<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SCOVILL FASTENERS INC.
SCOVILL HOLDINGS INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)
DELAWARE DELAWARE 3965
6719
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
95-3959561
TO BE APPLIED FOR
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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SCOVILL FASTENERS INC.
SCOVILL HOLDINGS, INC.
1802 SCOVILL DRIVE
CLARKESVILLE, GEORGIA 30523
(706) 754-4181
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MARTIN A. MOORE
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
SCOVILL FASTENERS INC.
SCOVILL HOLDINGS INC.
1802 SCOVILL DRIVE
CLARKESVILLE, GEORGIA 30523
(706) 754-4181
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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WITH A COPY TO:
JONATHAN I. MARK, ESQ.
CAHILL GORDON & REINDEL
80 PINE STREET
NEW YORK, NEW YORK 10005-1702
(212) 701-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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<PAGE>
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING OFFERING REGISTRATION
REGISTERED REGISTERED PRICE(1) PRICE(1) FEE(2)
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<S> <C> <C> <C> <C>
11 1/4% Senior Notes Due
2007.................. $100,000,000 100% $100,000,000 $29,500
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Guarantee(3)........... (4) (4) (4) (3)
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated in accordance with Rule 457(f) under the Securities Act of
1933, as amended (the "Securities Act").
(3) The Guarantor (as defined) is registering a Guarantee (as defined) of the
payment of the principal of, premium, if any, and interest on the Notes
being registered hereby. Pursuant to Rule 457(n) under the Securities Act,
no registration fee is required with respect to the Guarantee.
(4) Not applicable.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997
PROSPECTUS
SCOVILL FASTENERS INC.
[LOGO OF SCOVILL APPEARS HERE]
OFFER TO EXCHANGE
11 1/4% SENIOR NOTES DUE 2007, SERIES A FOR 11 1/4% SENIOR NOTES DUE 2007,
SERIES B
-----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE")
-----------
Scovill Fasteners Inc., a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to conditions set forth in this Prospectus
(the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"; together with the Prospectus, the "Exchange Offer"), to exchange
up to an aggregate principal amount of $100,000,000 of its registered 11 1/4%
Senior Notes due 2007 (the "Exchange Notes") for up to an aggregate principal
amount of $100,000,000 of its outstanding unregistered 11 1/4% Senior Notes due
2007 (the "Initial Notes"). The form and terms of the Exchange Notes are
identical in all material respects to those of the Initial Notes, except for
certain transfer restrictions and registration rights relating to the Initial
Notes and except for certain interest provisions relating to such registration
rights.
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company under a Registration Rights Agreement dated as of
November 26, 1997 (the "Registration Rights Agreement") among Scovill
Acquisition Inc., a Delaware corporation ("Predecessor"), Scovill Holdings
Inc., a Delaware corporation ("Parent" or "Guarantor") and SBC Warburg Dillon
Read Inc. and BT Alex, Brown Incorporation (the "Initial Purchasers"). The
Initial Notes were originally issued by Predecessor and sold to the Initial
Purchasers on November 26, 1997 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 and Rule 144A under
the Securities Act (the "Initial Offering"). The proceeds of the Initial
Offering were used to finance, in part, the purchase by Predecessor of all of
the capital stock of KSCO Acquisition Corporation ("KSCO") which then owned all
of the capital stock of the Company. Predecessor then merged with and into
KSCO, with KSCO surviving and KSCO merged with and into the Company, with the
Company surviving. The Exchange Notes evidence the same debt as the Initial
Notes and will be issued pursuant to, and entitled to the benefits of, the
Indenture (as defined) governing the Initial Notes. See "The Exchange Offer."
The Exchange Notes and the Initial Notes are sometimes referred to collectively
as the "Notes." Following the mergers described above, the Notes became
obligations of the Company.
Interest on the Notes is payable semi-annually on May 30 and November 30 of
each year, commencing May 30, 1998. The Notes are redeemable at the option of
the Company, in whole or in part, at any time on or after November 30, 2002, at
the redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined), if any, to the redemption date. The Company
may also redeem Notes at its option, at any time on or prior to November 30,
2000, at a redemption price equal to 111.25% 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 Public Equity Offerings
(as defined); provided, however, that at least $65 million in aggregate
principal amount of the Notes remains outstanding following each such
redemption. Upon the occurrence of a Change of Control (as defined), the
Company will be required to make an offer to purchase all or any part of each
holder's Notes at 101% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase.
The Notes are guaranteed by Parent (the "Parent Guarantee"). The Notes and
the Parent Guarantee are senior unsecured obligations of the Company and
Parent, respectively. The Notes and the Parent Guarantee rank pari passu in
right of payment with all other existing and future unsecured and
unsubordinated obligations of the Company and Parent, respectively, and senior
to all existing and future indebtedness of the Company and Parent that is
expressly subordinated to the Notes and the Parent Guarantee, respectively. In
addition, the Notes and the Parent Guarantee are effectively subordinated to
all secured obligations of the Company and Parent, respectively, to the extent
of the assets securing such obligations. At September 30, 1997, after giving
pro forma effect to the Transactions, the Company would have had approximately
$30.3 million of secured indebtedness outstanding, excluding the $25.0 million
Revolving Credit Facility. The Notes are structurally subordinated to all
obligations (including trade payables and accrued liabilities) of the Company's
subsidiaries. The indenture pursuant to which the Notes were issued permits the
Company and its subsidiaries to incur additional indebtedness, including
secured indebtedness, subject to certain limitations.
