shall select on or
promptly after the Purchase Date the Senior Notes to be accepted for payment.
The Trustee shall select for redemption or purchase Senior Notes or portions of
Senior Notes in principal amounts of $1,000 or integral multiples of $1,000;
except that if all of the Senior Notes of a Holder are selected for redemption
or purchase, the aggregate principal amount of the Senior Notes held by such
Holder, even if not a multiple of $1,000, shall be redeemed or purchased.
Except as provided in the preceding sentence, provisions of this Indenture that
apply to Senior Notes called for redemption or tendered pursuant to an Offer
also apply to portions of Senior Notes called for redemption or tendered
pursuant to an Offer. The Trustee shall notify the Company promptly of the
Senior Notes or portions of Senior Notes to be called for redemption or selected
for purchase.
SECTION 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail a notice of redemption to each Holder of Senior Notes or
portions thereof that are to be redeemed.
The notice shall identify the Senior Notes or portions thereof to be
redeemed and shall state:
(1) the redemption date;
26
<PAGE>
(2) the redemption price for the Senior Notes and separately
stating the amount of unpaid and accrued interest on, and
Liquidated Damages, if any, with respect to, such Senior
Notes as of the date of redemption;
(3) if any Senior Note is being redeemed in part, the portion of
the principal amount of such Senior Notes to be redeemed and
that, after the redemption date, upon surrender of such
Senior Note, a new Senior Note or Senior Notes in principal
amount equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Senior Notes called for redemption must be surrendered
to the Paying Agent to collect the redemption price for, and
any accrued and unpaid interest on, and Liquidated Damages,
if any, with respect to such Senior Notes;
(6) that, unless the Company defaults in making such redemption
payment, interest on Senior Notes called for redemption
ceases to accrue on and after the redemption date;
(7) the paragraph of the Senior Notes pursuant to which the
Senior Notes called for redemption are being redeemed; and
(8) the CUSIP number; provided that no representation is made as
to the correctness or accuracy of the CUSIP number listed in
such notice and printed on the Senior Notes.
At the Company's request, the Trustee shall (at the Company's expense)
give the notice of redemption in the Company's name at least 30 but not more
than 60 days before a redemption; provided, however, that the Company shall
deliver to the Trustee, at least 45 days prior to the redemption date and at
least 10 days prior to the date that notice of the redemption is to be mailed to
Holders, an Officers' Certificate that (i) requests the Trustee to give notice
of the redemption to Holders, (ii) sets forth the information to be provided to
Holders in the notice of redemption, as set forth in the preceding paragraph,
(iii) states that the Company has elected to redeem Senior Notes pursuant to
Section 3.07(a) or 3.07(b), as the case may be, and (iv) sets forth the
aggregate principal amount of Senior Notes to be redeemed and the amount of
accrued and unpaid interest and Liquidated Damages, if any, thereon as of the
redemption date. If the Trustee is not the Registrar, the Company shall,
concurrently with any such request, cause the Registrar to deliver to the
Trustee a certificate (upon which the Trustee may rely) setting forth the name
of, the address of, and the aggregate principal amount of Senior Notes held by,
each Holder.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Senior Notes called for
redemption become due and payable on the redemption date at the price set forth
in the Senior Note. Upon surrender to the Trustee or Paying Agent, such Senior
Notes called for redemption shall be paid at the redemption price (which shall
include 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.
27
<PAGE>
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
On or prior to any redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption price
of, and accrued interest on, and Liquidated Damages, if any, with respect to all
Senior Notes to be redeemed on that date. The Trustee or the Paying Agent shall
return to the Company any money that the Company deposited with the Trustee or
the Paying Agent in excess of the amounts necessary to pay the redemption price
of, and accrued interest on, and Liquidated Damages, if any, with respect to all
Senior Notes to be redeemed.
If the Company complies with the preceding paragraph, interest on the
Senior Notes to be redeemed will cease to accrue on such Senior Notes on the
applicable redemption date, whether or not such Senior Notes are presented for
payment. If a Senior Note is redeemed on or after an interest record date but
on or prior to the related interest payment date, then any accrued and unpaid
interest and Liquidated Damages, if any, shall be paid to the Person in whose
name such Senior Note was registered at the close of business on such record
date. If any Senior Note called for redemption shall not be so paid upon
surrender for redemption because of the failure of the Company to comply with
the preceding paragraph, interest will be paid on the unpaid principal, premium,
if any, interest and Liquidated Damages, if any, from the redemption date until
such principal, premium, interest and Liquidated Damages, if any, is paid, at
the rate of interest provided in the Senior Notes and Section 4.01.
SECTION 3.06. SENIOR NOTES REDEEMED IN PART.
Upon surrender of a Senior Note that is redeemed in part, the Company
shall issue and the Trustee, upon receipt of an authentication order shall
authenticate for the Holder at the Company's expense a new Senior Note equal in
principal amount to the unredeemed portion of the Senior Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION PROVISIONS.
(a) Except as provided in Section 3.07(b), the Senior Notes may not be
redeemed at the option of the Company prior to November 15, 2001. During the
twelve (12) month period beginning on November 15 of the years indicated below,
the Senior Notes will be redeemable at the option of the Company, in whole or in
part, on at least 30 but not more than 60 days' notice to each Holder of Senior
Notes to be redeemed, at the redemption prices (expressed as percentages of the
principal amount) set forth below, plus any accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date:
Year Percentage
- ---- ----------
2001.................................. 105.375%
2002.................................. 103.583%
2003.................................. 101.792%
2004 and thereafter................... 100.000%
(b) Notwithstanding the foregoing, prior to November 15, 1999, the Company
may (but shall not have the obligation to) redeem up to 35% of the original
aggregate principal amount of the Senior Notes at a redemption price of 109.750%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, with the net proceeds of one or more
Equity Offerings; provided that at least 65% of the aggregate principal amount
of Senior Notes originally issued remain
28
<PAGE>
outstanding immediately after the occurrence of any such redemption; and
provided, further, that any such redemption shall occur within 60 days of the
date of the closing of any such Equity Offering.
SECTION 3.08. MANDATORY PURCHASE PROVISIONS.
(a) Within 30 days after any Change of Control Trigger Date or Asset Sale
Trigger Date, the Company shall mail a notice to each Holder at such Holder's
registered address stating (i) that an offer ("Offer") is being made pursuant to
Section 4.13 or Section 4.14, as the case may be, the length of time the Offer
shall remain open and the maximum aggregate principal amount of Senior Notes
that will be accepted for payment pursuant to such Offer; (ii) the purchase
price for the Senior Notes (as set forth in Section 4.13 or Section 4.14, as the
case may be), the amount of accrued and unpaid interest on, and Liquidated
Damages, if any, with respect to, such Senior Notes as of the purchase date, and
the purchase date (which shall be no earlier than 30 days and no later than 40
days from the date such notice is mailed (the "Purchase Date")); (iii) that any
Senior Note not accepted for payment will continue to accrue interest and
Liquidated Damages, if any; (iv) that, unless the Company fails to deposit with
the Paying Agent on the Purchase Date an amount sufficient to purchase all
Senior Notes accepted for payment, interest shall cease to accrue on such Senior
Notes after the Purchase Date; (v) that Holders electing to tender any Senior
Note or portion thereof will be required to surrender their Senior Note, with a
form entitled "Option of Holder to Elect Purchase" completed, to the Paying
Agent at the address specified in the notice prior to the close of business on
the Business Day preceding the Purchase Date, provided that Holders electing to
tender only a portion of any Senior Note must tender a principal amount of
$1,000 or integral multiples thereof; (vi) that Holders will be entitled to
withdraw their election to tender Senior Notes, if the Paying Agent receives,
not later than the close of business on the third Business Day preceding the
Purchase Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of Senior Notes delivered for
purchase, and a statement that such Holder is withdrawing his election to have
such Senior Note purchased; and (vii) that Holders whose Senior Notes are
accepted for payment in part will be issued new Senior Notes equal in principal
amount to the unpurchased portion of Senior Notes surrendered; provided that
only Senior Notes in a principal amount of $1,000 or integral multiples thereof
will be accepted for payment in part.
(b) On the Purchase Date for any Offer, the Company shall, to the extent
required by this Indenture and such Offer, (i) in the case of an Offer resulting
from a Change of Control, accept for payment all Senior Notes or portions
thereof tendered pursuant to such Offer and, in the case of an Offer resulting
from an Asset Sale, accept for payment the maximum principal amount of Senior
Notes or portions thereof tendered pursuant to such Offer that can be purchased
out of Excess Proceeds from such Asset Sale Trigger Date, (ii) deposit with the
Paying Agent the aggregate purchase price of all Senior Notes or portions
thereof accepted for payment and any accrued and unpaid interest and Liquidated
Damages, if any, on such Senior Notes as of the Purchase Date, and (iii) deliver
or cause to be delivered to the Trustee all Senior Notes tendered pursuant to
the Offer.
(c) With respect to any Offer, if less than all of the Senior Notes
tendered pursuant to an Offer are to be purchased by the Company, the Trustee
shall select on the Purchase Date the Senior Notes or portions thereof to be
accepted for payment pursuant to Section 3.02.
(d) Promptly after consummation of an Offer, (i) the Paying Agent shall
mail (or cause to be transferred by book entry) to each Holder of Senior Notes
or portions thereof accepted for payment an amount equal to the purchase price
for, plus any accrued and unpaid interest on, and Liquidated Damages, if any,
with respect to such Senior Notes, (ii) with respect to any tendered Senior Note
not accepted for payment in whole or in part, the Trustee shall return such
Senior Note to the Holder thereof, and (iii) with
29
<PAGE>
respect to any Senior Note accepted for payment in part, the Trustee shall
authenticate and mail to each such Holder a new Senior Note equal in principal
amount to the unpurchased portion of the tendered Senior Note.
(e) The Company will publicly announce the results of the Offer on or as
soon as practicable after the Purchase Date.
(f) The Company shall comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with an Offer required to be made by the Company to repurchase the Senior Notes
as a result of a Change of Control Trigger Date or an Asset Sale Trigger Date.
To the extent that the provisions of any securities laws or regulations conflict
with provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Indenture by virtue thereof.
(g) With respect to any Offer, if the Company deposits prior to 10 a.m.
New York City time with the Paying Agent on the Purchase Date an amount in
available funds sufficient to purchase all Senior Notes accepted for payment,
interest shall cease to accrue on such Senior Notes after the Purchase Date;
provided, however, that if the Company fails to deposit such amount on the
Purchase Date, interest shall continue to accrue on such Senior Notes until such
deposit is made.
ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF SENIOR NOTES.
The Company shall pay the principal of, and premium, if any, and
accrued and unpaid interest on the Senior Notes on the dates and in the manner
provided in the Senior Notes. Holders of Senior Notes must surrender their
Senior Notes to the Paying Agent to collect principal payments. Principal of,
premium, if any, and accrued and unpaid interest, and Liquidated Damages, if
any, shall be considered paid on the date due if the Paying Agent (other than
the Company or any of its Subsidiaries), the Global Note Holder or each Holder
that has specified an account, holds, as of 10:00 a.m. New York City time, money
the Company deposited in immediately available funds designated for and
sufficient to pay in cash all principal, premium, if any, and accrued and unpaid
interest on, and Liquidated Damages, if any, then due; provided that, to the
extent that the Holders have not specified accounts, such amounts shall be
considered paid on the date due if the Company mails a check for such amounts on
such date. The Paying Agent shall return to the Company, no later than five
days following the date of payment, any money (including accrued interest) that
exceeds the amount of principal, premium, if any, accrued and unpaid interest,
and Liquidated Damages, if any, paid on the Senior Notes. The Company shall pay
all Liquidated Damages, if any, in the same manner on the dates and in the
amounts set forth in the Registration Rights Agreement. If any Liquidated
Damages become payable, the Company shall not later than 3 Business Days prior
to the date that any payment of Liquidated Damages is due (i) deliver an
Officers' Certificate to the Trustee setting forth the amount of Liquidated
Damages payable to Holders and (ii) instruct the Paying Agent to pay such amount
of Liquidated Damages to Holders entitled to receive such Liquidated Damages.
To the extent lawful, the Company shall pay interest (including Post-
Petition Interest) on (i) overdue principal and premium at the rate equal to 2%
per annum in excess of the then applicable interest rate on the Senior Notes,
compounded semiannually and (ii) overdue installments of interest and Liquidated
Damages (without regard to any applicable grace period) at the same rate as set
forth in clause (i), compounded semiannually.
30
<PAGE>
SECTION 4.02. SEC REPORTS.
(a) The Company shall file with the Trustee, within 15 days after it files
them with the SEC, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) that the Company is required
to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If the
Company is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Trustee, within 15 days after it
would have been required to file with the SEC, financial statements, including
any notes thereto (and with respect to annual reports, an auditor's report by a
firm of established national reputation), and a "Management's Discussion and
Analysis of Financial Condition and Results of Operations," both comparable to
that which the Company would have been required to include in such annual
reports, information, documents or other reports if the Company were subject to
the requirements of Section 13 or 15(d) of the Exchange Act. Subsequent to the
qualification of this Indenture under the TIA, the Company also shall comply
with the provisions of section 314(a) of the TIA.
(b) If the Company is required to furnish annual or quarterly reports to
its stockholders pursuant to the Exchange Act, the Company shall cause any
annual report furnished to its stockholders generally and any quarterly or other
financial reports it furnishes to its stockholders generally to be filed with
the Trustee and the Company shall mail to the Holders at their addresses
appearing in the register of Senior Notes maintained by the Registrar. If the
Company is not required to furnish annual or quarterly reports to its
stockholders pursuant to the Exchange Act, the Company shall cause its financial
statements referred to in Section 4.02(a), including any notes thereto (and with
respect to annual reports, an auditors' report by a firm of established national
reputation), and a "Management's Discussion and Analysis of Financial Condition
and Results of Operations," to be so mailed to the Holders within 120 days after
the end of each of the Company's fiscal years and within 60 days after the end
of each of the first three fiscal quarters of each year. The Company shall cause
to be disclosed in a statement accompanying any annual report or comparable
information as of the date of the most recent financial statements in each such
report or comparable information the amount available for payments pursuant to
Section 4.05. As of the date hereof, the Company's fiscal year ends on December
31.
(c) If the Company is not subject to the requirements of Section 13 or
15(d) of the Exchange Act, for so long as any Senior Notes remain outstanding,
the Company shall furnish to the Holders and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
SECTION 4.03. COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that, to the best of
his or her knowledge, the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions hereof
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company has taken or proposes to take with respect thereto) and that,
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of, premium,
31
<PAGE>
if any, and accrued and unpaid interest on, and Liquidated Damages, if any, with
respect to the Senior Notes are prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the financial statements
delivered pursuant to Section 4.02 shall be accompanied by a written statement
of the Company's independent public accountants (who shall be a firm of
established national reputation reasonably satisfactory to the Trustee) that in
making the examination necessary for certification of such financial statements
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of Section 4.01, 4.05, 4.06, 4.07, 4.08,
4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15 or 4.16 or of Article 5 or, if any such
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation.
The Company shall, so long as any of the Senior Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.04. STAY, EXTENSION AND 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, extension or usury law wherever
enacted, now or at any time hereafter in force, that might affect the covenants
or the performance of this Indenture; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, 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 has been
enacted.
SECTION 4.05. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, (i) declare or pay any dividend or make any
distribution on account of the Company's or such Restricted Subsidiary's Capital
Stock or other Equity Interests (other than dividends or distributions payable
in Capital Stock or other Equity Interests (other than Disqualified Stock) of
the Company or a Restricted Subsidiary and other than dividends or distributions
payable by a Restricted Subsidiary to another Restricted Subsidiary or to the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock or other Equity Interests of the Company or any of its Restricted
Subsidiaries (other than any such Equity Interest purchased from the Company or
any Restricted Subsidiary for fair market value (as determined by the Board of
Directors in good faith); (iii) voluntarily prepay Subordinated Indebtedness,
whether any such Subordinated Indebtedness is outstanding on, or issued after,
the date of original issuance of the Senior Notes except as specifically
permitted by the covenants of this Indenture; (iv) make any Restricted
Investment (all such dividends, distributions, purchases, redemptions,
acquisitions, retirements, prepayments and Restricted Investments, being
collectively referred to as "Restricted Payments"), if, at the time of such
Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof, or
32
<PAGE>
(B) immediately after such Restricted Payment and after giving
effect thereto on a Pro Forma basis, the Company shall not
be able to issue $1.00 of additional Indebtedness pursuant
to Section 4.07(a), or
(C) such Restricted Payment, together with the aggregate of all
other Restricted Payments made after the date of original
issuance of the Senior Notes, without duplication, exceeds
the sum of (1) 50% of the aggregate Consolidated Net Income
(including, for this purpose, gains from Asset Sales and, to
the extent not included in Consolidated Net Income, any gain
from a sale or disposition of a Restricted Investment) of
the Company (or, in case such aggregate is a loss, 100% of
such loss) for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing
immediately after the date of original issuance of the
Senior Notes and ended as of the Company's most recently
ended fiscal quarter at the time of such Restricted Payment,
plus (2) 100% of the aggregate net cash proceeds and the
fair market value of any property or securities (as
determined by the Board of Directors in good faith) received
by the Company from the issue or sale of Capital Stock or
other Equity Interests of the Company subsequent to the date
of original issuance of the Senior Notes (other than (x)
Capital Stock or other Equity Interests issued or sold to a
Restricted Subsidiary and (y) the issuance or sale of
Disqualified Stock), plus (3) $5,000,000, plus (4) the
amount by which the principal amount of and any accrued
interest on either (x) Senior Indebtedness of the Company or
(y) any Indebtedness of any Restricted Subsidiary is reduced
on the Company's consolidated balance sheet upon the
conversion or exchange other than by a Restricted Subsidiary
subsequent to the date of original issuance of the Senior
Notes of any Indebtedness of the Company or any Restricted
Subsidiary (not held by the Company or any Restricted
Subsidiary) for Capital Stock or other Equity Interests
(other than Disqualified Stock) of the Company or any
Restricted Subsidiaries (less the amount of any cash, or the
fair market value of any other property or securities (as
determined by the Board of Directors in good faith),
distributed by the Company or any Restricted Subsidiary (to
Persons other than the Company or any other Restricted
Subsidiary) upon such conversion or exchange), plus (5) if
any Non-Restricted Subsidiary is redesignated as a
Restricted Subsidiary, the value of the deemed Restricted
Payment resulting therefrom and determined in accordance
with the second sentence of Section 4.16; provided, however,
that for purposes of this clause (5), the value of any
redesignated Non-Restricted Subsidiary shall be reduced by
the amount that any such redesignation replenishes or
increases the amount of Restricted Investments permitted to
be made pursuant to Section 4.05(b)(iii).
(b) Notwithstanding Section 4.05(a), the following Restricted Payments may
be made: (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would comply
with all the provisions hereof (including, but not limited to, this Section
4.05); (ii) making Restricted Investments at any time, and from time to time, in
an aggregate outstanding amount
33
<PAGE>
of $20,000,000 after the date of original issuance of the Senior Notes (it being
understood that if any Restricted Investment after the date of original issuance
of the Senior Notes pursuant to this clause (ii) is sold, transferred or
otherwise conveyed to any Person other than the Company or a Restricted
Subsidiary, the portion of the net cash proceeds or fair market value of
securities or properties paid or transferred to the Company and its Restricted
Subsidiaries in connection with such sale, transfer or conveyance that relates
or corresponds to the repayment or return of the original cost of such a
Restricted Investment will replenish or increase the amount of Restricted
Investments permitted to be made pursuant to this Section 4.05(b)(ii), so that
up to $20,000,000 of Restricted Investments may be outstanding under this
Section 4.05(b)(ii) at any given time; provided that any Restricted Investment
in a Restricted Subsidiary made pursuant to this clause (ii) is made for fair
market value (as determined by the Board of Directors in good faith); (iii) the
repurchase, redemption, retirement or acquisition of the Company's stock from
the executives, management, employees or consultants of the Company or its
Subsidiaries pursuant to the terms of any subscription, stockholder or other
agreement or plan, up to an aggregate amount not to exceed $5,000,000; (iv) any
loans, advances, distributions or payments from the Company to its Restricted
Subsidiaries, or any loans, advances, distributions or payments by a Restricted
Subsidiary to the Company or to another Restricted Subsidiary, in each case
pursuant to intercompany Indebtedness, intercompany management agreements and
other intercompany agreements and obligations; (v) investments in marketable
securities and other negotiable instruments through the William Penn Funds
(including the William Penn Interest Income Fund); (vi) the purchase,
redemption, retirement or other acquisition of (A) any Senior Indebtedness of
the Company or any Indebtedness of a Restricted Subsidiaries required by its
terms to be purchased, redeemed, retired or acquired with the net proceeds from
asset sales (as defined in the instrument evidencing such Senior Indebtedness or
Indebtedness) or upon a change of control (as defined in the instrument
evidencing such Senior Indebtedness or Indebtedness) and (B) the Senior Notes
pursuant to Sections 4.13 and 4.14; (vii) to the extent constituting Restricted
Payments, payments under the Tax Sharing Agreement, New Subsidiary Consulting
Agreement, Transition Agreement and the JI Properties Services Agreement; (viii)
to the extent constituting Restricted Payments, payments under the New
Subsidiary Advisory Agreement, provided that such payments will not be made and
shall be accrued so long as any Default or Event of Default shall have occurred
and be continuing or shall occur as a consequence thereof, and the Company's
obligations to pay such fees under the New Subsidiary Advisory Agreement shall
be subordinated expressly to the Company's Obligations in respect of the Senior
Notes and indemnities, expenses and other amounts under the New Subsidiary
Advisory Agreement; (ix) the redemption, repurchase, retirement or the
acquisition of any Capital Stock or other Equity Interests of the Company or any
Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other Capital Stock or other Equity Interests of the Company or any Restricted
Subsidiary (other than any Disqualified Stock); provided that any net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition, and any Net Income resulting therefrom, shall be excluded
from this Section 4.05(a)(iv)(c)(1) and (c)(2); (x) the defeasance, redemption
or repurchase of pari passu or Subordinated Indebtedness with the net cash
proceeds from an issuance of permitted Refinancing Indebtedness or the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Capital Stock or other Equity Interests of the Company or of a Restricted
Subsidiary (other than Disqualified Stock); provided that any net cash proceeds
that are utilized for any such defeasance, redemption or repurchase, and any Net
Income resulting therefrom, shall be excluded from this Section
4.05(a)(iv)(c)(1) and (c)(2); (xi) payments of fees, expenses and indemnities in
respect of the Company's and its Subsidiaries' directors and such payments to
Parent (and its parent companies) in respect of their directors, provided that
the aggregate amount of such fees payable to all such directors does not exceed
$250,000 in any fiscal year; (xii) payments in respect of the Junior Seller
Notes, (xiii) payments in connection with the Offering; (xiv) payments in
respect of the Contingent Earnout Agreement; (xv) Restricted Investments made or
received in connection with the sale, transfer or disposition of any business,
properties or assets of the Company or any Restricted Subsidiary, provided, that
if such sale,
34
<PAGE>
transfer or disposition constitutes an Asset Sale, the Company complies with
Section 4.14; (xvi) any Restricted Investment constituting securities or
instruments of a Person issued in exchange for trade or other claims against
such Person in connection with a financial reorganization or restructuring of
such Person; and (xvii) any Restricted Investment constituting an equity
investment in a Receivables Subsidiary.
SECTION 4.06. CORPORATE EXISTENCE.
Subject to Section 4.14 and Article 5, the Company shall do or cause
to be done all things necessary to preserve and keep in full force and effect
its corporate existence and the corporate, partnership or other existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of each of its Restricted Subsidiaries and the rights
(charter and statutory), licenses and franchises of the Company and each of its
Restricted Subsidiaries; provided, however, that the Company shall not be
required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any Restricted Subsidiary, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Restricted Subsidiaries
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders.
SECTION 4.07. LIMITATION ON INCURRENCE OF INDEBTEDNESS.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, issue any Indebtedness (other than the Indebtedness represented by the
Senior Notes) unless the Company's Cash Flow Coverage Ratio for its four full
fiscal quarters next preceding the date such additional Indebtedness is issued
would have been at least 2.00 to 1, if such date is on or prior to November 15,
1998, and 2.25 to 1 thereafter, in each case determined on a Pro Forma basis
(including, for this purpose, any other Indebtedness incurred since the end of
the applicable four quarter period) as if such additional Indebtedness and any
other Indebtedness issued since the end of such four-quarter period had been
issued at the beginning of such four-quarter period.
(b) Section 4.07(a) shall not apply to the issuance of (i) Indebtedness of
the Company and/or its Restricted Subsidiaries as measured on such date of
issuance in an aggregate principal amount outstanding on any such date of
issuance not exceeding the greater of (A) $115,000,000 aggregate principal
amount pursuant to the Amended Credit Agreement and (B) an aggregate principal
amount up to the sum of (1) 85% of the book value of the Receivables of the
Company and its Restricted Subsidiaries on a consolidated basis and (2) 65% of
the book value of the inventories of the Company and its Restricted Subsidiaries
on a consolidated basis; provided that the aggregate principal amount of
Indebtedness outstanding under this clause (i) together with the aggregate
principal amount of Indebtedness outstanding under clause (iv) below shall not
exceed $140.0 million in aggregate principal amount at any one time outstanding;
(ii) Indebtedness of the Company and its Restricted Subsidiaries pursuant to any
Receivables Financing; (iii) Indebtedness of the Company and its Restricted
Subsidiaries in connection with capital leases, sale and leaseback transactions,
purchase money obligations, capital expenditures or similar financing
transactions relating to (A) their properties, assets and rights as of the date
of original issuance of the Senior Notes up to $5,000,000 in aggregate principal
amount or (B) their properties, assets and rights acquired after the date of
original issuance of the Senior Notes, provided that the aggregate principal
amount of such Indebtedness under this Section 4.07(b)(iii)(B) does not exceed
100% of the cost of such properties, assets and rights; (iv) additional
Indebtedness of the Company and its Restricted Subsidiaries in an aggregate
principal amount up to $25,000,000 (all or any portion of which may be issued as
additional Indebtedness under the Amended Credit Agreement); provided that the
aggregate principal amount of Indebtedness outstanding under this clause (iv)
together with the aggregate principal amount of Indebtedness outstanding under
clause (i) above
35
<PAGE>
shall not exceed $120.0 million in aggregate principal amount at any one time
outstanding; and (v) Other Permitted Indebtedness.
(c) Notwithstanding Sections 4.07(a) and (b), no Restricted Subsidiary
shall under any circumstances issue a guarantee of any Indebtedness of the
Company except for guarantees issued by Restricted Subsidiaries pursuant to
Section 4.15, provided, however, that the foregoing will not limit or restrict
guarantees issued by Restricted Subsidiaries in respect of Indebtedness of other
Restricted Subsidiaries.
SECTION 4.08. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) Except as otherwise set forth herein, neither the Company nor any of
its Restricted Subsidiaries shall make any loan, advance, guarantee or capital
contribution to, or for the benefit of, or sell, lease, transfer or dispose of
any properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or enter into or amend any contract, agreement or
understanding with, or for the benefit of, an Affiliate (each such transaction
or series of related transactions that are part of a common plan, an "Affiliate
Transaction"), except in good faith and on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction on an arm's length basis from an
unrelated Person.
(b) The Company shall not, and shall not permit any Restricted Subsidiary
to, engage in any Affiliate Transaction involving aggregate payments or other
transfers by the Company and its Restricted Subsidiaries in excess of $5,000,000
(including cash and non-cash payments and benefits valued at their fair market
value by the Board of Directors of the Company in good faith), unless the
Company delivers to the Trustee: (i) a resolution of the Board of Directors
stating that the Board of Directors (including a majority of the disinterested
directors, if any) has, in good faith, determined that such Affiliate
Transaction complies with the provisions of this Indenture; and (ii)(A) with
respect to any Affiliate Transaction involving the incurrence of Indebtedness, a
written opinion of a nationally recognized investment banking or accounting firm
experienced in the review of similar types of transactions, (B) with respect to
any Affiliate Transaction involving the transfer of real property, fixed assets
or equipment, either directly or by a transfer of 50% or more of the Capital
Stock of a Restricted Subsidiary which holds any such real property, fixed
assets or equipment, a written appraisal from a nationally recognized appraiser
experienced in the review of similar types of transactions or (C) with respect
to any Affiliate Transaction not otherwise described in (A) or (B) above, a
written certification from a nationally recognized professional experienced in
evaluating similar types of transactions, in each case, stating that the terms
of such transaction are fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view.
(c) Notwithstanding Sections 4.08(a) and (b), this Section 4.08 shall not
apply to (i) transactions between the Company and any Restricted Subsidiary or
between Restricted Subsidiaries; (ii) payments under the New Subsidiary Advisory
Agreement, the New Subsidiary Consulting Agreement, the Transition Agreement,
the JII Properties Services Agreement and the Tax Sharing Agreement; (iii)
payments under the Contingent Earnout Agreement; (iv) any other payments or
transactions permitted pursuant to Section 4.05; (v) reasonable compensation
paid to officers, employees or consultants of the Company or any Subsidiary as
determined in good faith by the Company's Board of Directors or executives; (vi)
transactions in connection with a Receivables Financing; or (vii) payments and
transactions in connection with the Motion Control Acquisition and the Offering.
36
<PAGE>
SECTION 4.09. LIMITATION ON LIENS.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien (other than Permitted Liens) upon any property or asset now owned
or hereafter acquired by them, or any income or profits therefrom, or assign or
convey any right to receive income therefrom; provided, however, that in
addition to creating Permitted Liens on its properties or assets, the Company
and any of its Restricted Subsidiaries may create any Lien upon any of their
properties or assets (including, but not limited to, any Capital Stock of its
Subsidiaries) if the Senior Notes are equally and ratably secured.
SECTION 4.10. COMPLIANCE WITH LAWS, TAXES.
The Company shall, and shall cause each of its Restricted Subsidiaries
to, comply with all statutes, laws, ordinances, or government rules and
regulations to which it is subject, the non-compliance with which would
materially adversely affect the business, prospects, earnings, properties,
assets or condition, financial or otherwise, of the Company and its Restricted
Subsidiaries taken as a whole.
The Company shall, and shall cause each of its Restricted Subsidiaries
to, pay prior to delinquency all taxes, assessments and governmental levies,
except those contested in good faith by appropriate proceedings.
SECTION 4.11. LIMITATION ON DIVIDENDS AND OTHER PAYMENT
RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective, any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock or any other interest or participation in, or measured by, its
profits, owned by the Company or any Restricted Subsidiary, or pay any
Indebtedness owed to, the Company or any Restricted Subsidiary; (ii) make loans
or advances to the Company; or (iii) transfer any of its properties or assets to
the Company, except for such encumbrances or restrictions existing under or by
reason of (A) applicable law; (B) Indebtedness permitted (1) under Section
4.07(a), (2) under Sections 4.07(b)(i), (ii), (iii) and (iv) and clauses (i),
(v), (vi), (vii), (ix), (x), (xi), (xv), (xvi) and (xvii) of the definition of
Other Permitted Indebtedness, or (3) by agreements and transactions permitted
under Section 4.05; (C) customary provisions restricting subletting or
assignment of any lease or license of the Company or any Restricted Subsidiary;
(D) customary provisions of any franchise, distribution or similar agreement;
(E) any instrument governing Indebtedness or any other encumbrance or
restriction of a Person acquired by the Company or any Restricted Subsidiary at
the time of such acquisition, which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired; (F) Indebtedness or other
agreements existing on the date of original issuance of the Senior Notes; (G)
any Refinancing Indebtedness of Indebtedness described in Section 4.07(b) and
clauses (i), (v), (vi), (vii), (ix), (x), (xi), (xv), (xvi) and (xvii) of the
definition of Other Permitted Indebtedness; provided that the encumbrances and
restrictions created in connection with such Refinancing Indebtedness are no
more restrictive in any material respect with regard to the interests of the
Holders of Senior Notes than the encumbrances and restrictions in the refinanced
Indebtedness; (H) any restrictions, with respect to a Restricted Subsidiary,
imposed pursuant to an agreement that has been entered into for the sale or
disposition of the stock, business, assets or properties of such Restricted
Subsidiary; (I) the terms of any Indebtedness of the Company incurred in
connection with Section 4.07, provided that the terms of such Indebtedness
37
<PAGE>
constitute no greater encumbrance or restriction on the ability of any
Restricted Subsidiary to pay dividends or make distributions, make loans or
advances or transfer properties or assets than is otherwise permitted by this
Section 4.11; and (J) the terms of purchase money obligations, but only to the
extent such purchase money obligations restrict or prohibit the transfer of the
property so acquired.
(b) Nothing contained in this Section 4.11 shall prevent the Company from
entering into any agreement or instrument providing for the incurrence of
Permitted Liens or restricting the sale or other disposition of property or
assets of the Company or any of its Restricted Subsidiaries that are subject to
Permitted Liens.
SECTION 4.12. MAINTENANCE OF OFFICE OR AGENCIES.
The Company shall maintain in the Borough of Manhattan, the City of
New York an office or an agency (which may be an office of any Agent) where
Senior Notes may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Company in respect of the Senior Notes
and this Indenture may be served. The Company shall give prompt written notice
to the Trustee of any change in the location of such office or agency. If at
any time the Company shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office.
The Company may also from time to time designate one or more other
offices or agencies where the Senior Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any matter
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee located at Goodwin Square, 225 Asylum Street, 23rd Floor, Hartford,
Connecticut 06103, as one such office or agency of the Company in accordance
with Section 2.03.
SECTION 4.13. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control (such date being the
"Change of Control Trigger Date"), each Holder of Senior Notes shall have the
right to require the Company to purchase all or any part (equal to $1,000 or an
integral multiple thereof) of such Holder's Senior Notes pursuant to an Offer at
a purchase price in cash equal to 101% of the aggregate principal amount
thereof, plus any accrued and unpaid interest and Liquidated Damages, if any, to
the date of purchase. Although the failure of the Company to purchase all Senior
Notes tendered in such an Offer shall be a Default, if the Company is unable to
purchase all Senior Notes tendered in such an Offer, the Company shall
nevertheless purchase the maximum principal amount of Senior Notes that it is
able to purchase at that time.
(b) Prior to the mailing of the notice referred to in Section 3.08(a), but
in any event within 30 days following any Change of Control Trigger Date, the
Company shall (i) repay in full and terminate all commitments under Indebtedness
under the Amended Credit Agreement and all other Senior Indebtedness the terms
of which require repayment upon a Change of Control or offer to repay in full
and terminate all commitments under all Indebtedness under the Amended Credit
Agreement and all such other Senior Indebtedness and to repay the Indebtedness
owed to each lender which has accepted such offer or (ii) obtain
38
<PAGE>
the requisite consents under the Amended Credit Agreement and all such other
Senior Indebtedness to permit the repurchase of the Senior Notes as provided in
Section 3.08(b). The Company shall first comply with Section 4.13(b)(ii) before
it shall be required to repurchase Senior Notes pursuant to the provisions in
Section 3.08. The Company's failure to comply with this Section 4.13(b) shall
constitute an Event of Default described in clause (iii) and not in clause (ii)
under Section 6.01(a)
(c) In the event of a Change of Control, the Company shall not offer to
purchase or redeem any Subordinated Indebtedness required or entitled by its
terms to be redeemed or purchased until the Change of Control Offer for the
Senior Notes has been consummated and all Senior Notes tendered pursuant to such
Offer have been accepted for payment.
SECTION 4.14. LIMITATION ON ASSET SALES.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, consummate an Asset Sale (including the sale of any
of the Capital Stock of any Restricted Subsidiary) providing for Net Proceeds in
excess of $2,500,000 unless at least 75% of the Net Proceeds from such Asset
Sale are applied (in any manner otherwise permitted by this Indenture) to one or
more of the following purposes in such combination as the Company shall elect:
(i) an investment in another asset or business in the same line of business as,
or a line of business similar to that of, the line of business of the Company
and its Restricted Subsidiaries at the time of the Asset Sale; provided that
such investment occurs on or prior to the 365th day following the date of such
Asset Sale (the "Asset Sale Disposition Date"), (ii) to reimburse the Company or
its Subsidiaries for expenditures made, and costs incurred, to repair, rebuild,
replace or restore property subject to loss, damage or taking to the extent that
the Net Proceeds consist of insurance proceeds received on account of such loss,
damage or taking, (iii) the purchase, redemption or other prepayment or
repayment of outstanding Senior Indebtedness of the Company or Indebtedness of
the Company's Restricted Subsidiaries on or prior to the 365th day following the
Asset Sale Disposition Date or (iv) an Offer expiring on or prior to the
Purchase Date.
(b) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, consummate an Asset Sale unless at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash, cash equivalents or marketable securities; provided that,
solely for purposes of calculating such 75% of the consideration, the amount of
(i) any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet or in the notes thereto, excluding contingent
liabilities and trade payables), of the Company or any Restricted Subsidiary
(other than liabilities that are by their terms subordinated to the Senior
Notes) that are assumed by the transferee of any such assets and (ii) any notes
or other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are promptly, but in no event more than 30 days after
receipt, converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash and cash
equivalents for purposes of this provision. Any Net Proceeds from any Asset Sale
that are not applied or invested as provided in Section 4.14(a) shall constitute
"Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10,000,000 (such
date being an "Asset Sale Trigger Date"), the Company shall make an Offer to all
Holders of Senior Notes to purchase the maximum principal amount of the Senior
Notes then outstanding that may be purchased out of Excess Proceeds that remain
upon completion of the Excess Proceeds offer required under the Series A/B
Indenture, at an offer price in cash in an amount equal to 100% of principal
amount thereof plus any accrued and unpaid
39
<PAGE>
interest and Liquidated Damages, if any, to the Purchase Date in accordance with
the procedures set forth in this Indenture.
(d) To the extent that any Excess Proceeds remain after completion of an
Offer, the Company may use such remaining amount for general corporate purposes.
(e) If the aggregate principal amount of Senior Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Senior Notes to be purchased on a pro rata basis.
(f) Upon completion of an Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
(g) Notwithstanding the foregoing, to the extent that any or all of the
Net Proceeds of an Asset Sale is prohibited or delayed by applicable local law
from being repatriated to the United States, the portion of such Net Proceeds so
affected will not be required to be applied pursuant to Section 4.14, but may be
retained for so long, but only for so long, as the applicable local law
prohibits repatriation to the United States. The Company shall promptly take all
reasonable actions required by the applicable local law to permit such
repatriation, and once such repatriation of any affected Net Proceeds is not
prohibited under applicable local law, such repatriation will be immediately
effected and such repatriated Net Proceeds will be applied in the manner set
forth above as if such Asset Sale have occurred on the date of repatriation.
SECTION 4.15. LIMITATION ON GUARANTEES OF COMPANY
INDEBTEDNESS BY RESTRICTED SUBSIDIARIES.
(a) The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to guarantee any Indebtedness of the Company other than the Senior
Notes (the "Other Company Indebtedness") unless (i) such Restricted Subsidiary
contemporaneously executes and delivers a supplemental indenture to the
Indenture providing for a guarantee of payment of the Senior Notes then
outstanding by such Restricted Subsidiary to the same extent as the guarantee of
payment (the "Other Company Indebtedness Guarantee") of the Other Company
Indebtedness (including waiver of subrogation, if any) and (ii) if the Other
Company Indebtedness guaranteed by such Restricted Subsidiary is (A) Senior
Indebtedness, the guarantee for the Senior Notes shall be pari passu in right of
payment with the Other Company Indebtedness Guarantee and (B) Subordinated
Indebtedness, the guarantee for the Senior Notes shall be senior in right of
payment to the Other Company Indebtedness Guarantee; provided that the foregoing
will not limit or restrict guarantees issued by Restricted Subsidiaries in
respect of Indebtedness of other Restricted Subsidiaries.
(b) Each guarantee of the Senior Notes created by a Restricted Subsidiary
pursuant to Section 4.15(a) shall be in accordance with Section 4.15(a), shall
be delivered to the Trustee and shall provide, among other things, that it will
be automatically and unconditionally released and discharged upon (i) any sale,
exchange or transfer permitted by this Indenture of (A) all of the Company's
Capital Stock in such Restricted Subsidiary or (B) the sale of all or
substantially all of the assets of the Restricted Subsidiary and upon the
application of the Net Proceeds from such sale in accordance with the
requirements of Section 4.14 or (ii) the release or discharge of the Other
Company Indebtedness Guarantee that resulted in the creation of such guarantee
of the Senior Notes, except a discharge or release by or as a result of direct
payment under such Other Company Indebtedness Guarantee.
40
<PAGE>
SECTION 4.16. DESIGNATION OF RESTRICTED AND NON-RESTRICTED SUBSIDIARIES.
(a) From and after the date of original issuance of the Senior Notes, the
Company may designate any existing or newly formed or acquired Subsidiary as a
Non-Restricted Subsidiary, provided that (i) either (A) the Subsidiary to be so
designated has total assets of $1,000,000 or less or (B) immediately before and
after giving effect to such designation on a Pro Forma Basis; (1) the Company
could incur $1.00 of additional Indebtedness pursuant to Section 4.07(a)
determined on a Pro Forma Basis; and (2) no Default or Event of Default shall
have occurred and be continuing, and (ii) all transactions between the
Subsidiary to be so designated and its Affiliates remaining in effect are
permitted pursuant to Section 4.08. Any Investment made by the Company or any
Restricted Subsidiary which is redesignated from a Restricted Subsidiary to a
Non-Restricted Subsidiary shall thereafter be considered as having been a
Restricted Payment (to the extent not previously included as a Restricted
Payment) made on the day such Subsidiary is designated a Non-Restricted
Subsidiary in the amount of the greater of (i) the fair market value (as
determined by the Board of Directors of the Company in good faith) of the Equity
Interests of such Subsidiary held by the Company and its Restricted Subsidiaries
on such date, and (ii) the amount of the Investments determined in accordance
with GAAP made by the Company and any of its Restricted Subsidiaries in such
Subsidiary.
(b) A Non-Restricted Subsidiary may be redesignated as a Restricted
Subsidiary. The Company shall not, and shall not permit any Restricted
Subsidiary to, take any action or enter into any transaction or series of
transactions that would result in a Person becoming a Restricted Subsidiary
(whether through an acquisition, the redesignation of a Non-Restricted
Subsidiary or otherwise, but not including through the creation of a new
Restricted Subsidiary) unless, immediately before and after giving effect to
such action, transaction or series of transactions on a Pro Forma Basis, (i) the
Company could incur at least $1.00 of additional Indebtedness pursuant to
Section 4.07(a) and (ii) no Default or Event of Default shall have occurred and
be continuing.
(c) The designation of a Subsidiary as a Restricted Subsidiary or the
removal of such designation is required to be made by a resolution adopted by a
majority of the Board of Directors of the Company stating that the Board of
Directors has made such designation in accordance with this Indenture, and the
Company is required to deliver to the Trustee such resolution together with an
Officers' Certificate certifying that the designation complies with this
Indenture. Such designation shall be effective as of the date specified in the
applicable resolution, which may not be before the date the applicable Officers'
Certificate is delivered to the Trustee.
ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER OR CONSOLIDATION.
(a) The Company shall not consolidate or merge with or into, or sell,
lease, convey or otherwise dispose of all or substantially all of its assets to,
any Person (any such consolidation, merger or sale being a "Disposition") unless
(i) the successor corporation of such Disposition or the corporation to which
such Disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the successor corporation of such Disposition or the corporation
to which such Disposition shall have been made expressly assumes the Obligations
of the Company, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Indenture and the Senior Notes; (iii)
immediately after such Disposition, no Default or Event of Default shall
41
<PAGE>
exist; and (iv) the corporation formed by or surviving any such Disposition, or
the corporation to which such Disposition shall have been made, shall (A) have
Consolidated Net Worth (immediately after the Disposition but prior to giving
any pro forma effect to purchase accounting adjustments or Restructuring Charges
resulting from the Disposition) equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the Disposition, (B) be permitted
immediately after the Disposition by the terms of this Indenture to issue at
least $1.00 of additional Indebtedness determined on a Pro Forma Basis, and (C)
have a Cash Flow Coverage Ratio, for the four fiscal quarters immediately
preceding the applicable Disposition, and determined on a Pro Forma Basis, equal
to or greater than the actual Cash Flow Coverage Ratio of the Company for such
four quarter period. The limitations in this Section 5.01(a) on the Company's
ability to make a Disposition do not restrict the Company's ability to sell less
than all or substantially all of its assets, such sales being governed by
Section 4.14.
(b) Prior to the consummation of any proposed Disposition, the Company
shall deliver to the Trustee an Officers' Certificate to the foregoing effect
and an Opinion of Counsel stating that the proposed Disposition and such
supplemental indenture comply with this Indenture.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any Disposition, the Successor Corporation resulting from such
Disposition 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 has been named as the Company herein; provided, however, that
neither the Company nor any Successor Corporation shall be released from its
Obligation to pay the principal of, premium, if any, and accrued and unpaid
interest on, and Liquidated Damages, if any, with respect to the Senior Notes.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default.
(a) An Event of Default is:
(i) a default for 30 days in payment of interest on, or Liquidated
Damages, if any, with respect to, the Senior Notes;
(ii) a default in payment when due of principal or premium, if any,
with respect to, the Senior Notes;
(iii) the failure of the Company to comply with any of its other
agreements or covenants in, or provisions of, this Indenture or
the Senior Notes outstanding and the Default continues for the
period, if applicable, and after the notice specified in
Section 6.01(b);
(iv) a default by the Company or any Restricted Subsidiary under any
mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any
Restricted Subsidiary (or the payment of which is guaranteed by
the Company or any Restricted Subsidiary), whether such
Indebtedness or guarantee now exists
42
<PAGE>
or shall be created hereafter, if (A) either (1) such default
results from the failure to pay principal of or interest on any
such Indebtedness at or after the final maturity thereof (after
giving effect to any extension thereof) and such default
continues for 30 days beyond any applicable grace period or (2)
as a result of such default the maturity of such Indebtedness
has been accelerated prior to its expressed maturity, and (B)
the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for
failure to pay principal or interest thereon at final maturity,
or because of the acceleration of the maturity thereof,
aggregates in excess of $10,000,000;
(v) a failure by the Company or any Restricted Subsidiary to pay
final judgments (not covered by insurance) aggregating in
excess of $10,000,000 which judgments a court of competent
jurisdiction does not rescind, annul or stay within 45 days
after their entry and the Default or Event of Default continues
for the period and after the notice specified in Section
6.01(b);
(vi) in existence when the Company or any Significant Subsidiary
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in
an involuntary case,
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors; and
(vii) in existence when a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case,
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of the property
of the Company or any Significant Subsidiary, or
(C) orders the liquidation of the Company or any Significant
Subsidiary,
and any such order or decree remains unstayed and in effect for 60 days.
(b) A Default or Event of Default under Section 6.01(a)(iii) (other than
an Event of Default arising under Section 5.01 which shall be an Event of
Default with the notice but without the passage of time specified in this
Section 6.01(b)) or Section 6.01(a)(v) is not an Event of Default under this
Indenture until the Trustee or the Holders of at least 25% in principal amount
of the Senior Notes then outstanding notify the Company of the Default and the
Company does not cure the Default within 30 days after receipt of the
43
<PAGE>
notice. The notice must specify the Default, demand that it be remedied, and
state that the notice is a "Notice of Default."
(c) In the case of any Event of Default pursuant to Section 6.01(a) or
Section 6.01(b) occurring by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
payment of the premium that the Company would have to pay if the Company then
had elected to redeem the Senior Notes pursuant to paragraph 5 of the Senior
Notes, an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law, anything in this Indenture or in the
Senior Notes contained to the contrary notwithstanding.
(d) The Trustee shall not be charged with knowledge of any Default or
Event of Default unless written notice thereof shall have been given to a Trust
Officer at the Corporate Trust Office of the Trustee by the Company or any other
Person.
SECTION 6.02. ACCELERATION.
(a) Upon the occurrence of an Event of Default (other than an Event of
Default under Section 6.01(a)(vii) or (viii)), the Trustee or the holders of at
least 25% in principal amount of the then outstanding Senior Notes may declare
all Senior Notes (i) to be due and payable immediately and, upon such
declaration, the principal of, premium, if any, and any accrued and unpaid
interest on, and Liquidated Damages, if any, with respect to all Senior Notes
shall be due and payable immediately; or (ii) if there are any amounts
outstanding under the Amended Credit Agreement, to be due and payable
immediately upon the first to occur of (A) an acceleration under the Amended
Credit Agreement or (B) five business days after receipt by the Company and the
Representative under the Amended Credit Agreement of such notice of acceleration
but only if such Event of Default is then continuing; provided, however, that if
an Event of Default arises under Section 6.01(a)(vi) or (vii), the principal of,
premium, if any, and any accrued and unpaid interest on, and Liquidated Damages,
if any, with respect to all Senior Notes, shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders of Senior Notes.
(b) The holders of a majority in principal amount of the Senior Notes then
outstanding, by notice to the Trustee, may rescind any declaration of
acceleration of such Senior Notes and its consequences (if the rescission would
not conflict with any judgment or decree) if all existing Events of Default
(other than the nonpayment of principal of or interest on such Senior Notes that
shall have become due by such declaration) shall have been cured or waived.
(c) If there has been a declaration of acceleration of the Senior Notes
because an Event of Default under Section 6.01(a)(iv) has occurred and is
continuing, such declaration of acceleration shall be automatically annulled if
the holders of the Indebtedness described in Section 6.01(a)(iv) have rescinded
the declaration of acceleration in respect of such Indebtedness within 30
Business Days thereof and if (i) the annulment of such acceleration would not
conflict with any judgment or decree of a court of competent jurisdiction, (ii)
all existing Events of Default, except non-payment of principal, premium,
interest or Liquidated Damages that shall have become due solely because of the
acceleration, have been cured or waived, and (iii) the Company has delivered an
Officers' Certificate to the Trustee to the effect of clauses (i) and (ii)
above.
44
<PAGE>
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal of, premium, if
any, or any accrued and unpaid interest on, or Liquidated Damages, if any, with
respect to the Senior Notes or to enforce the performance of any provision of
the Senior Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Senior 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. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
The holders of a majority in aggregate principal amount of the Senior
Notes then outstanding by notice to the Trustee may on behalf of all Holders of
Senior Notes waive any existing Default or Event of Default under this Indenture
and its consequences, except a continuing Default in the payment of the
principal of, premium, if any, and interest on, and Liquidated Damages, if any,
with respect to such Senior Notes, which may only be waived with the consent of
each Holder of Senior Notes affected. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; provided that no such
waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Subject to Section 7.01(e), the Holders of a majority in principal
amount of the then outstanding Senior 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 by this Indenture. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture, that the Trustee determines may be unduly prejudicial to the rights
of other Holders or would involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder may pursue a remedy with respect to this Indenture or the
Senior Notes only if (i) the Holder gives to the Trustee notice of a continuing
Event of Default; (ii) the Holders of at least 25% in principal amount of the
then outstanding Senior Notes make a request to the Trustee to pursue the
remedy; (iii) such Holder or Holders offer to the Trustee indemnity satisfactory
to the Trustee against any loss, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period the Holders of a majority
in principal amount of the then outstanding Senior Notes do not give the Trustee
a direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
Holders of the Senior Notes may not enforce this Indenture, except as
provided herein.
45
<PAGE>
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of, premium, if any, and any accrued
and unpaid interest on, and Liquidated Damages, if any, with respect to a Senior
Note, on or after a respective due date expressed in the Senior Note, or to
bring suit for the enforcement of any such payment on or after such respective
date, shall not be impaired or affected without the consent of the Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a)(i) or (ii) occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for (i) the principal,
premium and Liquidated Damages, if any, and interest remaining unpaid on the
Senior Notes, (ii) interest on overdue principal and premium, if any, and, to
the extent lawful, interest, and (iii) 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 ("Trustee Expenses").
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 to have the claims of the Trustee
(including any claim for Trustee Expenses) and the Holders allowed in any
Insolvency or Liquidation Proceeding or other judicial proceeding relative to
the Company (or any other obligor upon the Senior Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
to Holders any money or other property payable or deliverable on any such claims
and each Holder authorizes any Custodian in any such Insolvency or Liquidation
Proceeding or other judicial proceeding to make such payments to the Trustee,
and if the Trustee shall consent to the making of such payments directly to the
Holders any such Custodian is hereby authorized to make such payments directly
to the Holders, and to pay to the Trustee any amount due to it hereunder for
Trustee Expenses, and any other amounts due the Trustee under Section 7.07. To
the extent that the payment of any such Trustee Expenses, and any other amounts
due the Trustee under Section 7.07 out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties which the Holders may be entitled to receive in
such proceeding, whether in liquidation or under any plan of reorganization or
arrangement or otherwise. 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 Senior Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any Insolvency or
Liquidation Proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
46
<PAGE>
Second: to Holders for amounts due and unpaid on the Senior Notes for
principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to
the amounts due and payable on the Senior Notes for principal,
premium and Liquidated Damages, if any, and interest,
respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders.
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 a Trustee, a court in its 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, 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 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by Holders of more than 10% in principal
amount of the then outstanding Senior Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default occurs (and has not been cured) the Trustee
shall (i) exercise the rights and powers vested in it by this Indenture, and
(ii) use the same degree of care and skill in exercising such rights and powers
as a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee's duties shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture
and no others, and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(ii) 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, the
Trustee shall examine the certificates and opinions to
determine whether they conform to this Indenture's
requirements.
(c) 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:
(i) this paragraph does not limit the effect of Section 7.01(b);
47
<PAGE>
(ii) 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
(iii) 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 it receives pursuant to Section 6.05.
(d) Whether or not expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), (c), (e) and (f) of this Section and Section 7.02.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders unless such Holders shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money it receives
except as the Trustee may agree in writing with the Company. Money the Trustee
holds in trust need not be segregated from other funds except to the extent
required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) In connection with the Trustee's rights and duties under this
Indenture, the Trustee may rely on any document it believes to be genuine and to
have been signed or presented by the proper Person. The Trustee shall not be
obligated to investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting under this Indenture,
it may reasonably require an Officers' Certificate or an Opinion of Counsel, or
both. 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.
The Trustee may consult with counsel and advice of such counsel or any Opinion
of Counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through 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 it takes or omits to
take, except to the extent that such action or omission to act constitutes
negligence or willful misconduct on the part of the Trustee.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer.
(f) Except with respect to Section 4.01 hereof, the Trustee shall have no
duty to inquire as to the performance of the Company's covenants in Article 4
hereof. In addition, the Trustee shall not be deemed to have knowledge of any
Default or Event of Default except (i) any Event of Default occurring pursuant
to Sections 6.01(a)(i), 6.01(a)(ii) and 4.01 or (ii) any Default or Event of
Default of which the Trustee shall have received written notification or
obtained actual knowledge.
48
<PAGE>
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the Trustee
may, in its discretion, 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 to examine the
books, records and premises of the Company personally or by agent or attorney.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Senior Notes and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. However,
if the Trustee acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue as Trustee or
resign. Any Agent may do the same with like rights. The Trustee is also
subject to Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
THE TRUSTEE SHALL NOT BE RESPONSIBLE FOR AND MAKES NO REPRESENTATION AS TO THE
VALIDITY OR ADEQUACY OF THIS INDENTURE OR THE SENIOR NOTES, IT SHALL NOT BE
ACCOUNTABLE FOR THE COMPANY'S USE OF THE PROCEEDS FROM THE SENIOR NOTES OR FOR
ANY MONEY PAID TO THE COMPANY OR UPON THE COMPANY'S DIRECTION UNDER ANY
PROVISIONS HEREOF, IT SHALL NOT BE RESPONSIBLE FOR THE USE OR APPLICATION OF ANY
MONEY ANY PAYING AGENT OTHER THAN THE TRUSTEE RECEIVES, AND IT SHALL NOT BE
RESPONSIBLE FOR ANY STATEMENT OR RECITAL HEREIN OR ANY STATEMENT IN THE SENIOR
NOTES OR ANY OTHER DOCUMENT FURNISHED OR ISSUED IN CONNECTION WITH THE SALE OF
THE SENIOR NOTES OR PURSUANT TO THIS INDENTURE, OTHER THAN ITS CERTIFICATE OF
AUTHENTICATION.
SECTION 7.05. NOTICE TO HOLDERS OF DEFAULTS AND EVENTS OF DEFAULT.
If a Default or Event of Default occurs and is continuing and if it is
actually known to the Trustee, the Trustee shall mail to Holders a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment on any Senior Note (including any
failure to redeem Senior Notes called for redemption or any failure to purchase
Senior Notes tendered pursuant to an Offer that are required to be purchased by
the terms of this Indenture), the Trustee may withhold the notice if and so long
as a committee of its Trust Officers in good faith determines that withholding
the notice is in the Holders' interests.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each January 1 beginning with January 1, 1999,
the Trustee shall mail to Holders a brief report dated as of such reporting date
that complies with section 313(a) of the TIA (but if no event described in
section 313(a) of the TIA has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with section 313(b)(2) of the TIA. The Trustee shall also transmit by mail all
reports as required by section 313(c) of the TIA.
Commencing at the time this Indenture is qualified under the TIA, a
copy of each report at the time of its mailing to Holders shall be filed with
the SEC and each national securities exchange on which
49
<PAGE>
the Senior Notes are listed. The Company shall notify the Trustee when the
Senior Notes are listed on any national securities exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee (in its capacities as Trustee,
Paying Agent and/or Registrar) 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 disbursements, advances, fees and
expenses it incurs or makes in addition to the compensation for its services.
Such expenses shall include the reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel.
The Company shall indemnify and hold harmless the Trustee (in its
capacities as Trustee, Paying Agent and/or Registrar) against any and all
losses, liabilities or expenses the Trustee incurs arising out of or in
connection with the acceptance or administration of its duties under this
Indenture, except as set forth below. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Company shall not relieve the Company of its Obligations
hereunder. The Company shall defend the claim and the Trustee shall reasonably
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The Company's Obligations under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
The Company need not reimburse any expense or indemnify against any
loss or liability the Trustee incurs which is solely attributable to its
negligence or bad faith.
To secure the Company's payment of its Obligations in this Section,
the Trustee shall have a Lien prior to the Senior Notes on all money or property
the Trustee holds or collects. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(a)(vii) or (viii) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute administrative expenses under any Bankruptcy
Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign and be discharged from the trust hereby created
by so notifying the Company. The Holders of a majority in principal amount of
the then outstanding Senior Notes may remove the Trustee by so notifying the
Trustee and the Company. The Company may remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10;
50
<PAGE>
(ii) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(iii) a Custodian or public officer takes charge of the Trustee or
its property; or
(iv) 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 promptly appoint a successor
Trustee, provided that the Holders of a majority in principal amount of the then
outstanding Senior Notes may appoint a successor Trustee to replace any
successor Trustee appointed by the Company.
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 then outstanding Senior 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. A successor Trustee shall deliver a
written acceptance of its appointment to the retiring Trustee and to the
Company. Thereupon, 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. The successor Trustee shall mail a
notice of its appointment to Holders. The retiring Trustee shall promptly
transfer all property it holds as Trustee to the successor Trustee, provided all
sums owing to the retiring Trustee hereunder have been paid and subject to the
Lien provided for in Section 7.07. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
shall continue for the retiring Trustee's benefit with respect to expenses and
liabilities it incurred prior to being replaced.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
The Trustee shall at all times (i) be a corporation organized and
doing business under the laws of the United States of America, of any state
thereof, or the District of Columbia authorized under such laws to exercise
corporate trustee power, (ii) be subject to supervision or examination by
federal or state authority, (iii) have a combined capital and surplus of at
least $80,000,000 as set forth in its most recent published annual report of
condition, and (iv) satisfy the requirements of sections 310(a)(1), (2) and (5)
of the TIA. The Trustee is subject to section 310(b) of the TIA.
51
<PAGE>
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to section 311(a) of the TIA, excluding any
creditor relationship listed in section 311(b) of the TIA. A Trustee who has
resigned or been removed shall be subject to section 311(a) of the TIA to the
extent indicated therein.
ARTICLE 8.
DISCHARGE OF INDENTURE
SECTION 8.01. DISCHARGE OF LIABILITY ON SENIOR NOTES; DEFEASANCE.
(a) When (i) the Company delivers to the Trustee all outstanding Senior
Notes (other than Senior Notes replaced pursuant to Section 2.07) for
cancellation, or (ii) all outstanding Senior Notes have become due and payable
and the Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity all outstanding Senior Notes, including interest, premium and
Liquidated Damages thereon (other than Senior Notes replaced pursuant to Section
2.07), and if in either case the Company pays all other sums payable under this
Indenture by the Company, then this Indenture shall, subject to Sections 8.01(c)
and 8.06, cease to be of further effect.
(b) Subject to Sections 8.01(c), 8.02, and 8.06, the Company at any time
may terminate (i) all its obligations under the Senior Notes and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.13, 4.14, 4.15, and 4.16, and the
operation of Sections 5.01(a)(iii), 5.01(a)(iv), or 6.01(a)(iii) through (a)(vi)
("covenant defeasance option"). The Company may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Senior Notes may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Senior Notes
shall not be accelerated because of an Event of Default specified in
6.01(a)(iii) through (a)(vi) or because of the Company's failure to comply with
Section 5.01(a)(iii) and 5.01(a)(iv). Upon satisfaction of the conditions set
forth herein and upon the Company's request (and at the Company's expense), the
Trustee shall acknowledge in writing the discharge of those obligations that the
Company has terminated.
(c) Notwithstanding clauses (a) and (b) above, the Company's obligations
in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 4.01, 4.04, 7.07, 7.08, 8.04, 8.05 and
8.06, and the Trustee's and the Paying Agent's obligations in Section 8.04 shall
survive until the Senior Notes have been paid in full. Thereafter, the Company's
obligations in Sections 7.07 and 8.05 and the Company's, the Trustee's and the
Paying Agent's obligations in Section 8.04 shall survive.
SECTION 8.02. CONDITIONS TO DEFEASANCE.
The Company may exercise its legal defeasance option or its covenant
defeasance option only if:
(1) the Company irrevocably deposits in trust (the "defeasance
trust") with the Trustee money or U.S. Government Obligations
sufficient for the payment in full of the principal of, premium,
if any, and any accrued and unpaid interest on, and
52
<PAGE>
Liquidated Damages, if any, with respect to the Senior Notes then
outstanding, as of the maturity date, the redemption date or the
Purchase Date, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants or
investment bankers expressing their opinion that the payments of
principal and interest when due and without reinvestment of the
deposited U.S. Government Obligations plus any deposited money
without investment will provide cash at such times and in such
amounts as will be sufficient to pay when due principal of,
premium, if any, and any accrued and unpaid interest on, and
Liquidated Damages, if any, with respect to all the Senior Notes
to maturity or redemption, as the case may be;
(3) since the Company's irrevocable deposit provided for in Section
8.02(1), 91 days have passed;
(4) no Default has occurred and is continuing on the date of such
deposit and after giving effect to it;
(5) the deposit does not constitute a default under any other
agreement binding on the Company;
(6) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not
constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940, as amended;
(7) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that
(i) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (ii) under
applicable federal income tax law, in either case, to the effect
that, and based thereon such Opinion of Counsel shall confirm
that, the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and
defeasance and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have
been the case if such defeasance had not occurred;
(8) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and
covenant defeasance and will be subject to federal income tax on
the same amount, in the same manner and at the same times as
would have been the case if such covenant defeasance had not
occurred (and, in the case of legal defeasance only, such opinion
of counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law);
and
(9) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent
to the defeasance and discharge of the Senior Notes contemplated
by this Article 8 have been satisfied.
53
<PAGE>
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption or purchase of Senior Notes at a
future date in accordance with Article 3.
SECTION 8.03. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to this Article 8. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal of, premium, if any,
and any accrued and unpaid interest on, and Liquidated Damages, if any, with
respect to the Senior Notes.
SECTION 8.04. REPAYMENT TO THE COMPANY.
After the Senior Notes have been paid in full, the Trustee and the
Paying Agent shall promptly turn over to the Company any excess money or
securities they hold.
The Trustee and the Paying Agent shall pay to the Company upon written
request by the Company any money they hold for the payment of principal,
premium, interest or Liquidated Damages that remains unclaimed for 1 year after
the date upon which such payment shall have become due; provided, however, that
the Company shall have either caused notice of such payment to be mailed to each
Holder entitled thereto no less than 30 days prior to such repayment or within
such period shall have published such notice in a financial newspaper of
widespread circulation published in The City of New York (including, without
limitation, The Wall Street Journal). After payment to the Company, Holders
entitled to the money must look to the Company for payment as general creditors
unless an applicable abandoned property law designates another Person, and all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS.
The Company shall pay and shall indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against deposited U.S. Government
Obligations or the principal and interest received on such U.S. Government
Obligations.
SECTION 8.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Article 8 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 Senior Notes shall be revived
and reinstated as though no deposit had occurred pursuant to this Article 8
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with this Article 8;
provided, however, that, if the Company has made any payment of principal of,
premium, if any, and any accrued and unpaid interest on, and Liquidated Damages,
if any, with respect to any Senior Notes because of the reinstatement of its
Obligations, the Company shall be subrogated to the Holders' rights to receive
such payment from the money or U.S. Government Obligations the Trustee or Paying
Agent holds.
54
<PAGE>
ARTICLE 9.
AMENDMENTS
SECTION 9.01. AMENDMENTS AND SUPPLEMENTS PERMITTED WITHOUT
CONSENT OF HOLDERS.
Notwithstanding Section 9.02, the Company and the Trustee may amend or
supplement this Indenture or the Senior Notes without the consent of any Holder
(a) to cure any ambiguity, defect or inconsistency; (b) to provide for
uncertificated Senior Notes in addition to or in place of certificated Senior
Notes; (c) to provide for the assumption by a Successor Corporation of the
Company's Obligations to the Holders in the event of a Disposition pursuant to
Article 5; (d) to comply with SEC's requirements to effect or maintain the
qualification of this Indenture under the TIA; (e) to provide for additional
Guarantees with respect to the Senior Notes; or (f) to make any change that does
not materially adversely affect any Holder's legal rights under this Indenture.
Upon the Company's request, after receipt by the Trustee of a
resolution of the Board of Directors authorizing the execution of any amended or
supplemental indenture, the documents described in Section 9.06, the Trustee
shall join with the Company in the execution of any amended or supplemental
indenture authorized or permitted by the terms of this Indenture and to make any
further appropriate agreements and stipulations that may be contained in any
such amended or supplemental indenture, but the Trustee shall not be obligated
to enter into an amended or supplemental indenture that affects its own rights,
duties or immunities under this Indenture or otherwise.
SECTION 9.02. AMENDMENTS AND SUPPLEMENTS REQUIRING CONSENT OF HOLDERS.
Subject to Section 6.07, the Company and the Trustee may amend or
supplement this Indenture or the Senior Notes with the written consent of the
Holders of at least a majority in principal amount of the then outstanding
Senior Notes (including consents obtained in connection with a tender offer or
exchange offer for the Senior Notes). Subject to Sections 6.04 and 6.07, the
Holders of a majority in principal amount of the Senior Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for the Senior Notes) may also waive any existing Default or Event of Default
(other than a payment Default) and its consequences or compliance in a
particular instance by the Company with any provision of this Indenture or the
Senior Notes.
Upon the Company's request and after receipt by the Trustee of a
resolution of the Board of Directors authorizing the execution of any
supplemental indenture, evidence of the Holders' consent, and the documents
described in Section 9.06, the Trustee shall join with the Company in the
execution of such amended or supplemental indenture unless such amended or
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but not be obligated to, enter into such amended or supplemental
indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or waiver, but
it shall be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to each Holder 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
55
<PAGE>
affect the validity of any such amended or supplemental indenture or waiver.
Without the consent of each Holder affected, an amendment, supplement or waiver
under this Section may not (1) reduce the principal amount of Senior Notes whose
Holders must consent to an amendment, supplement or waiver; (2) reduce the rate
of or change the time for payment of interest, including default interest as set
forth in Section 4.01, or Liquidated Damages on any Senior Note or alter the
redemption or purchase provisions with respect thereto or the price at which the
Company is required to offer to purchase any Senior Note; (3) reduce the
principal of or change the fixed maturity of any Senior Note; (4) make any
Senior Note payable in money other than that stated in the Senior Note; (5) make
any change in Section 6.04 or 6.07 or in this sentence of this Section 9.02; or
(6) waive a default in the payment of the principal of, or premium, if any, or
any accrued and unpaid interest on, or Liquidated Damages, if any, with respect
to, or redemption or purchase payment with respect to, any Senior Note (except a
rescission of acceleration of the Senior Notes by the Holders of at least a
majority in aggregate principal amount of the then outstanding Senior Notes and
a waiver of the payment default that resulted from such acceleration).
SECTION 9.03. COMPLIANCE WITH TIA.
Every amendment or supplement to this Indenture or the Senior Notes
shall be set forth in an amended supplemental indenture that complies with the
TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Senior Note is a continuing consent by the Holder and
every subsequent Holder of a Senior Note or portion of a Senior Note that
evidences the same Indebtedness as the consenting Holder's Senior Note, even if
notation of the consent is not made on any Senior Note. However, any such
Holder or subsequent Holder may revoke the consent as to his or her Senior Note
or portion of a Senior Note if the Trustee receives the notice of revocation
before the date on which the Trustee receives an Officer's Certificate
certifying that the Holders of the requisite principal amount of Senior Notes
have consented to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders of Senior Notes entitled to consent to any
amendment or waiver. If a record date is fixed, then, notwithstanding the
provisions of the immediately preceding paragraph, those Persons who were
Holders of Senior Notes at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to consent to such amendment or waiver
or to revoke any consent previously given, whether or not such Persons continue
to be Holders of Senior Notes after such record date. No consent shall be valid
or effective for more than 90 days after such record date unless consents from
Holders of the principal amount of Senior Notes required hereunder for such
amendment or waiver to be effective shall have also been given and not revoked
within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Holder, unless it is of the type described in any of clauses (1) through (6) of
Section 9.02. In such case, the amendment or waiver shall bind each Holder who
has consented to it and every subsequent Holder of a Senior Note that evidences
the same debt as the consenting Holder's Senior Note.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SENIOR NOTES.
The Trustee may (at the Company's expense) place an appropriate
notation about an amendment, supplement or waiver on any Senior Note thereafter
authenticated. The Company in exchange
56
<PAGE>
for all Senior Notes may issue and the Trustee shall authenticate new Senior
Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Senior Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE PROTECTED.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 9 if the amendment does not adversely affect
the rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing such amendment or supplemental
indenture, the Trustee shall be entitled to receive and, subject to Section
7.01, shall be fully protected in relying upon, an Officers' Certificate and
Opinion of Counsel as conclusive evidence that such amendment or supplemental
indenture is authorized or permitted by this Indenture, that it is not
inconsistent herewith, and that it will be valid and binding upon the Company in
accordance with its terms. The Company may not sign an amendment or
supplemental indenture until the Board of Directors approves it.
ARTICLE 10.
MISCELLANEOUS
SECTION 10.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of section 318(c) of the TIA, the imposed
duties shall control.
SECTION 10.02. NOTICES.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person, mailed by registered or
certified mail, postage prepaid, return receipt requested or delivered by
telecopier or overnight air courier guaranteeing next day delivery to the
other's address:
If to the Company:
Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Attention: Chief Financial Officer
Telecopier No.: (847) 945-9909
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Philip J. Niehoff, Esq.
Telecopier No.: (312) 701-7711
57
<PAGE>
If to the Trustee:
State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attention: Corporate Trust Administration
Telecopier No.: (617) 664-5395
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; the date receipt is acknowledged, if mailed by registered
or certified mail; when answered back, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first-class
mail to his or her address shown on the register kept by the Registrar. 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
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 10.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to section 312(b) of the TIA with
other Holders with respect to their rights under this Indenture or the Senior
Notes. The Company, the Trustee, the Registrar and any other Person shall have
the protection of section 312(c) of the TIA.
SECTION 10.04. 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 (which shall include the statements set forth
in Section 10.05) stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(b) an Opinion of Counsel (which shall include the statements set forth in
Section 10.05) stating that, in the opinion of such counsel, all such conditions
precedent provided for in this Indenture relating to the proposed action have
been complied with.
58
<PAGE>
SECTION 10.05. 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 a certificate
provided pursuant to section 314(a)(4) of the TIA) shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) 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;
(3) 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
(4) a statement as to whether, in such Person's opinion, such
condition or covenant has been complied with.
SECTION 10.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 10.07. LEGAL HOLIDAYS.
If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
SECTION 10.08. NO RECOURSE AGAINST OTHERS.
No officer, employee, director, stockholder or Subsidiary of the
Company shall have any liability for any Obligations of the Company under the
Senior Notes or this Indenture, or for any claim based on, in respect of, or by
reason of, such Obligations or the creation of any such Obligation, except, in
the case of a Subsidiary, for an express guarantee or an express creation of any
Lien by such Subsidiary of the Company's Obligations under the Senior Notes.
Each Holder by accepting a Senior Note waives and releases all such liability,
and such waiver and release is part of the consideration for the issuance of the
Senior Notes. The foregoing waiver may not be effective to waive liabilities
under the Federal securities law and the Commission is of the view that such a
waiver is against public policy.
SECTION 10.09. COUNTERPARTS.
This Indenture 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.
59
<PAGE>
SECTION 10.10. VARIABLE PROVISIONS.
The Company initially appoints the Trustee as Paying Agent, Registrar
and authenticating agent.
The first compliance certificate to be delivered by the Company to the
Trustee pursuant to Section 4.03 shall be for the fiscal year ending on December
31, 1996.
SECTION 10.11. GOVERNING LAW.
The internal laws of the State of New York shall govern this Indenture
and the Senior Notes, without regard to the conflict of laws provisions thereof.
SECTION 10.12. 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 its Subsidiaries, and no other
indenture, loan or debt agreement may be used to interpret this Indenture.
SECTION 10.13. SUCCESSORS.
All agreements of the Company in this Indenture and the Senior Notes
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 10.14. SEVERABILITY.
If any provision in this Indenture or in the Senior Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 10.15. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table, and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
[NEXT PAGE IS THE SIGNATURE PAGE]
60
<PAGE>
Dated as of December 17, 1997
MOTORS AND GEARS, INC.
By: /s/ Gordon Nelson
-------------------------------
Name: Gordon L. Nelson, Jr.
Title: Vice President
Dated as of December 17, 1997
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:________________________________
Name:
Title:
61
<PAGE>
Dated as of December 17, 1997
MOTORS AND GEARS, INC.
By:________________________________
Name:
Title:
Dated as of December 17, 1997
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: /s/ Jacqueline Connor
-----------------------------
Name: Jacqueline Connor
Title: Assistant Vice President
62
<PAGE>
(Face of Note)
EXHIBIT A
10 3/4% Series [C/D] Senior Note due 2006
No. $__________
CUSIP No. [ ]
MOTORS AND GEARS, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on November 15, 2006.
Interest Payment Dates: May 15 and November 15.
Record Dates:_May 1 and November 1.
Dated:
MOTORS AND GEARS, INC.
By:________________________________
Name:
Title:
Trustee's Certificate of Authentication
Dated:
This is one of the [Global]
Senior Notes referred to in the
within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:_____________________________
Authorized Signatory
A-1
<PAGE>
[Unless and until it is exchanged in whole or in part for Senior Notes
in definitive form, this Senior Note may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository or another nominee of the Depository or by the Depository or
any such nominee to a successor Depository or a nominee of such successor
Depository. The Depository Trust Company shall act as the Depository until a
successor shall be appointed by the Company and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("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 may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be 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.]/1//
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5
OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO
THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF
THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET
FORTH IN (A) ABOVE.
Additional provisions of this Senior Note are set forth on the other side of
this Senior Note.
____________________
/1// This paragraph should be included only if the Senior Note is issued in
global form.
A-2
<PAGE>
(Back of Note)
10 3/4% SERIES [C/D] SENIOR NOTE DUE 2006
1. INTEREST. Motors and Gears, Inc. (the "Company") promises to pay
interest on the principal amount of the Senior Notes at the rate and in the
manner specified below. Interest on the Senior Notes will accrue at 10 3/4% per
annum from November 16, 1997 until maturity. The Company will pay Liquidated
Damages pursuant to Section 5 of the Registration Rights Agreement referred to
below. Interest and Liquidated Damages, if any, will be payable semiannually in
cash in arrears on May 15 and November 15 of each year, or if any such day is
not a Business Day on the next succeeding Business Day (each, an "Interest
Payment Date"). Interest on the Senior Notes will accrue from the most recent
date on which interest has been paid or, if no interest has been paid, from
November 16, 1997; provided that the first Interest Payment Date shall be May
15, 1998. The Company shall pay interest on overdue principal and premium, if
any, from time to time on demand at the rate of 2% per annum in excess of the
interest rate then in effect and shall pay interest on overdue installments of
interest and Liquidated Damages, if any, (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered holders of Senior Notes at the close of business on the record date
for the next Interest Payment Date even if such Senior Notes are canceled after
such record date and on or before such Interest Payment Date. Holders must
surrender Senior Notes to a Paying Agent to collect principal payments on such
Senior Notes. The Company will pay principal, premium, if any, interest and
Liquidated Damages, if any, in money of the United States that at the time of
payment is legal tender for payment of public and private debts. The Company
will pay principal, premium, if any, interest and Liquidated Damages, if any, by
wire transfer of immediately available funds to the accounts specified by the
Holders or, if no such account is specified, by mailing a check to each such
Holder's registered address; provided that payment by wire transfer of
immediately available funds will be required with respect to principal, premium,
if any, interest and Liquidated Damages, if any, on all Global Notes.
3. PAYING AGENT AND REGISTRAR. State Street Bank and Trust Company (the
"Trustee") will initially act as the Paying Agent and Registrar. The Company
may appoint additional paying agents or co-registrars, and change the Paying
Agent, any additional paying agent, the Registrar or any co-registrar without
prior notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
4. INDENTURE. The Company issued the Senior Notes under an Indenture,
dated as of December 17, 1997 (the "Indenture"), among the Company and the
Trustee. The terms of the Senior 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 (S)(S) 77aaa-77bbbb) as in effect on the date of the original
issuance of the Senior Notes (the "Trust Indenture Act"). The Senior Notes are
subject to, and qualified by, all such terms, certain of which are summarized
herein, and Holders are referred to the Indenture and the Trust Indenture Act
for a statement of such terms (all capitalized terms not defined herein shall
have the meanings assigned them in the Indenture). The Senior Notes are
unsecured senior obligations of the Company limited in aggregate principal
amount to $270,000,000; provided that $170,000,000 shall be reserved for
issuance and shall be available for issuance only in connection with the
exchange of the Series A/B Senior Notes (as defined in the Indenture) for Series
D Senior Notes. Each Holder, by accepting a Senior 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.
A-3
<PAGE>
5. OPTIONAL REDEMPTION. (a) Except as described in paragraph 5(b)
below, the Senior Notes may not be redeemed at the option of the Company prior
to November 15, 2001. During the twelve (12) month period beginning November 15
of the years indicated below, the Senior Notes will be redeemable at the option
of the Company, in whole or in part, on at least 30 but not more than 60 days'
notice to each Holder of Senior Notes to be redeemed, at the redemption prices
(expressed as percentages of the principal amount) set forth below, plus any
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption:
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
2001................................ 105.375%
2002................................ 103.583%
2003................................ 101.792%
2004 and thereafter................. 100.000%
</TABLE>
(b) Notwithstanding the foregoing, prior to November 15, 1999, the
Company may (but shall not have the obligation to) redeem up to 35% of the
original aggregate principal amount of the Senior Notes at a redemption price of
109.750% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date, with the net proceeds of one
or more Equity Offerings; provided that at least 65% of the aggregate principal
amount of Senior Notes originally issued remain outstanding immediately after
the occurrence of any such redemption; and provided, further, that any such
redemption shall occur within 60 days of the date of the closing of such Equity
Offering.
6. MANDATORY REDEMPTION. Subject to the Company's obligation to make an
offer to purchase Senior Notes under certain circumstances pursuant to Sections
4.13 and 4.14 of the Indenture (as described in paragraph 7 below), the Company
is not required to make any mandatory redemption, purchase or sinking fund
payments with respect to the Senior Notes.
7. MANDATORY OFFERS TO PURCHASE SENIOR NOTES. (a) Upon the occurrence of
a Change of Control (such date being the "Change of Control Trigger Date"), each
Holder of Senior Notes shall have the right to require the Company to purchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Senior Notes pursuant to an offer (a "Change of Control Offer") at a
purchase price in cash equal to 101% of the aggregate principal amount thereof,
plus any accrued and unpaid interest and Liquidated Damages, if any, to the date
of purchase.
(b) If the Company or any Restricted Subsidiary consummates one or
more Asset Sales and does not use all of the Net Proceeds from such Asset Sales
as provided in the Indenture, the Company will be required, under certain
circumstances, to utilize the Excess Proceeds from such Asset Sales to offer (an
"Asset Sale Offer") to purchase Senior Notes at a purchase price equal to 100%
of the principal amount of the Senior Notes, plus any accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase. If the Excess
Proceeds are insufficient to purchase all Senior Notes tendered pursuant to any
Asset Sale Offer, the Trustee shall select the Senior Notes to be purchased in
accordance with the terms of the Indenture.
(c) Holders may tender all or, subject to paragraph 8 below, any
portion of their Senior Notes in a Change of Control Offer or Asset Sale Offer
(collectively, an "Offer") by completing the form below entitled "OPTION OF
HOLDER TO ELECT PURCHASE."
A-4
<PAGE>
(d) The Company shall comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with an offer required to be made by the Company to repurchase the Senior Notes
as a result of a Change of Control or an Asset Sale Trigger Date. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Indenture by virtue thereof.
8. NOTICE OF REDEMPTION OR PURCHASE. Notice of an optional redemption or
an Offer will be mailed to each Holder at its registered address at least 30
days but not more than 60 days before the date of redemption or purchase. Senior
Notes may be redeemed or purchased in part, but only in whole multiples of
$1,000 unless all Senior Notes held by a Holder are to be redeemed or purchased.
On or after any date on which Senior Notes are redeemed or purchased, interest
ceases to accrue on the Senior Notes or portions thereof called for redemption
or accepted for purchase on such date.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered
form without coupons in denominations of $1,000 and integral multiples thereof.
The transfer of Senior Notes may be registered and Senior Notes may be exchanged
as provided in the Indenture. Holders seeking to transfer or exchange their
Senior Notes may be required, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Senior Note or portion of a Senior Note selected for
redemption or tendered pursuant to an Offer. Also, it need not exchange or
register the transfer of any Senior Notes for a period of 15 Business Days
before a selection of Senior Notes to be redeemed or between a record date and
the next succeeding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Senior Note may be
treated as its owner for all purposes.
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture
or the Senior Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Senior Notes, and any existing Default (except a payment Default) may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Senior Notes. Without the consent of any Holder, the Indenture or
the Senior Notes may be amended to: cure any ambiguity, defect or inconsistency;
provide for uncertificated Senior Notes in addition to or in place of
certificated Senior Notes; provide for the assumption by another corporation of
the Company's obligations to Holders in the event of a merger or consolidation
of the Company in which the Company is not the surviving corporation or a sale
of substantially all of the Company's assets to such other corporation; comply
with the Securities and Exchange Commission's requirements to effect or maintain
the qualification of the Indenture under the Trust Indenture Act; provide for
additional Guarantees with respect to the Senior Notes; or, make any change that
does not materially adversely affect any Holder's rights under the Indenture.
12. DEFAULTS AND REMEDIES. Events of Default include: default for 30 days
in payment of interest on, or Liquidated Damages, if any, with respect to, the
Senior Notes; default in payment of principal of, or premium, if any, on the
Senior Notes; failure by the Company for 30 days after notice to it to comply
with any of its other agreements or covenants in, or provisions of, the
Indenture or the Senior Notes; certain defaults under and acceleration prior to
maturity of, or failure to pay at maturity, certain other Indebtedness; certain
final judgments that remain undischarged; certain judicial findings of
unenforceability or invalidity as to any guarantee of the Senior Notes or the
disaffirmance or denial by any guarantor of its guarantee of the Senior Notes;
and certain events of bankruptcy or insolvency involving the Company or any
Restricted
A-5
<PAGE>
Subsidiary that is a Significant Subsidiary. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount of
the Senior Notes may declare all the Senior Notes to be immediately due and
payable in an amount equal to the principal of, premium, if any, and any accrued
and unpaid interest on, and Liquidated Damages, if any, with respect to such
Senior Notes; provided, however, that in the case of an Event of Default arising
from certain events of bankruptcy or insolvency, the principal of, premium, if
any, and any accrued and unpaid interest on, and Liquidated Damages, if any,
with respect to the Senior Notes becomes due and payable immediately without
further action or notice. Subject to certain exceptions, Holders of a majority
in principal amount of the then outstanding Senior Notes may direct the Trustee
in its exercise of any trust or power, provided that the Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture at the
request of Holders unless such Holders have offered to the Trustee security and
indemnity satisfactory to it. Holders may not enforce the Indenture or the
Senior Notes except as provided in the Indenture. The Trustee may withhold from
Holders notice of any continuing default (except a payment Default) if it
determines that withholding notice is in their interests. The Company must
furnish an annual compliance certificate to the Trustee.
13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or any Affiliate, and may otherwise deal with the
Company or any Affiliate, as if it were not Trustee.
14. NO RECOURSE AGAINST OTHERS. No officer, employee, director,
stockholder or Subsidiary of the Company shall have any liability for any
Obligations of the Company under the Senior Notes or the Indenture, or for any
claim based on, in respect of, or by reason of, such Obligations or the creation
of any such Obligation, except, in the case of a Subsidiary, for an express
guarantee or an express creation of any Lien by such Subsidiary of the Company's
Obligations under the Senior Notes. Each Holder by accepting a Senior Note
waives and releases all such liability, and such waiver and release is part of
the consideration for the issuance of the Senior Notes. The foregoing waiver may
not be effective to waive liabilities under the Federal securities law and the
Commission is of the view that such a waiver is against public policy.
15. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SENIOR NOTES. In
addition to the rights provided to Holders of Senior Notes under the Indenture,
Holders of Transfer Restricted Senior Notes shall have all the rights set forth
in the Registration Rights Agreement, dated as of December 17, 1997, among the
Company, Jefferies & Company, Inc. and BT Alex. Brown Incorporated (the
"Registration Rights Agreement").
16. SUCCESSOR SUBSTITUTED. Upon the consolidation or merger by the Company
with or into another corporation, or upon the sale, lease, conveyance or other
disposition of all or substantially all of its assets to another corporation, in
accordance with the Indenture, the corporation surviving any such merger or
consolidation (if not the Company) or the corporation to which such assets were
sold or transferred to shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Indenture with the same
effect as if such surviving or other corporation had been named as the Company
in the Indenture.
17. GOVERNING LAW. This Senior Note shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to the
conflict of laws provisions thereof.
18. AUTHENTICATION. This Senior Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
A-6
<PAGE>
19. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder 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).
20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Senior Note Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Senior Notes and have directed the
Trustee to use CUSIP numbers in notices of redemption as a convenience to
Holders. No representation is made as to the accuracy of such numbers either as
printed on the Senior Notes or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers printed on the
Senior Notes.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture, which has in it the text of this Senior Note in
larger type. Request may be made to:
Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Attention: Chief Financial Officer
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Senior Note, fill in the form below:
(I) or (we) assign and transfer this Senior Note to:
_____________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_____________________________________________
_____________________________________________
_____________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _________________________________________ as agent to
transfer this Senior Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature:___________________________________
(Sign exactly as your name appears
on the other side of this Senior
Note)
Signature Guarantee:
_________________________________
A-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Senior Note purchased by the Company pursuant to
Section 4.13 of the Indenture, check the box: [_]
If you elect to have this Senior Note purchased by the Company pursuant to
Section 4.14 of the Indenture, check the box: [_]
If you elect to have only part of this Senior Note purchased by the Company
pursuant to Section 4.13 or 4.14 of the Indenture, state the amount (multiples
of $1,000 only):
$__________________________
Date: Your Signature:____________________________
(Sign exactly as your name appears on
the other side of this Senior Note)
Signature Guarantee:
________________________________
A-9
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES/2/
-
The following exchanges of a part of this Global Note for Definitive Notes
have been made:
<TABLE>
<CAPTION>
Principal Amount Signature of
Amount of Amount of of this Global Note authorized officer
decrease in increase in following such of Trustee or
Date of Principal Amount Principal Amount decrease Senior
Exchange of this Global Note of this Global Note (or increase) Note Custodian
- -------- ------------------- ------------------- ------------- --------------
<S> <C> <C> <C> <C>
</TABLE>
__________________________
/2/ This should be included only if the Senior Note is issued in global form.
-
A-10
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF NOTES
_________________, _______
Re: 10 3/4% Series [C/D] Senior Notes due 2006 of Motors and Gears, Inc.
This Certificate relates to $_____ principal amount of Senior Notes held in
* ________ book-entry or *_______ definitive form by ________________ (the
"Transferor").
The Transferor*:
[_] has requested the Trustee by written order to deliver in exchange for its
beneficial interest in the Global Note held by the Depository a Senior Note or
Senior Notes in definitive, registered form equal to its beneficial interest in
such Global Note (or the portion thereof indicated above); or
[_] has requested the Trustee by written order to exchange or register the
transfer of a Senior Note or Senior Notes.
In connection with such request and in respect of each such Senior Note,
the Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Senior Notes and that the transfer of
this Senior Note does not require registration under the Securities Act (as
defined below) because:*
[_] Such Senior Note is being acquired for the Transferor's own account without
transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of
the Indenture).
[_] Such Senior Note is being transferred (i) to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act")), in reliance on Rule 144A or (ii) pursuant to an
exemption from registration in accordance with Rule 904 under the Securities Act
(and in the case of clause (ii), based on an opinion of counsel if the Company
so requests and together with a certification in substantially the form of
Exhibit D to the Indenture).
[_] Such Senior Note is being transferred (i) in accordance with Rule 144 under
the Securities Act (and based on an opinion of counsel if the Company so
requests) or (ii) pursuant to an effective registration statement under the
Securities Act.
[_] Such Senior Note is being transferred to an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement exemption from the registration
requirements of the Securities Act (and based on an opinion of counsel if the
Company so requests together with a certification in substantially the form of
Exhibit C to the Indenture).
________________
*Check applicable box.
B-1
<PAGE>
[_] Such Senior Note is being transferred in reliance on and in compliance with
another exemption from the registration requirements of the Securities Act (and
based on an opinion of counsel if the Company so requests).
___________________________
[INSERT NAME OF TRANSFEROR]
By:________________________
Name:
Title:
Address:
_______________
*Check applicable box.
B-2
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE TO BE DELIVERED BY
INSTITUTIONAL ACCREDITED INVESTORS
_______________, _____
___________________, as Registrar
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed purchase of certain 10 3/4% Series
[C/D] Senior Notes due 2006 (the "Senior Notes") of Motors and Gears, Inc., a
Delaware corporation (the "Company"), we represent that:
(i) we are an "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act (an
"Institutional Accredited Investor"), or an entity in which all
of the equity owners are Institutional Accredited Investors;
(ii) any purchase of Senior Notes will be for our own account or for
the account of one or more other Institutional Accredited
Investors as to which we exercise sole investment discretion;
(iii) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks
of purchasing Senior Notes and we and any accounts for which we
are acting are able to bear the economic risks of our or their
investment;
(iv) we are not acquiring Senior Notes with a view to any
distribution thereof in a transaction that would violate the
Securities Act or the securities laws of any State of the
United States or any other applicable jurisdiction; provided
that the disposition of our property and the property of any
accounts for which we are acting as fiduciary shall remain at
all times within our control; and
(v) we acknowledge that we have had access to such financial and
other information, and have been afforded the opportunity to
ask such questions of representatives of the Company and
receive answers thereto, as we deem necessary in connection
with our decision to purchase Senior Notes.
We understand that the Senior Notes have not been registered under the
Securities Act, and we agree, on our own behalf and on behalf of each account
for which we acquire any Senior Notes, that such Senior Notes may be offered,
resold, pledged or otherwise transferred only (i) to a person whom we reasonably
believe to be a qualified institutional buyer (as defined in Rule 144A under the
Securities Act) in a transaction meeting the requirements of Rule 144A, in a
transaction meeting the requirements of Rule 144 under the Securities Act,
outside the United States in a transaction meeting the requirements of Rule 904
under the Securities Act or in accordance with another exemption from the
registration requirements of the
C-1
<PAGE>
(Securities Act (and based upon an opinion of counsel if the Company so
requests), (ii) to the Company or (iii) pursuant to an effective registration
statement, and, in each case, in accordance with any applicable securities laws
of any State of the United States or any other applicable jurisdiction. We
understand that the registrar will not be required to accept for registration of
transfer any Senior Notes, except upon presentation of evidence satisfactory to
the Company that the foregoing restrictions on transfer have been complied with.
We further understand that the Senior Notes purchased by us will be in the form
of definitive physical certificates and that such certificates will bear a
legend reflecting the substance of this paragraph. We further agree to provide
to any person acquiring any of the Senior Notes from us a notice advising such
person that resale's of the Senior Notes are restricted as stated herein.
We acknowledge that you, the Company and others will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
Very truly yours,
____________________________
[Name of Transferor]
By:___________________________
Name:
Title:
Address:
C-2
<PAGE>
EXHIBIT 4.4
10 3/4% Series C Senior Note due 2006
No. 1 $99,875,000.00
CUSIP No. 620103-AC-5
MOTORS AND GEARS, INC.
promises to pay to CEDE & CO., or registered assigns, the principal sum of
Ninety Nine Million Eight Hundred Seventy Five Thousand Dollars And No Cents on
November 15, 2006.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
Dated: December 17, 1997
MOTORS AND GEARS, INC.
By: /s/ Gordon Nelson
-------------------------------
Name: Gordon L. Nelson, Jr.
Title: Vice President
Trustee's Certificate of Authentication
Dated: December 17, 1997
This is one of the Global
Senior Notes referred to in the
within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: /s/ Jacqueline Connor
-------------------------------
Authorized Signatory
<PAGE>
Unless and until it is exchanged in whole or in part for Senior Notes
in definitive form, this Senior Note may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository or another nominee of the Depository or by the Depository or
any such nominee to a successor Depository or a nominee of such successor
Depository. The Depository Trust Company shall act as the Depository until a
successor shall be appointed by the Company and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("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 may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be 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.
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5
OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO
THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF
THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET
FORTH IN (A) ABOVE.
Additional provisions of this Senior Note are set forth on the other side of
this Senior Note.
<PAGE>
10 3/4% SERIES C SENIOR NOTE DUE 2006
1. INTEREST. Motors and Gears, Inc. (the "Company") promises to pay
interest on the principal amount of the Senior Notes at the rate and in the
manner specified below. Interest on the Senior Notes will accrue at 10 3/4% per
annum from November 16, 1997 until maturity. The Company will pay Liquidated
Damages pursuant to Section 5 of the Registration Rights Agreement referred to
below. Interest and Liquidated Damages, if any, will be payable semiannually in
cash in arrears on May 15 and November 15 of each year, or if any such day is
not a Business Day on the next succeeding Business Day (each, an "Interest
Payment Date"). Interest on the Senior Notes will accrue from the most recent
date on which interest has been paid or, if no interest has been paid, from
November 16, 1997; provided that the first Interest Payment Date shall be May
15, 1998. The Company shall pay interest on overdue principal and premium, if
any, from time to time on demand at the rate of 2% per annum in excess of the
interest rate then in effect and shall pay interest on overdue installments of
interest and Liquidated Damages, if any, (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered holders of Senior Notes at the close of business on the record date
for the next Interest Payment Date even if such Senior Notes are canceled after
such record date and on or before such Interest Payment Date. Holders must
surrender Senior Notes to a Paying Agent to collect principal payments on such
Senior Notes. The Company will pay principal, premium, if any, interest and
Liquidated Damages, if any, in money of the United States that at the time of
payment is legal tender for payment of public and private debts. The Company
will pay principal, premium, if any, interest and Liquidated Damages, if any, by
wire transfer of immediately available funds to the accounts specified by the
Holders or, if no such account is specified, by mailing a check to each such
Holder's registered address; provided that payment by wire transfer of
immediately available funds will be required with respect to principal, premium,
if any, interest and Liquidated Damages, if any, on all Global Notes.
3. PAYING AGENT AND REGISTRAR. State Street Bank and Trust Company (the
"Trustee") will initially act as the Paying Agent and Registrar. The Company may
appoint additional paying agents or co-registrars, and change the Paying Agent,
any additional paying agent, the Registrar or any co-registrar without prior
notice to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Senior Notes under an Indenture,
dated as of December 17, 1997 (the "Indenture"), among the Company and the
Trustee. The terms of the Senior 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 (S)(S) 77aaa-77bbbb) as in effect on the date of the original
issuance of the Senior Notes (the "Trust Indenture Act"). The Senior Notes are
subject to, and qualified by, all such terms, certain of which are summarized
herein, and Holders are referred to the Indenture and the Trust Indenture Act
for a statement of such terms (all capitalized terms not defined herein shall
have the meanings assigned them in the Indenture). The Senior Notes are
unsecured senior obligations of the Company limited in aggregate principal
amount to $270,000,000; provided that $170,000,000 shall be reserved for
issuance and shall be available for issuance only in connection with the
exchange of the Series A/B Senior Notes (as defined in the Indenture) for Series
D Senior Notes. Each Holder, by accepting a Senior Note, agrees to be bound by
all of the terms and provisions of the Indenture, as the
<PAGE>
same may be amended from time to time.
5. OPTIONAL REDEMPTION. (a) Except as described in paragraph 5(b)
below, the Senior Notes may not be redeemed at the option of the Company prior
to November 15, 2001. During the twelve (12) month period beginning November 15
of the years indicated below, the Senior Notes will be redeemable at the option
of the Company, in whole or in part, on at least 30 but not more than 60 days'
notice to each Holder of Senior Notes to be redeemed, at the redemption prices
(expressed as percentages of the principal amount) set forth below, plus any
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001....................... 105.375%
2002....................... 103.583%
2003....................... 101.792%
2004 and thereafter........ 100.000%
</TABLE>
(b) Notwithstanding the foregoing, prior to November 15, 1999, the
Company may (but shall not have the obligation to) redeem up to 35% of the
original aggregate principal amount of the Senior Notes at a redemption price of
109.750% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date, with the net proceeds of one
or more Equity Offerings; provided that at least 65% of the aggregate principal
amount of Senior Notes originally issued remain outstanding immediately after
the occurrence of any such redemption; and provided, further, that any such
redemption shall occur within 60 days of the date of the closing of such Equity
Offering.
6. MANDATORY REDEMPTION. Subject to the Company's obligation to make an
offer to purchase Senior Notes under certain circumstances pursuant to Sections
4.13 and 4.14 of the Indenture (as described in paragraph 7 below), the Company
is not required to make any mandatory redemption, purchase or sinking fund
payments with respect to the Senior Notes.
7. MANDATORY OFFERS TO PURCHASE SENIOR NOTES. (a) Upon the occurrence of
a Change of Control (such date being the "Change of Control Trigger Date"), each
Holder of Senior Notes shall have the right to require the Company to purchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Senior Notes pursuant to an offer (a "Change of Control Offer") at a
purchase price in cash equal to 101% of the aggregate principal amount thereof,
plus any accrued and unpaid interest and Liquidated Damages, if any, to the date
of purchase.
(b) If the Company or any Restricted Subsidiary consummates one or
more Asset Sales and does not use all of the Net Proceeds from such Asset Sales
as provided in the Indenture, the Company will be required, under certain
circumstances, to utilize the Excess Proceeds from such Asset Sales to offer (an
"Asset Sale Offer") to purchase Senior Notes at a purchase price equal to 100%
of the principal amount of the Senior Notes, plus any accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase. If the Excess
Proceeds are insufficient to purchase all Senior Notes tendered pursuant to any
Asset Sale Offer, the Trustee shall select the Senior Notes to be purchased in
accordance with the terms of the Indenture.
(c) Holders may tender all or, subject to paragraph 8 below, any
portion of their Senior Notes in a Change of Control Offer or Asset Sale Offer
(collectively, an "Offer") by completing
<PAGE>
the form below entitled "OPTION OF HOLDER TO ELECT PURCHASE."
(d) The Company shall comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with an offer required to be made by the Company to repurchase the Senior Notes
as a result of a Change of Control or an Asset Sale Trigger Date. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Indenture by virtue thereof.
8. NOTICE OF REDEMPTION OR PURCHASE. Notice of an optional redemption or
an Offer will be mailed to each Holder at its registered address at least 30
days but not more than 60 days before the date of redemption or purchase. Senior
Notes may be redeemed or purchased in part, but only in whole multiples of
$1,000 unless all Senior Notes held by a Holder are to be redeemed or purchased.
On or after any date on which Senior Notes are redeemed or purchased, interest
ceases to accrue on the Senior Notes or portions thereof called for redemption
or accepted for purchase on such date.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered
form without coupons in denominations of $1,000 and integral multiples thereof.
The transfer of Senior Notes may be registered and Senior Notes may be exchanged
as provided in the Indenture. Holders seeking to transfer or exchange their
Senior Notes may be required, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Senior Note or portion of a Senior Note selected for
redemption or tendered pursuant to an Offer. Also, it need not exchange or
register the transfer of any Senior Notes for a period of 15 Business Days
before a selection of Senior Notes to be redeemed or between a record date and
the next succeeding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Senior Note may be
treated as its owner for all purposes.
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture
or the Senior Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Senior Notes, and any existing Default (except a payment Default) may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Senior Notes. Without the consent of any Holder, the Indenture or
the Senior Notes may be amended to: cure any ambiguity, defect or inconsistency;
provide for uncertificated Senior Notes in addition to or in place of
certificated Senior Notes; provide for the assumption by another corporation of
the Company's obligations to Holders in the event of a merger or consolidation
of the Company in which the Company is not the surviving corporation or a sale
of substantially all of the Company's assets to such other corporation; comply
with the Securities and Exchange Commission's requirements to effect or maintain
the qualification of the Indenture under the Trust Indenture Act; provide for
additional Guarantees with respect to the Senior Notes; or, make any change that
does not materially adversely affect any Holder's rights under the Indenture.
12. DEFAULTS AND REMEDIES. Events of Default include: default for 30 days
in payment of interest on, or Liquidated Damages, if any, with respect to, the
Senior Notes; default in payment of principal of, or premium, if any, on the
Senior Notes; failure by the Company for 30 days after notice to it to comply
with any of its other agreements or covenants in, or provisions of, the
Indenture or the Senior
<PAGE>
Notes; certain defaults under and acceleration prior to maturity of, or failure
to pay at maturity, certain other Indebtedness; certain final judgments that
remain undischarged; certain judicial findings of unenforceability or invalidity
as to any guarantee of the Senior Notes or the disaffirmance or denial by any
guarantor of its guarantee of the Senior Notes; and certain events of bankruptcy
or insolvency involving the Company or any Restricted Subsidiary that is a
Significant Subsidiary. If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the Senior Notes
may declare all the Senior Notes to be immediately due and payable in an amount
equal to the principal of, premium, if any, and any accrued and unpaid interest
on, and Liquidated Damages, if any, with respect to such Senior Notes; provided,
however, that in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, the principal of, premium, if any, and any accrued and
unpaid interest on, and Liquidated Damages, if any, with respect to the Senior
Notes becomes due and payable immediately without further action or notice.
Subject to certain exceptions, Holders of a majority in principal amount of the
then outstanding Senior Notes may direct the Trustee in its exercise of any
trust or power, provided that the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of
Holders unless such Holders have offered to the Trustee security and indemnity
satisfactory to it. Holders may not enforce the Indenture or the Senior Notes
except as provided in the Indenture. The Trustee may withhold from Holders
notice of any continuing default (except a payment Default) if it determines
that withholding notice is in their interests. The Company must furnish an
annual compliance certificate to the Trustee.
13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or any Affiliate, and may otherwise deal with the
Company or any Affiliate, as if it were not Trustee.
14. NO RECOURSE AGAINST OTHERS. No officer, employee, director,
stockholder or Subsidiary of the Company shall have any liability for any
Obligations of the Company under the Senior Notes or the Indenture, or for any
claim based on, in respect of, or by reason of, such Obligations or the creation
of any such Obligation, except, in the case of a Subsidiary, for an express
guarantee or an express creation of any Lien by such Subsidiary of the Company's
Obligations under the Senior Notes. Each Holder by accepting a Senior Note
waives and releases all such liability, and such waiver and release is part of
the consideration for the issuance of the Senior Notes. The foregoing waiver may
not be effective to waive liabilities under the Federal securities law and the
Commission is of the view that such a waiver is against public policy.
15. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SENIOR NOTES. In
addition to the rights provided to Holders of Senior Notes under the Indenture,
Holders of Transfer Restricted Senior Notes shall have all the rights set forth
in the Registration Rights Agreement, dated as of December 17, 1997, among the
Company, Jefferies & Company, Inc. and BT Alex. Brown Incorporated (the
"Registration Rights Agreement").
16. SUCCESSOR SUBSTITUTED. Upon the consolidation or merger by the
Company with or into another corporation, or upon the sale, lease, conveyance or
other disposition of all or substantially all of its assets to another
corporation, in accordance with the Indenture, the corporation surviving any
such merger or consolidation (if not the Company) or the corporation to which
such assets were sold or transferred to shall succeed to, and be substituted
for, and may exercise every right and power of the Company under the Indenture
with the same effect as if such surviving or other corporation had been named as
the Company in the Indenture.
<PAGE>
17. GOVERNING LAW. This Senior Note shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to the
conflict of laws provisions thereof.
18. AUTHENTICATION. This Senior Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
19. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder 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).
20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Senior Note Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Senior Notes and have directed the
Trustee to use CUSIP numbers in notices of redemption as a convenience to
Holders. No representation is made as to the accuracy of such numbers either as
printed on the Senior Notes or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers printed on the
Senior Notes.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture, which has in it the text of this Senior
Note in larger type. Request may be made to:
Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Attention: Chief Financial Officer
<PAGE>
ASSIGNMENT FORM
To assign this Senior Note, fill in the form below:
(I) or (we) assign and transfer this Senior Note to:
_________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
__________________________________
__________________________________
__________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _________________________________________ as agent to
transfer this Senior Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature:________________________________
(Sign exactly as your name appears on
the other side of this Senior Note)
Signature Guarantee:
____________________________
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Senior Note purchased by the Company
pursuant to Section 4.13 of the Indenture, check the box: [_]
If you elect to have this Senior Note purchased by the Company
pursuant to Section 4.14 of the Indenture, check the box: [_]
If you elect to have only part of this Senior Note purchased by the
Company pursuant to Section 4.13 or 4.14 of the Indenture, state the amount
(multiples of $1,000 only):
$__________________________
Date: Your Signature:________________________________
(Sign exactly as your name appears on
the other side of this Senior Note)
Signature Guarantee:
_____________________________
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES
The following exchanges of a part of this Global Note for Definitive
Notes have been made:
<TABLE>
<CAPTION>
Amount of Principal Amount Signature of
Amount of increase of this authorized
decrease in Global Note officer
in Principal Principal Amount following such of
Amount of of decrease Trustee or Senior
Date of Exchange this Global Note this Global Note (or increase) Note Custodian
- ---------------- ---------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit 4.5
10 3/4% Series D Senior Note due 2006
No. 1 $270,000,000.00
CUSIP No. _____________
MOTORS AND GEARS, INC.
promises to pay to CEDE & CO., or registered assigns, the principal sum of Two
Hundred Seventy Million Dollars And No Cents on November 15, 2006.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
Dated: December 17, 1997
MOTORS AND GEARS, INC.
By:____________________________________
Name: Gordon L. Nelson, Jr.
Title: Vice President
Trustee's Certificate of Authentication
Dated: ____________, 1998
This is one of the Global
Senior Notes referred to in the
within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:__________________________________
Authorized Signatory
<PAGE>
Unless and until it is exchanged in whole or in part for Senior Notes
in definitive form, this Senior Note may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository or another nominee of the Depository or by the Depository or
any such nominee to a successor Depository or a nominee of such successor
Depository. The Depository Trust Company shall act as the Depository until a
successor shall be appointed by the Company and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("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 may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be 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.
Additional provisions of this Senior Note are set forth on the other side of
this Senior Note.
<PAGE>
10 3/4% SERIES D SENIOR NOTE DUE 2006
1. Interest. Motors and Gears, Inc. (the "Company") promises to pay
interest on the principal amount of the Senior Notes at the rate and in the
manner specified below. Interest on the Senior Notes will accrue at 10 3/4% per
annum from November 16, 1997 until maturity. Interest will be payable
semiannually in cash in arrears on May 15 and November 15 of each year, or if
any such day is not a Business Day on the next succeeding Business Day (each, an
"Interest Payment Date"). Interest on the Senior Notes will accrue from the
most recent date on which interest has been paid or, if no interest has been
paid, from November 16, 1997; provided that the first Interest Payment Date
shall be May 15, 1998. The Company shall pay interest on overdue principal and
premium, if any, from time to time on demand at the rate of 2% per annum in
excess of the interest rate then in effect and shall pay interest on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Senior
Notes (except defaulted interest) to the Persons who are registered holders of
Senior Notes at the close of business on the record date for the next Interest
Payment Date even if such Senior Notes are canceled after such record date and
on or before such Interest Payment Date. Holders must surrender Senior Notes to
a Paying Agent to collect principal payments on such Senior Notes. The Company
will pay principal, premium, if any, and interest in money of the United States
that at the time of payment is legal tender for payment of public and private
debts. The Company will pay principal, premium, if any, and interest by wire
transfer of immediately available funds to the accounts specified by the Holders
or, if no such account is specified, by mailing a check to each such Holder's
registered address; provided that payment by wire transfer of immediately
available funds will be required with respect to principal, premium, if any, and
interest on all Global Notes.
3. Paying Agent and Registrar. State Street Bank and Trust Company
(the "Trustee") will initially act as the Paying Agent and Registrar. The
Company may appoint additional paying agents or co-registrars, and change the
Paying Agent, any additional paying agent, the Registrar or any co-registrar
without prior notice to any Holder. The Company or any of its Subsidiaries may
act in any such capacity.
4. Indenture. The Company issued the Senior Notes under an
Indenture, dated as of December 17, 1997 (the "Indenture"), among the Company
and the Trustee. The terms of the Senior 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 (S)(S) 77aaa-77bbbb) as in effect on the
date of the original issuance of the Senior Notes (the "Trust Indenture Act").
The Senior Notes are subject to, and qualified by, all such terms, certain of
which are summarized herein, and Holders are referred to the Indenture and the
Trust Indenture Act for a statement of such terms (all capitalized terms not
defined herein shall have the meanings assigned them in the Indenture). The
Senior Notes are unsecured senior obligations of the Company limited in
aggregate principal amount to $270,000,000. Each Holder, by accepting a Senior
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.
5. Optional Redemption. (a) Except as described in paragraph 5(b)
below, the Senior Notes may not be redeemed at the option of the Company prior
to November 15, 2001. During the twelve (12) month period beginning November 15
of the years indicated below, the Senior Notes will be redeemable
<PAGE>
at the option of the Company, in whole or in part, on at least 30 but not more
than 60 days' notice to each Holder of Senior Notes to be redeemed, at the
redemption prices (expressed as percentages of the principal amount) set forth
below, plus any accrued and unpaid interest to the date of redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001.......................... 105.375%
2002.......................... 103.583%
2003.......................... 101.792%
2004 and thereafter........... 100.000%
</TABLE>
(b) Notwithstanding the foregoing, prior to November 15, 1999,
the Company may (but shall not have the obligation to) redeem up to 35% of the
original aggregate principal amount of the Senior Notes at a redemption price of
109.750% of the principal amount thereof, plus accrued and unpaid interest to
the redemption date, with the net proceeds of one or more Equity Offerings;
provided that at least 65% of the aggregate principal amount of Senior Notes
originally issued remain outstanding immediately after the occurrence of any
such redemption; and provided, further, that any such redemption shall occur
within 60 days of the date of the closing of such Equity Offering.
6. Mandatory Redemption. Subject to the Company's obligation to make
an offer to purchase Senior Notes under certain circumstances pursuant to
Sections 4.13 and 4.14 of the Indenture (as described in paragraph 7 below), the
Company is not required to make any mandatory redemption, purchase or sinking
fund payments with respect to the Senior Notes.
7. Mandatory Offers to Purchase Senior Notes. (a) Upon the
occurrence of a Change of Control (such date being the "Change of Control
Trigger Date"), each Holder of Senior Notes shall have the right to require the
Company to purchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Senior Notes pursuant to an offer (a "Change of
Control Offer") at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus any accrued and unpaid interest to the date of
purchase.
(b) If the Company or any Restricted Subsidiary consummates one
or more Asset Sales and does not use all of the Net Proceeds from such Asset
Sales as provided in the Indenture, the Company will be required, under certain
circumstances, to utilize the Excess Proceeds from such Asset Sales to offer (an
"Asset Sale Offer") to purchase Senior Notes at a purchase price equal to 100%
of the principal amount of the Senior Notes, plus any accrued and unpaid
interest to the date of purchase. If the Excess Proceeds are insufficient to
purchase all Senior Notes tendered pursuant to any Asset Sale Offer, the Trustee
shall select the Senior Notes to be purchased in accordance with the terms of
the Indenture.
(c) Holders may tender all or, subject to paragraph 8 below, any
portion of their Senior Notes in a Change of Control Offer or Asset Sale Offer
(collectively, an "Offer") by completing the form below entitled "OPTION OF
HOLDER TO ELECT PURCHASE."
(d) The Company shall comply with any tender offer rules under
the Exchange Act which may then be applicable, including Rule 14e-1, in
connection with an offer required to be made by the Company to repurchase the
Senior Notes as a result of a Change of Control or an Asset Sale Trigger Date.
To the extent that the provisions of any securities laws or regulations conflict
with provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not
<PAGE>
be deemed to have breached its obligations under this Indenture by virtue
thereof.
8. Notice of Redemption or Purchase. Notice of an optional
redemption or an Offer will be mailed to each Holder at its registered address
at least 30 days but not more than 60 days before the date of redemption or
purchase. Senior Notes may be redeemed or purchased in part, but only in whole
multiples of $1,000 unless all Senior Notes held by a Holder are to be redeemed
or purchased. On or after any date on which Senior Notes are redeemed or
purchased, interest ceases to accrue on the Senior Notes or portions thereof
called for redemption or accepted for purchase on such date.
9. Denominations, Transfer, Exchange. The Senior Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples thereof. The transfer of Senior Notes may be registered and Senior
Notes may be exchanged as provided in the Indenture. Holders seeking to transfer
or exchange their Senior Notes may be required, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not exchange
or register the transfer of any Senior Note or portion of a Senior Note selected
for redemption or tendered pursuant to an Offer. Also, it need not exchange or
register the transfer of any Senior Notes for a period of 15 Business Days
before a selection of Senior Notes to be redeemed or between a record date and
the next succeeding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Senior Note
may be treated as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions, the
Indenture or the Senior Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Senior Notes, and any existing Default (except a payment Default) may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Senior Notes. Without the consent of any Holder, the Indenture or
the Senior Notes may be amended to: cure any ambiguity, defect or inconsistency;
provide for uncertificated Senior Notes in addition to or in place of
certificated Senior Notes; provide for the assumption by another corporation of
the Company's obligations to Holders in the event of a merger or consolidation
of the Company in which the Company is not the surviving corporation or a sale
of substantially all of the Company's assets to such other corporation; comply
with the Securities and Exchange Commission's requirements to effect or maintain
the qualification of the Indenture under the Trust Indenture Act; provide for
additional Guarantees with respect to the Senior Notes; or, make any change that
does not materially adversely affect any Holder's rights under the Indenture.
12. Defaults and Remedies. Events of Default include: default for 30
days in payment of interest on the Senior Notes; default in payment of principal
of, or premium, if any, on the Senior Notes; failure by the Company for 30 days
after notice to it to comply with any of its other agreements or covenants in,
or provisions of, the Indenture or the Senior Notes; certain defaults under and
acceleration prior to maturity of, or failure to pay at maturity, certain other
Indebtedness; certain final judgments that remain undischarged; certain judicial
findings of unenforceability or invalidity as to any guarantee of the Senior
Notes or the disaffirmance or denial by any guarantor of its guarantee of the
Senior Notes; and certain events of bankruptcy or insolvency involving the
Company or any Restricted Subsidiary that is a Significant Subsidiary. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the Senior Notes may declare all the Senior
Notes to be immediately due and payable in an amount equal to the principal of,
premium, if any, and any accrued and unpaid interest
<PAGE>
on such Senior Notes; provided, however, that in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, the principal of,
premium, if any, and any accrued and unpaid interest on the Senior Notes becomes
due and payable immediately without further action or notice. Subject to certain
exceptions, Holders of a majority in principal amount of the then outstanding
Senior Notes may direct the Trustee in its exercise of any trust or power,
provided that the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of Holders unless such
Holders have offered to the Trustee security and indemnity satisfactory to it.
Holders may not enforce the Indenture or the Senior Notes except as provided in
the Indenture. The Trustee may withhold from Holders notice of any continuing
default (except a payment Default) if it determines that withholding notice is
in their interests. The Company must furnish an annual compliance certificate to
the Trustee.
13. Trustee Dealings with the Company. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or any Affiliate, and may otherwise deal with
the Company or any Affiliate, as if it were not Trustee.
14. No Recourse Against Others. No officer, employee, director,
stockholder or Subsidiary of the Company shall have any liability for any
Obligations of the Company under the Senior Notes or the Indenture, or for any
claim based on, in respect of, or by reason of, such Obligations or the creation
of any such Obligation, except, in the case of a Subsidiary, for an express
guarantee or an express creation of any Lien by such Subsidiary of the Company's
Obligations under the Senior Notes. Each Holder by accepting a Senior Note
waives and releases all such liability, and such waiver and release is part of
the consideration for the issuance of the Senior Notes. The foregoing waiver may
not be effective to waive liabilities under the Federal securities law and the
Commission is of the view that such a waiver is against public policy.
15. Successor Substituted. Upon the consolidation or merger by the
Company with or into another corporation, or upon the sale, lease, conveyance or
other disposition of all or substantially all of its assets to another
corporation, in accordance with the Indenture, the corporation surviving any
such merger or consolidation (if not the Company) or the corporation to which
such assets were sold or transferred to shall succeed to, and be substituted
for, and may exercise every right and power of the Company under the Indenture
with the same effect as if such surviving or other corporation had been named as
the Company in the Indenture.
16. Governing Law. This Senior Note shall be governed by and
construed in accordance with the internal laws of the State of New York without
regard to the conflict of laws provisions thereof.
18. Authentication. This Senior Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
19. Abbreviations. Customary abbreviations may be used in the name
of a Holder 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).
20. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Senior Note Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Senior Notes and have directed the
Trustee to use CUSIP numbers in notices of redemption as a
<PAGE>
convenience to Holders. No representation is made as to the accuracy of such
numbers either as printed on the Senior Notes or as contained in any notice of
redemption and reliance may be placed only on the other identification numbers
printed on the Senior Notes.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture, which has in it the text of this Senior
Note in larger type. Request may be made to:
Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Attention: Chief Financial Officer
<PAGE>
ASSIGNMENT FORM
To assign this Senior Note, fill in the form below:
(I) or (we) assign and transfer this Senior Note to:
----------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
----------------------------------
----------------------------------
----------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint _________________________________________ as agent to
transfer this Senior Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature:
----------------------------
(Sign exactly as your name
appears on the other side
of this Senior Note)
Signature Guarantee:
- ----------------------------
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Senior Note purchased by the Company
pursuant to Section 4.13 of the Indenture, check the box: [_]
If you elect to have this Senior Note purchased by the Company
pursuant to Section 4.14 of the Indenture, check the box: [_]
If you elect to have only part of this Senior Note purchased by the
Company pursuant to Section 4.13 or 4.14 of the Indenture, state the amount
(multiples of $1,000 only):
$
--------------------------
Date: Your Signature:
----------------------------
(Sign exactly as your name
appears on the other side of
this Senior Note)
Signature Guarantee:
- ---------------------------
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES
The following exchanges of a part of this Global Note for
Definitive Notes have been made:
<TABLE>
<CAPTION>
Amount of Principal Amount Signature of
Amount of increase of this authorized
decrease in in Global Note officer
Principal Amount Principal Amount following such of
of of decrease Trustee or Senior
Date of Exchange this Global Note this Global Note (or increase) Note Custodian
- ------------------ ----------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit 4.6
================================================================================
MOTORS AND GEARS, INC.
________________________________________
$100,000,000
10 3/4% SERIES C SENIOR NOTES DUE 2006
________________________________________
___________________
REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 17, 1997
___________________
Jefferies & Company, Inc. BT Alex. Brown Incorporated
================================================================================
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of December 17, 1997, by and among Motors and Gears, Inc., a
Delaware corporation (the "Company"), and Jefferies & Company, Inc. and BT Alex.
Brown Incorporated (each a "Purchaser" and, collectively, the "Purchasers"),
each of which has agreed to purchase the Company's 10 3/4% Series C Senior Notes
due 2006 (the "Series C Senior Notes") pursuant to the Purchase Agreement (as
defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
December 10, 1997 (the "Purchase Agreement"), by and between the Company and the
Purchasers. In order to induce the Purchasers to purchase the Series C Senior
Notes, the Company has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Purchasers set forth in the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Broker-Dealer Transfer Restricted Senior Notes: Series D Senior Notes
that are acquired by a Broker-Dealer in the Exchange Offer in exchange for
Series C Senior Notes that such Broker-Dealer acquired for its own account as a
result of market-making activities or other trading activities (other than
Series C Senior Notes acquired directly from the Company or any of its
affiliates).
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series D Senior Notes to be issued in the Exchange Offer, (b)
the maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Series D Senior Notes in the same aggregate
principal amount as the aggregate principal amount of Series C Senior Notes
tendered by Holders thereof pursuant to the Exchange Offer.
2
<PAGE>
Damages Payment Date: With respect to the Series C Senior Notes, each
Interest Payment Date.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the Act of the
Series D Senior Notes pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Senior Notes the opportunity to exchange all such
outstanding Transfer Restricted Senior Notes for Series D Senior Notes in an
aggregate principal amount equal to the aggregate principal amount of the
Transfer Restricted Senior Notes tendered in such exchange offer by such
Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Series C Senior Notes to certain "qualified institutional
buyers," as such term is defined in Rule 144A under the Act, and to certain
"accredited investors," as such term is defined in Rule 501(a)(1), (2), (3), (5)
and (7) of Regulation D under the Act.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated the Closing Date, among the Company
and State Street Bank and Trust Company, as trustee (the "Trustee"), pursuant to
which the Senior Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Senior
Notes.
NASD: National Association of Securities Dealers, Inc.
Person: An individual, partnership, corporation, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Senior Notes on the record date with respect to the Interest
Payment Date on which such Damages Payment Date shall occur.
3
<PAGE>
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Series D Senior Notes pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Senior Notes
pursuant to the Shelf Registration Statement, in each case, (i) which is filed
pursuant to the provisions of this Agreement and (ii) including the Prospectus
included therein, all amendments and supplements thereto (including post-
effective amendments) and all exhibits and material incorporated by reference
therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Senior Notes.
Senior Notes: The Series C Senior Notes and the Series D Senior
Notes.
Series B Senior Notes: The Company's 10 3/4% Series B Senior Notes
due 2006 issued pursuant to an indenture dated as of November 7, 1996 between
the Company and State Street Bank & Trust Company (formerly Fleet National
Bank), as trustee, in a registered exchange offer for the Company's 10 3/4%
Series A Senior Notes due 2006 consummated on May 6, 1997.
Series D Senior Notes: The Company's 10 3/4% Series D Senior Notes
due 2006 to be issued pursuant to the Indenture (i) in the Exchange Offer or
(ii) upon the request of any Holder of Series C Senior Notes covered by a Shelf
Registration Statement, in exchange for such Series C Senior Notes.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Senior Notes: Each Senior Note, until the
earliest to occur of (a) the date on which such Senior Note is exchanged in the
Exchange Offer and entitled to be resold to the public by the Holder thereof
without complying with the prospectus delivery requirements of the Act, (b) the
date on which such Senior Note has been disposed of in accordance with a Shelf
Registration Statement, (c) the date on which such Senior Note is disposed of by
a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date on which such Senior Note is distributed to
the public pursuant to Rule 144 under the Act.
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Senior Notes
(each, a "Holder") whenever such Person owns Transfer Restricted Senior Notes.
3. REGISTERED EXCHANGE OFFER
4
<PAGE>
(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) below have been complied
with), the Company shall (i) cause to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 60 days after the
Closing Date, the Exchange Offer Registration Statement, (ii) use their best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 120 days after the
Closing Date, (iii) in connection with the foregoing, (A) file all pre-effective
amendments to such Exchange Offer Registration Statement as may be necessary in
order to cause such Exchange Offer Registration Statement to become effective,
(B) file, if applicable, a post-effective amendment to such Exchange Offer
Registration Statement pursuant to Rule 430A under the Act and (C) cause all
necessary filings, if any, in connection with the registration and qualification
of the Series D Senior Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Series D Senior Notes to be
offered in exchange for the Series C Senior Notes that are Transfer Restricted
Senior Notes and Series B Senior Notes and to permit sales of Broker-Dealer
Transfer Restricted Senior Notes by Restricted Broker-Dealers as contemplated by
Section 3(c) below.
(b) The Company shall use its best efforts to cause the Exchange Offer
Registration Statement to be effective continuously, and shall keep the Exchange
Offer open, for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
provided, however, that in no event shall such period be less than 20 Business
Days. The Company shall cause the Exchange Offer to comply with all applicable
federal and state securities laws. No securities other than the Senior Notes and
the Series B Senior Notes shall be included in the Exchange Offer Registration
Statement. The Company shall use its best efforts to cause the Exchange Offer to
be Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
Business Days thereafter.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Series C Senior Notes that
are Transfer Restricted Senior Notes and that were acquired for the account of
such Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Series C Senior Notes (other than Transfer
Restricted Senior Notes acquired directly from the Company) pursuant to the
Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of each Series D
Senior Note received by such Broker-Dealer in exchange for Series C Senior Notes
in the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such Broker-Dealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such sales of Broker-Dealer
Transfer Restricted Senior Notes by Restricted Broker-Dealers that the
Commission may require in order to permit such sales pursuant thereto, but such
"Plan of Distribution" shall not name any such Broker-Dealer or disclose the
amount of Senior Notes held by any such Broker-Dealer except to the extent
required by the Commission as a result of a change in policy after the date of
this Agreement.
The Company shall use its reasonable best efforts to keep the Exchange
Offer
5
<PAGE>
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Senior Notes by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of 180 days from the date on which the Exchange Offer is
Consummated.
The Company shall promptly provide sufficient copies of the latest
version of such Prospectus to such Restricted Broker-Dealers promptly upon
request, and in no event later than two days after such request, at any time
during such one-year period in order to facilitate such sales.
4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
Exchange Offer Registration Statement with respect to the Series D Senior Notes
because the Exchange Offer is not permitted by applicable law (after the
procedures set forth in Section 6(a)(i) below have been complied with) or (ii)
if any Holder of Transfer Restricted Senior Notes shall notify the Company
within 20 Business Days following the Consummation of the Exchange Offer that
(A) such Holder is prohibited by law or Commission policy from participating in
the Exchange Offer or (B) such Holder may not resell the Series D Senior Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds Series C Senior Notes acquired directly
from the Company or one of its affiliates, then the Company shall (x) cause to
be filed on or prior to the earliest of (1) 60 days after the date on which the
Company is notified by the Commission or otherwise determines that it is not
required to file the Exchange Offer Registration Statement pursuant to clause
(i) above and (2) 60 days after the date on which the Company receives the
notice specified in clause (ii) above, a shelf registration statement pursuant
to Rule 415 under the Act, (which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "Shelf Registration Statement")),
relating to all Transfer Restricted Senior Notes the Holders of which shall have
provided the information required pursuant to Section 4(b) hereof, and (y) use
their best efforts to cause such Shelf Registration Statement to become
effective at the earliest possible time, but in no event later than 120 days
after the date on which the Company becomes obligated to file such Shelf
Registration Statement. If, after the Company has filed an Exchange Offer
Registration Statement which satisfies the requirements of Section 3(a) above,
the Company is required to file and make effective a Shelf Registration
Statement solely because the Exchange Offer shall not be permitted under
applicable federal law, then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above. Such
an event shall have no effect on the requirements of clause (y) above, or on the
Effectiveness Target Date as defined in Section 5 below. The Company shall use
its reasonable best efforts to keep the Shelf Registration Statement discussed
in this Section 4(a) continuously effective, supplemented and amended as
required by and subject to the provisions of Sections 6(b) and (c) hereof to the
extent necessary to ensure that it is available for sales of Transfer Restricted
Senior Notes by the Holders thereof entitled to the benefit of this Section
4(a), and to ensure that it conforms with the requirements of this Agreement,
the Act and the policies, rules and regulations of the Commission as announced
from time to time, for a period of at least three years (as extended pursuant to
Section 6(c)(i)) following the date on which such Shelf Registration Statement
first becomes effective under the Act or such shorter period that will terminate
when all Transfer Restricted Senior Notes covered by the Shelf Registration
Statement have been sold pursuant thereto.
6
<PAGE>
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Senior Notes may
include any of its Transfer Restricted Senior Notes in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in item 507 of Regulation S-K under the Act for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Senior Notes shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have used its best efforts to provide all such information.
Each Holder as to which any Shelf Registration Statement is being effected
agrees to furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished to the Company
by such Holder not materially misleading.
5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the
Exchange Offer has not been Consummated within 30 Business Days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) subject to the provisions of Section 6(c)(i) below, any
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded immediately (but in any event
within five Business Days thereafter) by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective within such five Business Day period, other than, in the case of
clause (iv) above, for such period in which such Registration Statement shall
cease to be effective as a result of post-effective amendments to incorporate
annual filings which the Company is required to file with the Commission or
post-effective amendments not otherwise covered by Section 6(c)(i) hereof,
provided that the Company in good faith attempts to cause such Registration
Statement to be declared effective as soon as reasonably practicable (each such
event referred to in clauses (i) through (iv), a "Registration Default"), the
Company hereby agrees to pay to each Holder of Transfer Restricted Senior Notes,
for the first 90-day period immediately following the occurrence of such
Registration Default, liquidated damages in an amount equal to $.05 per week per
$1,000 principal amount of Senior Notes constituting Transfer Restricted Senior
Notes held by such Holder for so long as the Registration Default continues. The
amount of liquidated damages payable to each Holder shall increase by an
additional $.05 per week per $1,000 in principal amount of Transfer Restricted
Senior Notes held by such Holder for each subsequent 90-day period up to a
maximum of $.40 per week per $1,000 in principal amount of Senior Notes
constituting Transfer Restricted Senior Notes held by such Holder; provided,
however, that (1) upon filing of the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement), in the case of (i)
above, (2) upon the effectiveness of the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement), in the case of (ii)
above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above,
or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable in the case of (iv) above, the
liquidated damages payable with respect to such Transfer Restricted Senior Notes
as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
7
<PAGE>
All accrued liquidated damages shall be paid by the Company to the
Global Note Holder by wire transfer of immediately available funds or by federal
funds check and to Holders of Certificated Securities by wire transfer to the
accounts specified by them or by mailing checks to their registered addresses if
no such accounts have been specified on each Damages Payment Date. All
obligations of the Company set forth in the preceding paragraph that are
outstanding with respect to any Transfer Restricted Senior Note at the time such
security ceases to be a Transfer Restricted Senior Note shall survive until such
time as all such obligations with respect to such security shall have been
satisfied in full.
6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) below, shall use their best efforts to effect such exchange and to
permit the sale of Broker-Dealer Transfer Restricted Senior Notes being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If, following the date hereof there has been published a change
in Commission policy with respect to exchange offers such as the Exchange
Offer, such that in the reasonable opinion of counsel to the Company there
is a substantial question as to whether the Exchange Offer is permitted by
applicable federal law or Commission policy, the Company hereby agrees to
seek a no-action letter or other favorable decision from the Commission
allowing the Company to Consummate an Exchange Offer for Series C Senior
Notes and Series B Senior Notes. The Company hereby agrees to pursue the
issuance of such a decision to the Commission staff level but shall not be
required to take commercially unreasonable action to effect a change of
Commission policy. In connection with the foregoing, the Company hereby
agrees, however, to take all such other actions as are requested by the
Commission or otherwise required in connection with the issuance of such
decision, including without limitation (A) participating in telephonic
conferences with the Commission, (B) delivering to the Commission staff an
analysis prepared by counsel to the Company setting forth the legal bases,
if any, upon which such counsel has concluded that such an Exchange Offer
should be permitted and (C) diligently pursuing a resolution (which need
not be favorable) by the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Senior Notes and each holder of Series B Senior Notes shall furnish, upon
the request of the Company, prior to the Consummation of the Exchange
Offer, a written representation to the Company (which may be contained in
the letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an affiliate of the Company,
(B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Series D Senior Notes to be issued in the Exchange
Offer and (C) it is acquiring the Series D Senior Notes in its ordinary
course of business. Each Holder hereby acknowledges and agrees that any
Broker-Dealer and any such Holder using the Exchange Offer to participate
in a distribution of the securities to be acquired in the Exchange Offer
(1) could not under Commission policy as in effect on the date of this
Agreement rely on the position of the Commission enunciated in Morgan
Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the Commission's
8
<PAGE>
letter to Shearman & Sterling dated July 2, 1993, and similar no-action
letters (including, if applicable, any no-action letter obtained pursuant
to clause (i) above), and (2) must comply with the registration and
prospectus delivery requirements of the Act in connection with a secondary
resale transaction and that such a secondary resale transaction must be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K if the resales are of Series D Senior Notes obtained by such
Holder in exchange for Series C Senior Notes acquired by such Holder
directly from the Company or an affiliate thereof.
(iii) To the extent required by the Commission, prior to
effectiveness of the Exchange Offer Registration Statement, the Company
shall provide a supplemental letter to the Commission (A) stating that the
Company is registering the Exchange Offer in reliance on the position of
the Commission enunciated in Exxon Capital Holdings Corporation (available
May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) and,
if applicable, any no-action letter obtained pursuant to clause (i) above,
(B) including a representation that the Company has not entered into any
arrangement or understanding with any Person to distribute the Series D
Senior Notes to be received in the Exchange Offer and that, to the best of
the Company's information and belief, each Holder of Transfer Restricted
Senior Notes and each holder of Series B Senior Notes participating in the
Exchange Offer is acquiring the Series D Senior Notes in its ordinary
course of business and has no arrangement or understanding with any Person
to participate in the distribution of the Series D Senior Notes received in
the Exchange Offer and (C) any other undertaking or representation required
by the Commission as set forth in any no-action letter obtained pursuant to
clause (i) above.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement the Company shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration to
permit the sale of the Transfer Restricted Senior Notes being sold in accordance
with the intended method or methods of distribution thereof (as indicated in the
information furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Senior Notes in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance with
the provisions hereof.
(c) General Provisions. In connection with any Registration Statement and
any related Prospectus required by this Agreement to permit the sale or resale
of Transfer Restricted Senior Notes (including, without limitation, any Exchange
Offer Registration Statement and the related Prospectus, to the extent that the
same are required to be available to permit sales of Broker-Dealer Transfer
Restricted Senior Notes by Restricted Broker-Dealers), the Company shall:
(i) use its reasonable efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for
the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for resale
of Transfer Restricted Senior Notes during the period required by this
Agreement, the Company shall file promptly an appropriate amendment to such
Registration Statement, (1) in the case of clause (A), correcting
9
<PAGE>
any such misstatement or omission, and (2) in the case of either clause (A) or
(B), use its reasonable efforts to cause such amendment to be declared effective
and such Registration Statement and the related Prospectus to become usable for
their intended purpose(s) as soon as practicable thereafter. Notwithstanding the
foregoing, if (A) the Board of Directors of the Company determines in good faith
that it is in the best interests of the Company not to disclose the existence of
or facts surrounding any proposed or pending material corporate transaction
involving the Company or its subsidiaries and (B) the Company notifies the
Holders within two Business Days after the Board of Directors makes such
determination, the Company may allow the Shelf Registration Statement to fail to
be effective and usable as a result of such nondisclosure for up to 60 days
during the three-year period of effectiveness required by Section 4 hereof, but
in no event for any period in excess of 30 consecutive days; provided, however,
that the three-year period referred to in Section 4 hereof during which the
Shelf Registration Statement is required to be effective and usable shall be
extended by the number of days during which such registration statement was not
effective or usable pursuant to the foregoing provisions.
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the Registration Statement as may be necessary to keep
the Registration Statement effective for the applicable period set forth in
Section 3 or 4 hereof, or such shorter period as will terminate when all
Transfer Restricted Senior Notes covered by such Registration Statement have
been sold; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Act, and to comply fully with Rules 424 and 430A, as applicable, under the Act
in a timely manner; and comply with the provisions of the Act with respect to
the disposition of all securities covered by such Registration Statement during
the applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration Statement or
supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders promptly and,
if requested by such Persons, confirm such advice in writing, (A) when the
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to any Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating thereto,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the suspension
by any state securities commission of the qualification of the Transfer
Restricted Senior Notes for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes in the
Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Senior
10
<PAGE>
Notes under state securities or Blue Sky laws, the Company shall use its
reasonable efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) in the case of a Shelf Registration Statement, use reasonable
efforts to furnish to the Purchaser, each selling Holder named in any
Registration Statement or Prospectus and each of the underwriter(s) in
connection with such sale, if any, before filing with the Commission, copies of
any Registration Statement or any Prospectus included therein or any amendments
or supplements to any such Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of such
Registration Statement), prior to filing and reasonably respond to comments
received from such persons, and make the Company's representatives available for
discussion of such documents and other customary due diligence matters.
(v) subject to execution of confidentiality agreements that are
reasonably satisfactory to the Company as to the disclosure of any non-public
information obtained pursuant to Section 6(c)(vi), make available upon
reasonable notice and at reasonable times for inspection by the selling Holders,
any managing underwriter participating in any disposition pursuant to such
Registration Statement and any attorney or accountant retained by such selling
Holders or any of such underwriter(s), all financial and other records,
pertinent corporate documents and properties of the Company and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such Holder, underwriter, attorney or accountant in connection
with such Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness;
(vi) in the case of a Shelf Registration Statement, if requested by any
selling Holders or the underwriter(s) in connection with such sale, if any,
promptly include in any Registration Statement or Prospectus, pursuant to a
supplement or post-effective amendment if necessary, such information as such
selling Holders and underwriter(s), if any, may reasonably request to have
included therein, including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Senior Notes, information with
respect to the principal amount of Transfer Restricted Senior Notes being sold
to such underwriter(s), the purchase price being paid therefor and any other
terms of the offering of the Transfer Restricted Senior Notes to be sold in such
offering; and make all required filings of such Prospectus supplement or post-
effective amendment as soon as practicable after the Company is notified of the
matters reasonably requested to be included in such Prospectus supplement or
post-effective amendment;
(vii) in the case of a Shelf Registration Statement, furnish to each
selling Holder and each of the underwriter(s) in connection with such sale, if
any, without charge, at least one copy of the Registration Statement, as first
filed with the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(viii) deliver to each selling Holder of Transfer Restricted Senior Notes,
each selling holder of Series B Senior Notes and each of the underwriter(s), if
any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company hereby consents to the use (in accordance
with law) of the Prospectus and any amendment or supplement thereto by
11
<PAGE>
each of the selling Holders and each of the underwriter(s), if any, in
connection with the offering and the sale of the Transfer Restricted Senior
Notes covered by the Prospectus or any amendment or supplement thereto;
(ix) enter into such customary agreements and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of
the Transfer Restricted Senior Notes pursuant to any Registration Statement
contemplated by this Agreement as may be reasonably requested by any Holder
of Transfer Restricted Senior Notes or underwriter in connection with any
sale or resale pursuant to any Registration Statement contemplated by this
Agreement, and in such connection, whether or not an underwriting agreement
is entered into and whether or not the registration is an Underwritten
Registration, the Company shall:
(A) furnish (or in the case of paragraphs (2) and (3), use its
best efforts to furnish) to each selling Holder and each underwriter,
if any, upon the effectiveness of the Shelf Registration Statement and
to each Restricted Broker-Dealer upon Consummation of the Exchange
Offer:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed on behalf of
the Company by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Company
confirming, as of the date thereof, the matters set forth in
paragraphs (a) through (d) of Section 9 of the Purchase Agreement
and such other similar matters as the Holders and/or
underwriter(s) may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company, covering matters customarily covered in opinions
requested in Underwritten Offerings and dated the date of
effectiveness of the Shelf Registration Statement or the date of
Consummation of the Exchange Offer, as the case may be; and
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement or the date of
Consummation of the Exchange Offer, as the case may be, from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters to underwriters in connection with Underwritten
Offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 9(i) of the Purchase
Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, in connection with any sale or resale
pursuant to any Shelf Registration Statement the indemnification
provisions and procedures of Section 8 hereof with respect to all
parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably
12
<PAGE>
requested by the selling Holders or the underwriter(s), if any, to
evidence compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement or other agreement
entered into by the Company pursuant to this clause (x).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at any
time the representations and warranties of the Company contemplated in
(A)(1) above cease to be true and correct, the Company shall so advise the
underwriter(s), if any, and selling Holders promptly and if requested by
such Persons, shall confirm such advice in writing;
(x) prior to any public offering of Transfer Restricted Senior Notes,
cooperate with the selling Holders, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification of
the Transfer Restricted Senior Notes under the securities or Blue Sky laws
of such jurisdictions as the selling Holders or underwriter(s), if any, may
request and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Transfer Restricted
Senior Notes covered by the applicable Registration Statement; provided,
however, that the Company shall not be required to register or qualify as a
foreign corporation where it is not now so qualified or to take any action
that would subject it to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xi) issue, upon the request of any Holder of Series C Senior Notes
covered by any Shelf Registration Statement contemplated by this Agreement,
Series D Senior Notes, having an aggregate principal amount equal to the
aggregate principal amount of Series C Senior Notes surrendered to the
Company by such Holder in exchange therefor or being sold by such Holder;
such Series D Senior Notes to be registered in the name of such Holder or
in the name of the purchaser(s) of such Senior Notes, as the case may be;
in return, the Series C Senior Notes held by such Holder shall be
surrendered to the Company for cancellation;
(xii) in connection with any sale of Transfer Restricted Senior Notes
that will result in such securities no longer being Transfer Restricted
Senior Notes, cooperate with the selling Holders and the underwriter(s), if
any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Senior Notes to be sold and not bearing
any restrictive legends; and to register such Transfer Restricted Senior
Notes in such denominations and such names as the Holders or the
underwriter(s), if any, may request at least two Business Days prior to
such sale of Transfer Restricted Senior Notes;
(xiii) use its reasonable efforts to cause the disposition of the
Transfer Restricted Senior Notes covered by the Registration Statement to
be registered with or approved by such other U.S. governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof or
the underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Senior Notes, subject to the proviso contained in clause (xi)
above;
(xiv) subject to Section 6(c)(i), if any fact or event contemplated by
Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer
13
<PAGE>
Restricted Senior Notes, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(xv) provide a CUSIP number for all Transfer Restricted Senior Notes
not later than the effective date of a Registration Statement covering such
Transfer Restricted Senior Notes and provide the Trustee under the
Indenture with printed certificates for the Transfer Restricted Senior
Notes which are in a form eligible for deposit with the Depository Trust
Company;
(xvi) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use its reasonable efforts to cause such Registration Statement
to become effective and approved by such governmental agencies or
authorities as may be necessary to enable the Holders selling Transfer
Restricted Senior Notes to consummate the disposition of such Transfer
Restricted Senior Notes;
(xvii) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xviii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee and
the Holders of Senior Notes to effect such changes to the 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 reasonable efforts to cause the
Trustee to execute, all documents that 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;
and
14
<PAGE>
(xix) provide promptly to each Holder and each holder of Series B
Senior Notes upon request each document filed with the Commission pursuant
to the requirements of Section 13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Senior Note that, upon receipt of the notice referred to in
Section 6(c)(i) or any notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Senior Notes pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof,
or until it is advised in writing by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus (the "Advice"). If
so directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted Senior
Notes that was current at the time of receipt of either such notice. In the
event the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section 6(c)(i)
or Section 6(c)(iii)(D) hereof to and including the date when each selling
Holder covered by such Registration Statement shall have received the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof
or shall have received the Advice.
7.REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made with the NASD
and counsel fees in connection therewith); (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all printing expenses of printing (including printing certificates for the
Series D Senior Notes and printing of Prospectuses); (iv) all fees and
disbursements of counsel for the Company and, in accordance with Section 7(b)
below, the Holders of Transfer Restricted Senior Notes; and (v) all fees and
disbursements of independent certified public accountants of the Company
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Shelf Registration Statement required by this
Agreement, the Company will reimburse the Holders of Transfer Restricted Senior
Notes the distribution of which is being registered pursuant to the Shelf
Registration Statement for the reasonable fees and disbursements of not more
than one counsel chosen by the Holders of a majority of the principal amount of
such Transfer Restricted Senior Notes, which counsel shall be satisfactory to
the Company in its sole discretion.
15
<PAGE>
8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each Holder and
(ii) each person, if any, who controls (within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act) any Holder (any of the persons referred
to in this clause (ii) being hereinafter referred to as a "controlling person")
and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Holder"), from and against any and all losses, claims, damages,
liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus (or any amendment or supplement thereto), or caused by any omission
or alleged omission to state therein a 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, except insofar as such
losses, claims, damages, liabilities or judgments (i) are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any of the Holders furnished in writing to the Company
by any of the Holders expressly for use therein, (ii) with respect to the
preliminary prospectus, result from the fact that the Holder sold Transfer
Restricted Senior Notes to a person to whom there was not sent or given, at or
prior to the written confirmation of such sale, a copy of the prospectus, as
amended or supplemented, if the Company shall have previously furnished copies
thereof to the Holder in accordance with this Agreement and the prospectus, as
amended or supplemented, would have corrected such untrue statement or omission
or (iii) are a result of the use by the Indemnified Holder of any prospectus,
when, upon receipt of a notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(D) hereof contemplated by the last
paragraph of Section 6 hereof, the Indemnified Holder was not permitted to do
so.
In case any action or proceeding shall be brought against any of the
Indemnified Holders with respect to which indemnity may be sought against the
Company, such Indemnified Holder (or the Indemnified Holder controlled by such
controlling person) shall promptly notify the Company in writing (provided, that
the failure to give such notice shall not relieve the Company of its obligations
pursuant to this Agreement). Such Indemnified Holder shall have the right to
employ its own counsel in any such action but the fees and expenses of such
counsel shall be at the expense of the Indemnified Holder or such controlling
person unless (i) the employment of such counsel shall have been specifically
authorized in writing by the Company, (ii) the Company shall have failed to
assume the defense and employ counsel or (iii) the named parties to any such
action (including any impleaded parties) include both the Indemnified Holder or
such controlling person and the Company and the Indemnified Holder or such
controlling person shall have been advised in writing by such counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to assume the defense of such action on behalf of the
Indemnified Holder or such controlling person), it being understood, however,
that the Company shall not, in connection with any one such action or proceeding
or separate but substantially similar or related actions or proceedings in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) at any time for such Indemnified
Holders, which firm shall be designated by the Holders and be reasonably
satisfactory to the Company. The Company shall not be liable for any settlement
of any such
16
<PAGE>
action or proceeding effected without the Company's prior written consent, which
consent shall not be withheld unreasonably, but if settled with the Company's
written consent, and the Company agrees to indemnify and hold harmless any
Indemnified Holder from and against any loss or liability by reason of such
settlement. The Company shall not, without the prior written consent of each
Indemnified Holder effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Holder is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Holder, unless
such settlement includes an unconditional release of such Indemnified Holder
from all liability on claims that are the subject matter of such proceeding.
(b) Each Holder of Transfer Restricted Senior Notes agrees, severally and
not jointly, to indemnify and hold harmless the Company, and its directors,
officers, and any person controlling the Company (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each of the Indemnified Holders, but
only with respect to information relating to such Holder furnished in writing by
such Holder expressly for use in any Registration Statement. In case any action
or proceeding shall be brought against the Company or its directors or officers
or any such controlling person in respect of which indemnity may be sought
against a Holder of Transfer Restricted Senior Notes, such Holder shall have the
rights and duties given the Company and the Company or its directors or officers
or such controlling person shall have the rights and duties given to each Holder
by the preceding paragraph. In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
(c) If the indemnification provided for in this Section 8 is unavailable to
an indemnified party under Section 8(a) or Section 8(b) hereof (other than by
reason of exceptions provided in those Sections) in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Holders on the other hand from their sale of
Transfer Restricted Senior Notes or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and of
the Indemnified Holder on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and of the Indemnified Holder on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the Company or by the Indemnified Holder
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
judgments referred to above shall be deemed to include, subject to the
limitations set forth in the second paragraph of Section 8(a), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company and each Holder of Transfer Restricted Senior Notes agree
that it
17
<PAGE>
would not be just and equitable if contribution pursuant to this Section 8(c)
were determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, none of the Holders (and its related Indemnified Holders) shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the dollar amount of proceeds received by such Holder upon the sale of
Transfer Restricted Senior Notes exceeds the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(c) are several in proportion to the respective principal amount of
Series C Senior Notes held by each of the Holders hereunder and not joint.
9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Senior Notes remain outstanding and during any period in
which the Company is not subject to Section 13 or 15(d) of the Securities
Exchange Act, to make available, upon request of any Holder of Transfer
Restricted Senior Notes, to any Holder or beneficial owner of Transfer
Restricted Senior Notes in connection with any sale thereof and any prospective
purchaser of such Transfer Restricted Senior Notes designated by such Holder or
beneficial owner, the information required by Rule 144A(d)(4) under the Act in
order to permit resales of such Transfer Restricted Senior Notes pursuant to
Rule 144A.
10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted Senior
Notes on the basis provided in customary underwriting arrangements entered into
in connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, lock-up letters and other documents required
under the terms of such underwriting arrangements.
11. SELECTION OF UNDERWRITERS
Subject to the Company's consent, for any Underwritten Offering, the
investment banker or investment bankers and manager or managers for any
Underwritten Offering that will administer such offering will be selected by the
Holders of a majority in aggregate principal amount of the Transfer Restricted
Senior Notes included in such offering. Such investment bankers and managers are
referred to herein as the "underwriters."
12. MISCELLANEOUS
18
<PAGE>
(a) Remedies. Each Holder, in addition to being entitled to exercise all
rights provided herein, in the Indenture, the Purchase Agreement or granted by
law, including recovery of liquidated or other damages, will be entitled to
specific performance of its rights under this Agreement. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not previously
entered into any agreement granting any registration rights with respect to its
securities to any Person, other than (i) those rights existing by virtue of the
Stockholders Agreement, dated April 14, 1989, among the Company and certain of
its stockholders, as amended, and (ii) those rights existing by virtue of the
registration rights agreement, dated November 7, 1996, among the Company and
certain initial purchasers of the Company's 10 3/4% Series A Senior Notes due
2006. The rights granted to the Holders hereunder do not in any way conflict
with and are not inconsistent with the rights granted to the holders of the
Company's securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Senior Notes. The Company will not take any
action, or voluntarily permit any change to occur, with respect to the Senior
Notes that would materially and adversely affect the ability of the Holders to
Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Senior Notes. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Senior Notes subject to such Exchange Offer.
(e) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture;
(ii) if to a holder of Series B Senior Notes, at the address set forth
on the records of the registrar under the indenture governing the Series B
Senior Notes; and
(iii) if to the Company:
19
<PAGE>
Motors and Gears, Inc.
1751 Lake Cook Road
Suite 550
Deerfield, IL 60015
Telecopier No.: (708) 945-5698
Attention: Chief Financial Officer
With a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Telecopier No.: (312) 701-7711
Attention: Philip J. Niehoff
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, 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 specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Senior Notes; 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 acquired
Transfer Restricted Senior Notes directly from such Holder at a time when such
Holder could not transfer such Transfer Restricted Senior Notes pursuant to a
Shelf Registration Statement.
(g) 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.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
20
<PAGE>
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the other Operative
Documents (as defined in the Purchase Agreement) is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Transfer Restricted Senior Notes. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MOTORS AND GEARS, INC.
By: /s/ Gordon L. Nelson
----------------------------
Name: Gordon L. Nelson, Jr.
Title: Vice President
JEFFERIES & COMPANY, INC.
By: /s/ Andrew R. Whittaker
-------------------------------
Name: Andrew R. Whittaker
Title: Executive Vice President
BT ALEX. BROWN INCORPORATED
By: /s/ Mitch Goldstein
---------------------------
Name: Mitch Goldstein
Title: Vice President
22
<PAGE>
Exhibit 5
---------
January 9, 1998
Motors and Gears, Inc.
1751 Lake Cook Road, Suite 550
Deerfield, IL 60015
Re: $270 million 10 3/4% Series D Senior Notes due 2006
---------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Motors and Gears, Inc., a Delaware corporation
(the "Company"), in connection with the preparation of an registration statement
on Form S-4 (the "Registration Statement") to register under the Securities Act
of 1933, as amended (the "Act"), an offer to exchange (the "Exchange Offer")
$270 million aggregate principal amount of Series D 10 3/4% Senior Notes due
2006 (the "Series D Senior Notes") for $100 million principal amount of Series C
10 3/4% Senior Notes due 2006 (the "Series C Senior Notes") and $170 million
principal amount of Series B 10 3/4% Senior Notes due 2006 (the "Series B Senior
Notes"). The Series C Senior Notes were issued under an indenture (the
"Indenture") between the Company and State Street Bank and Trust Company, as
trustee and the Series B Senior Notes were issued under an indenture between the
Company and Fleet National Bank, currently known as State Street Bank and Trust
Company, and a First Supplemental Indenture. In this connection, we have
examined such corporate and other records, instruments, certificates and
documents as we considered necessary to enable us to express this opinion.
Based on the foregoing, it is our opinion that, upon completion of the
Exchange Offer, the Series D Senior Notes will have been duly authorized for
issuance and, when each series of Series D Senior Notes is duly executed,
authenticated, issued and delivered, such series will constitute valid and
legally binding obligations of the Company entitled to the benefits of the
Indenture, subject to bankruptcy, insolvency, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditor's rights
and to general equity principles (whether considered in a proceeding at law or
in equity).
<PAGE>
Motors and Gears, Inc.
January 9, 1998
Page 2
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to Mayer, Brown & Platt under the caption "Legal
Matters."
Very truly yours,
/s/ Mayer Brown & Platt
-------------------------------
MAYER, BROWN & PLATT
<PAGE>
Exhibit 10.2
FIRST AMENDMENT AND CONSENT
---------------------------
FIRST AMENDMENT AND CONSENT (this "Amendment"), dated as of June 3,
1997, among MOTORS AND GEARS INDUSTRIES, INC., an Illinois corporation (the
"Borrower"), the financial institutions party to the Credit Agreement referred
to below (each, a "Bank" and, collectively, the "Banks"), and BANKERS TRUST
COMPANY, as Agent for the Banks (the "Agent"). All capitalized terms used herein
and not otherwise defined shall have the respective meanings provided such terms
in the Credit Agreement.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Banks and the Agent are parties to a Credit
Agreement, dated as of November 7, 1996 (the "Credit Agreement");
WHEREAS, the Borrower desires to acquire, through FIR Group Holdings
Italia, S.r.l., a limited liability company organized under the laws of Italy
("FIR Group") and, upon the consummation of the FIR Assignment described below,
a Wholly-Owned Subsidiary of a corporation organized under the laws of the
Netherlands ("Netherlands I"), which, in turn, is a Wholly-Owned Subsidiary of
FIR Group Holdings, Inc., a corporation organized under the laws of Delaware
("Special Purpose U.S. Holding Corp."), which, in turn, is a Wholly-Owned
Subsidiary of the Borrower, all of the capital stock of (x) CIME S.p.A., a
company organized under the laws of Italy, (y) SELIN S.p.A., a company organized
under the laws of Italy, and (z) FIR S.p.A., a company organized under the laws
of Italy, pursuant to a Share Purchase Agreement (as amended, modified or
supplemented to the date hereof, the "Share Purchase Agreement"), dated as of
March 21, 1997 and amended as of May 9, 1997, among Mr. Carlo Bergamaschi, an
Italian citizen, Mr. Paolo Bergamaschi, an Italian citizen, Mr. Andrea Salati,
an Italian citizen, TULIPA GESTAO e SERVICOS S.A., a company organized under the
laws of Portugal, FIR Group and the Borrower (the "FIR Acquisition"), which
transaction, after giving effect to this Amendment, will constitute a Permitted
Acquisition effected in accordance with the requirements of the Credit
Agreement;
WHEREAS, the Borrower has requested certain amendments and consents to
the Credit Agreement in connection with the transaction described in the
preceding recital; and
WHEREAS, subject to the terms and conditions of this Amendment, the
Banks wish to grant certain consents to the Credit Agreement, and the parties
hereto wish to amend the Credit Agreement as herein provided;
<PAGE>
NOW, THEREFORE, it is agreed:
I. Amendments and Consents to Credit Agreement.
-------------------------------------------
1. Notwithstanding anything to the contrary contained in Section
9.02 of the Credit Agreement, on the First Amendment Effective Date (as defined
below) and immediately prior to giving effect to the FIR Acquisition,
Netherlands I may acquire 100% of the capital stock of FIR Group by way of
assignment (the "FIR Assignment") from Jordan pursuant to, and in accordance
with the terms of, an assignment agreement, between Jordan and Netherlands I, in
form and substance satisfactory to the Agent, so long as no consideration is
paid to Jordan in connection with the FIR Assignment.
2. The Banks hereby acknowledge and agree that the FIR Acquisition
may be effected as a Permitted Acquisition in accordance with all applicable
requirements of the Credit Agreement, including, without limitation, Sections
8.11, 8.15, 8.16, 9.02, 9.12 and 9.13 thereof, it being understood and agreed
that prior to the consummation of the FIR Acquisition (i) the Borrower shall
have duly authorized, executed and delivered to the Collateral Agent a pledge
agreement governed by Dutch law in respect of the Pledged Shares (as defined
below) in form and substance satisfactory to the Collateral Agent (the "Dutch
Pledge Agreement"), (ii) the Collateral Agent and the Banks shall have received
an opinion of Dutch counsel reasonably acceptable to the Collateral Agent
covering the validity and perfection of the security interest of the Collateral
Agent in the Pledged Shares, which opinion shall be in form and substance
satisfactory to the Collateral Agent and (iii) the Collateral Agent shall have
received a pledge of all of the capital stock of Netherlands I, together with an
executed and undated stock power (or appropriate Dutch equivalent) therefor;
provided, that the Borrower shall not be required to pledge more than 65% of the
total combined voting power of all classes of capital stock of Netherlands I
entitled to vote (such shares of capital stock required to be pledged pursuant
to this clause (iii) are herein called the "Pledged Shares"); provided further
that, notwithstanding anything to the contrary contained in the Credit
Agreement, the following deviations from the requirements of the Credit
Agreement shall be permitted (and only such deviations shall be permitted) in
connection with the FIR Acquisition so long as same otherwise meets all
applicable requirements for a Permitted Acquisition pursuant to the Credit
Agreement:
(i) FIR Group may effect the FIR Acquisition in accordance with the
terms of the Share Purchase Agreement, so long as (i) the Permitted
Transaction Cost of the FIR Acquisition shall not exceed $55,000,000 and
(ii) the consideration for the FIR Acquisition shall consist solely of
cash; and
(ii) the Borrower may make a capital contribution and/or an
intercompany loan, in an aggregate amount not to exceed $55,000,000, to
Special Purpose U.S. Holding Corp., which in turn shall immediately use the
full amount
-2-
<PAGE>
of the proceeds of such capital contribution and/or intercompany loan, as
the case may be, to make a capital contribution and/or intercompany loan to
Netherlands I, which in turn shall immediately use the full amount of such
capital contribution and/or intercompany loan, as the case may be, to make
a capital contribution and/or an intercompany loan (the "NI Intercompany
Loan") to FIR Group, for the purpose of and so long as FIR Group
immediately uses the proceeds of such capital contribution and/or the NI
Intercompany Loan, as the case may be, to pay the purchase price in
connection with the FIR Acquisition;
(iii) additional Indebtedness constituting intercompany loans
incurred by Netherlands I and FIR Group in accordance with the requirements
of clause (ii) above shall be permitted; and
(iv) Special Purpose U.S. Holding Corp. shall be permitted to
establish Netherlands I in connection with the FIR Acquisition.
3. Notwithstanding anything to the contrary contained in Sections
9.02, 9.05 and 9.13 of the Credit Agreement, after the consummation of the FIR
Acquisition, Netherlands I shall be permitted to (i) acquire 100% of the capital
stock of a shell corporation organized under the laws of the Netherlands
("Netherlands II"), so long as (x) the total consideration paid in respect of
such acquisition consists solely of cash in an amount not to exceed $7,000 and
(y) after giving effect to such acquisition, Netherlands II becomes a Wholly-
Owned Subsidiary of Netherlands I and (ii) contribute as a capital contribution
to Netherlands II (x) all of the capital stock of FIR Group then owned by
Netherlands I and (y) the promissory note held by Netherlands I evidencing the
NI Intercompany Loan.
4. Section 9.01 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (xx) of said Section,
(ii) redesignating clause (xxi) of said Section as clause (xxii) and (iii)
inserting the following new clause (xxi) immediately after clause (xx) appearing
in said Section:
"(xxi) Liens securing Foreign Subsidiary Working Capital Indebtedness
permitted pursuant to clause (x) of Section 9.04 (xxi), so long as any such
Lien attaches only to the assets of the respective Foreign Subsidiary which
is the obligor under such Foreign Subsidiary Working Capital Indebtedness
(and/or any Foreign Subsidiary of such Foreign Subsidiary); and".
5. Section 9.02 of the Credit Agreement is hereby amended by (i)
deleting the period at the end of clause (xv) of said Section and inserting the
text "; and" in lieu thereof and (ii) inserting the following new clause (xvi)
at the end of said Section:
-3-
<PAGE>
"(xvi) any Foreign Subsidiary may be merged with and into, or be
dissolved or liquidated into, or transfer any of its assets to, any Wholly-
Owned Foreign Subsidiary so long as (i) no Default or Event of Default then
exists or would result therefrom, (ii) such Wholly-Owned Foreign Subsidiary
is the surviving corporation of any such merger, dissolution or liquidation
and (iii) the security interest, if any, granted to the Collateral Agent
for the benefit of the Secured Creditors pursuant to the Pledge Agreement
in the capital stock of such surviving Wholly-Owned Foreign Subsidiary
shall remain in full force and effect and perfected (at least to the same
extent as in effect immediately prior to such merger, consolidation or
liquidation)."
6. Section 9.04 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (xx) of said Section,
(ii) redesignating clause (xxi) of said Section as clause (xxii) and (iii)
inserting the following new clause (xxi) immediately after clause (xx) appearing
in said Section:
"(xxi) Indebtedness (x) of Foreign Subsidiaries under lines of credit
extended by financial institutions acceptable to the Agent to any such
Foreign Subsidiary the proceeds of which Indebtedness are used for such
Foreign Subsidiary's working capital purposes, provided that the aggregate
principal amount of all such Indebtedness outstanding at any time for all
Foreign Subsidiaries shall not exceed $7,500,000 (the "Foreign Subsidiary
Working Capital Indebtedness") and (y) consisting of guaranties by any
Foreign Subsidiary of any such Foreign Subsidiary Working Capital
Indebtedness; and".
7. Section 9.05(ii) of the Credit Agreement is hereby amended by
inserting the text "and any Foreign Subsidiary of the Borrower may make
intercompany loans and advances to any Wholly-Owned Foreign Subsidiary of the
Borrower" immediately prior to the text ";provided" appearing in said Section.
8. Section 11.01 of the Credit Agreement is hereby amended by
inserting the following new definition in appropriate alphabetical order:
"Foreign Subsidiary Working Capital Indebtedness" shall have the
meaning provided in Section 9.04(xxi).
II. Miscellaneous Provisions.
------------------------
-4-
<PAGE>
1. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that:
(a) no Default or Event of Default exists as of the First Amendment
Effective Date both before and after giving effect to this Amendment; and
(b) all of the representations and warranties contained in the Credit
Agreement or the other Credit Documents are true and correct in all
material respects on the First Amendment Effective Date both before and
after giving effect to this Amendment, with the same effect as though such
representations and warranties had been made on and as of the First
Amendment Effective Date (it being understood that any representation or
warranty made as of a specific date shall be true and correct in all
material respects as of such specific date).
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
5. This Amendment shall become effective on the date (the "First
Amendment Effective Date") when each of the Borrower and the Required Banks
shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Agent at its Notice Office.
6. From and after the First Amendment Effective Date, all references
in the Credit Agreement and each of the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement as modified
hereby.
* * *
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
MOTORS AND GEARS INDUSTRIES, INC.
By /s/ Gordon Nelson
-------------------------------
Title: Vice President
BANKERS TRUST COMPANY,
Individually and as Agent
By /s/ Patricia Hogan
-------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Michael Stevens
-------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Julie A. Brister
-------------------------------
Title: Managing Director
HELLER FINANCIAL
By /s/ Michael S. Sznajder
-------------------------------
Title: Vice President
<PAGE>
Exhibit 10.3
SECOND AMENDMENT
----------------
SECOND AMENDMENT (this "Amendment"), dated as of October 27, 1997,
among MOTORS AND GEARS INDUSTRIES, INC., a Delaware corporation (the
"Borrower"), the financial institutions party to the Credit Agreement referred
to below (each, a "Bank" and, collectively, the "Banks"), and BANKERS TRUST
COMPANY, as Agent for the Banks (the "Agent"). All capitalized terms used herein
and not otherwise defined shall have the respective meanings provided such terms
in the Credit Agreement.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower, the Banks and the Agent are parties to a Credit
Agreement, dated as of November 7, 1996 (the "Credit Agreement");
WHEREAS, subject to the terms and conditions of this Amendment, the
parties hereto wish to amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. Amendments and Modifications to Credit Agreement.
------------------------------------------------
1. Section 8.15(a)(ii)(w) of the Credit Agreement is hereby amended by
(i) deleting the phrase "and/or" appearing therein and inserting in lieu thereof
a comma and (ii) inserting the phrase "and/or other Indebtedness permitted
pursuant to Section 9.04(xxii)" immediately after the phrase "Permitted Acquired
Debt" appearing therein.
2. The definition of "Permitted Transaction Cost" appearing in Section
11 of the Credit Agreement is hereby amended by (i) deleting the phrase "and/or"
appearing in clause (iii) thereof and inserting in lieu thereof a comma and (ii)
inserting the phrase "and/or other Indebtedness permitted pursuant to Section
9.04(xxii)" immediately after the phrase "Permitted Acquired Debt" appearing in
clause (iii) thereof.
II. Miscellaneous Provisions.
------------------------
1. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that:
<PAGE>
(a) no Default or Event of Default exists as of the Second Amendment
Effective Date both before and after giving effect to this Amendment; and
(b) all of the representations and warranties contained in the Credit
Agreement or the other Credit Documents are true and correct in all
material respects on the Second Amendment Effective Date both before and
after giving effect to this Amendment, with the same effect as though such
representations and warranties had been made on and as of the Second
Amendment Effective Date (it being understood that any representation or
warranty made as of a specific date shall be true and correct in all
material respects as of such specific date).
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
5. This Amendment shall become effective on the date (the "Second
Amendment Effective Date") when each of the Borrower and the Required Banks
shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Agent at its Notice Office.
6. From and after the Second Amendment Effective Date, all references
in the Credit Agreement and each of the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement as modified
hereby.
* * *
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
MOTORS AND GEARS INDUSTRIES, INC.
By /s/ Gordon Nelson
--------------------------------
Title: Vice President
BANKERS TRUST COMPANY
Individually and as Agent
By /s/ Patricia Hogan
--------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Jonathan Zimmerman
--------------------------------
Title: Managing Director
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Julie A. Brister
--------------------------------
Title: Managing Director
HELLER FINANCIAL
By /s/ Michael J. Szneijder
--------------------------------
Title: Vice President
<PAGE>
Exhibit 10.4
THIRD AMENDMENT
THIRD AMENDMENT (this "Amendment"), dated as of November 21, 1997,
among MOTORS AND GEARS INDUSTRIES, INC., a Delaware corporation (the
"Borrower"), the financial institutions party to the Credit Agreement referred
to below (each, a "Bank" and, collectively, the "Banks"), and BANKERS TRUST
COMPANY, as Agent for the Banks (the "Agent"). All capitalized terms used herein
and not otherwise defined shall have the respective meanings provided such terms
in the Credit Agreement.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Banks and the Agent are parties to a Credit
Agreement, dated as of November 7, 1996 (as amended, modified or supplemented to
the date hereof, the "Credit Agreement");
WHEREAS, the Borrower desires to acquire, through Motion Holdings,
Inc., a Delaware corporation ("Motion Holdings") and, upon the consummation of
the Motion Holdings Assignment described below, a Wholly-Owned Subsidiary of the
Borrower, all of the capital stock of Motion Control Engineering, Inc., a
California corporation ("MCE"), pursuant to a Stock Purchase Agreement (as
amended, modified or supplemented through the Third Amendment Effective Date (as
defined below), the "MC Stock Purchase Agreement"), dated as of November 17,
1997, among Motion Holdings and all of the stockholders of MCE (the "Motion
Control Acquisition"), which transaction, after giving effect to this Amendment,
will constitute a Permitted Acquisition effected in accordance with the
requirements of the Credit Agreement;
WHEREAS, subject to the terms and conditions of this Amendment, the
parties hereto wish to amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. Amendments and Modifications to Credit Agreement.
1. Notwithstanding anything to the contrary contained in Sections 9.02
and 9.13 of the Credit Agreement, on the Third Amendment Effective Date and
immediately prior to giving effect to the Motion Control Acquisition, the
Borrower may acquire 100% of the capital stock of Motion Holdings by way of
assignment (the "Motion Holdings Assignment") from Parent pursuant to, and in
accordance with the terms of, an assignment
<PAGE>
agreement, between Parent and the Borrower, in form and substance satisfactory
to the Agent, so long as (i) no consideration is paid to Parent in connection
with the Motion Holdings Assignment and (ii) all of the requirements of Section
9.13 of the Credit Agreement have been satisfied with respect to Motion Holdings
(for this purpose, treating each reference to "any Wholly-Owned Domestic
Subsidiary", "such new Wholly-Owned Domestic Subsidiary" and "such new
Subsidiary" appearing in Section 9.13 of the Credit Agreement as a reference to
Motion Holdings).
2. The Banks hereby acknowledge and agree that the Motion Control
Acquisition may be effected as a Permitted Acquisition in accordance with (x)
all applicable requirements of the Credit Agreement, including, without
limitation, Sections 8.11, 8.15, 8.16, 9.02, 9.12, and 9.13 thereof and (y) the
terms of the MC Stock Purchase Agreement; provided that, notwithstanding
anything to the contrary contained in Section 8.15 of the Credit Agreement, the
Permitted Transaction Cost of the Motion Control Acquisition (including fees and
expenses) shall be permitted to be $53,000,000 (subject to upward or downward
adjustment as provided in Section 1.1 of the Stock Purchase Agreement), so long
as the Motion Control Acquisition otherwise meets all applicable requirements
for a Permitted Acquisition pursuant to the Credit Agreement.
3. Section 9.03(ix) of the Credit Agreement is hereby amended by (i)
deleting the word "Indenture" in each place it appears therein and inserting the
word "Indentures" in lieu thereof, (ii) deleting the text "Initial Borrowing
Date" in the first place it appears in clause (x) of said Section and inserting
the text "Third Amendment Effective Date" in lieu thereof and (iii) deleting the
test "the Initial Borrowing Date" in the second place it appears in clause (x)
of said Section and inserting the text "(x) in the case of the Series A Senior
Unsecured Notes, the Initial Borrowing Date and (y) in the case of the Series C
Senior Unsecured Notes, the Third Amendment Effective Date" in lieu thereof.
4. Section 9.04(xix) of the Credit Agreement is hereby amended by
deleting the amount "$170" appearing in said Section and inserting the amount
"$300.0" in lieu thereof text.
5. Section 9.11 of the Credit Agreement is hereby amended by
inserting the text "Third Amendment" immediately prior to the text "Effective
Date" appearing in clause (a)(vi) thereof.
6. Notwithstanding anything to the contrary contained in Section
9.10(i) of the Credit Agreement, the Parent Subordinated Intercompany Note may
be amended (i) to increase the amount "ONE HUNDRED TWENTY SEVENTY MILLION"
appearing therein to the amount "THREE HUNDRED MILLION" and (ii) to delete the
word "Indenture" in each place it appears therein and to insert the word
"Indentures" in lieu thereof.
-2-
<PAGE>
7. Notwithstanding anything to the contrary contained in Section 10.11
of the Credit Agreement, amendments may be made to Section 4.07 of the Series A
Senior Unsecured Note Indenture to permit the issuance of the Series C Senior
Unsecured Notes pursuant to the Series C Senior Unsecured Note Indenture.
8. The definition of "Additional Interest" appearing in Section 11.01
of the Credit Agreement is hereby amended by deleting the word "Indenture"
appearing therein and inserting the word "Indentures" in lieu thereof.
9. The definition of "Change of Control" appearing in Section 11.01 of
the Credit Agreement is hereby amended by deleting the word "Indenture"
appearing therein and inserting the word "Indentures" in lieu thereof.
10. The definition of "Senior Unsecured Note Indenture" appearing in
Section 11.01 of the Credit Agreement is hereby deleted in its entirety and the
following new definition is inserted in lieu thereof:
"Senior Unsecured Note Indentures" shall mean the Series A Senior
Unsecured Note Indenture and the Series C Senior Unsecured Note Indenture.
11. The definition of "Senior Unsecured Notes" appearing in Section
11.01 of the Credit Agreement is hereby deleted in its entirety and the
following new definition is inserted in lieu thereof:
"Senior Unsecured Notes" shall mean the Series A Senior Unsecured
Notes and the Series C Senior Unsecured Notes.
12. The definition of "Senior Unsecured Note Documents" appearing in
Section 11.01 of the Credit Agreement is hereby deleted in its entirety and the
following new definition is inserted in lieu thereof:
"Senior Unsecured Note Documents" shall mean the Series A Senior
Unsecured Note Documents and the Series C Senior Unsecured Note Documents.
13. Section 11.01 of the Credit Agreement is hereby amended by
inserting the following new definitions in appropriate alphabetical order:
"Exchange Series A Senior Unsecured Notes" shall mean senior unsecured
notes which are substantially identical securities to the Series A Senior
Unsecured Notes, which Exchange Series A Senior Unsecured Notes shall be
issued pursuant to a registered exchange offer or private exchange offer
for the Series A Senior Unsecured Notes and pursuant to the Series A Senior
Unsecured Note Indenture.
-3-
<PAGE>
In no event will the issuance of any Exchange Series A Senior Unsecured
Notes increase the aggregate principal amount of Series A Senior Unsecured
Notes then outstanding or otherwise result in an increase in an interest
rate applicable to the Series A Senior Unsecured Notes.
"Exchange Series C Senior Unsecured Notes" shall mean senior unsecured
notes which are substantially identical securities to the Series C Senior
Unsecured Notes and the Exchange Series A Senior Unsecured Notes, which
Exchange Series C Senior Unsecured Notes shall be issued pursuant to a
registered exchange offer or private exchange offer for the Series C Senior
Unsecured Notes and a portion of the Exchange Series A Senior Unsecured
Notes (the "Converted Exchange Series A Senior Unsecured Notes") and
pursuant to the Series C Senior Unsecured Note Indenture, all as
contemplated by the Series C Senior Unsecured Note Offering Memorandum. In
no event will the issuance of any Exchange Series C Senior Unsecured Notes
increase the aggregate principal amount of the Series C Senior Unsecured
Notes or of the Converted Exchange Series A Senior Unsecured Notes then
outstanding or otherwise result in an increase in an interest rate
applicable to the Series C Senior Unsecured Notes or the Converted Exchange
Series A Senior Unsecured Notes.
"Series A Senior Unsecured Note Documents" shall mean each of the
documents and other agreements entered into (including, without
limitation, the Series A Senior Unsecured Note Indenture) relating to the
issuance by Parent of the Series A Senior Unsecured Notes, as in effect on
the Initial Borrowing Date and as the same may be entered into, modified,
supplemented or amended from time to time pursuant to the terms thereof.
"Series A Senior Unsecured Note Indenture" shall mean that certain
Indenture, dated as of November 7, 1996, entered into by and between Parent
and Fleet National Bank, as trustee thereunder, as in effect on the Initial
Borrowing Date and as the same may be amended, modified or supplemented
from time to time in accordance with the terms thereof.
"Series A Senior Unsecured Note Offering Memorandum" shall mean the
Offering Memorandum, dated November 7, 1996, in connection with the private
placement of the Series A Senior Unsecured Notes.
"Series A Senior Unsecured Notes" shall mean Parent's 10-3/4% Series A
Senior Notes due 2006, as in effect on the Initial Borrowing Date and as
the same may be amended, modified or supplemented from time to time
pursuant to the terms thereof. As used herein, the term "Series A Senior
Unsecured Notes" shall include any Exchange Series A Senior Unsecured Notes
issued pursuant to the Series A
-4-
<PAGE>
Senior Unsecured Note Indenture in exchange for outstanding Series A Senior
Unsecured Notes, as contemplated by the Series A Senior Unsecured Note
Offering Memorandum and the definition of Exchange Series A Senior
Unsecured Notes.
"Series C Senior Unsecured Note Documents" shall mean each of the
documents and other agreements entered into (including, without limitation,
the Series C Senior Unsecured Note Indenture) relating to the issuance by
Parent of the Series C Senior Unsecured Notes, as in effect on the Third
Amendment Effective Date and as the same may be entered into, modified,
supplemented or amended from time to time pursuant to the terms thereof.
"Series C Senior Unsecured Note Indenture" shall mean that certain
Indenture, dated as of December 5, 1997, entered into by and between Parent
and State Street Bank and Trust Company, as trustee thereunder, as in
effect on the Third Amendment Effective Date and as the same may be
amended, modified or supplemented from time to time in accordance with the
terms thereof.
"Series C Senior Unsecured Note Offering Memorandum" shall mean the
Offering Memorandum, dated December 2, 1997, in connection with the private
placement of the Series C Senior Unsecured Notes.
"Series C Senior Unsecured Notes" shall mean Parent's 10-3/4% Series C
Senior Notes due 2006, as in effect on the Third Amendment Effective Date
and as the same may be amended, modified or supplemented from time to time
pursuant to the terms thereof. As used herein, the term "Series C Senior
Unsecured Notes" shall include any Exchange Series C Senior Unsecured Notes
issued pursuant to the Series C Senior Unsecured Note Indenture in exchange
for outstanding Exchange Series A Senior Unsecured Notes and outstanding
Series C Senior Unsecured Notes, as contemplated by the Series C Senior
Unsecured Note Offering Memorandum and the definition of Exchange Series C
Senior Unsecured Notes.
"Third Amendment" shall mean the Third Amendment to this Agreement,
dated as of November 21, 1997.
"Third Amendment Effective Date" shall have the meaning provided in
the Third Amendment.
II. Miscellaneous Provisions.
------------------------
1. In order to induce the Banks to enter this Amendment, the Borrower
hereby represents and warrants that:
-5-
<PAGE>
(a) no Default or Event of Default exists as of the Third Amendment
Effective Date, both before and after giving effect to this Amendment; and
(b) all of the representations and warranties contained in the Credit
Agreement or the other Credit Documents are true and correct in all
material respects on the Third Amendment Effective Date both before and
after giving effect to this Amendment, with the same effect as though such
representations and warranties had been made on and as of the Third
Amendment Effective Date (it being understood that any representation or
warranty made as of a specific date shall be true and correct in all
material respects as of such specific date).
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
5. This Amendment shall become effective on the date (the "Third
Amendment Effective Date") when each of the following conditions shall have been
satisfied:
(i) the Borrower shall have duly authorized, executed and delivered
to Parent the Parent Subordinated Intercompany Note, amended as described
in Part I. Section 6 of this Amendment;
(ii) the Agent and the Banks shall have received an opinion from (x)
Mayer, Brown & Platt covering such matters incident to the transactions
contemplated by this Amendment as the Agent may reasonably request and (y)
Bryan, Cave covering such matters incident to the transactions contemplated
by this Amendment as the Agent may reasonably request, which opinions shall
be in form and substance satisfactory to the Agent; and
(iii) each of the Borrower and the Required Banks shall have signed a
counterpart hereof (whether the same or different counterparts) and shall
have
-6-
<PAGE>
delivered (including by way of facsimile transmission) the same to the
Agent at its Notice Office.
6. From and after the Third Amendment Effective Date, all references
in the Credit Agreement and each of the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement as modified
hereby.
* * *
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
MOTORS AND GEARS INDUSTRIES, INC.
By /s/ Gordon Nelson
-------------------------------
Title: Vice President
BANKERS TRUST COMPANY,
Individually and as Agent
By /s/ Patricia Hogan
-------------------------------
Title: Vice President
BANKBOSTON, N.A.
By /s/ Michael Stevens
-------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Dennis Redrath
-------------------------------
Title: Vice President
HELLER FINANCIAL
By /s/ William L. Dawkins
-------------------------------
Title: Vice President
<PAGE>
Exhibit 10.7
PROPERTIES SERVICES AGREEMENT
-----------------------------
THIS PROPERTIES SERVICES AGREEMENT (this "Agreement") is made and entered
into as of this 25th day of July, 1997, by and among JI Properties, Inc., a
Delaware corporation ("JI Properties"), Jordan Telecommunication Products, Inc.,
a Delaware corporation, Jordan Industries, Inc., an Illinois corporation, and
each of its subsidiaries listed on the signature page hereto (collectively
referred to herein as the "Company").
WHEREAS, the Company wishes to obtain the use of certain real estate, asset
and transportation assets owned or leased by JI Properties and to obtain the
related services of JI Properties' personnel or personnel to which JI Properties
has access; and
WHEREAS, JI Properties desires to provide or cause to be provided those
assets and services requested by the Company under such terms and conditions.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Assets and Services.
-------------------
1.1 Assets. JI Properties hereby grants to the Company the right to
use the Assets set forth on Exhibit A.
1.2 Services to be Rendered. JI Properties shall make available the
services of its personnel or personnel to which it has access to provide such
services in connection with the use of the Assets as are necessary for the use
and/or operation of such Assets (the "Services").
1.3 Charges. The charges to the Company for the use of Assets and
Services shall consist of an amount equal to the sum of (i) the costs actually
incurred in the use and/or operation of the Assets used or operated by the
Company (including the costs of the related Services as determined by JI
Properties) and (ii) a portion of the costs associated with owning such assets
which are not directly attributable to the operation or use of such assets equal
in amount to such costs multiplied by a fraction, the numerator of which is
equal to the Company's net revenues and the denominator of which is the sum of
the net revenues of all entities which have entered into agreements with JI
Properties similar to this Agreement.
1.4 Performance of Services. JI Properties covenants that it will
perform or cause to be performed the Services in a timely, efficient and
workmanlike manner and in substantially the same manner in which JI Properties
(or its predecessor) is providing such services to the Company currently. JI
Properties further covenants that it will maintain or contract for a sufficient
staff of trained personnel to enable it to perform the Services hereunder. JI
Properties may retain third
<PAGE>
parties or its affiliates to provide certain of the Services hereunder. Any
arrangements between JI Properties and its affiliates for the provision of
Services hereunder shall be commercially reasonable and on terms not less
favorable than those which could be obtained from unaffiliated third parties.
1.5 Payment for Facilities and Services. JI Properties shall bill the
Company, at the end of each calendar month for the applicable charges, or on
such other periodic basis a determined by JI Properties. Such amount shall be
payable by the Company in full within 30 days of receipt thereof by the Company.
1.6 Reimbursement. The Company shall reimburse JI Properties for all
reasonable third party out-of-pocket expenses it incurs on behalf of the Company
not billed directly to the Company within 30 days of receipt of the invoice
therefor, if not included in the charges pursuant to Section 1.3.
Section 2. Term. The term of this Agreement shall commence the date hereof
and continue until December 31, 2007, unless extended, or sooner terminated, as
provided below. This Agreement shall be automatically renewed for successive
one-year terms starting December 31, 2007 unless either party hereto, within
sixty (60) days prior to the scheduled renewal date, notifies the other party as
to its election to terminate this Agreement. Notwithstanding the foregoing, this
Agreement may be terminated by not less than ninety (90) days' prior written
notice from the Company to the JI Properties at any time after (a) substantially
all of the stock or substantially all of the assets of the Company or all of its
subsidiaries are sold to an entity unaffiliated with the JI Properties and/or a
majority of the Company stockholders immediately prior to the sale, (b) the
Company is merged or consolidated into another entity unaffiliated with the JI
Properties and/or a majority of the Company's stockholders immediately prior to
such merger and the Company is not the survivor of such transaction or (c) a
public offering of the voting securities of the Company has been consummated.
Subject to the foregoing, the Agreement will not be terminated as a result of
any Company ceasing to be a subsidiary of Jordan Industries, Inc. for financial
reporting or other purposes.
Section 3. Audit of Services. At any time during regular business hours
and as often as reasonably requested by the Company's officers, JI Properties
shall permit the Company or its authorized representatives to examine and make
copies and abstracts from the records and books of JI Properties for the purpose
of auditing the performance of, and the charges of, JI Properties under the
terms of this Agreement; provided, that all costs and expenses of such
inspection shall be borne by the Company.
Section 4. Prevention of Performance. JI Properties shall not be
determined to be in violation of this Agreement if it is prevented from
performing any Services hereunder for any reason beyond its reasonable control,
including without limitation, acts of God, nature, or of public enemy, strikes,
or limitations of law, regulations or rules of the Federal or of any state or
local government or of any agency thereof.
-2-
<PAGE>
Section 5. Indemnification.
---------------
5.1 By the Company. The Company shall indemnify, defend and hold JI
Properties, and its directors, officers, and employees harmless from and against
all damages, losses and reasonable out-of-pocket expenses (including fees)
incurred by them in the course of performing the duties on behalf of the Company
and its subsidiaries as prescribed hereby.
5.2 Remedy. JI Properties does not assume any responsibility under
this Agreement other than to render the services called for under this Agreement
in good faith and in a manner reasonably believed to be in the best interests of
the Company. The Company's sole remedy on account of the failure of JI
Properties to provide the Assets render the Services as and when required
hereunder shall be to procure such assets or services elsewhere.
Section 6. Additional Subsidiaries. If at any time after the date upon
which this Agreement is executed, the Company acquires or creates one or more
subsidiary corporations (a "Subsequent Subsidiary"), the Company shall cause
such Subsequent Subsidiary to be subject to this Agreement and all references
herein to the Company's "direct and indirect subsidiaries" shall be interpreted
to include all Subsequent Subsidiaries.
Section 7. Payments Not Subject to Set-off. Any payments paid by the
Company under this Agreement shall not be subject to set-off and shall be
increased by the amount, if any, of any taxes (other than income taxes) or other
governmental charges levied in respect of such payments, so that JI Properties
is made whole for such taxes or charges.
Section 8. Notices.
-------
8.1 Manner of Delivery. Each notice, demand, request, consent, report,
approval or communication (each a "Notice") which is or may be required to be
given by either party to the other party in connection with this Agreement and
the transactions contemplated hereby, shall be in writing, and given by
telecopy, personal delivery, receipted delivery service, or by certified mail,
return receipt requested, prepaid and properly addressed to the party to be
served.
8.2 Addresses. Notices shall be addressed as follows:
---------
If to the Company:
Jordan Telecommunication Products, Inc.
ArborLake Centre
1751 Lake Cook Road, Suite 550
Deerfield, Illinois 60015
Attention: Dominic Pileggi
-3-
<PAGE>
If to JI Properties:
JI Properties, Inc.
Arborlake Centre
1751 Lake Cook Road, Suite 550
Deerfield, Illinois 60015
Attention: Thomas H. Quinn
8.3 Effective Date. Notices shall be effective on the date sent via
telecopy, the date delivered personally or by receipted delivery service, or
three (3) days after the date mailed.
8.4 Change of Address. Each party may designate by notice to the
others in writing, given in the foregoing manner, a new address to which any
notice may thereafter be so given, served or sent.
Section 9. Independent Contractor. JI Properties and its personnel shall,
for purposes of this Agreement, be independent contractors with respect to the
Company.
Section 10. Entire Agreement. This Agreement sets forth the entire
understanding of the Company and JI Properties, and supersedes all prior
agreements, arrangements and communications, whether oral or written, with
respect to the subject matter hereof. No supplement, modification, termination
in whole or in part, or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver by either party
of any breach of any provision of this Agreement shall be deemed a continuing
waiver or a waiver of any preceding or succeeding breach of such provision or of
any other provision herein contained.
Section 11. Assignability; Binding Effect. This Agreement may be assigned
by either party hereto without the consent of the other party, provided,
however, such assignment shall not relieve such party from its obligations
hereunder. Any assignment of this Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto, each of their respective successors and permitted assigns, and no other
persons shall have or derive any right, benefit or obligation hereunder.
Section 12. Headings. The headings and titles of the various paragraphs
of this Agreement are inserted merely for the purpose of convenience, and do not
expressly or by implication limit, define, extend or affect the meaning or
interpretation of this Agreement or the specific terms or text of the paragraph
so designated.
Section 13. Governing Law. This Agreement shall be governed by the
internal laws (and not the law of conflicts) of the State of Illinois.
Section 14. Severability. In the event that any provision of this
Agreement shall be held to be void or unenforceable in whole or in part, the
remaining provisions of this Agreement and the
-4-
<PAGE>
remaining portion of any provision held void or unenforceable in part shall
continue in full force and effect.
Section 15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall be considered one and the same instrument.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
JI PROPERTIES, INC.
By: /s/ Thomas C. Spielberger
------------------------------------
Name: Thomas C. Spielberger
Title: Vice President
JORDAN TELECOMMUNICATION PRODUCTS, INC.
By: /s/ Dominic Pileggi
------------------------------------
Name: Dominic Pileggi
Title: Authorized Officer
TJC MANAGEMENT CORPORATION
By: /s/ G. Robert Fisher
------------------------------------
Name: G. Robert Fisher
Title: Secretary
JORDAN INDUSTRIES, INC.
JII, INC.
JI PROPERTIES, INC.
J.I. FINANCE COMPANY
CAPE CRAFTSMAN, INC.
WELCOME HOME, INC.
HOME AGAIN STORES, INC.
THE IMPERIAL ELECTRIC COMPANY
THE SCOTT MOTORS COMPANY
GEAR RESEARCH, INC.
MOTORS AND GEARS HOLDINGS, INC.
MOTORS AND GEARS, INC.
MOTORS AND GEARS INDUSTRIES, INC.
MERKLE-KORFF INDUSTRIES, INC.
FIR GROUP HOLDINGS, INC.
MOTORS AND GEARS AMSTERDAM B.V.
MOTORS AND GEARS HOLDINGS
AMSTERDAM B.V.
FIR GROUP HOLDINGS ITALIA, S.r.l.
-6-
<PAGE>
CONSTRUGIONI INTALIANE MOTORI
ELETTRICI, S.p.a.
SELIOSISTERNI, S.p.a.
FIR ELECTROMECCANICA, S.p.a.
SPL HOLDINGS, INC.
VALMARK INDUSTRIES, INC.
PAMCO PRINTED TAPE & LABEL CO., INC.
SALES PROMOTION ASSOCIATES, INC.
SEABOARD FOLDING BOX CORPORATION
BEEMAK PLASTICS, INC.
JII/SALES PROMOTION ASSOCIATES, INC.
THE OLD IMPERIAL ELECTRIC COMPANY
THE OLD SCOTT MOTORS COMPANY
OLD GEAR RESEARCH, INC.
DACCO, INCORPORATED
DETROIT TRANSMISSION PRODUCTS CO.
DACCO/DETROIT OF OHIO, INC.
ABC TRANSMISSION PARTS
WAREHOUSE, INC.
DACCO/DETROIT OF MINNESOTA, INC
DACCO/DETROIT OF INDIANA, INC.
DACCO/DETROIT OF
NORTH CAROLINA, INC.
DACCO/DETROIT OF MEMPHIS, INC.
DACCO/DETROIT OF ALABAMA, INC.
DACCO/DETROIT OF MICHIGAN, INC.
DACCO/DETROIT OF TEXAS, INC.
DACCO/DETROIT OF WEST VIRGINIA, INC.
BORG MANUFACTURING
NASHVILLE TRANSMISSION PARTS, INC.
DACCO/DETROIT OF FLORIDA, INC.
DACCO/DETROIT OF COLORADO, INC.
DACCO/DETROIT OF MISSOURI, INC.
DACCO/DETROIT OF ARIZONA, INC.
DACCO/DETROIT OF NEBRASKA, INC.
DACCO/DETROIT OF NEW JERSEY, INC.
DACCO/DETROIT OF OKLAHOMA, INC.
DACCO/DETROIT OF
SOUTH CAROLINA, INC.
DACCO INTERNATIONAL, INC.
PARSONS PRECISION PRODUCTS, INC.
SATE-LITE MANUFACTURING COMPANY
RIVERSIDE BOOK AND BIBLE HOUSE,
-7-
<PAGE>
INCORPORATED
AIM ELECTRONICS CORPORATION
JORDAN TELECOMMUNICATIONS
PRODUCT GROUP, INC.
JORDAN TELECOMMUNICATIONS
PRODUCT GROUP - EUROPE, INC.
VITELEC ELECTRONICS LIMITED
LODAN WEST, INC.
JOHNSON COMPONENTS, INC.
VIEWSONICS, INC.
SHANGHAI VIEWSONICS ELECTRONICS
CO., LTD.
ADAPT COMMUNICATION
SUPPLY CO. S. FL., INC.
NORTHERN TECHNOLOGIES
HOLDINGS, INC.
NORTHERN TECHNOLOGIES, INC.
DURA-LINE CORPORATION
DIVERSIFIED WIRE & CABLE CO.
BOND HOLDINGS, INC.
CAMBRIDGE PRODUCTS CORPORATION
By: /s/ Thomas H. Quinn
------------------------------------
Name: Thomas H. Quinn
Authorized Officer
-8-
<PAGE>
EXHIBIT A
Description of Assets
---------------------
For purposes of the Properties Services Agreement, Assets shall mean the
following:
1. BAe 125 Series 1000 Aircraft, equipped with 2 Pratt & Whitney 305B
engines Serial # NA 1010; (259023); F.A.# 523QS ("HAWRER") (50% undivided
interest).
2. Grumman Gulfstream II, Serial # 213 equipped with 2 Rolls Royce Spey
engines.
3. CESSNA 560 CITATION 5 ULTRA Serial # 560-0321 F.A. # N320QS (50%
undivided interest)
Assets shall also include any other assets owned, leased or subleased by JI
Properties which the Company desires to utilize.
<PAGE>
Exhibit 10.8
TRANSITION AGREEMENT
--------------------
THIS TRANSITION AGREEMENT (this "Agreement") is made and entered into as of
this 25th day of July, 1997, by and between Motors and Gears Holdings, Inc., a
Delaware corporation (the "Company"), and Jordan Industries, Inc., an Illinois
corporation ("Parent").
WHEREAS, the Company wishes to occupy certain of the facilities leased by
the Parent and to purchase from Parent certain services designed to assist the
Company in transitioning to a stand-alone company pursuant to terms and
conditions as more specifically described herein;
WHEREAS, Parent desires to provide or cause to be provided those facilities
and services requested by the Company under such terms and conditions; and
WHEREAS, the Company will retain the sole and absolute right and authority
to fully and completely operate and manage its business and properties.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Facilities and Services.
-----------------------
1.1 Facilities. Parent hereby grants to the Company the right to
use the Facilities set forth on Exhibit A. The Company acknowledges and agrees
that within 60 days of the expiration of the term of this Agreement, it shall
leave the Facilities in the same condition as at the commencement of the term of
the Agreement, ordinary wear and tear and damage by casualty excepted.
1.2 Services to be Rendered. Parent shall provide the Company with
the services described below (each, a "Service", and collectively, the
"Services") as selected from time to time by the Company:
(a) Insurance Administration. Assistance in securing all forms of
insurance, including property, casualty, workers' compensation and
trustees' and officers' liability coverage; managing insurance policies;
negotiation of premiums; arranging payment terms; managing claims; and
preparation of loss fund analysis. The amount and levels of insurance shall
be determined in the sole and absolute discretion of the Company.
(b) Accounting. Provision of all accounting services, including
accounts payable functions; processing of all employee expense reports and
reimbursements of travel and entertainment expenses; and maintenance of
accounts payable, cash disbursement systems, including reasonable internal
controls, internal audit coverage and audit support, including
<PAGE>
financial audits, operational audits and information system audits, as
requested and authorized in advance by the Company.
(c) Management Information Systems.
------------------------------
(i) Applications Development. Development, maintenance and
continuing evolution of system applications to provide technology
solutions to business needs and problems, as requested and authorized
in advance by the Company.
(ii) Telecommunications. Design, operation and maintenance of
network infrastructure, including telephone and data transmission
lines, voice mail, facsimile machines, cellular phones, pager, etc.;
negotiation of contracts with third party vendors and suppliers; and
local area network and wide area network communications support.
(iii) Operations/Technical Support and User Support. Design,
maintenance and operation of the computing environment, including
business specific applications, network wide applications, electronic
mail and other systems; purchase and maintenance of equipment,
including hardware and software; configuration, installation and
support of computer equipment; and education and training of the user
community.
(d) Special Projects. Support of all special projects, as requested
and authorized in advance by the Company.
(e) Legal. Coordination and supervision of all third party legal
services; assistance in the preparation of public filings and registration
statements; and oversight of processing of claims against the Company.
(f) Investor Relations/Communications. Preparation and coordination
of annual and quarterly reports to securityholders; presentations to
public; public relations; preparation of marketing materials; and investor
relations services.
1.3 Allocation of Facilities; Scope of Services; Charges. The parties
agree to cooperate and use reasonable efforts in order to allocate the
Facilities in accordance with the reasonable requests (based on their business
needs) of Parent and the Company. Charges for the use of the Facilities will be
allocated based upon the square footage assigned to the parties hereunder. The
parties will agree from time to time on the Services to be provided, the scope
of Services listed in Section 1.2 and the charges for such Services. The scope
of Services shall consist of the estimated amount of items to be processed or
hours to be spent for a category of the Services in any year as agreed to by the
parties. The charges for Services shall consist of an amount equal to Parent's
costs incurred in providing such Services. If the scope of Services actually
performed by Parent in any category of Services is different than that agreed to
by the parties, or if the scope
-2-
<PAGE>
of Services is increased at the request of the Company, then the parties shall
negotiate in good faith to revise the scope of Services and to adjust the
charges for such Services.
1.4 Performance of Services. Parent covenants that it will perform
or cause to be performed the Services in a timely, efficient and workmanlike
manner and in substantially the same manner in which Parent is providing such
services to the Company currently. Parent further covenants that it will
maintain or contract for a sufficient staff of trained personnel to enable it to
perform the Services hereunder. Parent may retain third parties or its
affiliates to provide certain of the Services hereunder. Any arrangements
between Parent and its affiliates for the provision of Services hereunder shall
be commercially reasonable and on terms not less favorable than those which
could be obtained from unaffiliated third parties.
1.5 Payment for Facilities and Services. Parent shall bill the
Company, at the end of each calendar month for the applicable Facilities and
Services. Such amount shall be payable by the Company in full within 30 days of
receipt thereof by the Company.
1.6 Reimbursement. The Company shall reimburse Parent for all
reasonable third party out-of-pocket expenses it incurs on behalf of the Company
not billed directly to the Company within 30 days of receipt of the invoice
therefor, if not included in the charges pursuant to Section 1.3.
Section 2. Term. The initial term of this Agreement shall commence on the
date hereof and shall be through December 31, 1997 (the "Initial Term") and
shall be renewable by the Company every year thereafter, subject to approval by
a majority of the Independent Directors (which they may withhold or grant in
their sole discretion). Absent written notice of non-renewal as provided in this
Section 2, this Agreement shall be automatically renewed for successive one-year
terms (each, a "Renewal Term") upon the expiration of the Initial Term and each
Renewal Term. Notice of non-renewal, if given, shall be given in writing by
either party hereto not less than ninety (90) calendar days before the
expiration of the Initial Term or any Renewal Term. Upon termination of this
Agreement, Parent shall promptly return to the Company all monies, books,
records and other materials held by it for or on behalf of the Company. As used
herein, the term "Independent Director" means each member of the Company's Board
of Trustees who is not affiliated with Parent or any of its affiliates, directly
or indirectly, whether by ownership of, ownership interest in, employment by,
any material business or professional relationship with, or service as an
officer of Parent or any of its affiliates, and is not serving as a trustee or
director for more than three real estate investment trusts organized by a
sponsor of the Company.
Section 3. Audit of Services. At any time during regular business hours
and as often as reasonably requested by the Company's officers, Parent shall
permit the Company or its authorized representatives to examine and make copies
and abstracts from the records and books of Parent for the purpose of auditing
the performance of, and the charges of, Parent under the terms of this
Agreement; provided, that all costs and expenses of such inspection shall be
borne by the Company.
-3-
<PAGE>
Section 4. Prevention of Performance. Parent shall not be determined to
be in violation of this Agreement if it is prevented from performing any
Services hereunder for any reason beyond its reasonable control, including
without limitation, acts of God, nature, or of public enemy, strikes, or
limitations of law, regulations or rules of the Federal or of any state or local
government or of any agency thereof.
Section 5. Indemnification.
5.1 By the Company. The Company shall indemnify, defend and hold
Parent, and its directors, officers, and employees harmless from and against all
damages, losses and reasonable out-of-pocket expenses (including fees) incurred
by them in the course of performing the duties on behalf of the Company and its
subsidiaries as prescribed hereby.
5.2 Remedy. Parent does not assume any responsibility under this
Agreement other than to render the services called for under this Agreement in
good faith and in a manner reasonably believed to be in the best interests of
the Company. The Company's sole remedy on account of the failure of Parent to
render the services as and when required hereunder shall be to procure services
elsewhere and to charge Parent the difference between the reasonable increased
cost, if any, to procure new services, and the current cost to the Company to
procure services under this Agreement.
Section 6. Notices.
6.1 Manner of Delivery. Each notice, demand, request, consent,
report, approval or communication (each a "Notice") which is or may be required
to be given by either party to the other party in connection with this Agreement
and the transactions contemplated hereby, shall be in writing, and given by
telecopy, personal delivery, receipted delivery service, or by certified mail,
return receipt requested, prepaid and properly addressed to the party to be
served.
6.2 Addresses. Notices shall be addressed as follows:
If to the Company:
Motors and Gears Holdings, Inc.
Arborlake Center
1751 Lake Cook Road, Suite 550
Deerfield, Illinois 60015
Attention: Dominic Pileggi
If to Parent:
Jordan Industries, Inc.
Arborlake Center
1751 Lake Cook Road, Suite 550
-4-
<PAGE>
Deerfield, Illinois 60015
Attention: Thomas H. Quinn
6.3 Effective Date. Notices shall be effective on the date sent via
telecopy, the date delivered personally or by receipted delivery service, or
three (3) days after the date mailed.
6.4 Change of Address. Each party may designate by notice to the
others in writing, given in the foregoing manner, a new address to which any
notice may thereafter be so given, served or sent.
Section 7. Independent Contractor. The Parent and its personnel shall, for
purposes of this Agreement, be independent contractors with respect to the
Company
Section 8. Entire Agreement. This Agreement sets forth the entire
understanding of the Company and Parent, and supersedes all prior agreements,
arrangements and communications, whether oral or written, with respect to the
subject matter hereof. No supplement, modification, termination in whole or in
part, or waiver of this Agreement shall be binding unless executed in writing by
the party to be bound thereby. No waiver by either party of any breach of any
provision of this Agreement shall be deemed a continuing waiver or a waiver of
any preceding or succeeding breach of such provision or of any other provision
herein contained.
Section 9. Assignability; Binding Effect. This Agreement may be assigned
by either party hereto without the consent of the other party, provided,
however, such assignment shall not relieve such party from its obligations
hereunder. Any assignment of this Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto, each of their respective successors and permitted assigns, and no other
persons shall have or derive any right, benefit or obligation hereunder.
Section 10. Headings. The headings and titles of the various paragraphs of
this Agreement are inserted merely for the purpose of convenience, and do not
expressly or by implication limit, define, extend or affect the meaning or
interpretation of this Agreement or the specific terms or text of the paragraph
so designated.
Section 11. Governing Law. This Agreement shall be governed by the internal
laws (and not the law of conflicts) of the State of Illinois.
Section 12. Severability. In the event that any provision of this Agreement
shall be held to be void or unenforceable in whole or in part, the remaining
provisions of this Agreement and the remaining portion of any provision held
void or unenforceable in part shall continue in full force and effect.
-5-
<PAGE>
Section 13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall be considered one and the same instrument.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MOTORS AND GEARS HOLDINGS, INC.
By:
------------------------------
Name: Thomas H. Quinn
Title: Authorized Officer
JORDAN INDUSTRIES, INC.
By:
------------------------------
Name: Gordon L. Nelson, Jr.
Title: Senior Vice President
-7-
<PAGE>
EXHIBIT A
Description of Facilities
-------------------------
For purposes of the Transition Agreement, Facilities shall mean the
facilities maintained by Parent or one of its affiliates at the following
addresses:
Arborlake Center
1751 Lake Cook Road, Suite 550
Deerfield, Illinois 60015
Facilities shall also include any other premises owned, leased or subleased
by Parent at which the Company desires to utilize such premises as well as the
utilities, fixtures, furniture and equipment used in connection with the
operation of such premises.
<PAGE>
Exhibit 10.9
NEW SUBSIDIARY ADVISORY AGREEMENT
THIS NEW SUBSIDIARY ADVISORY AGREEMENT ("Agreement"), is executed as of the
25th day of July 1997 by and among JORDAN INDUSTRIES, INC., an Illinois
corporation (hereinafter referred to as the "Consultant"), MOTORS AND GEARS
HOLDINGS, INC., a Delaware corporation and each of the other parties a signatory
hereto (hereinafter collectively referred to as the "Company").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, the Consultant has and/or has access to personnel who are highly
skilled in the field of rendering advice to businesses and financial advice to
the Company;
WHEREAS, the Board of Directors of the Company has been made fully aware of
the relationships of certain members of the Company's Board of Directors to the
Consultant;
WHEREAS, the Company's Board of Directors has reviewed in detail and
discussed the terms and provisions of this Agreement and the fairness of this
Agreement and whether more favorable agreements for the Company could be
obtained from unaffiliated third parties; and
WHEREAS, on the basis of its review of this Agreement, the Board of
Directors of the Company deemed it advisable and in the best interests of the
Company and necessary to the conduct, promotion, and attainment of the business
objectives of the Company that the Company retain Consultant to provide business
and financial advice to the Company.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto do hereby agree as follows:
1. The Company hereby retains the Consultant, through the Consultant's
own personnel or through personnel available to the Consultant, to render
consulting services from time to time to the Company and its direct and indirect
subsidiaries (whether now existing or hereafter acquired) in connection with
their acquisitions, divestitures and investments, their financial affairs, their
relationships with their lenders, stockholders and other third-party associates
or affiliates, and the expansion of their businesses. Consultant shall render
such services to the Company and/or its direct and indirect subsidiaries in good
faith and in accordance with professional standards and applicable law. The term
of this Agreement shall commence the date hereof and continue until December 31,
2007, unless extended, or sooner terminated, as provided in Section 5 below. The
Consultant's personnel shall be reasonably available to the Company's managers,
auditors and other personnel for consultation and advice pursuant to this
Agreement, subject to Consultant's reasonable convenience and scheduling.
Services may be rendered at the Consultant's offices or at such other locations
selected by the Consultant as the Company and the Consultant shall from time to
time agree.
<PAGE>
2. Subject to Section 4 hereof, the Company shall pay to the Consultant
(i) an investment banking and sponsorship fee of up to two percent (2%) of the
aggregate consideration paid (including non-competition, earnout, contingent
purchase price, incentive arrangements and similar payments) (A) by the Company
and/or its subsidiaries in connection with the acquisition by the Company and/or
its subsidiaries of all or substantially all of the outstanding capital stock,
warrants, options or other rights to acquire or sell capital stock, or all or
substantially all of the business or assets of another individual, corporation,
partnership or other business entity, (B) by the Company and/or its subsidiaries
in connection with any joint venture or other minority investment, or (C) to the
Company in connection with the sale by the Company of all or substantially all
of the Company's and/or its subsidiaries' outstanding capital stock, warrants,
options, or other rights to acquire or sell stock, or all or substantially all
of the business or assets of the Company and/or its subsidiaries (each of the
transactions described in clauses (A), (B) and (C), a "Transaction"), including,
but not limited to, any Transaction negotiated for the Company involving any
affiliate of the Company or the Consultant, including, but not limited to, any
Transaction involving, TJC Management Corporation, The Jordan Company, MCIT PLC,
Jordan/Zalaznick Capital Company, Leucadia National Corporation or any
affiliates of any of the foregoing (collectively, the "Jordan Affiliates"); and
(ii) a financial consulting fee of up to one percent (1%) of the amount obtained
or made available pursuant to any debt, equity or other financing (including
without limitation, any refinancing) by the Company and/or its subsidiaries with
the assistance of Consultant, including, but not limited to, any financing
obtained for the Company and/or its subsidiaries from one or more of the Jordan
Affiliates. However, the amount of such fees payable in each such Transaction
will be no less favorable to the Company than those that could be obtained from
comparable, unaffiliated third parties, and will be subject to separate
discussion and approval, in connection with each such Transaction, by each of a
majority of the Board of Directors and a majority of the directors who are
disinterested directors in relation to Consultant and its affiliates.
Notwithstanding and in addition to the foregoing, if the Consultant renders
services to the Company outside the ordinary course of business, the Company
shall pay an additional amount equal to the value of such extraordinary services
rendered by the Consultant as may be separately agreed to between the Consultant
and the Company.
3. The Company shall promptly reimburse Consultant for out-of-pocket
expenses (including, without limitation, an allocable amount of the Consultant's
overhead expenses attributable to the Company and its direct and indirect
subsidiaries, determined on actual usage, percentage revenue or such other basis
as Consultant may determine) incurred by the Consultant and its personnel in
performing services hereunder to the Company and its direct and indirect
subsidiaries upon the Consultant rendering a statement therefor, together with
such supporting data as the Company shall reasonably require.
4. Notwithstanding the foregoing, the Company shall not be required to
pay the fees under Section 2, (a) if and to the extent expressly prohibited by
the provisions of any credit, stock, financing or other agreements or
instruments binding upon the Company, its subsidiaries or properties, (b) if the
Company has not paid cash interest on any interest payment date or has postponed
or not made any principal payments with respect to any of their indebtedness on
any
-2-
<PAGE>
scheduled payment dates, or (c) if the Company has not paid cash dividends on
any dividend payment date as set forth in its certificate of incorporation or as
declared by its Board of Directors, or has postponed or not made any redemptions
on any redemption date as set forth in its certificate of incorporation or any
certificate of designation with respect to its preferred stock, if any. Any
payments otherwise owed hereunder, which are not made for any of the above-
mentioned reasons, shall not be canceled but rather accrue, and shall be payable
by the Company promptly when, and to the extent, that the Company is no longer
prohibited from making such payments and when the Company has become current
with respect to such principal or interest payments, has become current with
respect to such dividends and has made such redemptions with respect to such
preferred stock, if any. Any payment required hereunder which is not paid when
due shall bear interest at the rate of ten percent (10%) per annum. This Section
4 will not, in any event, restrict or limit the Company's obligations under
Sections 3, 8 and 9, which will be absolute and not subject to set-off.
5. This Agreement shall be automatically renewed for successive one-year
terms starting December 31, 2007 unless either party hereto, within sixty (60)
days prior to the scheduled renewal date, notifies the other party as to its
election to terminate this Agreement. Notwithstanding the foregoing, this
Agreement may be terminated by not less than ninety (90) days' prior written
notice from the Company to the Consultant at any time after (a) substantially
all of the stock or substantially all of the assets of the Company or all of its
subsidiaries are sold to an entity unaffiliated with the Consultant and/or a
majority of the Company stockholders immediately prior to the sale, or (b) the
Company is merged or consolidated into another entity unaffiliated with the
Consultant and/or a majority of the Company's stockholders immediately prior to
such merger and the Company is not the survivor of such transaction. Subject to
the foregoing, the Agreement will not be terminated as a result of any Company
ceasing to be a subsidiary of Jordan Industries, Inc. for financial reporting or
other purposes.
6. The Consultant shall have no liability to the Company on account of
(a) any advice which it renders to the Company or any of its direct or indirect
subsidiaries, provided the Consultant believed in good faith that such advice
was useful or beneficial to the Company or any of its direct or indirect
subsidiaries at the time it was rendered, or (b) the Consultant's inability to
obtain financing or achieve other results desired by the Company (or any of its
direct or indirect subsidiaries) or Consultant's failure to render services to
the Company at any particular time or from time to time, or (c) the failure of
any Transaction to meet the financial, operating, or other expectations of the
Company or any of direct or indirect subsidiaries. The Company's and any of its
direct or indirect subsidiaries' sole remedy for any claim under this Agreement
shall be termination of this Agreement.
7. Notwithstanding anything contained in this Agreement to the contrary,
the Company agrees and acknowledges for itself and on behalf of its direct and
indirect subsidiaries that the Consultant, the Jordan Affiliates and their
shareholders, employees, directors and affiliates intend to engage and
participate in acquisitions and business transactions outside of the scope of
the relationship created by this Agreement and neither the Consultant, any of
the Jordan Affiliates nor any of their respective shareholders, partners,
employees, directors or agents shall
-3-
<PAGE>
be under any obligation whatsoever to make such acquisitions or business
transactions through the Company or any of its direct or indirect subsidiaries
or offer such acquisitions or business transactions to the Company or any of its
direct or indirect subsidiaries.
8. The Company will, and will cause each of its direct and indirect
subsidiaries to, indemnify and hold harmless to the fullest extent permitted by
applicable law the Consultant, its affiliates and associates, each of the Jordan
Affiliates, and each of the respective owners, partners, officers, directors,
employees and agents of each of the foregoing, from and against any loss,
liability, damage, claim or expenses (including the fees and expenses of
counsel) arising as a result or in connection with this Agreement, the
Consultant's services hereunder or other activities on behalf of the Company and
its subsidiaries.
9. Any payments paid by the Company under this Agreement shall not be
subject to set-off and shall be increased by the amount, if any, of any taxes
(other than income taxes) or other governmental charges levied in respect of
such payments, so that the Consultant is made whole for such taxes or charges.
10. (a) This Agreement may not be modified, waived, terminated or amended
except expressly by an instrument in writing signed by the Consultant and the
Company.
(b) This Agreement may be assigned by Consultant to any of its
subsidiaries or affiliates without the consent of the Company, provided,
however, such assignment shall not relieve such party from its obligations
hereunder. Any assignment of this Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns.
(c) In the event that any provision of this Agreement shall be held
to be void or unenforceable in whole or in part, the remaining provisions of
this Agreement and the remaining portion of any provision held void or
unenforceable in part shall continue in full force and effect.
(d) Except as otherwise specifically provided herein, notice given
hereunder shall be deemed sufficient if delivered personally or sent by
registered or certified mail to the address of the party for whom intended at
the principal executive offices of such party, or at such other address as such
party may hereinafter specify by written notice to the other party.
(e) If at any time after the date upon which this Agreement is
executed, the Company acquires or creates one or more subsidiary corporations (a
"Subsequent Subsidiary"), the Company shall cause such Subsequent Subsidiary to
be subject to this Agreement and all references herein to the Company's "direct
and indirect subsidiaries" shall be interpreted to include all Subsequent
Subsidiaries.
(f) Each subsidiary of the Company shall be jointly and severally
liable and obligated hereunder with respect to each obligation, responsibility
and liability of the Company, as if a direct obligation of such subsidiary.
-4-
<PAGE>
(g) No waiver by either party of any breach of any provision of this
Agreement shall be deemed a continuing waiver or a waiver of any preceding or
succeeding breach of such provision or of any other provision herein contained.
(h) Except as provided by that certain Termination Agreement, of even
date herewith, by and among certain of the parties hereto, this Agreement sets
forth the entire understanding of the Company and the Consultant, and supersedes
all prior agreements, arrangements and communications, whether oral or written,
with respect to the subject matter hereof.
(i) The Consultant and its personnel shall, for purposes of this
Agreement, be independent contractors with respect to the Company.
(j) This Agreement shall be governed by the internal laws (and not
the law of conflicts) of the State of Illinois.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
JORDAN INDUSTRIES, INC.
By:
---------------------------------
Name: Gordon L. Nelson, Jr.
Senior Vice President
THE IMPERIAL ELECTRIC COMPANY
THE SCOTT MOTORS COMPANY
GEAR RESEARCH, INC.
MOTORS AND GEARS HOLDINGS, INC.
MOTORS AND GEARS, INC.
MOTORS AND GEARS INDUSTRIES, INC.
MERKLE-KORFF INDUSTRIES, INC.
FIR GROUP HOLDINGS, INC.
MOTORS AND GEARS AMSTERDAM B.V.
MOTORS AND GEARS HOLDINGS
AMSTERDAM B.V.
FIR GROUP HOLDINGS ITALIA, S.r.l.
CONSTRUGIONI INTALIANE MOTORI
ELETTRICI, S.p.a.
SELIOSISTERNI, S.p.a.
FIR ELECTROMECCANICA, S.p.a.
By:
---------------------------------
Name: Thomas H. Quinn
Authorized Officer
-6-
<PAGE>
Exhibit 10.10
NEW SUBSIDIARY CONSULTING AGREEMENT
THIS NEW SUBSIDIARY CONSULTING AGREEMENT ("Agreement"), is executed as of
the 25th day of July 1997 by and among JORDAN INDUSTRIES, INC., an Illinois
corporation (hereinafter referred to as the "Consultant"), MOTORS AND GEARS
HOLDINGS, INC., a Delaware corporation and each of the other parties a signatory
hereto (hereinafter collectively referred to as the "Company").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, the Consultant has and/or has access to personnel who are highly
skilled in the field of rendering advice to businesses and financial advice to
the Company;
WHEREAS, the Board of Directors of the Company has been made fully aware of
the relationships of certain members of the Company's Board of Directors to the
Consultant;
WHEREAS, the Company's Board of Directors has reviewed in detail and
discussed the terms and provisions of this Agreement and the fairness of this
Agreement and whether more favorable agreements for the Company could be
obtained from unaffiliated third parties; and
WHEREAS, on the basis of its review of this Agreement, the Board of
Directors of the Company deemed it advisable and in the best interests of the
Company and necessary to the conduct, promotion, and attainment of the business
objectives of the Company that the Company retain Consultant to provide business
and financial advice to the Company.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto do hereby agree as follows:
1. The Company hereby retains the Consultant, through the Consultant's
own personnel or through personnel available to the Consultant, to render
consulting services from time to time to the Company and its direct and indirect
subsidiaries (whether now existing or hereafter acquired) in connection with
their business affairs. Consultant shall render such services to the Company
and/or its direct and indirect subsidiaries in good faith and in accordance with
professional standards and applicable law. The term of this Agreement shall
commence the date hereof and continue until December 31, 2007, unless extended,
or sooner terminated, as provided in Section 6 below. The Consultant's personnel
shall be reasonably available to the Company's managers, auditors and other
personnel for consultation and advice pursuant to this Agreement, subject to
Consultant's reasonable convenience and scheduling. Services may be rendered at
the Consultant's offices or at such other locations selected by the Consultant
as the Company and the Consultant shall from time to time agree.
<PAGE>
2. Consultant shall be obligated to present to the Company all
acquisition, business and investment opportunities identified by the Consultant
that related to manufacturing, assembly, distribution or marketing of products
and services in the motors and gears industry, and will not permitted to purse
such opportunities or present such opportunities to third parties unless the
Company determines not to pursue such opportunities or consents thereto,
provided that this obligation will apply only to Consultant, and will not apply
to any stockholders of affiliates of the Consultant, including The Jordan
Company. This Agreement will not prohibit, and Consultant's stockholders and
affiliates will not be prohibited from, pursuing such opportunities or offering
them to third parties without the Company's consent.
3. Subject to Section 5 hereof, the Company shall pay to the Consultant a
consulting services fee of one percent (1%) of the net sales of the Company and
its subsidiaries, without duplication, payable quarterly in arrears on the March
31, June 30, September 30 and December 31 of each year, starting with a pro rata
payment on September 30, 1997 for the period from the date hereof through
September 30, 1997. Notwithstanding and in addition to the foregoing, if the
Consultant renders services to the Company outside the ordinary course of
business, the Company shall pay an additional amount equal to the value of such
extraordinary services rendered by the Consultant as may be separately agreed to
between the Consultant and the Company.
4. The Company shall promptly reimburse Consultant for out-of-pocket
expenses (including, without limitation, an allocable amount of the Consultant's
overhead expenses attributable to the Company and its direct and indirect
subsidiaries, determined on actual usage, percentage revenue or such other basis
as Consultant may determine), incurred by the Consultant and its personnel in
performing services hereunder to the Company and its direct and indirect
subsidiaries upon the Consultant rendering a statement therefor, together with
such supporting data as the Company shall reasonably require.
5. Notwithstanding the foregoing, the Company shall not be required to
pay the fees under Section 3, (a) if and to the extent expressly prohibited by
the provisions of any credit, stock, financing or other agreements or
instruments binding upon the Company, its subsidiaries or properties, (b) if the
Company has not paid cash interest on any interest payment date or has postponed
or not made any principal payments with respect to any of their indebtedness on
any scheduled payment dates, or (c) if the Company has not paid cash dividends
on any dividend payment date as set forth in its certificate of incorporation or
as declared by its Board of Directors, or has postponed or not made any
redemptions on any redemption date as set forth in its certificate of
incorporation or any certificate of designation with respect to its preferred
stock, if any. Any payments otherwise owed hereunder, which are not made for any
of the above-mentioned reasons, shall not be canceled but rather accrue, and
shall be payable by the Company promptly when, and to the extent, that the
Company is no longer prohibited from making such payments and when the Company
has become current with respect to such principal or interest payments, has
become current with respect to such dividends and has made such redemptions with
respect to such preferred
<PAGE>
stock, if any. Any payment required hereunder which is not paid when due shall
bear interest at the rate of ten percent (10%) per annum. This Section 5 will
not, in any event, restrict or limit the Company's obligations under Sections 4,
9 and 10, which will be absolute and not subject to set-off.
6. This Agreement shall be automatically renewed for successive one-year
terms starting December 31, 2007 unless either party hereto, within sixty (60)
days prior to the scheduled renewal date, notifies the other party as to its
election to terminate this Agreement. Notwithstanding the foregoing, this
Agreement may be terminated by not less than ninety (90) days' prior written
notice from the Company to the Consultant at any time after (a) substantially
all of the stock or substantially all of the assets of the Company or all of its
subsidiaries are sold to an entity unaffiliated with the Consultant and/or a
majority of the Company stockholders immediately prior to the sale, or (b) the
Company is merged or consolidated into another entity unaffiliated with the
Consultant and/or a majority of the Company's stockholders immediately prior to
such merger and the Company is not the survivor of such transaction. Subject to
the foregoing, the Agreement will not be terminated as a result of any Company
ceasing to be a subsidiary of Jordan Industries, Inc. for financial reporting or
other purposes.
7. The Consultant shall have no liability to the Company on account of
(a) any advice which it renders to the Company or any of its direct or indirect
subsidiaries, provided the Consultant believed in good faith that such advice
was useful or beneficial to the Company or any of its direct or indirect
subsidiaries at the time it was rendered, or (b) the Consultant's inability to
obtain financing or achieve other results desired by the Company (or any of its
direct or indirect subsidiaries) or Consultant's failure to render services to
the Company at any particular time or from time to time, or (c) the failure of
any acquisition, divestiture, financing or business plan to meet the financial,
operating, or other expectations of the Company or any of direct or indirect
subsidiaries. The Company's and any of its direct or indirect subsidiaries' sole
remedy for any claim under this Agreement shall be termination of this
Agreement.
8. Notwithstanding anything contained in this Agreement to the contrary,
but subject to Section 2, the Company agrees and acknowledges for itself and on
behalf of its direct and indirect subsidiaries that the Consultant, TJC
Management Corporation, The Jordan Company, MCIT PLC, Jordan/Zalaznick Capital
Company, Leucadia National Corporation or any affiliates of any of the foregoing
(collectively, the "Jordan Affiliates") and their respective shareholders,
partners, employees, directors and agents intend to engage and participate in
acquisitions and business transactions outside of the scope of the relationship
created by this Agreement and neither the Consultant, any of the Jordan
Affiliates nor any of their respective shareholders, partners, employees,
directors or agents shall be under any obligation whatsoever to make such
acquisitions or business transactions through the Company or any of its direct
or indirect subsidiaries or offer such acquisitions or business transactions to
the Company or any of its direct or indirect subsidiaries.
<PAGE>
9. The Company will, and will cause each of its direct and indirect
subsidiaries to, indemnify and hold harmless to the fullest extent permitted by
applicable law the Consultant, its affiliates and associates, each of the Jordan
Affiliates, and each of the respective owners, partners, officers, directors,
employees and agents of each of the foregoing, from and against any loss,
liability, damage, claim or expenses (including the fees and expenses of
counsel) arising as a result or in connection with this Agreement, the
Consultant's services hereunder or other activities on behalf of the Company and
its subsidiaries.
10. Any payments paid by the Company under this Agreement shall not be
subject to set-off and shall be increased by the amount, if any, of any taxes
(other than income taxes) or other governmental charges levied in respect of
such payments, so that the Consultant is made whole for such taxes or charges.
11. (a) This Agreement may not be modified, waived, terminated or amended
except expressly by an instrument in writing signed by the Consultant and the
Company.
(b) This Agreement may be assigned by either party hereto without the
consent of the other party, provided, however, such assignment shall not relieve
such party from its obligations hereunder. Any assignment of this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
(c) In the event that any provision of this Agreement shall be held to
be void or unenforceable in whole or in part, the remaining provisions of this
Agreement and the remaining portion of any provision held void or unenforceable
in part shall continue in full force and effect.
(d) Except as otherwise specifically provided herein, notice given
hereunder shall be deemed sufficient if delivered personally or sent by
registered or certified mail to the address of the party for whom intended at
the principal executive offices of such party, or at such other address as such
party may hereinafter specify by written notice to the other party.
(e) If at any time after the date upon which this Agreement is
executed, the Company acquires or creates one or more subsidiary corporations (a
"Subsequent Subsidiary"), the Company shall cause such Subsequent Subsidiary to
be subject to this Agreement and all references herein to the Company's "direct
and indirect subsidiaries" shall be interpreted to include all Subsequent
Subsidiaries.
(f) Each subsidiary of the Company shall be jointly and severally
liable and obligated hereunder with respect to each obligation, responsibility
and liability of the Company, as if a direct obligation of such subsidiary.
<PAGE>
(g) No waiver by either party of any breach of any provision of this
Agreement shall be deemed a continuing waiver or a waiver of any preceding or
succeeding breach of such provision or of any other provision herein contained.
(h) Except as provided by that certain Termination Agreement, of even
date herewith, by and among certain of the parties hereto, this Agreement sets
forth the entire understanding of the Company and the Consultant, and supersedes
all prior agreements, arrangements and communications, whether oral or written,
with respect to the subject matter hereof.
(i) The Consultant and its personnel shall, for purposes of this
Agreement, be independent contractors with respect to the Company.
(j) This Agreement shall be governed by the internal laws (and not the
law of conflicts) of the State of Illinois.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
JORDAN INDUSTRIES, INC.
By:
---------------------------------
Name: Gordon L. Nelson, Jr.
Senior Vice President
THE IMPERIAL ELECTRIC COMPANY
THE SCOTT MOTORS COMPANY
GEAR RESEARCH, INC.
MOTORS AND GEARS HOLDINGS, INC.
MOTORS AND GEARS, INC.
MOTORS AND GEARS INDUSTRIES, INC.
MERKLE-KORFF INDUSTRIES, INC.
FIR GROUP HOLDINGS, INC.
MOTORS AND GEARS AMSTERDAM B.V.
MOTORS AND GEARS HOLDINGS
AMSTERDAM B.V.
FIR GROUP HOLDINGS ITALIA, S.r.l.
CONSTRUGIONI INTALIANE MOTORI
ELETTRICI, S.p.a.
SELIOSISTERNI, S.p.a.
FIR ELECTROMECCANICA, S.p.a.
By:
---------------------------------
Name: Thomas H. Quinn
Authorized Officer
<PAGE>
EXHIBIT 10.13
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS
AND ACCORDINGLY MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR LAWS OR PURSUANT TO AN EXEMPTION
THEREFROM. THE PRINCIPAL AMOUNT OF THIS NOTE, AND INTEREST
IN RESPECT THEREOF, IS SUBORDINATED TO THE PAYMENT IN FULL
OF ALL SENIOR INDEBTEDNESS AND IS SUBJECT TO SET-OFF, AS
DESCRIBED IN THIS NOTE.
ELECTRICAL DESIGN AND CONTROL COMPANY
NON-NEGOTIABLE SUBORDINATED NOTE
DUE DECEMBER 31, 2002
$1,333,333 Deerfield, Illinois
October 27, 1997
FOR VALUE RECEIVED, the undersigned, ELECTRICAL DESIGN AND CONTROL
COMPANY, a Delaware corporation (together with its successors, the
"Corporation"), hereby promises to pay to TINA LAVIRE, an individual (together
with her successors and permitted assigns, the "Holder"), at 2575 West Square
Lake Road, West Bloomfield, Michigan 48033, the aggregate principal amount of
ONE MILLION THREE HUNDRED THIRTY-THREE THOUSAND THREE HUNDRED THIRTY-THREE
($1,333,333) on the date stated in Section 1.2 hereof. Certain capitalized
terms are used in this Note as defined in Section 7.
Section I Payment.
--------
1.1 Interest. Subject to Section 3, the outstanding principal
--------
amount of this Note shall bear interest (computed on the basis of a 365 or 366
day year, as the case may be) at a rate equal to nine percent (9%) per annum
from (but excluding) the date hereof to (and including) the Maturity Date.
Subject to Section 3, such interest shall be payable (i) annually in arrears,
with respect to each fiscal year of the Corporation (or portion thereof) on the
120th day following the end of such Corporation's fiscal year (or portion
thereof) ("Interest Payment Dates"), commencing with the period ending December
31,1997, and (ii) on the Maturity Date.
1.2 Principal. Subject to Section 3, the Corporation shall pay,
---------
on December 31, 2002, the entire then outstanding principal amount of this Note.
<PAGE>
1.3 Business Days. Whenever payment of principal of, or interest
-------------
on, this Note shall be due on a date that is not a Business Day, the date for
payment thereof shall be the next succeeding Business Day and interest due on
the unpaid principal and any other Amounts Payable hereunder shall accrue during
such extension and shall be payable on such succeeding Business Day.
Section II Prepayments; Set-off
--------------------
2.1 Optional Prepayment. The Corporation shall have the right to
-------------------
prepay the principal amount of this Note in whole or in part at any time, or
from time to time, without payment of any premium or penalty whatsoever,
together with interest thereon accrued to the date of prepayment, and any such
prepayment shall be applied to reduce the Corporation's principal payment
obligations under Section 1.2; provided, however, that so long as any Senior
-------- -------
Indebtedness remains outstanding and unpaid, any commitment to provide Senior
Indebtedness is outstanding, or any other amount is owing to the holders of
Senior Indebtedness, this Note may not be prepaid in whole or in part, without
the written consent of the holders of Senior Indebtedness.
2.2 Set-off. The Corporation shall be entitled to set-off and
-------
reduce any Amounts Payable hereunder for any obligations or liabilities of the
Holder to the Corporation or any claims by the Corporation against the Holder or
any party agreeing not to compete under the Purchase Agreement or the
Noncompetition Agreements. The Holder, by accepting this Note, hereby
acknowledges and agrees to the foregoing provisions and any subsequent
transferee or successor shall by becoming such transferee or successor be bound
by the foregoing.
Section III Free Cash Flow
--------------
3.1 Payment Limitation. Notwithstanding any other provision of
------------------
this Note, the Corporation shall only be required to pay interest, principal or
any other Amounts Payable in respect of this Note if and to the extent the
Corporation's Free Cash Flow for the Corporation's fiscal year immediately
preceding the required payment date is sufficient and available to make such
payment. If the Corporation's Free Cash Flow for such fiscal year is not
sufficient to make such payments, then such payments will not be made nor be
required to be made under this Note, and the Corporation's payment obligation
under this Note will be deferred until the Corporation's Free Cash Flow would
permit payment under this Section 3, and such deferral of payment will not be an
Event of Default under this Note, provided that the Maturity Date will not be
deferred under this Section 3 for more than two years, at which time, all
principal of, interest on and other Amounts Payable in respect of this Note will
be due and payable.
3.2 Interest Limitation. If, as a result of Section 3.1, the
-------------------
Corporation does not pay interest on an Interest Payment Date, then such
interest will be deferred (and not bear interest) and be paid at the Maturity
Date; provided, that the amount of such deferred interest in the aggregate will
not exceed an amount equal to the interest that would accrue on the initial
principal amount of this Note for two years ("Maximum Interest"). Any deferred
interest that
2
<PAGE>
exceeds the Maximum Interest will not accrue or be payable under this Note and
will be automatically eliminated.
3.3 Principal and Amounts Payable Deferral. If, as a result of
--------------------------------------
Section 3.1, the Corporation does not pay principal or any other Amounts Payable
(other than interest) on any required payment date, then such principal and
Amounts Payable will be deferred (and not bear interest) and be paid at the
Maturity Date.
3.4 Allocation. If the Corporation's Free Cash Flow for any
----------
fiscal year is available to pay some, but not all, of the required payments,
then such available Free Cash Flow will be allocated first to required principal
payments, second to required interest payments, and then to required payments of
any other Amounts Payable.
Section IV Change of Control and Covenants.
-------------------------------
4.1 Subject to the subordination provisions of this Note set
forth below, the principal of and accrued and unpaid interest under this Note
shall be due and payable immediately upon either (i) any change in ownership of
the Corporation's issued and outstanding capital stock after the effective date
hereof involving more than 50% of the combined voting power of the Corporation,
or (ii) the sale by the Corporation of all or substantially all of its assets
after the effective date hereof. Notwithstanding anything herein to the
contrary, a change of control of the Corporation's capital stock and a sale of
Corporation assets shall not be deemed to have occurred if the transferee
thereof is an Affiliate (defined below).
(a) As long as any Amounts Payable are outstanding, the
Corporation shall not make payments to Affiliates other than (i) payments
of Senior Indebtedness (if owed to Affiliates) in accordance with Schedule
A attached, subject to Section 4.2(b) below, (ii) payments of management
and/or consulting fees not to exceed annually one percent of the
Corporation's annual sales and reasonable investment banking fees for any
future acquisitions or financings, and (iii) payments made in the ordinary
course of business for goods or services provided to the Corporation.
(b) As long as any Amounts Payable are outstanding, the
Corporation may make payments on Senior Indebtedness in excess of the
scheduled Senior Indebtedness principal and interest payments described in
Schedule A attached hereto only if all Amounts Payable hereunder which are
then due have been paid in full.
Section V Defaults
--------
5.1 Events of Default. If one or more of the following events
-----------------
("Events of Default") shall have occurred and be continuing:
3
<PAGE>
(a) the Corporation shall fail to pay within ten Business
Days of the due date thereof any principal of this Note or shall fail to
pay within ten Business Days of the due date thereof any interest or any
other Amounts Payable hereunder and the same shall not have been cured
within 45 days after written notice thereof has been given by the Holder to
the Corporation;
(b) the Corporation shall fail to observe or perform any
covenant or agreement contained in this Note (other than those covered by
clause (a) above) and the same shall not have been cured within 90 days
after written notice thereof has been given by the Holder to the
Corporation, provided, however, an Event of Default shall not have occurred
-------- -------
or be continuing if efforts to cure have commenced within such 90 days and
if such efforts to cure continue to be diligently pursued after expiration
of such 90 day period;
(c) the Corporation shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of
creditors; or
(d) an involuntary case or other proceeding shall be
commenced against the Corporation seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 90 days; or an order for relief
shall be entered against the Corporation under the Federal bankruptcy laws
as now or hereafter in effect;
then, and in every such event, subject to the provisions of Section 6, the
Holder may, by notice to the Corporation and to the holders of Senior
Indebtedness, declare the principal amount of this Note together with accrued
interest thereon, to be, and such portions of the principal amount of this Note
(and accrued interest thereon) shall thereupon become, due and payable on the
tenth Business Day following delivery of such notice to the Corporation and to
the holders of Senior Indebtedness without presentment, demand, protest or
further notice of any kind, all of which are hereby waived by the Corporation;
provided, that (x) the Events of Defaults specified in paragraphs (a) and (b)
- --------
will be subject to Section 3, and (y) in the case of any of the Events of
Default specified in paragraph (c) or (d), such portions of the principal amount
of this Note (together with accrued interest thereon) shall immediately (and
without notice) become due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Corporation.
Section VI Subordination.
--------------
4
<PAGE>
6.1 Loans Subordinated to Senior Indebtedness. Notwithstanding
-----------------------------------------
any provision of this Note to the contrary, the Corporation covenants and
agrees, and the Holder by acceptance of this Note likewise covenants and agrees,
that all Amounts Payable shall be subordinated to the extent set forth in this
Section 6 to the prior payment in full, in cash or cash equivalents satisfactory
to the holders of Senior Indebtedness, of all Senior Indebtedness. This Section
6 shall constitute a continuing offer to and covenant with all persons who
become holders of, or continue to hold, Senior Indebtedness (irrespective of
whether such Senior Indebtedness was created or acquired before or after the
issuance of this Note). The provisions of this Section 6 are made for the
benefit of all present and future holders of Senior Indebtedness (and their
successors and assigns), and shall be enforceable by them directly against the
Holder.
6.2 Priority and Payment Over of Proceeds in Certain Events.
-------------------------------------------------------
(a) Upon any payment or distribution of assets of the
Corporation, whether in cash, property, securities or otherwise, in the
event of any dissolution, winding up or total or partial liquidation,
reorganization, arrangement, adjustment, protection, relief or composition,
or assignment for the benefit of creditors of the Corporation, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership,
reorganization, relief or other proceedings or upon an assignment for the
benefit of creditors or any other marshaling of all or part of the assets
and liabilities of the Corporation (the foregoing events herein
collectively referred to as an "Insolvency Event"), all Senior Indebtedness
shall first be paid in full, in cash, or payment provided for in cash
equivalents in a manner satisfactory to the holders of Senior Indebtedness,
before the Holder shall be entitled to receive any payment or distribution
of assets of the Corporation relating to any Amounts Payable. Upon any
Insolvency Event, any payment or distribution of assets of the Corporation,
whether in cash, property, securities or otherwise, to which the Holder
would be entitled relating to any Amounts Payable, except for the
provisions of this Section 6, shall be made by the Corporation or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, directly to the holders of the Senior
Indebtedness or their representatives for application to the payment or
prepayment of all such Senior Indebtedness in full after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness.
(b) If (x) there has occurred and is continuing a default
in the payment of all or any portion of any Senior Indebtedness, unless and
until such default shall have been cured or waived, the Corporation shall
not make any payment on or with respect to any Amounts Payable or acquire
this Note (or any portion thereof) for cash, property, securities or
otherwise; or (y) an event (not involving the non-payment of any Senior
Indebtedness) shall have occurred or, with the giving of notice, or passage
of time, or both, would occur, that would allow holders of any Senior
Indebtedness to accelerate or otherwise demand the payment thereof, and the
holders of the Senior Indebtedness give notice of such event to the
Corporation (the date that such notice is received by the Corporation is
the "Notice Date"), the Corporation shall not make any payment on or with
respect to any Amounts Payable or acquire this Note (or any portion hereof)
for
5
<PAGE>
cash, property, securities or otherwise during the period (the "Blockage
Period") commencing on the Notice Date and ending on the earlier of (1) two
years after the Notice Date if at the end of such two year period such
event is not the subject of judicial proceedings and such Senior
Indebtedness shall not have been accelerated, (2) the date such event is
cured or waived to the satisfaction of the holders of the Senior
Indebtedness, or (3) the date the holders of such Senior Indebtedness shall
have given notice to the Corporation of the voluntary termination of the
Blockage Period. By virtue of accepting this Note and the benefits hereof,
during any time period during which payment of any part of Amounts Payable
due under this Note is prohibited by any of the terms of this Note, the
Holder shall not be entitled, and will not take any action, including any
judicial process, to accelerate, demand payment or enforce any Indebtedness
in respect of this Note or any other claim with regard to any Amounts
Payable.
(c) If, notwithstanding the foregoing provisions prohibiting
payments or distributions, the Holder shall have received any payment of,
or on account of, any Amounts Payable that was prohibited by this Section
6, before all Senior Indebtedness shall have been paid in full, then and in
such event such payments or distributions shall be received and held in
trust for the holders of the Senior Indebtedness and promptly paid over or
delivered to the holders of the Senior Indebtedness remaining unpaid
thereof to the extent necessary to pay in full, in cash or cash equivalents
satisfactory to the holders of the Senior Indebtedness, such Senior
Indebtedness in accordance with its terms after giving effect to any
concurrent payment or distribution to the holder of such Senior
Indebtedness; provided, that any such payment which is, for any reason, not
so paid over or delivered shall be held in trust by the Holder for the
holders of Senior Indebtedness.
(d) So long as any Senior Indebtedness remains outstanding, or
the commitment to make credit extensions of said Senior Indebtedness shall
not have been terminated, the Holder will not be entitled to take, demand,
or receive, directly or indirectly, by setoff, redemption, purchase or in
any manner, any voluntary prepayment or other payment of any Amounts
Payable in amounts or in a manner which are in violation of the provisions
of this Section 6.
(e) Upon any payment or distribution of assets referred to in
Section 6.2(a), the Holder shall be entitled to rely upon any order or
decree of a court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, and upon
a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making any such payment or distribution of assets,
delivered to the Holder for the purpose of ascertaining the persons
entitled to participate in such distribution of assets, the holders of
Senior Indebtedness and other Indebtedness of the Corporation, the amount
thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section 6.
6.3 Rights of Holders of Senior Indebtedness Not To Be Impaired, etc.
-----------------------------------------------------------------
6
<PAGE>
(a) No right of any present or future holder of any Senior
Indebtedness to enforce the subordination and other terms and conditions
provided herein shall at any time in any way be prejudiced or impaired by
any act or failure to act by any such holder, or by any noncompliance by
the Corporation, with the terms and provisions and covenants herein
regardless of any knowledge thereof that any such holder may have or
otherwise be charged with.
(b) This Section 6 may not be amended without the written
consent of each holder of the Senior Indebtedness and of the Holder, and
any purported amendment without such consent shall be void. No holder of
Senior Indebtedness shall be prejudiced in such holder's right to enforce
the subordination and other terms and conditions of this Note by any act or
failure to act by the Corporation or anyone in custody of its assets or
property.
6.4 Subrogation. Subject to and upon the payment in full of all
-----------
Senior Indebtedness, the Holder shall be subrogated, to the extent of payments
or distributions made to the holders of Senior Indebtedness pursuant to or by
reason of this Section 6, to the rights of the holders of such Senior
Indebtedness to receive payments or distributions of assets of the Corporation
made on such Senior Indebtedness until all amounts due under this Note shall be
paid in full; and for the purposes of such subrogation, no payments or
distributions to holders of such Senior Indebtedness of any cash, property or
securities to which the Holder would be entitled except for the provisions of
this Section 6, and no payment over pursuant to the provisions of this Section 6
to holders of such Senior Indebtedness by the Holder, shall, as among the
Corporation, its creditors (other than holders of such Senior Indebtedness) and
the Holder be deemed to be a payment by the Corporation to or on account of such
Senior Indebtedness, it being understood that the provisions of this Section 6
are solely for the purpose of defining the relative rights of the holders of
such Senior Indebtedness, on the one hand, and the Holder, on the other hand.
6.5 Obligations of the Corporation Unconditional. Nothing contained
--------------------------------------------
in this Note is intended to or shall impair, as between the Corporation and the
Holder, the obligation of the Corporation, which is absolute and unconditional,
to pay to the Holder all Amounts Payable, as and when the same shall become due
and payable in accordance with their terms, or to affect the relative rights of
the Holder and other creditors of the Corporation (other than the holders of
Senior Indebtedness), except as provided in Section 6.2(b).
6.6 Section 6 Not To Prevent Events of Default. The failure to make a
------------------------------------------
payment of any Amounts Payable by reason of any provision of this Section 6
shall not be construed as preventing the occurrence of an Event of Default under
Section 5.1 hereof, except as provided in Section 6.2(b).
6.7 Additional Rights of Holders of Senior Indebtedness. If the
---------------------------------------------------
Senior Indebtedness has not been paid in full, in cash or cash equivalents
satisfactory to the holders of Senior Indebtedness, at a time in which the
Corporation is subject to an Insolvency Event, (a) the holders of the Senior
Indebtedness are hereby irrevocably authorized, but shall have no
7
<PAGE>
obligation, to demand, sue for, collect and receive every payment or
distribution received in respect of any such Insolvency Proceeding and give
acquittance therefor and to file claims and proofs of claim, as their interests
may appear, and (b) the Holder shall duly and promptly take, for the account of
the holders of the Senior Indebtedness, as their interests may appear, such
actions as the holders of the Senior Indebtedness may request to collect and
receive all Amounts Payable by the Corporation in respect of this Note and to
file appropriate claims or proofs of claim in respect of this Note. Upon request
by the Corporation, the Holder of this Note shall deliver to the holders of
Senior Indebtedness or parties contemplating becoming holders of Senior
Indebtedness a written statement confirming that (i) the provisions (including
the subordination provisions) of this Note are in full force and effect; and
(ii) that such party is or will be entitled to rely upon and enjoy the benefits
of the provisions (including the subordination provisions) of this Note as a
holder of Senior Indebtedness.
6.8 Senior Indebtedness Changes. By virtue of accepting this Note and
---------------------------
the benefits hereof, the Holder hereby waives any and all notice of renewal,
extension or accrual of any of the Senior Indebtedness, present or future, and
agrees and consents that without notice to or consent of the Holder: (a) the
obligations and liabilities of the Corporation or any other party or parties
under the Senior Indebtedness may, from time to time, in whole or in part, be
renewed, refinanced, replaced, extended, refunded, modified, amended,
accelerated, compromised, supplemented, terminated, increased, decreased, sold,
exchanged, waived or released; (b) the holders of Senior Indebtedness and their
representatives may exercise or refrain from exercising any right, remedy or
power granted by any document creating, evidencing or otherwise related to the
Senior Indebtedness or at law, in equity, or otherwise, with respect to the
Senior Indebtedness or in connection with any collateral security or lien (legal
or equitable) held, given or intended to be given therefor (including, without
limitation, the right to perfect any lien or security interest created in
connection therewith); (c) any and all collateral security and/or liens (legal
or equitable) at any time, present or future, held, given or intended to be
given for the Senior Indebtedness, and any rights or remedies of the holders of
Senior Indebtedness and their representatives in respect thereof, may, from time
to time, in whole or in part, be exchanged, sold, surrendered, released,
modified, perfected, unperfected, waived or extended by the Holders and their
representatives; (d) any balance or balances of funds with any holder of Senior
Indebtedness at any time standing to the credit of the Corporation or any
guarantor of any of the Senior Indebtedness may, from time to time, in whole or
in part, be surrendered or released; all as the holders of Senior Indebtedness,
their representatives or any of them may deem advisable and all without
impairing, abridging, diminishing, releasing or affecting the subordination to
the Senior Indebtedness provided for herein; and (e) the Corporation may incur
any amount or type of Senior Indebtedness (including Senior Indebtedness owed to
Affiliates), or modify, restate, refinance, replace or amend any Senior
Indebtedness from time to time, on terms and conditions acceptable to the
Corporation, without notice to or approval by the Holder.
6.9 Waivers. In the event the holders of Senior Indebtedness elect to
-------
exercise their remedies to liquidate any collateral given to secure the Senior
Indebtedness, the Holder hereby waives any right it may have to contest the
validity of or the value obtained as a result of the exercise of remedies by the
holders of Senior Indebtedness, including, but not limited to, a foreclosure, a
sale pursuant to the Uniform Commercial Code or the acceptance by the holders of
8
<PAGE>
Senior Indebtedness in lieu of foreclosure. The Holder further waives any right
it may have either in or out of any bankruptcy or similar proceeding to
challenge any action taken by the holders of Senior Indebtedness as either a
preference or fraudulent conveyance and further agrees not to take any active
role in such a proceeding other than the filing of claim in any such proceeding,
which claim shall be subordinate (to the extent set forth above) to the claims
of the holders of Senior Indebtedness.
Section VII Definitions. For purposes of this Note, the following terms have
-----------
the meanings set forth below.
"Affiliate" means Jordan Industries, Inc. and its direct and indirect
---------
Subsidiaries ("JII Group"), and any other person or entity that directly, or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with the JII Group or any persons or entities which
control, directly or indirectly, the JII Group.
"Amounts Payable" means all principal of, interest on, premium, if
---------------
any, fees, costs, expenses, indemnities or any other amounts due from the
Corporation under this Note, and all claims against or liabilities of the
Corporation in respect of this Note.
"Business Day" means any day except a Saturday, Sunday or other days
------------
on which commercial banks in New York City are required or authorized by law to
close.
"Capital Expenditures" means the capital expenditures of the
--------------------
Corporation, determined in accordance with generally accepted accounting
principles, consistently applied.
"Closing Date" means the date on which the transactions contemplated
------------
by the Purchase Agreement are consummated.
"Default" means any condition or event that constitutes an Event of
-------
Default or that with notice or lapse of time or both would, unless cured or
waived, become an Event of Default.
"Free Cash Flow" means, for any period, (i) the consolidated net
--------------
income (or net deficit) of the Corporation and its subsidiaries (excluding,
however, (A) all extraordinary and other non-recurring items of income, but not
loss, and (B) all interest income as reflected in the Corporation's financial
statements); plus (ii) interest (including deferred financing fees and expense)
----
and other expense in respect of the Corporation's Indebtedness (including
intercompany Indebtedness or Indebtedness owed to Affiliates) charged, accrued
or otherwise allocated against such net income; plus (iii) expenses for
----
amortization charged, accrued or otherwise allocated against such net income;
plus (iv) expenses for depreciation (including increased depreciation and
- ----
increased inventory values resulting from purchase accounting in connection with
acquisitions and business combinations) charged, accrued or otherwise allocated
against such net income; plus (v) any reductions in Working Capital from the
----
beginning to the end of such period; minus (vi) payments of interest and
-----
principal on Indebtedness (other than required interest and principal payments
on this Note) paid or accrued during such period or otherwise payable on the
applicable payment date; provided, however, the aggregate amount of the
-------- -------
principal payments on
9
<PAGE>
the Senior Indebtedness included in this calculation of Free Cash Flow shall
equal the amount set forth in Exhibit A for the period in question, whether or
not paid during such period; minus (vii) any increases in Working Capital from
-----
the beginning to the end of such period; minus (viii) Capital Expenditures
-----
during such period. Free Cash Flow will reflect selling, general and
administrative expense, management, consulting and service fees, general and
overhead, allocated to the Corporation by its Affiliates. Free Cash Flow will be
determined by the Corporation's Board of Directors by reference to the
Corporation's financial statements, prepared in accordance with generally
accepted accounting principles, consistently applied, whose determination will
be final binding, conclusive and non-appealable.
"Indebtedness" means any indebtedness (including, without limitation,
------------
Senior Indebtedness), whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
deferred and unpaid balance of the purchase price of any property (including
pursuant to capital leases), and any financial hedging obligations, if and to
the extent such indebtedness (other than a financial hedging obligation) would
appear as a liability upon a balance sheet of such person prepared on a
consolidated basis in accordance with generally accepted accounting principles,
other than a trade payable or accrued expense, and also includes, to the extent
not otherwise included, the guarantee of items that would be included within
this definition. Notwithstanding anything herein to the contrary, Senior
Indebtedness shall include any trade payables, accrued expenses, fees or other
amounts due to an Affiliate of the Corporation. Indebtedness owed to Affiliates
will be Indebtedness for purposes of this Note.
"Maturity Date" means December 31, 2002, subject to extension to a
-------------
later date as provided by the terms of this Note, but in no event shall it mean
a date later than December 31, 2004.
"Noncompetition Agreements" means the Noncompetition Agreements by and
-------------------------
between Electrical Design and Control Company, a Delaware company, and Eric
Monson, an individual; Tina LaVire, an individual; and Marta Monson, as
Beneficiary of the Marta Monson Voting Trust, each dated October 27, 1997.
"Note" means this Non-Negotiable Subordinated Note due December 31,
----
2002.
"Purchase Agreement" means the Agreement for Purchase and Sale of
------------------
Stock dated as of October 17, 1997, among the Corporation, Eric Monson, Tina
LaVire, Marta Monson (as Beneficiary of the Marta Monson Voting Trust), and
Frederick W. Heath (as Trustee of the Marta Monson Voting Trust), as the same
has been or may be amended from time to time.
"Senior Indebtedness" shall mean the principal, interest (including
-------------------
any interest accruing subsequent to an event specified in Sections 5.1(c) and
5.1(d)), premium, if any, fees (including, without limitation, any commitment,
agency, facility, structuring, restructuring or other fee), costs, expenses,
indemnities, and other amounts due on or in connection with the Indebtedness of
the Corporation described in the attached Schedule A (including, without
limitation, any intercompany Indebtedness), now or herewith incurred, or any
documents executed under or in connection therewith, and any amendments,
modifications, deferrals,
10
<PAGE>
renewals or extensions of such Indebtedness, and any amounts owed in respect of
any Indebtedness incurred in refinancing, replacing or refunding the foregoing
(including any refinancing, replacing or refunding with new lenders). Nothing in
this Note shall restrict an affiliate of the Corporation from being a holder of
Senior Indebtedness. Indebtedness owed to Affiliates will be Senior Indebtedness
for purposes of this Note. Notwithstanding anything herein to the contrary,
Senior Indebtedness shall include any payables, accrued expenses, fees or other
amounts due to an Affiliate of the Corporation. Notwithstanding anything herein
to the contrary, none of the obligations or liabilities of the Corporation to
Holder shall be included in Senior Indebtedness.
"Subsidiary" of a person means any corporation or other entity of
----------
which securities or other ownership interests having ordinary voting power to
elect a majority of the Board of Directors or other persons performing similar
functions are at the time directly or indirectly owned by such person.
"Working Capital" means the difference of (a) the sum of Corporation's
---------------
net account receivables, inventories (net of reserves), and prepaid expenses,
minus (b) the sum of accounts payable and accrued expenses, determined in
- -----
accordance with generally accepted accounting principles, consistently applied.
Section VIII Miscellaneous.
--------------
8.1 Notices. All notices, requests and other communications
-------
to any party hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission or sent by certified, registered or express mail,
postage prepaid, and shall be deemed given when so delivered personally, or sent
by facsimile transmission, or if mailed or sent by overnight courier, upon
receipt thereof, as follows:
If to the Corporation to:
Thomas H. Quinn
Joseph C. Linnen
c/o Electrical Design and Control Company
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Telephone: 847-945-5591
Telecopier: 847-945-5698
11
<PAGE>
with a copy to:
G. Robert Fisher, Esq.
Steven L. Rist, Esq.
Bryan Cave LLP
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Telephone: 816-374-3200
Telecopier: 816-374-3300
If to the Holder, to:
Tina LaVire
2575 West Square Lake Road
West Bloomfield, Michigan 48033
with a copy to:
John J. Raymond, Jr.
Paul L. Triemstra
Butzel Long
Suite 200
32270 Telegraph Road
Birmingham, Michigan 48025-2457
Telephone: (248) 258-1616
Telecopier: (248) 258-1439
Each party may, by notice given in accordance with this Section to the other
party, designate another address or person for receipt of notices hereunder.
8.2 No Waivers. No failure or delay by the Holder in exercising
----------
any right, power or privilege hereunder or under this Note shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law. No notice to or demand on
the Corporation in any case shall entitle the Corporation to any other or
further notice or demand in related or similar circumstances requiring such
notice.
8.3 Amendments and Waivers. Any provision of this Note may be
----------------------
amended or waived if, but only if, such amendment or waiver is in writing,
signed by the Corporation and the Holder.
12
<PAGE>
8.4 Successors and Assigns. The provisions of this Note shall be
----------------------
binding upon and inure to the benefit of the Holder and its respective
successors and permitted assigns. Without the prior written consent of the
Corporation and the holders of Senior Indebtedness, the Holder of this Note
agrees that it will not (a) sell, assign, pledge or otherwise transfer, in whole
or in part, directly or indirectly, by operation of law or otherwise, this Note
or any interest therein or (b) create, incur or suffer to exist any security
interest, lien, charge or other encumbrance whatsoever upon this Note. If
requested by a holder of Senior Indebtedness as part of any consent, the
assignee or transferee of the Holder shall agree in writing to be bound by all
of the terms of this Note. The holder hereof hereby waives proof of reliance
hereon by the holders of Senior Indebtedness.
8.5 Replacement Note. Upon receipt of evidence reasonably
----------------
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Note and of a letter of indemnity reasonably satisfactory to the
Corporation from the Holder and upon reimbursement to the Corporation of all
reasonable expenses incident thereto, and upon surrender or cancellation of this
Note, if mutilated, the Corporation will make and deliver a new Note of like
tenor in lieu of such lost, stolen, destroyed or mutilated Note.
8.6 Corporation's Obligations. The Holder agrees and
-------------------------
acknowledges that this Note and the Corporation's obligations hereunder and for
all Amounts Payable are solely obligations and liabilities of the Corporation.
None of the Corporation's directors, officers, employees, stockholders,
advisors, consultants and affiliates or any other persons shall be obligated or
liable in respect of this Note or any Amounts Payable, and Holder hereby
releases them from any such obligation of liability.
8.7 LITIGATION. THIS NOTE SHALL BE GOVERNED BY, CONSTRUED,
----------
APPLIED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
MICHIGAN, AND NO DOCTRINE OF CHOICE OF LAW SHALL BE USED TO APPLY ANY LAW OTHER
THAN THAT OF MICHIGAN, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR
ALLOWED BY THE LAWS OF ANY OTHER STATE OR JURISDICTION, OR ARISING OUT OF THE
ENACTMENT, MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF
ANY FOREIGN JURISDICTION, BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO SECTION
8.8, THE PARTIES AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT
OF THIS NOTE MAY BE COMMENCED IN THE STATE COURTS, OR IN THE UNITED STATES
DISTRICT COURTS IN CHICAGO, ILLINOIS. THE PARTIES CONSENT TO SUCH JURISDICTION,
AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY OBJECTIONS BASED
UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN THIS SECTION 8.7
----- --- ----------
SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY ACTION UNDER THIS
AGREEMENT IN ANY OTHER JURISDICTION.
8.8 ARBITRATION. THE HOLDER HEREBY WAIVES AND SHALL NOT SEEK
-----------
JURY TRIAL IN ANY LAWSUIT, PROCEEDING, CLAIM,
13
<PAGE>
COUNTERCLAIM, DEFENSE OR OTHER LITIGATION OR DISPUTE UNDER OR IN RESPECT OF THIS
NOTE. THE HOLDER AGREES THAT ANY SUCH DISPUTE RELATING TO OR IN RESPECT OF THIS
NOTE, ITS NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF
CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF THIS NOTE, SHALL BE
SUBMITTED TO, AND RESOLVED EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE
WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
SUCH ARBITRATION SHALL TAKE PLACE IN MICHIGAN, AND SHALL BE SUBJECT TO THE
SUBSTANTIVE LAW OF THE STATE OF MICHIGAN. DECISIONS PURSUANT TO SUCH ARBITRATION
SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. UPON THE CONCLUSION OF
ARBITRATION, THE PARTIES MAY APPLY TO ANY APPROPRIATE COURT OF THE TYPE
DESCRIBED IN SECTION 8.7 TO ENFORCE THE DECISION PURSUANT TO SUCH ARBITRATION.
ELECTRICAL DESIGN AND CONTROL COMPANY
By: /s/ Joseph C. Linnen
-----------------------------------
Name: Joseph C. Linnen
---------------------------------
Title: Vice President
--------------------------------
14
<PAGE>
SCHEDULE A
----------
Senior Indebtedness: $16,000,000 plus an additional $5,000,000 for working
- -------------------
capital, capital expenditures, acquisitions or other purposes.
Scheduled Senior Indebtedness Principal Payments
------------------------------------------------
<TABLE>
<CAPTION>
Year Principal
---- ---------
<S> <C>
1998 800,000
1999 1,300,000
2000 1,300,000
2001 1,300,000
2002 1,300,000
2003 1,300,000
2004 1,300,000
</TABLE>
Senior Interest: Interest shall be paid on outstanding Senior Indebtedness
- ---------------
principal at the rate of 10.75%.
15
<PAGE>
EXHIBIT 10.14
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND ACCORDINGLY MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR
LAWS OR PURSUANT TO AN EXEMPTION THEREFROM. THE
PRINCIPAL AMOUNT OF THIS NOTE, AND INTEREST IN RESPECT
THEREOF, IS SUBORDINATED TO THE PAYMENT IN FULL OF ALL
SENIOR INDEBTEDNESS AND IS SUBJECT TO SET-OFF, AS
DESCRIBED IN THIS NOTE.
ELECTRICAL DESIGN AND CONTROL COMPANY
NON-NEGOTIABLE SUBORDINATED NOTE
DUE DECEMBER 31, 2002
$1,333,333 Deerfield, Illinois
October 27, 1997
FOR VALUE RECEIVED, the undersigned, ELECTRICAL DESIGN AND CONTROL
COMPANY, a Delaware corporation (together with its successors, the
"Corporation"), hereby promises to pay to MARTA MONSON, as Beneficiary of the
Marta Monson Voting Trust (together with her successors and permitted assigns,
the "Holder"), at 6875 Chimney Sweep Circle, West Bloomfield, Michigan 48322,
the aggregate principal amount of ONE MILLION THREE HUNDRED THIRTY-THREE
THOUSAND THREE HUNDRED THIRTY-THREE ($1,333,333) on the date stated in Section
1.2 hereof. Certain capitalized terms are used in this Note as defined in
Section 7.
Section I Payment.
--------
1.1 Interest. Subject to Section 3, the outstanding principal amount
--------
of this Note shall bear interest (computed on the basis of a 365 or 366 day
year, as the case may be) at a rate equal to nine percent (9%) per annum from
(but excluding) the date hereof to (and including) the Maturity Date. Subject to
Section 3, such interest shall be payable (i) annually in arrears, with respect
to each fiscal year of the Corporation (or portion thereof) on the 120th day
following the end of such Corporation's fiscal year (or portion thereof)
("Interest Payment Dates"), commencing with the period ending December 31,1997,
and (ii) on the Maturity Date.
<PAGE>
1.2 Principal. Subject to Section 3, the Corporation shall pay, on
---------
December 31, 2002, the entire then outstanding principal amount of this Note.
1.3 Business Days. Whenever payment of principal of, or interest on,
-------------
this Note shall be due on a date that is not a Business Day, the date for
payment thereof shall be the next succeeding Business Day and interest due on
the unpaid principal and any other Amounts Payable hereunder shall accrue during
such extension and shall be payable on such succeeding Business Day.
Section II Prepayments; Set-off
--------------------
2.1 Optional Prepayment. The Corporation shall have the right to
-------------------
prepay the principal amount of this Note in whole or in part at any time, or
from time to time, without payment of any premium or penalty whatsoever,
together with interest thereon accrued to the date of prepayment, and any such
prepayment shall be applied to reduce the Corporation's principal payment
obligations under Section 1.2; provided, however, that so long as any Senior
-------- -------
Indebtedness remains outstanding and unpaid, any commitment to provide Senior
Indebtedness is outstanding, or any other amount is owing to the holders of
Senior Indebtedness, this Note may not be prepaid in whole or in part, without
the written consent of the holders of Senior Indebtedness.
2.2 Set-off. The Corporation shall be entitled to set-off and reduce
-------
any Amounts Payable hereunder for any obligations or liabilities of the Holder
to the Corporation or any claims by the Corporation against the Holder or any
party agreeing not to compete under the Purchase Agreement or the Noncompetition
Agreements. The Holder, by accepting this Note, hereby acknowledges and agrees
to the foregoing provisions and any subsequent transferee or successor shall by
becoming such transferee or successor be bound by the foregoing.
Section III Free Cash Flow
--------------
3.1 Payment Limitation. Notwithstanding any other provision of this
------------------
Note, the Corporation shall only be required to pay interest, principal or any
other Amounts Payable in respect of this Note if and to the extent the
Corporation's Free Cash Flow for the Corporation's fiscal year immediately
preceding the required payment date is sufficient and available to make such
payment. If the Corporation's Free Cash Flow for such fiscal year is not
sufficient to make such payments, then such payments will not be made nor be
required to be made under this Note, and the Corporation's payment obligation
under this Note will be deferred until the Corporation's Free Cash Flow would
permit payment under this Section 3, and such deferral of payment will not be an
Event of Default under this Note, provided that the Maturity Date will not be
deferred under this Section 3 for more than two years, at which time, all
principal of, interest on and other Amounts Payable in respect of this Note will
be due and payable.
3.2 Interest Limitation. If, as a result of Section 3.1, the
-------------------
Corporation does not pay interest on an Interest Payment Date, then such
interest will be deferred (and not bear interest) and be paid at the Maturity
Date; provided, that the amount of such deferred interest in
2
<PAGE>
the aggregate will not exceed an amount equal to the interest that would accrue
on the initial principal amount of this Note for two years ("Maximum Interest").
Any deferred interest that exceeds the Maximum Interest will not accrue or be
payable under this Note and will be automatically eliminated.
3.3 Principal and Amounts Payable Deferral. If, as a result of
--------------------------------------
Section 3.1, the Corporation does not pay principal or any other Amounts Payable
(other than interest) on any required payment date, then such principal and
Amounts Payable will be deferred (and not bear interest) and be paid at the
Maturity Date.
3.4 Allocation. If the Corporation's Free Cash Flow for any fiscal
----------
year is available to pay some, but not all, of the required payments, then such
available Free Cash Flow will be allocated first to required principal payments,
second to required interest payments, and then to required payments of any other
Amounts Payable.
Section IV Change of Control and Covenants.
-------------------------------
4.1 Subject to the subordination provisions of this Note set forth
below, the principal of and accrued and unpaid interest under this Note shall be
due and payable immediately upon either (i) any change in ownership of the
Corporation's issued and outstanding capital stock after the effective date
hereof involving more than 50% of the combined voting power of the Corporation,
or (ii) the sale by the Corporation of all or substantially all of its assets
after the effective date hereof. Notwithstanding anything herein to the
contrary, a change of control of the Corporation's capital stock and a sale of
Corporation assets shall not be deemed to have occurred if the transferee
thereof is an Affiliate (defined below).
4.2
(a) As long as any Amounts Payable are outstanding, the
Corporation shall not make payments to Affiliates other than (i) payments
of Senior Indebtedness (if owed to Affiliates) in accordance with Schedule
A attached, subject to Section 4.2(b) below, (ii) payments of management
and/or consulting fees not to exceed annually one percent of the
Corporation's annual sales and reasonable investment banking fees for any
future acquisitions or financings, and (iii) payments made in the ordinary
course of business for goods or services provided to the Corporation.
(b) As long as any Amounts Payable are outstanding, the
Corporation may make payments on Senior Indebtedness in excess of the
scheduled Senior Indebtedness principal and interest payments described in
Schedule A attached hereto only if all Amounts Payable hereunder which are
then due have been paid in full.
3
<PAGE>
Section V Defaults
--------
5.1 Events of Default. If one or more of the following events
-----------------
("Events of Default") shall have occurred and be continuing:
(a) the Corporation shall fail to pay within ten Business Days
of the due date thereof any principal of this Note or shall fail to pay
within ten Business Days of the due date thereof any interest or any other
Amounts Payable hereunder and the same shall not have been cured within 45
days after written notice thereof has been given by the Holder to the
Corporation;
(b) the Corporation shall fail to observe or perform any
covenant or agreement contained in this Note (other than those covered by
clause (a) above) and the same shall not have been cured within 90 days
after written notice thereof has been given by the Holder to the
Corporation, provided, however, an Event of Default shall not have occurred
-------- -------
or be continuing if efforts to cure have commenced within such 90 days and
if such efforts to cure continue to be diligently pursued after expiration
of such 90 day period;
(c) the Corporation shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official, or shall consent
to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors; or
(d) an involuntary case or other proceeding shall be commenced
against the Corporation seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 90 days; or an order for relief shall be entered
against the Corporation under the Federal bankruptcy laws as now or
hereafter in effect;
then, and in every such event, subject to the provisions of Section 6, the
Holder may, by notice to the Corporation and to the holders of Senior
Indebtedness, declare the principal amount of this Note together with accrued
interest thereon, to be, and such portions of the principal amount of this Note
(and accrued interest thereon) shall thereupon become, due and payable on the
tenth Business Day following delivery of such notice to the Corporation and to
the holders of Senior Indebtedness without presentment, demand, protest or
further notice of any kind, all of which are hereby waived by the Corporation;
provided, that (x) the Events of Defaults specified in paragraphs (a) and (b)
- --------
will be subject to Section 3, and (y) in the case of any of the Events of
Default specified in paragraph (c) or (d), such portions of the principal amount
of this Note (together with accrued interest thereon) shall immediately (and
without notice) become due and
4
<PAGE>
payable without presentment, demand, protest or notice of any kind, all of which
are hereby waived by the Corporation.
Section VI Subordination.
--------------
6.1 Loans Subordinated to Senior Indebtedness. Notwithstanding any
-----------------------------------------
provision of this Note to the contrary, the Corporation covenants and agrees,
and the Holder by acceptance of this Note likewise covenants and agrees, that
all Amounts Payable shall be subordinated to the extent set forth in this
Section 6 to the prior payment in full, in cash or cash equivalents satisfactory
to the holders of Senior Indebtedness, of all Senior Indebtedness. This Section
6 shall constitute a continuing offer to and covenant with all persons who
become holders of, or continue to hold, Senior Indebtedness (irrespective of
whether such Senior Indebtedness was created or acquired before or after the
issuance of this Note). The provisions of this Section 6 are made for the
benefit of all present and future holders of Senior Indebtedness (and their
successors and assigns), and shall be enforceable by them directly against the
Holder.
6.2 Priority and Payment Over of Proceeds in Certain Event.
------------------------------------------------------
(a) Upon any payment or distribution of assets of the
Corporation, whether in cash, property, securities or otherwise, in the
event of any dissolution, winding up or total or partial liquidation,
reorganization, arrangement, adjustment, protection, relief or composition,
or assignment for the benefit of creditors of the Corporation, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership,
reorganization, relief or other proceedings or upon an assignment for the
benefit of creditors or any other marshaling of all or part of the assets
and liabilities of the Corporation (the foregoing events herein
collectively referred to as an "Insolvency Event"), all Senior Indebtedness
shall first be paid in full, in cash, or payment provided for in cash
equivalents in a manner satisfactory to the holders of Senior Indebtedness,
before the Holder shall be entitled to receive any payment or distribution
of assets of the Corporation relating to any Amounts Payable. Upon any
Insolvency Event, any payment or distribution of assets of the Corporation,
whether in cash, property, securities or otherwise, to which the Holder
would be entitled relating to any Amounts Payable, except for the
provisions of this Section 6, shall be made by the Corporation or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, directly to the holders of the Senior
Indebtedness or their representatives for application to the payment or
prepayment of all such Senior Indebtedness in full after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness.
(b) If (x) there has occurred and is continuing a default in the
payment of all or any portion of any Senior Indebtedness, unless and until
such default shall have been cured or waived, the Corporation shall not
make any payment on or with respect to any Amounts Payable or acquire this
Note (or any portion thereof) for cash, property, securities or otherwise;
or (y) an event (not involving the non-payment of any Senior Indebtedness)
shall have occurred or, with the giving of notice, or passage of time, or
5
<PAGE>
both, would occur, that would allow holders of any Senior Indebtedness to
accelerate or otherwise demand the payment thereof, and the holders of the
Senior Indebtedness give notice of such event to the Corporation (the date
that such notice is received by the Corporation is the "Notice Date"), the
Corporation shall not make any payment on or with respect to any Amounts
Payable or acquire this Note (or any portion hereof) for cash, property,
securities or otherwise during the period (the "Blockage Period")
commencing on the Notice Date and ending on the earlier of (1) two years
after the Notice Date if at the end of such two year period such event is
not the subject of judicial proceedings and such Senior Indebtedness shall
not have been accelerated, (2) the date such event is cured or waived to
the satisfaction of the holders of the Senior Indebtedness, or (3) the date
the holders of such Senior Indebtedness shall have given notice to the
Corporation of the voluntary termination of the Blockage Period. By virtue
of accepting this Note and the benefits hereof, during any time period
during which payment of any part of Amounts Payable due under this Note is
prohibited by any of the terms of this Note, the Holder shall not be
entitled, and will not take any action, including any judicial process, to
accelerate, demand payment or enforce any Indebtedness in respect of this
Note or any other claim with regard to any Amounts Payable.
(c) If, notwithstanding the foregoing provisions prohibiting
payments or distributions, the Holder shall have received any payment of,
or on account of, any Amounts Payable that was prohibited by this Section
6, before all Senior Indebtedness shall have been paid in full, then and in
such event such payments or distributions shall be received and held in
trust for the holders of the Senior Indebtedness and promptly paid over or
delivered to the holders of the Senior Indebtedness remaining unpaid
thereof to the extent necessary to pay in full, in cash or cash equivalents
satisfactory to the holders of the Senior Indebtedness, such Senior
Indebtedness in accordance with its terms after giving effect to any
concurrent payment or distribution to the holder of such Senior
Indebtedness; provided, that any such payment which is, for any reason, not
so paid over or delivered shall be held in trust by the Holder for the
holders of Senior Indebtedness.
(d) So long as any Senior Indebtedness remains outstanding, or
the commitment to make credit extensions of said Senior Indebtedness shall
not have been terminated, the Holder will not be entitled to take, demand,
or receive, directly or indirectly, by setoff, redemption, purchase or in
any manner, any voluntary prepayment or other payment of any Amounts
Payable in amounts or in a manner which are in violation of the provisions
of this Section 6.
(e) Upon any payment or distribution of assets referred to in
Section 6.2(a), the Holder shall be entitled to rely upon any order or
decree of a court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, and upon
a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making any such payment or distribution of assets,
delivered to the Holder for the purpose of ascertaining the persons
entitled to participate in such distribution of assets, the holders of
Senior Indebtedness and other Indebtedness of the Corporation, the amount
thereof or payable thereon, the
6
<PAGE>
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Section 6.
6.3 Rights of Holders of Senior Indebtedness Not To Be Impaired, etc.
-----------------------------------------------------------------
(a) No right of any present or future holder of any Senior
Indebtedness to enforce the subordination and other terms and conditions
provided herein shall at any time in any way be prejudiced or impaired by
any act or failure to act by any such holder, or by any noncompliance by
the Corporation, with the terms and provisions and covenants herein
regardless of any knowledge thereof that any such holder may have or
otherwise be charged with.
(b) This Section 6 may not be amended without the written
consent of each holder of the Senior Indebtedness and of the Holder, and
any purported amendment without such consent shall be void. No holder of
Senior Indebtedness shall be prejudiced in such holder's right to enforce
the subordination and other terms and conditions of this Note by any act or
failure to act by the Corporation or anyone in custody of its assets or
property.
6.4 Subrogation. Subject to and upon the payment in full of all
-----------
Senior Indebtedness, the Holder shall be subrogated, to the extent of payments
or distributions made to the holders of Senior Indebtedness pursuant to or by
reason of this Section 6, to the rights of the holders of such Senior
Indebtedness to receive payments or distributions of assets of the Corporation
made on such Senior Indebtedness until all amounts due under this Note shall be
paid in full; and for the purposes of such subrogation, no payments or
distributions to holders of such Senior Indebtedness of any cash, property or
securities to which the Holder would be entitled except for the provisions of
this Section 6, and no payment over pursuant to the provisions of this Section 6
to holders of such Senior Indebtedness by the Holder, shall, as among the
Corporation, its creditors (other than holders of such Senior Indebtedness) and
the Holder be deemed to be a payment by the Corporation to or on account of such
Senior Indebtedness, it being understood that the provisions of this Section 6
are solely for the purpose of defining the relative rights of the holders of
such Senior Indebtedness, on the one hand, and the Holder, on the other hand.
6.5 Obligations of the Corporation Unconditional. Nothing contained
--------------------------------------------
in this Note is intended to or shall impair, as between the Corporation and the
Holder, the obligation of the Corporation, which is absolute and unconditional,
to pay to the Holder all Amounts Payable, as and when the same shall become due
and payable in accordance with their terms, or to affect the relative rights of
the Holder and other creditors of the Corporation (other than the holders of
Senior Indebtedness), except as provided in Section 6.2(b).
6.6 Section 6 Not To Prevent Events of Default. The failure to make a
------------------------------------------
payment of any Amounts Payable by reason of any provision of this Section 6
shall not be construed as preventing the occurrence of an Event of Default under
Section 5.1 hereof, except as provided in Section 6.2(b).
7
<PAGE>
6.7 Additional Rights of Holders of Senior Indebtedness. If the
---------------------------------------------------
Senior Indebtedness has not been paid in full, in cash or cash equivalents
satisfactory to the holders of Senior Indebtedness, at a time in which the
Corporation is subject to an Insolvency Event, (a) the holders of the Senior
Indebtedness are hereby irrevocably authorized, but shall have no obligation, to
demand, sue for, collect and receive every payment or distribution received in
respect of any such Insolvency Proceeding and give acquittance therefor and to
file claims and proofs of claim, as their interests may appear, and (b) the
Holder shall duly and promptly take, for the account of the holders of the
Senior Indebtedness, as their interests may appear, such actions as the holders
of the Senior Indebtedness may request to collect and receive all Amounts
Payable by the Corporation in respect of this Note and to file appropriate
claims or proofs of claim in respect of this Note. Upon request by the
Corporation, the Holder of this Note shall deliver to the holders of Senior
Indebtedness or parties contemplating becoming holders of Senior Indebtedness a
written statement confirming that (i) the provisions (including the
subordination provisions) of this Note are in full force and effect; and (ii)
that such party is or will be entitled to rely upon and enjoy the benefits of
the provisions (including the subordination provisions) of this Note as a holder
of Senior Indebtedness.
6.8 Senior Indebtedness Changes. By virtue of accepting this Note and
---------------------------
the benefits hereof, the Holder hereby waives any and all notice of renewal,
extension or accrual of any of the Senior Indebtedness, present or future, and
agrees and consents that without notice to or consent of the Holder: (a) the
obligations and liabilities of the Corporation or any other party or parties
under the Senior Indebtedness may, from time to time, in whole or in part, be
renewed, refinanced, replaced, extended, refunded, modified, amended,
accelerated, compromised, supplemented, terminated, increased, decreased, sold,
exchanged, waived or released; (b) the holders of Senior Indebtedness and their
representatives may exercise or refrain from exercising any right, remedy or
power granted by any document creating, evidencing or otherwise related to the
Senior Indebtedness or at law, in equity, or otherwise, with respect to the
Senior Indebtedness or in connection with any collateral security or lien (legal
or equitable) held, given or intended to be given therefor (including, without
limitation, the right to perfect any lien or security interest created in
connection therewith); (c) any and all collateral security and/or liens (legal
or equitable) at any time, present or future, held, given or intended to be
given for the Senior Indebtedness, and any rights or remedies of the holders of
Senior Indebtedness and their representatives in respect thereof, may, from time
to time, in whole or in part, be exchanged, sold, surrendered, released,
modified, perfected, unperfected, waived or extended by the Holders and their
representatives; (d) any balance or balances of funds with any holder of Senior
Indebtedness at any time standing to the credit of the Corporation or any
guarantor of any of the Senior Indebtedness may, from time to time, in whole or
in part, be surrendered or released; all as the holders of Senior Indebtedness,
their representatives or any of them may deem advisable and all without
impairing, abridging, diminishing, releasing or affecting the subordination to
the Senior Indebtedness provided for herein; and (e) the Corporation may incur
any amount or type of Senior Indebtedness (including Senior Indebtedness owed to
Affiliates), or modify, restate, refinance, replace or amend any Senior
Indebtedness from time to time, on terms and conditions acceptable to the
Corporation, without notice to or approval by the Holder.
8
<PAGE>
6.9 Waivers. In the event the holders of Senior Indebtedness elect to
-------
exercise their remedies to liquidate any collateral given to secure the Senior
Indebtedness, the Holder hereby waives any right it may have to contest the
validity of or the value obtained as a result of the exercise of remedies by the
holders of Senior Indebtedness, including, but not limited to, a foreclosure, a
sale pursuant to the Uniform Commercial Code or the acceptance by the holders of
Senior Indebtedness in lieu of foreclosure. The Holder further waives any right
it may have either in or out of any bankruptcy or similar proceeding to
challenge any action taken by the holders of Senior Indebtedness as either a
preference or fraudulent conveyance and further agrees not to take any active
role in such a proceeding other than the filing of claim in any such proceeding,
which claim shall be subordinate (to the extent set forth above) to the claims
of the holders of Senior Indebtedness.
Section VII Definitions. For purposes of this Note, the following terms have
-----------
the meanings set forth below.
"Affiliate" means Jordan Industries, Inc. and its direct and indirect
---------
Subsidiaries ("JII Group"), and any other person or entity that directly, or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with the JII Group or any persons or entities which
control, directly or indirectly, the JII Group.
"Amounts Payable" means all principal of, interest on, premium, if
---------------
any, fees, costs, expenses, indemnities or any other amounts due from the
Corporation under this Note, and all claims against or liabilities of the
Corporation in respect of this Note.
"Business Day" means any day except a Saturday, Sunday or other days
------------
on which commercial banks in New York City are required or authorized by law to
close.
"Capital Expenditures" means the capital expenditures of the
--------------------
Corporation, determined in accordance with generally accepted accounting
principles, consistently applied.
"Closing Date" means the date on which the transactions contemplated
------------
by the Purchase Agreement are consummated.
"Default" means any condition or event that constitutes an Event of
-------
Default or that with notice or lapse of time or both would, unless cured or
waived, become an Event of Default.
"Free Cash Flow" means, for any period, (i) the consolidated net
--------------
income (or net deficit) of the Corporation and its subsidiaries (excluding,
however, (A) all extraordinary and other non-recurring items of income, but not
loss, and (B) all interest income as reflected in the Corporation's financial
statements); plus (ii) interest (including deferred financing fees and expense)
----
and other expense in respect of the Corporation's Indebtedness (including
intercompany Indebtedness or Indebtedness owed to Affiliates) charged, accrued
or otherwise allocated against such net income; plus (iii) expenses for
----
amortization charged, accrued or otherwise allocated against such net income;
plus (iv) expenses for depreciation (including increased depreciation and
- ----
increased inventory values resulting from purchase accounting in connection with
9
<PAGE>
acquisitions and business combinations) charged, accrued or otherwise allocated
against such net income; plus (v) any reductions in Working Capital from the
----
beginning to the end of such period; minus (vi) payments of interest and
-----
principal on Indebtedness (other than required interest and principal payments
on this Note) paid or accrued during such period or otherwise payable on the
applicable payment date; provided, however, the aggregate amount of the
-------- -------
principal payments on the Senior Indebtedness included in this calculation of
Free Cash Flow shall equal the amount set forth in Exhibit A for the period in
question, whether or not paid during such period; minus (vii) any increases in
-----
Working Capital from the beginning to the end of such period; minus (viii)
-----
Capital Expenditures during such period. Free Cash Flow will reflect selling,
general and administrative expense, management, consulting and service fees,
general and overhead, allocated to the Corporation by its Affiliates. Free Cash
Flow will be determined by the Corporation's Board of Directors by reference to
the Corporation's financial statements, prepared in accordance with generally
accepted accounting principles, consistently applied, whose determination will
be final binding, conclusive and non-appealable.
"Indebtedness" means any indebtedness (including, without limitation,
------------
Senior Indebtedness), whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
deferred and unpaid balance of the purchase price of any property (including
pursuant to capital leases), and any financial hedging obligations, if and to
the extent such indebtedness (other than a financial hedging obligation) would
appear as a liability upon a balance sheet of such person prepared on a
consolidated basis in accordance with generally accepted accounting principles,
other than a trade payable or accrued expense, and also includes, to the extent
not otherwise included, the guarantee of items that would be included within
this definition. Notwithstanding anything herein to the contrary, Senior
Indebtedness shall include any trade payables, accrued expenses, fees or other
amounts due to an Affiliate of the Corporation. Indebtedness owed to Affiliates
will be Indebtedness for purposes of this Note.
"Maturity Date" means December 31, 2002, subject to extension to a
-------------
later date as provided by the terms of this Note, but in no event shall it mean
a date later than December 31, 2004.
"Noncompetition Agreements" means the Noncompetition Agreements by and
-------------------------
between Electrical Design and Control Company, a Delaware company, and Eric
Monson, an individual; Tina LaVire, an individual; and Marta Monson, as
Beneficiary of the Marta Monson Voting Trust, each dated October 27, 1997.
"Note" means this Non-Negotiable Subordinated Note due December 31,
----
2002.
"Purchase Agreement" means the Agreement for Purchase and Sale of
------------------
Stock dated as of October 17, 1997, among the Corporation, Eric Monson, Tina
LaVire, Marta Monson (as Beneficiary of the Marta Monson Voting Trust), and
Frederick W. Heath (as Trustee of the Marta Monson Voting Trust), as the same
has been or may be amended from time to time.
"Senior Indebtedness" shall mean the principal, interest (including
-------------------
any interest accruing subsequent to an event specified in Sections 5.1(c) and
5.1(d)), premium, if any, fees
10
<PAGE>
(including, without limitation, any commitment, agency, facility, structuring,
restructuring or other fee), costs, expenses, indemnities, and other amounts due
on or in connection with the Indebtedness of the Corporation described in the
attached Schedule A (including, without limitation, any intercompany
Indebtedness), now or herewith incurred, or any documents executed under or in
connection therewith, and any amendments, modifications, deferrals, renewals or
extensions of such Indebtedness, and any amounts owed in respect of any
Indebtedness incurred in refinancing, replacing or refunding the foregoing
(including any refinancing, replacing or refunding with new lenders). Nothing in
this Note shall restrict an affiliate of the Corporation from being a holder of
Senior Indebtedness. Indebtedness owed to Affiliates will be Senior Indebtedness
for purposes of this Note. Notwithstanding anything herein to the contrary,
Senior Indebtedness shall include any payables, accrued expenses, fees or other
amounts due to an Affiliate of the Corporation. Notwithstanding anything herein
to the contrary, none of the obligations or liabilities of the Corporation to
Holder shall be included in Senior Indebtedness.
"Subsidiary" of a person means any corporation or other entity of
----------
which securities or other ownership interests having ordinary voting power to
elect a majority of the Board of Directors or other persons performing similar
functions are at the time directly or indirectly owned by such person.
"Working Capital" means the difference of (a) the sum of Corporation's
---------------
net account receivables, inventories (net of reserves), and prepaid expenses,
minus (b) the sum of accounts payable and accrued expenses, determined in
- -----
accordance with generally accepted accounting principles, consistently applied.
Section VIII Miscellaneous.
--------------
8.1 Notices. All notices, requests and other communications to any
-------
party hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail, postage
prepaid, and shall be deemed given when so delivered personally, or sent by
facsimile transmission, or if mailed or sent by overnight courier, upon receipt
thereof, as follows:
If to the Corporation to:
Thomas H. Quinn
Joseph C. Linnen
c/o Electrical Design and Control Company
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Telephone: 847-945-5591
Telecopier: 847-945-5698
11
<PAGE>
with a copy to:
G. Robert Fisher, Esq.
Steven L. Rist, Esq.
Bryan Cave LLP
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Telephone: 816-374-3200
Telecopier: 816-374-3300
If to the Holder, to:
Marta Monson
6875 Chimney Sweep Circle
West Bloomfield, Michigan 48322
with a copy to:
John J. Raymond, Jr.
Paul L. Triemstra
Butzel Long
Suite 200
32270 Telegraph Road
Birmingham, Michigan 48025-2457
Telephone: (248) 258-1616
Telecopier: (248) 258-1439
Each party may, by notice given in accordance with this Section to the other
party, designate another address or person for receipt of notices hereunder.
8.2 No Waivers. No failure or delay by the Holder in exercising any
----------
right, power or privilege hereunder or under this Note shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law. No notice to or demand on the
Corporation in any case shall entitle the Corporation to any other or further
notice or demand in related or similar circumstances requiring such notice.
8.3 Amendments and Waivers. Any provision of this Note may be amended
----------------------
or waived if, but only if, such amendment or waiver is in writing, signed by the
Corporation and the Holder.
12
<PAGE>
8.4 Successors and Assigns. The provisions of this Note shall be
----------------------
binding upon and inure to the benefit of the Holder and its respective
successors and permitted assigns. Without the prior written consent of the
Corporation and the holders of Senior Indebtedness, the Holder of this Note
agrees that it will not (a) sell, assign, pledge or otherwise transfer, in whole
or in part, directly or indirectly, by operation of law or otherwise, this Note
or any interest therein or (b) create, incur or suffer to exist any security
interest, lien, charge or other encumbrance whatsoever upon this Note. If
requested by a holder of Senior Indebtedness as part of any consent, the
assignee or transferee of the Holder shall agree in writing to be bound by all
of the terms of this Note. The holder hereof hereby waives proof of reliance
hereon by the holders of Senior Indebtedness.
8.5 Replacement Note. Upon receipt of evidence reasonably
----------------
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Note and of a letter of indemnity reasonably satisfactory to the
Corporation from the Holder and upon reimbursement to the Corporation of all
reasonable expenses incident thereto, and upon surrender or cancellation of this
Note, if mutilated, the Corporation will make and deliver a new Note of like
tenor in lieu of such lost, stolen, destroyed or mutilated Note.
8.6 Corporation's Obligations. The Holder agrees and acknowledges
-------------------------
that this Note and the Corporation's obligations hereunder and for all Amounts
Payable are solely obligations and liabilities of the Corporation. None of the
Corporation's directors, officers, employees, stockholders, advisors,
consultants and affiliates or any other persons shall be obligated or liable in
respect of this Note or any Amounts Payable, and Holder hereby releases them
from any such obligation of liability.
8.7 LITIGATION. THIS NOTE SHALL BE GOVERNED BY, CONSTRUED, APPLIED
----------
AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MICHIGAN, AND
NO DOCTRINE OF CHOICE OF LAW SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF
MICHIGAN, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY
THE LAWS OF ANY OTHER STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT,
MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF ANY
FOREIGN JURISDICTION, BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO SECTION
8.8, THE PARTIES AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT
OF THIS NOTE MAY BE COMMENCED IN THE STATE COURTS, OR IN THE UNITED STATES
DISTRICT COURTS IN CHICAGO, ILLINOIS. THE PARTIES CONSENT TO SUCH JURISDICTION,
AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY OBJECTIONS BASED
UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN THIS SECTION 8.7
----- --- ----------
SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY ACTION UNDER THIS
AGREEMENT IN ANY OTHER JURISDICTION.
8.8 ARBITRATION. THE HOLDER HEREBY WAIVES AND SHALL NOT SEEK JURY
-----------
TRIAL IN ANY LAWSUIT, PROCEEDING, CLAIM,
13
<PAGE>
COUNTERCLAIM, DEFENSE OR OTHER LITIGATION OR DISPUTE UNDER OR IN RESPECT OF THIS
NOTE. THE HOLDER AGREES THAT ANY SUCH DISPUTE RELATING TO OR IN RESPECT OF THIS
NOTE, ITS NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF
CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF THIS NOTE, SHALL BE
SUBMITTED TO, AND RESOLVED EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE
WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
SUCH ARBITRATION SHALL TAKE PLACE IN MICHIGAN, AND SHALL BE SUBJECT TO THE
SUBSTANTIVE LAW OF THE STATE OF MICHIGAN. DECISIONS PURSUANT TO SUCH ARBITRATION
SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. UPON THE CONCLUSION OF
ARBITRATION, THE PARTIES MAY APPLY TO ANY APPROPRIATE COURT OF THE TYPE
DESCRIBED IN SECTION 8.7 TO ENFORCE THE DECISION PURSUANT TO SUCH ARBITRATION.
ELECTRICAL DESIGN AND CONTROL
COMPANY
By /s/ Joseph C. Linnen
----------------------------
Name: Joseph C. Linnen
--------------------------
Title: Vice President
-------------------------
14
<PAGE>
SCHEDULE A
----------
Senior Indebtedness: $16,000,000 plus an additional $5,000,000 for working
- -------------------
capital, capital expenditures, acquisitions or other purposes.
Scheduled Senior Indebtedness Principal Payments
------------------------------------------------
<TABLE>
<CAPTION>
Year Principal
---- ---------
<S> <C>
1998 800,000
1999 1,300,000
2000 1,300,000
2001 1,300,000
2002 1,300,000
2003 1,300,000
2004 1,300,000
</TABLE>
Senior Interest: Interest shall be paid on outstanding Senior Indebtedness
- ---------------
principal at the rate of 10.75%.
15
<PAGE>
EXHIBIT 10.15
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND ACCORDINGLY MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR
LAWS OR PURSUANT TO AN EXEMPTION THEREFROM. THE
PRINCIPAL AMOUNT OF THIS NOTE, AND INTEREST IN RESPECT
THEREOF, IS SUBORDINATED TO THE PAYMENT IN FULL OF ALL
SENIOR INDEBTEDNESS AND IS SUBJECT TO SET-OFF, AS
DESCRIBED IN THIS NOTE.
ELECTRICAL DESIGN AND CONTROL COMPANY
NON-NEGOTIABLE SUBORDINATED NOTE
DUE DECEMBER 31, 2002
$1,333,334 Deerfield, Illinois
October 27, 1997
FOR VALUE RECEIVED, the undersigned, ELECTRICAL DESIGN AND
CONTROL COMPANY, a Delaware corporation (together with its successors, the
"Corporation"), hereby promises to pay to ERIC MONSON, an individual (together
with his successors and permitted assigns, the "Holder"), at 264 Arrowhead Drive
West, Avon, Colorado 81620, the aggregate principal amount of ONE MILLION THREE
HUNDRED THIRTY-THREE THOUSAND THREE HUNDRED THIRTY-FOUR ($1,333,334) on the date
stated in Section 1.2 hereof. Certain capitalized terms are used in this Note as
defined in Section 7.
Section I Payment.
-------
1.1 Interest. Subject to Section 3, the outstanding principal
--------
amount of this Note shall bear interest (computed on the basis of a 365 or 366
day year, as the case may be) at a rate equal to nine percent (9%) per annum
from (but excluding) the date hereof to (and including) the Maturity Date.
Subject to Section 3, such interest shall be payable (i) annually in arrears,
with respect to each fiscal year of the Corporation (or portion thereof) on the
120th day following the end of such Corporation's fiscal year (or portion
thereof) ("Interest Payment Dates"), commencing with the period ending December
31,1997, and (ii) on the Maturity Date.
<PAGE>
1.2 Principal. Subject to Section 3, the Corporation shall
---------
pay, on December 31, 2002, the entire then outstanding principal amount of this
Note.
1.3 Business Days. Whenever payment of principal of, or
-------------
interest on, this Note shall be due on a date that is not a Business Day, the
date for payment thereof shall be the next succeeding Business Day and interest
due on the unpaid principal and any other Amounts Payable hereunder shall accrue
during such extension and shall be payable on such succeeding Business Day.
Section II Prepayments; Set-off
--------------------
2.1 Optional Prepayment. The Corporation shall have the right
-------------------
to prepay the principal amount of this Note in whole or in part at any time, or
from time to time, without payment of any premium or penalty whatsoever,
together with interest thereon accrued to the date of prepayment, and any such
prepayment shall be applied to reduce the Corporation's principal payment
obligations under Section 1.2; provided, however, that so long as any Senior
-------- -------
Indebtedness remains outstanding and unpaid, any commitment to provide Senior
Indebtedness is outstanding, or any other amount is owing to the holders of
Senior Indebtedness, this Note may not be prepaid in whole or in part, without
the written consent of the holders of Senior Indebtedness.
2.2 Set-off. The Corporation shall be entitled to set-off and
-------
reduce any Amounts Payable hereunder for any obligations or liabilities of the
Holder to the Corporation or any claims by the Corporation against the Holder or
any party agreeing not to compete under the Purchase Agreement or the
Noncompetition Agreements. The Holder, by accepting this Note, hereby
acknowledges and agrees to the foregoing provisions and any subsequent
transferee or successor shall by becoming such transferee or successor be bound
by the foregoing.
Section III Free Cash Flow
--------------
3.1 Payment Limitation. Notwithstanding any other provision
------------------
of this Note, the Corporation shall only be required to pay interest, principal
or any other Amounts Payable in respect of this Note if and to the extent the
Corporation's Free Cash Flow for the Corporation's fiscal year immediately
preceding the required payment date is sufficient and available to make such
payment. If the Corporation's Free Cash Flow for such fiscal year is not
sufficient to make such payments, then such payments will not be made nor be
required to be made under this Note, and the Corporation's payment obligation
under this Note will be deferred until the Corporation's Free Cash Flow would
permit payment under this Section 3, and such deferral of payment will not be an
Event of Default under this Note, provided that the Maturity Date will not be
deferred under this Section 3 for more than two years, at which time, all
principal of, interest on and other Amounts Payable in respect of this Note will
be due and payable.
3.2 Interest Limitation. If, as a result of Section 3.1, the
-------------------
Corporation does not pay interest on an Interest Payment Date, then such
interest will be deferred (and not bear interest) and be paid at the Maturity
Date; provided, that the amount of such deferred interest in
2
<PAGE>
the aggregate will not exceed an amount equal to the interest that would accrue
on the initial principal amount of this Note for two years ("Maximum Interest").
Any deferred interest that exceeds the Maximum Interest will not accrue or be
payable under this Note and will be automatically eliminated.
3.3 Principal and Amounts Payable Deferral. If, as a result of
--------------------------------------
Section 3.1, the Corporation does not pay principal or any other Amounts Payable
(other than interest) on any required payment date, then such principal and
Amounts Payable will be deferred (and not bear interest) and be paid at the
Maturity Date.
3.4 Allocation. If the Corporation's Free Cash Flow for any
----------
fiscal year is available to pay some, but not all, of the required payments,
then such available Free Cash Flow will be allocated first to required principal
payments, second to required interest payments, and then to required payments of
any other Amounts Payable.
Section IV Change of Control and Covenants.
-------------------------------
4.1 Subject to the subordination provisions of this Note set
forth below,the principal of and accrued and unpaid interest under this Note
shall be due and payable immediately upon either (i) any change in ownership of
the Corporation's issued and outstanding capital stock after the effective date
hereof involving more than 50% of the combined voting power of the Corporation,
or (ii) the sale by the Corporation of all or substantially all of its assets
after the effective date hereof. Notwithstanding anything herein to the
contrary, a change of control of the Corporation's capital stock and a sale of
Corporation assets shall not be deemed to have occurred if the transferee
thereof is an Affiliate (defined below).
4.2
(a) As long as any Amounts Payable are outstanding, the
Corporation shall not make payments to Affiliates other than (i) payments
of Senior Indebtedness (if owed to Affiliates) in accordance with Schedule
A attached, subject to Section 4.2(b) below, (ii) payments of management
and/or consulting fees not to exceed annually one percent of the
Corporation's annual sales and reasonable investment banking fees for any
future acquisitions or financings, and (iii) payments made in the ordinary
course of business for goods or services provided to the Corporation.
(b) As long as any Amounts Payable are outstanding, the
Corporation may make payments on Senior Indebtedness in excess of the
scheduled Senior Indebtedness principal and interest payments described in
Schedule A attached hereto only if all Amounts Payable hereunder which are
then due have been paid in full.
3
<PAGE>
Section V Defaults
--------
5.1 Events of Default. If one or more of the
-----------------
following events ("Events of Default") shall have occurred and be continuing:
(a) the Corporation shall fail to pay within ten Business
Days of the due date thereof any principal of this Note or shall fail to
pay within ten Business Days of the due date thereof any interest or any
other Amounts Payable hereunder and the same shall not have been cured
within 45 days after written notice thereof has been given by the Holder to
the Corporation;
(b) the Corporation shall fail to observe or perform any
covenant or agreement contained in this Note (other than those covered by
clause (a) above) and the same shall not have been cured within 90 days
after written notice thereof has been given by the Holder to the
Corporation, provided, however, an Event of Default shall not have occurred
-------- -------
or be continuing if efforts to cure have commenced within such 90 days and
if such efforts to cure continue to be diligently pursued after expiration
of such 90 day period;
(c) the Corporation shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of
creditors; or
(d) an involuntary case or other proceeding shall be
commenced against the Corporation seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 90 days; or an order for relief
shall be entered against the Corporation under the Federal bankruptcy laws
as now or hereafter in effect;
then, and in every such event, subject to the provisions of Section 6, the
Holder may, by notice to the Corporation and to the holders of Senior
Indebtedness, declare the principal amount of this Note together with accrued
interest thereon, to be, and such portions of the principal amount of this Note
(and accrued interest thereon) shall thereupon become, due and payable on the
tenth Business Day following delivery of such notice to the Corporation and to
the holders of Senior Indebtedness without presentment, demand, protest or
further notice of any kind, all of which are hereby waived by the Corporation;
provided, that (x) the Events of Defaults specified in paragraphs (a) and (b)
- --------
will be subject to Section 3, and (y) in the case of any of the Events of
Default specified in paragraph (c) or (d), such portions of the principal amount
of this Note (together with accrued interest thereon) shall immediately (and
without notice) become due and
4
<PAGE>
payable without presentment, demand, protest or notice of any kind, all of which
are hereby waived by the Corporation.
Section VI Subordination.
--------------
6.1 Loans Subordinated to Senior Indebtedness. Notwithstanding
-----------------------------------------
any provision of this Note to the contrary, the Corporation covenants and
agrees, and the Holder by acceptance of this Note likewise covenants and agrees,
that all Amounts Payable shall be subordinated to the extent set forth in this
Section 6 to the prior payment in full, in cash or cash equivalents satisfactory
to the holders of Senior Indebtedness, of all Senior Indebtedness. This Section
6 shall constitute a continuing offer to and covenant with all persons who
become holders of, or continue to hold, Senior Indebtedness (irrespective of
whether such Senior Indebtedness was created or acquired before or after the
issuance of this Note). The provisions of this Section 6 are made for the
benefit of all present and future holders of Senior Indebtedness (and their
successors and assigns), and shall be enforceable by them directly against the
Holder.
6.2 Priority and Payment Over of Proceeds in Certain Events.
-------------------------------------------------------
(a) Upon any payment or distribution of assets of the
Corporation, whether in cash, property, securities or otherwise, in the
event of any dissolution, winding up or total or partial liquidation,
reorganization, arrangement, adjustment, protection, relief or composition,
or assignment for the benefit of creditors of the Corporation, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership,
reorganization, relief or other proceedings or upon an assignment for the
benefit of creditors or any other marshaling of all or part of the assets
and liabilities of the Corporation (the foregoing events herein
collectively referred to as an "Insolvency Event"), all Senior Indebtedness
shall first be paid in full, in cash, or payment provided for in cash
equivalents in a manner satisfactory to the holders of Senior Indebtedness,
before the Holder shall be entitled to receive any payment or distribution
of assets of the Corporation relating to any Amounts Payable. Upon any
Insolvency Event, any payment or distribution of assets of the Corporation,
whether in cash, property, securities or otherwise, to which the Holder
would be entitled relating to any Amounts Payable, except for the
provisions of this Section 6, shall be made by the Corporation or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, directly to the holders of the Senior
Indebtedness or their representatives for application to the payment or
prepayment of all such Senior Indebtedness in full after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness.
(b) If (x) there has occurred and is continuing a default
in the payment of all or any portion of any Senior Indebtedness, unless and
until such default shall have been cured or waived, the Corporation shall
not make any payment on or with respect to any Amounts Payable or acquire
this Note (or any portion thereof) for cash, property, securities or
otherwise; or (y) an event (not involving the non-payment of any Senior
Indebtedness) shall have occurred or, with the giving of notice, or passage
of time, or
5
<PAGE>
both, would occur, that would allow holders of any Senior Indebtedness to
accelerate or otherwise demand the payment thereof, and the holders of the
Senior Indebtedness give notice of such event to the Corporation (the date
that such notice is received by the Corporation is the "Notice Date"), the
Corporation shall not make any payment on or with respect to any Amounts
Payable or acquire this Note (or any portion hereof) for cash, property,
securities or otherwise during the period (the "Blockage Period")
commencing on the Notice Date and ending on the earlier of (1) two years
after the Notice Date if at the end of such two year period such event is
not the subject of judicial proceedings and such Senior Indebtedness shall
not have been accelerated, (2) the date such event is cured or waived to
the satisfaction of the holders of the Senior Indebtedness, or (3) the date
the holders of such Senior Indebtedness shall have given notice to the
Corporation of the voluntary termination of the Blockage Period. By virtue
of accepting this Note and the benefits hereof, during any time period
during which payment of any part of Amounts Payable due under this Note is
prohibited by any of the terms of this Note, the Holder shall not be
entitled, and will not take any action, including any judicial process, to
accelerate, demand payment or enforce any Indebtedness in respect of this
Note or any other claim with regard to any Amounts Payable.
(c) If, notwithstanding the foregoing provisions
prohibiting payments or distributions, the Holder shall have received any
payment of, or on account of, any Amounts Payable that was prohibited by
this Section 6, before all Senior Indebtedness shall have been paid in
full, then and in such event such payments or distributions shall be
received and held in trust for the holders of the Senior Indebtedness and
promptly paid over or delivered to the holders of the Senior Indebtedness
remaining unpaid thereof to the extent necessary to pay in full, in cash or
cash equivalents satisfactory to the holders of the Senior Indebtedness,
such Senior Indebtedness in accordance with its terms after giving effect
to any concurrent payment or distribution to the holder of such Senior
Indebtedness; provided, that any such payment which is, for any reason, not
so paid over or delivered shall be held in trust by the Holder for the
holders of Senior Indebtedness.
(d) So long as any Senior Indebtedness remains outstanding,
or the commitment to make credit extensions of said Senior Indebtedness
shall not have been terminated, the Holder will not be entitled to take,
demand, or receive, directly or indirectly, by setoff, redemption, purchase
or in any manner, any voluntary prepayment or other payment of any Amounts
Payable in amounts or in a manner which are in violation of the provisions
of this Section 6.
(e) Upon any payment or distribution of assets referred to
in Section 6.2(a), the Holder shall be entitled to rely upon any order or
decree of a court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, and upon
a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making any such payment or distribution of assets,
delivered to the Holder for the purpose of ascertaining the persons
entitled to participate in such distribution of assets, the holders of
Senior Indebtedness and other Indebtedness of the Corporation, the amount
thereof or payable thereon, the
6
<PAGE>
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Section 6.
6.3 Rights of Holders of Senior Indebtedness Not To Be
--------------------------------------------------
Impaired, etc.
- -------------
(a) No right of any present or future holder of any Senior
Indebtedness to enforce the subordination and other terms and conditions
provided herein shall at any time in any way be prejudiced or impaired by
any act or failure to act by any such holder, or by any noncompliance by
the Corporation, with the terms and provisions and covenants herein
regardless of any knowledge thereof that any such holder may have or
otherwise be charged with.
(b) This Section 6 may not be amended without the written
consent of each holder of the Senior Indebtedness and of the Holder, and
any purported amendment without such consent shall be void. No holder of
Senior Indebtedness shall be prejudiced in such holder's right to enforce
the subordination and other terms and conditions of this Note by any act or
failure to act by the Corporation or anyone in custody of its assets or
property.
6.4 Subrogation. Subject to and upon the payment in full of
-----------
all Senior Indebtedness, the Holder shall be subrogated, to the extent of
payments or distributions made to the holders of Senior Indebtedness pursuant to
or by reason of this Section 6, to the rights of the holders of such Senior
Indebtedness to receive payments or distributions of assets of the Corporation
made on such Senior Indebtedness until all amounts due under this Note shall be
paid in full; and for the purposes of such subrogation, no payments or
distributions to holders of such Senior Indebtedness of any cash, property or
securities to which the Holder would be entitled except for the provisions of
this Section 6, and no payment over pursuant to the provisions of this Section 6
to holders of such Senior Indebtedness by the Holder, shall, as among the
Corporation, its creditors (other than holders of such Senior Indebtedness) and
the Holder be deemed to be a payment by the Corporation to or on account of such
Senior Indebtedness, it being understood that the provisions of this Section 6
are solely for the purpose of defining the relative rights of the holders of
such Senior Indebtedness, on the one hand, and the Holder, on the other hand.
6.5 Obligations of the Corporation Unconditional. Nothing
--------------------------------------------
contained in this Note is intended to or shall impair, as between the
Corporation and the Holder, the obligation of the Corporation, which is absolute
and unconditional, to pay to the Holder all Amounts Payable, as and when the
same shall become due and payable in accordance with their terms, or to affect
the relative rights of the Holder and other creditors of the Corporation (other
than the holders of Senior Indebtedness), except as provided in Section 6.2(b).
6.6 Section 6 Not To Prevent Events of Default. The failure
------------------------------------------
to make a payment of any Amounts Payable by reason of any provision of this
Section 6 shall not be construed as preventing the occurrence of an Event of
Default under Section 5.1 hereof, except as provided in Section 6.2(b).
7
<PAGE>
6.7 Additional Rights of Holders of Senior Indebtedness. If
---------------------------------------------------
the Senior Indebtedness has not been paid in full, in cash or cash equivalents
satisfactory to the holders of Senior Indebtedness, at a time in which the
Corporation is subject to an Insolvency Event, (a) the holders of the Senior
Indebtedness are hereby irrevocably authorized, but shall have no obligation, to
demand, sue for, collect and receive every payment or distribution received in
respect of any such Insolvency Proceeding and give acquittance therefor and to
file claims and proofs of claim, as their interests may appear, and (b) the
Holder shall duly and promptly take, for the account of the holders of the
Senior Indebtedness, as their interests may appear, such actions as the holders
of the Senior Indebtedness may request to collect and receive all Amounts
Payable by the Corporation in respect of this Note and to file appropriate
claims or proofs of claim in respect of this Note. Upon request by the
Corporation, the Holder of this Note shall deliver to the holders of Senior
Indebtedness or parties contemplating becoming holders of Senior Indebtedness a
written statement confirming that (i) the provisions (including the
subordination provisions) of this Note are in full force and effect; and (ii)
that such party is or will be entitled to rely upon and enjoy the benefits of
the provisions (including the subordination provisions) of this Note as a holder
of Senior Indebtedness.
6.8 Senior Indebtedness Changes. By virtue of accepting this
---------------------------
Note and the benefits hereof, the Holder hereby waives any and all notice of
renewal, extension or accrual of any of the Senior Indebtedness, present or
future, and agrees and consents that without notice to or consent of the Holder:
(a) the obligations and liabilities of the Corporation or any other party or
parties under the Senior Indebtedness may, from time to time, in whole or in
part, be renewed, refinanced, replaced, extended, refunded, modified, amended,
accelerated, compromised, supplemented, terminated, increased, decreased, sold,
exchanged, waived or released; (b) the holders of Senior Indebtedness and their
representatives may exercise or refrain from exercising any right, remedy or
power granted by any document creating, evidencing or otherwise related to the
Senior Indebtedness or at law, in equity, or otherwise, with respect to the
Senior Indebtedness or in connection with any collateral security or lien (legal
or equitable) held, given or intended to be given therefor (including, without
limitation, the right to perfect any lien or security interest created in
connection therewith); (c) any and all collateral security and/or liens (legal
or equitable) at any time, present or future, held, given or intended to be
given for the Senior Indebtedness, and any rights or remedies of the holders of
Senior Indebtedness and their representatives in respect thereof, may, from time
to time, in whole or in part, be exchanged, sold, surrendered, released,
modified, perfected, unperfected, waived or extended by the Holders and their
representatives; (d) any balance or balances of funds with any holder of Senior
Indebtedness at any time standing to the credit of the Corporation or any
guarantor of any of the Senior Indebtedness may, from time to time, in whole or
in part, be surrendered or released; all as the holders of Senior Indebtedness,
their representatives or any of them may deem advisable and all without
impairing, abridging, diminishing, releasing or affecting the subordination to
the Senior Indebtedness provided for herein; and (e) the Corporation may incur
any amount or type of Senior Indebtedness (including Senior Indebtedness owed to
Affiliates), or modify, restate, refinance, replace or amend any Senior
Indebtedness from time to time, on terms and conditions acceptable to the
Corporation, without notice to or approval by the Holder.
8
<PAGE>
6.9 Waivers. In the event the holders of Senior Indebtedness
-------
elect to exercise their remedies to liquidate any collateral given to secure the
Senior Indebtedness, the Holder hereby waives any right it may have to contest
the validity of or the value obtained as a result of the exercise of remedies by
the holders of Senior Indebtedness, including, but not limited to, a
foreclosure, a sale pursuant to the Uniform Commercial Code or the acceptance by
the holders of Senior Indebtedness in lieu of foreclosure. The Holder further
waives any right it may have either in or out of any bankruptcy or similar
proceeding to challenge any action taken by the holders of Senior Indebtedness
as either a preference or fraudulent conveyance and further agrees not to take
any active role in such a proceeding other than the filing of claim in any such
proceeding, which claim shall be subordinate (to the extent set forth above) to
the claims of the holders of Senior Indebtedness.
Section VII Definitions. For purposes of this Note, the following terms have
-----------
the meanings set forth below.
"Affiliate" means Jordan Industries, Inc. and its direct and
---------
indirect Subsidiaries ("JII Group"), and any other person or entity that
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with the JII Group or any persons or
entities which control, directly or indirectly, the JII Group.
"Amounts Payable" means all principal of, interest on, premium,
---------------
if any, fees, costs, expenses, indemnities or any other amounts due from the
Corporation under this Note, and all claims against or liabilities of the
Corporation in respect of this Note.
"Business Day" means any day except a Saturday, Sunday or other
------------
days on which commercial banks in New York City are required or authorized by
law to close.
"Capital Expenditures" means the capital expenditures of the
--------------------
Corporation, determined in accordance with generally accepted accounting
principles, consistently applied.
"Closing Date" means the date on which the transactions
------------
contemplated by the Purchase Agreement are consummated.
"Default" means any condition or event that constitutes an
-------
Event of Default or that with notice or lapse of time or both would, unless
cured or waived, become an Event of Default.
"Free Cash Flow" means, for any period, (i) the consolidated net
--------------
income (or net deficit) of the Corporation and its subsidiaries (excluding,
however, (A) all extraordinary and other non-recurring items of income, but not
loss, and (B) all interest income as reflected in the Corporation's financial
statements); plus (ii) interest (including deferred financing fees and expense)
----
and other expense in respect of the Corporation's Indebtedness (including
intercompany Indebtedness or Indebtedness owed to Affiliates) charged, accrued
or otherwise allocated against such net income; plus (iii) expenses for
----
amortization charged, accrued or otherwise allocated against such net income;
plus (iv) expenses for depreciation (including increased depreciation and
- ----
increased inventory values resulting from purchase accounting in connection with
9
<PAGE>
acquisitions and business combinations) charged, accrued or otherwise allocated
against such net income; plus (v) any reductions in Working Capital from the
----
beginning to the end of such period; minus (vi) payments of interest and
-----
principal on Indebtedness (other than required interest and principal payments
on this Note) paid or accrued during such period or otherwise payable on the
applicable payment date; provided, however, the aggregate amount of the
-------- -------
principal payments on the Senior Indebtedness included in this calculation of
Free Cash Flow shall equal the amount set forth in Exhibit A for the period in
question, whether or not paid during such period; minus (vii) any increases in
-----
Working Capital from the beginning to the end of such period; minus (viii)
-----
Capital Expenditures during such period. Free Cash Flow will reflect selling,
general and administrative expense, management, consulting and service fees,
general and overhead, allocated to the Corporation by its Affiliates. Free Cash
Flow will be determined by the Corporation's Board of Directors by reference to
the Corporation's financial statements, prepared in accordance with generally
accepted accounting principles, consistently applied, whose determination will
be final binding, conclusive and non-appealable.
"Indebtedness" means any indebtedness (including, without
------------
limitation, Senior Indebtedness), whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or
representing the deferred and unpaid balance of the purchase price of any
property (including pursuant to capital leases), and any financial hedging
obligations, if and to the extent such indebtedness (other than a financial
hedging obligation) would appear as a liability upon a balance sheet of such
person prepared on a consolidated basis in accordance with generally accepted
accounting principles, other than a trade payable or accrued expense, and also
includes, to the extent not otherwise included, the guarantee of items that
would be included within this definition. Notwithstanding anything herein to the
contrary, Senior Indebtedness shall include any trade payables, accrued
expenses, fees or other amounts due to an Affiliate of the Corporation.
Indebtedness owed to Affiliates will be Indebtedness for purposes of this Note.
"Maturity Date" means December 31, 2002, subject to extension
-------------
to a later date as provided by the terms of this Note, but in no event shall it
mean a date later than December 31, 2004.
"Noncompetition Agreements" means the Noncompetition Agreements
-------------------------
by and between Electrical Design and Control Company, a Delaware company, and
Eric Monson, an individual; Tina LaVire, an individual; and Marta Monson, as
Beneficiary of the Marta Monson Voting Trust, each dated October 27, 1997.
"Note" means this Non-Negotiable Subordinated Note due December
----
31, 2002.
"Purchase Agreement" means the Agreement for Purchase and Sale of
------------------
Stock dated as of October 17, 1997, among the Corporation, Eric Monson, Tina
LaVire, Marta Monson (as Beneficiary of the Marta Monson Voting Trust), and
Frederick W. Heath (as Trustee of the Marta Monson Voting Trust), as the same
has been or may be amended from time to time.
"Senior Indebtedness" shall mean the principal, interest
-------------------
(including any interest accruing subsequent to an event specified in Sections
5.1(c) and 5.1(d)), premium, if any, fees
10
<PAGE>
(including, without limitation, any commitment, agency, facility, structuring,
restructuring or other fee), costs, expenses, indemnities, and other amounts due
on or in connection with the Indebtedness of the Corporation described in the
attached Schedule A (including, without limitation, any intercompany
Indebtedness), now or herewith incurred, or any documents executed under or in
connection therewith, and any amendments, modifications, deferrals, renewals or
extensions of such Indebtedness, and any amounts owed in respect of any
Indebtedness incurred in refinancing, replacing or refunding the foregoing
(including any refinancing, replacing or refunding with new lenders). Nothing in
this Note shall restrict an affiliate of the Corporation from being a holder of
Senior Indebtedness. Indebtedness owed to Affiliates will be Senior Indebtedness
for purposes of this Note. Notwithstanding anything herein to the contrary,
Senior Indebtedness shall include any payables, accrued expenses, fees or other
amounts due to an Affiliate of the Corporation. Notwithstanding anything herein
to the contrary, none of the obligations or liabilities of the Corporation to
Holder shall be included in Senior Indebtedness.
"Subsidiary" of a person means any corporation or other entity of
----------
which securities or other ownership interests having ordinary voting power to
elect a majority of the Board of Directors or other persons performing similar
functions are at the time directly or indirectly owned by such person.
"Working Capital" means the difference of (a) the sum of
---------------
Corporation's net account receivables, inventories (net of reserves), and
prepaid expenses, minus (b) the sum of accounts payable and accrued expenses,
-----
determined in accordance with generally accepted accounting principles,
consistently applied.
Section VIII Miscellaneous.
--------------
8.1 Notices. All notices, requests and other communications
-------
to any party hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission or sent by certified, registered or express mail,
postage prepaid, and shall be deemed given when so delivered personally, or sent
by facsimile transmission, or if mailed or sent by overnight courier, upon
receipt thereof, as follows:
If to the Corporation to:
Thomas H. Quinn
Joseph C. Linnen
c/o Electrical Design and Control Company
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Telephone: 847-945-5591
Telecopier: 847-945-5698
11
<PAGE>
with a copy to:
G. Robert Fisher, Esq.
Steven L. Rist, Esq.
Bryan Cave LLP
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Telephone: 816-374-3200
Telecopier: 816-374-3300
If to the Holder, to:
Eric Monson
264 Arrowhead Drive West
Avon, Colorado 81620
with a copy to:
John J. Raymond, Jr.
Paul L. Triemstra
Butzel Long
Suite 200
32270 Telegraph Road
Birmingham, Michigan 48025-2457
Telephone: (248) 258-1616
Telecopier: (248) 258-1439
Each party may, by notice given in accordance with this Section to the other
party, designate another address or person for receipt of notices hereunder.
8.2 No Waivers. No failure or delay by the Holder in
----------
exercising any right, power or privilege hereunder or under this Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law. No
notice to or demand on the Corporation in any case shall entitle the Corporation
to any other or further notice or demand in related or similar circumstances
requiring such notice.
8.3 Amendments and Waivers. Any provision of this Note may be
----------------------
amended or waived if, but only if, such amendment or waiver is in writing,
signed by the Corporation and the Holder.
12
<PAGE>
8.4 Successors and Assigns. The provisions of this Note shall
----------------------
be binding upon and inure to the benefit of the Holder and its respective
successors and permitted assigns. Without the prior written consent of the
Corporation and the holders of Senior Indebtedness, the Holder of this Note
agrees that it will not (a) sell, assign, pledge or otherwise transfer, in whole
or in part, directly or indirectly, by operation of law or otherwise, this Note
or any interest therein or (b) create, incur or suffer to exist any security
interest, lien, charge or other encumbrance whatsoever upon this Note. If
requested by a holder of Senior Indebtedness as part of any consent, the
assignee or transferee of the Holder shall agree in writing to be bound by all
of the terms of this Note. The holder hereof hereby waives proof of reliance
hereon by the holders of Senior Indebtedness.
8.5 Replacement Note. Upon receipt of evidence reasonably
----------------
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Note and of a letter of indemnity reasonably satisfactory to the
Corporation from the Holder and upon reimbursement to the Corporation of all
reasonable expenses incident thereto, and upon surrender or cancellation of this
Note, if mutilated, the Corporation will make and deliver a new Note of like
tenor in lieu of such lost, stolen, destroyed or mutilated Note.
8.6 Corporation's Obligations. The Holder agrees and
-------------------------
acknowledges that this Note and the Corporation's obligations hereunder and for
all Amounts Payable are solely obligations and liabilities of the Corporation.
None of the Corporation's directors, officers, employees, stockholders,
advisors, consultants and affiliates or any other persons shall be obligated or
liable in respect of this Note or any Amounts Payable, and Holder hereby
releases them from any such obligation of liability.
8.7 LITIGATION. THIS NOTE SHALL BE GOVERNED BY, CONSTRUED,
----------
APPLIED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
MICHIGAN, AND NO DOCTRINE OF CHOICE OF LAW SHALL BE USED TO APPLY ANY LAW OTHER
THAN THAT OF MICHIGAN, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR
ALLOWED BY THE LAWS OF ANY OTHER STATE OR JURISDICTION, OR ARISING OUT OF THE
ENACTMENT, MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF
ANY FOREIGN JURISDICTION, BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO SECTION
8.8, THE PARTIES AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT
OF THIS NOTE MAY BE COMMENCED IN THE STATE COURTS, OR IN THE UNITED STATES
DISTRICT COURTS IN CHICAGO, ILLINOIS. THE PARTIES CONSENT TO SUCH JURISDICTION,
AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY OBJECTIONS BASED
UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN THIS SECTION 8.7
----- --- ----------
SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY ACTION UNDER THIS
AGREEMENT IN ANY OTHER JURISDICTION.
8.8 ARBITRATION. THE HOLDER HEREBY WAIVES AND SHALL NOT SEEK
-----------
JURY TRIAL IN ANY LAWSUIT, PROCEEDING, CLAIM,
13
<PAGE>
COUNTERCLAIM, DEFENSE OR OTHER LITIGATION OR DISPUTE UNDER OR IN RESPECT OF THIS
NOTE. THE HOLDER AGREES THAT ANY SUCH DISPUTE RELATING TO OR IN RESPECT OF THIS
NOTE, ITS NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF
CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF THIS NOTE, SHALL BE
SUBMITTED TO, AND RESOLVED EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE
WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
SUCH ARBITRATION SHALL TAKE PLACE IN MICHIGAN, AND SHALL BE SUBJECT TO THE
SUBSTANTIVE LAW OF THE STATE OF MICHIGAN. DECISIONS PURSUANT TO SUCH ARBITRATION
SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. UPON THE CONCLUSION OF
ARBITRATION, THE PARTIES MAY APPLY TO ANY APPROPRIATE COURT OF THE TYPE
DESCRIBED IN SECTION 8.7 TO ENFORCE THE DECISION PURSUANT TO SUCH ARBITRATION.
ELECTRICAL DESIGN AND CONTROL COMPANY
By /s/ Joseph C. Linnen
----------------------------
Name: Joseph C. Linnen
--------------------------
Title: Vice President
-------------------------
14
<PAGE>
SCHEDULE A
----------
Senior Indebtedness: $16,000,000 plus an additional $5,000,000 for working
- -------------------
capital, capital expenditures, acquisitions or other purposes.
Scheduled Senior Indebtedness Principal Payments
------------------------------------------------
Year Principal
---- ---------
1998 800,000
1999 1,300,000
2000 1,300,000
2001 1,300,000
2002 1,300,000
2003 1,300,000
2004 1,300,000
Senior Interest: Interest shall be paid on outstanding Senior Indebtedness
- ---------------
principal at the rate of 10.75%.
15
<PAGE>
Exhibit 12
COMPUTATIONS OF THE RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES
(In Thousands)
<TABLE>
<CAPTION>
Historical
---------------------------------------------------------
Year ended December 31.
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fixed Charges
Interest Expense 0 0 0 2,412 11,134
Rental expense included in fixed charges 280 291 297 282 554
------ ------ ------- ------- -------
Total fixed charges 280 291 297 2,694 11,688
Earnings
Pre-tax (loss) income 7,045 8,265 12,092 14,196 12,310
Plus: fixed charges 280 291 297 2,694 11,688
------ ------ ------- ------- -------
Total Earnings 7,325 8,556 12,389 16,890 23,998
Ratio of earnings to fixed charges 26.2 29.4 41.7 6.3 2.1
====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------- -----------------------------------------------
Nine Months Ended Year Ended Nine Months ended
September 30, 1997 December 31, 1996 September 30, 1997
<S> <C> <C> <C>
Fixed Charges
Interest Expense 15,950 30,891 23,219
Rental expense included in fixed charges 450 766 609
------- ------- -------
16,400 31,657 23,828
Total fixed charges
Earnings
Pre-tax (loss) income 6,382 5,154 7,260
Plus: fixed charges 16,400 31,657 23,828
------- ------- -------
Total Earnings 22,782 36,811 31,088
Ratio of earnings to fixed charges 1.4 1.2 1.3
======= ======= =======
</TABLE>
<PAGE>
Exhibit 21
MOTORS AND GEARS HOLDINGS, INC.
SUBSIDIARIES
Jurisdiction of
Subsidiaries Incorporation
- ------------ ---------------
Motors and Gears, Inc./(1)/ Delaware
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, IL 60015
Motors and Gears Industries, Inc./(2)/ Delaware
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, IL 60018-1980
Merkle-Korff Industries, Inc./(3)/ Illinois
1776 Winthrop Drive
Des Plaines, IL 60015
The Imperial Electric Company/(3)/ Delaware
1533 Commerce Drive
Stow, Ohio 44224-1756
Gear Research, Inc./(4)/ Delaware
4329 Eastern Avenue, S.E.
Grand Rapids, Michigan 49508
FIR Group Holdings, Inc./(3)/ Delaware
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, IL 60015
Motors and Gears Amsterdam B.V./(5)/ The Netherlands
Atrium Building, 7th Floor
Strawinskylaan 31015
1077 ZK Amsterdam
The Netherlands
Motors and Gears Rotterdam B.V./(6)/ The Netherlands
FIR Group Holdings Italia, S.r.l.(LLC)/(7)/ Italy
Construgioni Italiane Motori Elettrici, S.p.A./(8)/ Italy
<PAGE>
Exhibit 23.2
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report, dated March 21, 1997 (except for Note 11 as to which the date
is December 18, 1997), on the consolidated balance sheets of Motors and Gears,
Inc. as of December 31, 1995 and 1996, and the related consolidated statements
of income, shareholder's equity, and cash flows for the period from September
23, 1995 to December 31, 1995 and for the year ended December 31, 1996; our
report dated February 23, 1996, on the combined balance sheet of Merkle-Korff
Industries, Inc., Mercury Industries, Inc., and Elmco Industries, Inc. as of
December 31, 1994, and the related combined statements of income and retained
earnings and cash flows for the years ended December 31, 1993 and 1994 and the
period from January 1, 1995 to September 22, 1995; our report dated January 19,
1996 on the balance sheets of Barber-Colman Company - Barber-Colman Motors
Division as of March 31, 1995 and December 31, 1995, and the related statements
of divisional operations and cash flows for the year ended March 31, 1995 and
the nine month period ended December 31, 1995; our report dated October 1, 1996
on the consolidated balance sheets of The Imperial Electric Company and
Subsidiaries as of December 31, 1994 and 1995, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1995; in the Registration Statement (Form
S-4 No. 333-XXXXX) and related Prospectus of Motors and Gears, Inc. for the
registration of $270,000,000 of 10 3/4% Series D Senior Notes due 2006.
Ernst & Young LLP
Chicago, Illinois
January 9, 1998
<PAGE>
Exhibit 23.3
[LETTERHEAD OF COOPERS & LYBRAND]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion by reference in this registration statement on Form
S-4 (Registration No. 333- ) of our reports dated June 9, 1997 and July
25, 1997 on our audits of the consolidated financial statements of the FIR
Group, composed of FIR Elettromeccanica S.p.A., CIME S.p.A. and Selin Sistemi
S.p.A. We also consent to the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
January 9, 1998
[LETTERHEAD OF COOPERS & LYBRAND]
<PAGE>
Exhibit 23.4
[Letterhead for Janz & Knight]
CONSENT OF JANZ & KNIGHT, P.L.C., INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report, dated March 18, 1997 (except for Note J as to which the date
is September 16, 1997), on the balance sheet of E. D. and C. Company, Inc. as of
December 31, 1996 and the related statements of income, retained earnings and
cash flows for the year then ended; in the Registration Statement (Form S-4 No.
333-XXXXX) and related Prospectus of Motors and Gears, Inc. for the registration
of $270,000,000 of 10-3/4% Series D Senior Notes due 2006.
[Sig of Janz & Knight]
Janz & Knight, P.L.C.
Bloomfield Hills, Michigan
January 9, 1998
<PAGE>
EXHIBIT 23.5
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Sacramento, California
January 9, 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
--------
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) ___
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Assistant Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
------------
Motors and Gears, Inc.
(Exact name of obligor as specified in its charter)
Delaware 36-410641
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
(Address of principal executive offices) (Zip Code)
------------
10 3/4% Series D Senior Notes due 2006
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to which it
is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington, D.C.,
Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent, State
Street Boston Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of Massachusetts
that no certificate of authority for the trustee to commence business
was necessary or issued is on file with the Securities and Exchange
Commission as Exhibit 2 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
3. A copy of the authorizatoin of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents specified
in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise corporate trust
powers is on file with the Securities and Exchange Commission as
Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and
Qualificaton of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on file
with the Securities and Exchange Commission as Exhibit 4 to the
Statement of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Eastern Edison Company (File No.
33-37823) and is incorporated herein by reference thereto.
1
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is
in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law of the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority is annexed hereto as Exhibit 7 and made a
part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 9th day of January, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Jacqueline Connor
-----------------------------------
Jacqueline Connor
Assistant Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by Motors and
Gears, Inc. of its 10 3/4% Series D Senior Notes due 2006, we hereby consent
that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Jacqueline Connor
-----------------------------------
Jacqueline Connor
Assistant Vice President
Dated: January 9, 1998
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business June 30, 1997, published
in accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act and in accordance with a
call made by the Commissioner of Banks under General Laws, Chapter 172, Section
22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........... 1,842,337
Interest-bearing balances.................................... 8,771,397
Securities........................................................ 10,596,119
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary.......................... 5,953,036
Loans and lease financing receivables:
Loans and leases, net of unearned income.......... 5,769,090
Allowance for loan and lease losses............... 74,031
Allocated transfer risk reserve................... 0
Loans and leases, net of unearned income and allowances...... 5,695,059
Assets held in trading accounts................................... 916,608
Premises and fixed assets......................................... 374,999
Other real estate owned........................................... 755
Investments in unconsolidated subsidiaries........................ 28,992
Customers' liability to this bank on acceptances outstanding...... 99,209
Intangible assets................................................. 229,412
Other assets...................................................... 1,589,526
----------
Total assets...................................................... 36,097,449
==========
LIABILITIES
Deposits:
In domestic offices.......................................... 11,082,135
Noninterest-bearing.......................... 8,932,019
Interest-bearing............................. 2,150,116
In foreign offices and Edge subsidiary....................... 13,811,677
Noninterest-bearing.......................... 112,281
Interest-bearing............................. 13,699,396
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary.......................... 6,785,263
Demand notes issued to the U.S. Treasury and Trading Liabilities.. 755,676
Other borrowed money.............................................. 716,013
Subordinated notes and debentures................................. 0
Bank's liability on acceptances executed and outstanding.......... 99,605
Other liabilities................................................. 841,566
Total liabilities................................................. 34,091,935
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus..................... 0
Common stock...................................................... 29,931
Surplus........................................................... 437,183
Undivided profits and capital reserves/Net unrealized
holding gains (losses)....................................... 1,542,695
Cumulative foreign currency translation adjustments............... (4,295)
Total equity capital.............................................. 2,005,514
----------
Total liabilities and equity capital.............................. 36,097,449
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Assistant Vice President and Comptroller of the above
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE>
Exhibit 99
LETTER OF TRANSMITTAL
FOR TENDERS OF
$270,000,000 Aggregate Principal Amount of
10 3/4% Series B Senior Notes due 2006 and
10 3/4% Series C Senior Notes due 2006
MOTORS AND GEARS, INC.
Pursuant to the Prospectus
dated ________, 1998 of Motors and Gears, Inc.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON +
+ _____________, 1998 (UNLESS EXTENDED) (THE "EXPIRATION DATE"). +
+ TENDERED OLD NOTES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO +
+ THE EXPIRATION DATE OF THE EXCHANGE OFFER. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Deliver to: State Street Bank and Trust Company, Exchange Agent:
By Registered or Certified Mail: By Overnight Courier or Hand:
State Street Bank State Street Bank
and Trust Company and Trust Company
P.O. Box 778 Two International Place
Boston, MA 02102-0078 Boston, MA 02110
Attn: Kellie Mullen Attn: Kellie Mullen
By Facsimile for Eligible
Institutions:
(617) 664-5395
For confirmation call:
(617) 664-5587
Delivery of this instrument to an address other than as set forth
above, or transmission of instructions via facsimile other than as set forth
above, will not constitute a valid delivery.
<PAGE>
The undersigned acknowledges that he or she has received the Prospectus,
dated ________, 1998 (the "Prospectus"), of Motors and Gears, Inc., a Delaware
corporation (the "Company"), and this Letter of Transmittal, which may be
amended from time to time (this "Letter"), which together constitute the
Company's offer (the "Exchange Offer") to exchange up to $270 million Aggregate
Principal Amount of 10 3/4% Series D Senior Notes due 2006 (the "New Notes") of
the Company for $170 million aggregate principal amount of the Company's issued
and outstanding 10 3/4% Series B Senior Notes due 2006 (the "Old Series B
Notes") and $100 million aggregate principal amount of the Company's issued and
outstanding 10 3/4% Series C Senior Notes due 2006 (the "Old Series C Notes" and
together with the Old Series B Notes, the "Old Notes" and the Old Notes together
with the New Notes, are sometimes referred to as the "Notes"), with the holders
(each holder of Old Notes, a "Holder") thereof.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having an aggregate principal amount equal to that of the
surrendered Old Note. The New Notes will accrue interest from the most recent
date to which interest has been paid on the Old Notes or, if no interest has
been paid on the Old Notes, from November 16, 1997. Old Notes accepted for
exchange will cease to accrue interest from and after the date of consummation
of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted for
exchange will not receive any payment in respect of interest on such Old Notes
otherwise payable on any interest payment date the record date for which occurs
on or after consummation of the Exchange Offer.
This Letter is to be used: (i) by all Holders who are not members of the
Automated Tender Offering Program ("ATOP") at the Depository Trust Company
("DTC"); (ii) by Holders who are ATOP members but choose not to use ATOP; or
(iii) if the Old Notes are to be tendered in accordance with the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 2. Delivery of this
Letter to DTC does not constitute delivery to the Exchange Agent.
Notwithstanding anything to the contrary in the registration rights
agreements dated December 17, 1997 among the Company and the original purchasers
of Old Notes (the "Registration Rights Agreements"), the Company will accept for
exchange any and all Old Notes validly tendered on or prior to 5:00 p.m., New
York City time, on _________, 1998 (unless the Exchange Offer is extended by the
Company) (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date.
IMPORTANT: HOLDERS WHO WISH TO TENDER OLD NOTES IN THE EXCHANGE OFFER MUST
COMPLETE THIS LETTER OF TRANSMITTAL AND TENDER THE OLD NOTES TO THE EXCHANGE
AGENT AND NOT TO THE COMPANY.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange. However, the Exchange Offer is subject to
certain conditions. Please see the Prospectus under the section titled "The
Exchange Offer--Conditions to the Exchange Offer."
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, Holders of Old Notes in any jurisdiction in which the making or
acceptance of the Exchange Offer would not be in compliance with the laws of
such jurisdiction.
The instructions included with this Letter of Transmittal must be followed
in their entirety. Questions and request for assistance or for additional copies
of the Prospectus or this Letter of Transmittal may be directed to the Exchange
Agent at the address listed above.
-2-
<PAGE>
APPROPRIATE SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company the aggregate principal
amount of Old Notes indicated below under "Description of Old Notes," in
accordance with and upon the terms and subject to the conditions set forth in
the Prospectus, receipt of which is hereby acknowledged, and in this Letter of
Transmittal, for the purpose of exchanging each $1,000 principal amount of Old
Notes designated herein held by the undersigned and tendered hereby for $1,000
principal amount of the New Notes. New Notes will be issued only in integral
multiples of $1,000 to each tendering Holder of Old Notes whose Old Notes are
accepted in the Exchange Offer. Holders may tender all or a portion of their Old
Notes pursuant to the Exchange Offer.
Subject to, and effective upon, the acceptance for exchange of the Old
Notes tendered herewith in accordance with the terms of the Exchange Offer, the
undersigned hereby sells, assigns and transfers to, or upon the order of, the
Company all right, title and interest in and to all such Old Notes that are
being tendered hereby and that are being accepted for exchange pursuant to the
Exchange Offer. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as the true and lawful agent and attorney-in-fact of the
undersigned (with full knowledge that the Exchange Agent also acts as the agent
of the Company), with respect to the Old Notes tendered hereby and accepted for
exchange pursuant to the Exchange Offer with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest) to deliver the Old Notes tendered hereby to the Company (together with
all accompanying evidences of transfer and authenticity) for transfer or
cancellation by the Company.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or incapacity
of the undersigned and any obligation of the undersigned hereunder shall be
binding upon the heirs, executors, administrators, legal representatives,
successors and assigns of the undersigned. Any tender of Old Notes hereunder may
be withdrawn only in accordance with the procedures set forth in the
instructions contained in this Letter of Transmittal. See Instruction 4 hereto.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Old 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. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Company to be necessary or
desirable to complete the assignment and transfer of the Old Notes tendered. The
undersigned has read and agrees to all of the terms of the Exchange Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity 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.
The name(s) and address(es) of the registered Holder(s) should be printed
herein under "Description of Old Notes" (unless a label setting forth such
information appears thereunder), exactly as they appear on the Old Notes
tendered hereby. The certificate number(s) and the principal amount of Old Notes
to which this Letter of Transmittal relates, together with the principal amount
of such Old Notes that the undersigned wishes to tender, should be indicated in
the appropriate boxes herein under "Description of Old Notes."
-3-
<PAGE>
The undersigned agrees that acceptance of any tendered Old Notes by the
Company and the issuance of New Notes in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Rights Agreements and that, upon the issuance of the New Notes the Company will
have no further obligations or liabilities thereunder.
The undersigned understands that the tender of Old Notes pursuant to one of
the procedures described in the Prospectus under "The Exchange Offer--Procedures
for Tendering Old Securities" and the Instructions hereto will constitute the
tendering Holder's acceptance of the terms and the conditions of the Exchange
Offer. The undersigned hereby represents and warrants to the Company that the
New Notes to be acquired by such Holder pursuant to the Exchange Offer are being
acquired in the ordinary course of such Holder's business, that such Holder has
no arrangement or understanding with any person to participate in the
distribution of the New Notes. The Company's acceptance for exchange of Old
Notes tendered pursuant to the Exchange Offer will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT IT IS NOT ENGAGED IN,
AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF THE NEW NOTES.
The undersigned also acknowledges that this Exchange Offer is being made
based on interpretations by the staff of the Securities and Exchange Commission
(the "Commission") set forth in no-action letters issued to third parties in
other transactions substantially similar to the Exchange Offer, which lead the
Company to believe that the New Notes issued in exchange for the Old Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, (ii) an Initial Purchaser who acquired the Old Notes directly from the
Company solely in order to resell pursuant to Rule 144A of the Securities Act or
any other available exemption under the Securities Act, or (iii) a broker-dealer
who acquired the Old Notes as a result of market making or other trading
activities), without further 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 are
not participating and have no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) 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 and has no arrangement or understanding to participate
in a distribution of New Notes. If any holder is an affiliate of the Company or
is engaged in or 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. If the undersigned is a broker-
dealer that will receive New Notes for its own account in exchange of Old Notes,
it represents that the Old Notes to be exchanged for the New Notes were acquired
by it as a result of market-making activities or other trading activities and
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 Section 2(11) of the Securities Act.
The undersigned understands that the New Notes issued in consideration of
Old Notes accepted for exchange, and/or any principal amount of Old Notes not
tendered or not accepted for exchange, will only be issued in the name of the
Holder(s) appearing herein under "Description of Old Notes." Unless otherwise
indicated under "Special Delivery Instructions," please mail the New Notes
issued in consideration of Old Notes accepted for exchange, and/or any principal
amount of Old Notes not tendered or not accepted for exchange (and accompanying
documents, as appropriate), to the Holder(s) at the address(es) appearing herein
under "Description of Old Notes." In the event that the Special Delivery
Instructions are completed, please mail the
-4-
<PAGE>
New Notes issued in consideration of Old Notes accepted for exchange, and/or any
Old Notes for any principal amount not tendered or not accepted for exchange, in
the name of the Holder(s) appearing herein under "Description of Old Notes," and
send such New Notes and/or Old Notes to the address(es) so indicated. Any
transfer of Old Notes to a different holder must be completed, according to the
provisions on transfer of Old Notes contained in the Indenture.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX BELOW.
-5-
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions
of the Exchange Offer
1. Guarantee of Signatures. Signatures on this Letter of Transmittal or
notice of withdrawal, as the case may be, must be guaranteed by an institution
which falls within the definition of "eligible guarantor institution" contained
in Rule 17Ad-15 as promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended (hereinafter, an "Eligible
Institution") unless (i) the Old Notes tendered hereby are tendered by the
Holder(s) of the Old Notes who has (have) not completed the box entitled
"Special Delivery Instructions" on this Letter of Transmittal or (ii) the Old
Notes are tendered for the account of an Eligible Institution.
2. Delivery of this Letter of Transmittal and Old Notes; Guaranteed
Delivery Procedures. This Letter of Transmittal is to be used: (i) by all
Holders who are not ATOP members, (ii) by Holders who are ATOP members but
choose not to use ATOP or (iii) if the Old Notes are to be tendered in
accordance with the guaranteed delivery procedures set forth in the Prospectus
under "The Exchange Offer--Guaranteed Delivery Procedures." To validly tender
Old Notes, a Holder must physically deliver a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees and all other required documents to the Exchange Agent at
its address set forth on the cover of this Letter of Transmittal prior to the
Expiration Date (as defined below) or the Holder must properly complete and duly
execute an ATOP ticket in accordance with DTC procedures. Otherwise, the Holder
must comply with the guaranteed delivery procedures set forth in the next
paragraph. Notwithstanding anything to the contrary in the Registration Rights
Agreements, the term "Expiration Date" means 5:00 p.m., New York City time, on
___________, 1998 (or such later date to which the Company may, in its sole
discretion, extend the Exchange Offer). If this Exchange Offer is extended, the
term "Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended. 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 by giving oral (confirmed in writing) or written notice of such extension
to the Exchange Agent and by making a public announcement of such extension
prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
LETTERS OF TRANSMITTAL SHOULD NOT BE SENT TO THE COMPANY OR TO DTC.
If a Holder of the Old Notes desires to tender such Old Notes and time will
not permit such Holder's required documents to reach the Exchange Agent before
the Expiration Date, a tender may be effected if (a) the tender is made through
an Eligible Institution; (b) on or prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery (by telegram, facsimile transmission, mail or hand delivery) setting
forth the name and address of the Holder of the Old Notes and the principal
amount Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange trading days after the
Expiration Date, any documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and (c) all other
documents required by the Letter of Transmittal are received by the Exchange
Agent within three New York Stock Exchange trading days after the Expiration
Date. See "The Exchange Offer--Guaranteed Delivery Procedures" as set forth in
the Prospectus.
Only a Holder of Old Notes may tender Old Notes in the Exchange Offer. The
term "Holder" as used herein with respect to the Old Notes means any person in
whose name Old Notes are registered on the books of the Trustee. If the Letter
of Transmittal or any Old Notes are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity,
-6-
<PAGE>
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
so submitted.
Any beneficial Holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to validly surrender those Old Notes in the Exchange Offer should contact such
registered Holder promptly and instruct such registered Holder to tender on his
behalf. If such beneficial Holder wishes to tender on his own behalf, such
beneficial Holder must, prior to completing and executing the Letter of
Transmittal, make appropriate arrangements to register ownership of the Old
Notes in such beneficial holder's name. It is the responsibility of the
beneficial holder to register ownership in his own name if he chooses to do so.
The transfer of record ownership may take considerable time.
The method of delivery of this Letter of Transmittal (or facsimile hereof)
and all other required documents is at the election and risk of the exchanging
Holder, but, except as otherwise provided below, the delivery will be deemed
made only when actually received or confirmed by the Exchange Agent. If sent by
mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to assure timely
delivery to the Exchange Agent before the Expiration Date. No Letters of
Transmittal or Old Notes should be sent to the Company.
No alternative, conditional or contingent tenders will be accepted. All
tendering Holders, by execution of this Letter of Transmittal (or facsimile
hereof), waive any right to receive notice of acceptance of their Old Notes for
exchange.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and principal amount of the Old Notes to which this Letter
of Transmittal relates should be listed on a separate signed schedule attached
hereto.
4. Withdrawal of Tender. Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written or facsimile transmission notice of withdrawal
must (i) be received by the Exchange Agent at the address set forth herein prior
to 5:00 p.m., New York City time, on the Expiration Date: (ii) specify the name
of the person having tendered the Old Notes to be withdrawn; (iii) identify the
Old Notes to be withdrawn; and (iv) be (a) signed by the Holder in the same
manner as the original signature on the Letter of Transmittal by which such Old
Notes were tendered (including any required signature guarantees) or (b)
accompanied by evidence satisfactory to the Company that the Holder withdrawing
such tender has succeeded to beneficial ownership of such Old Notes. If Old
Notes have been tendered pursuant to the ATOP procedure with DTC, any notice of
withdrawal must otherwise comply with the procedures of DTC. Old Notes properly
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer; provided, however, that withdrawn Old Notes may be retendered by
again following one of the procedures described herein at any time prior to 5:00
p.m., New York City time, on the Expiration Date. All questions as to the
validity, form and eligibility (including time of receipt) of notice of
withdrawal will be determined by the Company, whose determinations will be final
and binding on all parties. Neither the Company, the Exchange Agent, nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. The Exchange Agent intends to use reasonable efforts
to give notification of such defects and irregularities.
5. Partial Tenders; Pro Rata Effect. Tenders of the Old Notes will be
accepted only in integral multiples of $1,000. If less than the entire principal
amount evidenced by any Old Notes is to be tendered, fill in the principal
amount that is to be tendered in the box entitled "Principal Amount Tendered"
below. The
-7-
<PAGE>
entire principal amount of all Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
6. Signatures on this Letter of Transmittal; Bond Powers and Endorsements.
If this Letter of Transmittal is signed by the registered Holder(s) of the Old
Notes tendered hereby, the signature must correspond with the name as written on
the face of the certificate representing such Old Notes without alteration,
enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the Old Notes tendered hereby are registered in different names,
it will be necessary to complete, sign and submit as many separate copies of
this Letter of Transmittal and any necessary accompanying documents as there are
different registrations.
When this Letter of Transmittal is signed by the Holder(s) of Old Notes
listed and tendered hereby, no endorsements or separate bond powers are
required.
If this Letter of Transmittal is 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.
7. Special Delivery Instructions. Tendering Holders should indicate in
the applicable box the name and address to which New Notes issued in
consideration of Old Notes accepted for exchange, or Old Notes for principal
amounts not exchanged or not tendered, are to be sent, if different from the
name and address of the person signing this Letter of Transmittal.
8. Waiver of Conditions. The Company reserves the absolute right to waive
any of the specified conditions in the Exchange Offer, in whole at any time or
in part from time to time, in the case of any Old Notes tendered hereby. See
"The Exchange Offer--Conditions to the Exchange Offer" in the Prospectus.
9. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Old Notes for principal amounts not
exchanged are to be delivered to any person other than the Holder of the Old
Notes or if a transfer tax is imposed for any reason other than the exchange of
Old Notes pursuant to the Exchange Offer, the amount of any such transfer taxes
(whether imposed on the registered Holder or any other persons) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted, the amount of such transfer taxes will be
billed directly to such tendering Holder.
10. Irregularities. All questions as to validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old Notes
will be resolved by the Company, in its sole discretion, whose determination
shall be final and binding. The Company reserves the absolute right to reject
any or all tenders of any particular Old Notes that are not in proper form, or
the acceptance of which would, in the opinion of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defect,
irregularity or condition of tender with regard to any particular Old Notes. The
Company's interpretation of the terms of, and conditions to, the Exchange Offer
(including the instructions herein) will be final and binding. Unless waived,
any defects or irregularities in connection with tenders must be cured within
such time as the Company shall determine. Neither the Company nor the Exchange
Agent shall be under any duty to give notification of defects in such tenders or
shall incur any liability for failure to give such notification. The Exchange
Agent intends to use reasonable efforts to give notification of such defects and
irregularities. Tenders
-8-
<PAGE>
of Old Notes will not be deemed to have been made until all defects and
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the irregularities have not
been cured or waived will be returned by the Exchange Agent to the tendering
Holder, unless otherwise provided by this Letter of Transmittal, as soon as
practicable following the Expiration Date.
11. Interest on Exchanged Old Notes. Holders whose Old Notes are accepted
for exchange will not receive accrued interest thereon on the date of exchange.
Instead, interest accruing from November 16, 1997 through the Expiration Date
will be recognized on the New Notes on May 15, 1998, in accordance with the
terms of the New Notes. See "The Exchange Offer--Acceptance of Old Notes for
Exchange; Delivery of New Notes" and "Description of Senior Notes" as set forth
in the Prospectus.
12. Mutilated, Lost, Stolen or Destroyed Certificates. Holders whose
certificates for Old Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), TOGETHER WITH
ALL REQUIRED DOCUMENTS, OR A NOTICE OF GUARANTEED DELIVERY, MUST BE RECEIVED BY
THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
-9-
<PAGE>
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
============================================================================
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1 and 7)
To be completed ONLY if the New Notes issued in consideration of Old
Notes exchanged, or certificates for Old Notes in a principal amount not
surrendered for exchange are to be mailed to someone other than the
undersigned or to the undersigned at an address other than that below.
Mail to:
Name:
----------------------------------------------------------------------
------------
(Please Print)
Address:
-------------------------------------------------------------------
-------------
(Zip Code)
===========================================================================
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES
(See Instructions 2 and 7)
======================================================================================================
Name(s) and Certificate(s)
Address(es) of (Attach additional signed list, if necessary)
Registered Holder(s)
(Please fill in, in blank)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------------------------------
Certificate Number(s)/1/ Aggregate Principal Principal Amount of
Amount of Old Notes Old Notes Tendered/2/
Evidenced by (must be integral
Certificate(s) multiples of $1,000)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Total
======================================================================================================
</TABLE>
-10-
<PAGE>
(Boxes below to be checked by Eligible Institutions only)
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
----------------------------------------------
DTC Account Number
---------------------------------------------------------
Transaction Code Number
----------------------------------------------------
[_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD 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
-------------------------
Name of Institution which Guaranteed Delivery
------------------------------
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution
----------------------------------------------
DTC Account Number
---------------------------------------------------------
Transaction Code Number
----------------------------------------------------
[_] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[_] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name
---------------------------------------------------------------------------
Address
---------------------------------------------------------------------
------------------------------------------------------------------------
-11-
<PAGE>
- --------------------------------------------------------------------------------
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
PLEASE SIGN HERE
WHETHER OR NOT OLD NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
X
-------------------------------- -------------------
X
-------------------------------- -------------------
Signature(s) of Owner(s) Dated
of Authorized Signatory
Area Code and Telephone Number:
---------------------------------------
This box must be signed by registered holder(s) of Old Notes as their name(s)
appear(s) on certificate(s) for Old Notes hereby tendered or on a security
position listing, or by any person(s) authorized to become registered holder(s)
by endorsement and documents transmitted with this Letter (including such
opinions of counsel, certifications and other information as may be required by
the Company or the Trustee for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an attorney-in-fact,
trustee, executor, administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, such person must set forth his or her
full title below.
Name(s)
-----------------------------------------------------------------------
------------------------------------------------------------------------------
(Please Print)
Capacity (full title)
---------------------------------------------------------
Address
------------------------------------------------------------------------
------------------------------------------------------------------------------
(Include Zip Code)
Tax Identification or Social Security Number(s)
--------------------------------
------------------------------------------------------------------------------
Guarantee of Signature(s)
(See Instructions 1 and 6 to determine if required)
Authorized Signature
----------------------------------------------------------
Name
--------------------------------------------------------------------------
Name of Firm
------------------------------------------------------------------
Title
-------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-12-