(Cover continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATIONS TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
(Continued from previous page)
The Company is making the Exchange Offer in reliance on the position of the
staff of the Securities and Exchange Commission (the "Commission") set forth
in no-action letters issued to third parties unrelated to the Company.
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.
Each Holder (as defined) desiring to participate in the Exchange Offer will
be required to represent, among other things, that (i) it is not an
"affiliate" (as defined in Rule 405 of the Securities Act) of the Company or
Parent, (ii) 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 Exchange Notes and (iii) it is acquiring the Exchange
Notes in its ordinary course of business (a Holder unable to make the
foregoing representations is referred to as a "Restricted Holder"). A
Restricted Holder will not be able to participate in the Exchange Offer and
may only sell its Initial Notes pursuant to a registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K under the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Each broker-dealer (other than a Restricted Holder) that receives Exchange
Notes for its own account pursuant to the Exchange Offer (a "Participating
Broker-Dealer") is required to acknowledge in the Letter of Transmittal that
it acquired the Initial Notes as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with
the resale of such Exchange Notes. Based upon interpretations by the staff of
the Commission, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. The Company has
agreed that for a period of nine months following consummation of the Exchange
Offer it will make this Prospectus available, for use in connection with any
such resale, to any Participating Broker-Dealer that notifies the Company in
the Letter of Transmittal that it may be subject to such prospectus delivery
requirements. The Company believes that during such period of time, delivery
of the Prospectus, as it may be amended or supplemented, will satisfy the
prospectus delivery requirements of a participating Broker-Dealer engaged in
market-making or other trading activities. See "The Exchange Offer" and "Plan
of Distribution".
Based upon interpretations by the staff of the Commission, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer may be
offered for resale, resold, and otherwise transferred by a Holder thereof
(other than a Restricted Holder or a Participating Broker-Dealer) without
compliance with the registration and prospectus delivery requirements of the
Securities Act.
The Exchange Notes are new securities for which there is currently no
market. The Company presently does not intend to apply for listing or
quotation of the Exchange Notes on any securities exchange or stock market.
The Company has been advised by the Initial Purchasers that, following
completion of the Exchange Offer, they presently intend to make a market in
the Exchange Notes; however, the Initial Purchasers are not obligated to do so
and any market-making activities with respect to the Exchange Note may be
discontinued at any time without notice. There can be no assurance that an
active public market for the Exchange Notes will develop.
The Company will not receive any proceeds from the Exchange Offer and will
pay all the expenses incident to the Exchange Offer. Tenders of Initial Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. If the Company terminates the Exchange Offer and does not
accept for exchange any Initial Notes, it will promptly return the Initial
Notes to the holders thereof. See "The Exchange Offer".
The Exchange Agent for the Exchange Offer is United States Trust Company of
New York.
<PAGE>
Color Snap(R), Common Sense(TM), DOT(R), DuraMark(R), Gemini(TM), Gripper(R),
Klikit(R), Maxi-Snap(TM), Mighty-Snap(TM), PCI(TM), Pull-the-DOT(R), Tag
Lock(TM) and Whipper Snap(R) are trademarks of the Company. All other
trademarks or tradenames referred to in this Prospectus are the property of
their respective owners.
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SUMMARY
The following summary information is qualified in its entirety by, and should
be read in conjunction with, the financial statements and more detailed
information included elsewhere in this Prospectus. Unless the context requires
otherwise, references to the "Company" or "Fasteners" mean Scovill Fasteners
Inc. and its subsidiaries. Unless otherwise indicated, all pro forma
information herein assumes that the Transactions (as defined) occurred at the
beginning of the periods to which such information relates, in the case of
statement of operations data, and on September 30, 1997, in the case of balance
sheet data.
THE COMPANY
The Company, whose business has been in continuous operation since 1802, is a
leading designer, manufacturer and distributor of apparel fasteners and
specialty industrial fasteners. The Scovill name is the oldest and one of the
most well-known brands in the fasteners industry. In the twelve-month period
ended September 30, 1997, the Company sold more than 10 billion fastener units
worldwide. The Company has achieved and maintained its reputation by offering
its customers an integrated system of high quality fasteners, proprietary
attaching machines, technical service, on-site maintenance and customized
applications and design services tailored to individual customer needs.
The Company has two main product groups: the Apparel Group and the Industrial
Group. The Apparel Group, through its Gripper and DuraMark brands, produces
snaps, tack buttons, rivets, burrs and other snap fastener products used in
numerous apparel applications. The Company's customers include many leading
apparel design and manufacturing companies, including Wrangler, OshKosh B'Gosh,
Gerber Childrenswear, William Carter Company, Tommy Hilfiger, Polo Ralph
Lauren, Liz Claiborne and L.L. Bean. The Company believes that it supplies the
majority of the snap fasteners sold to U.S. infantswear and childrenswear
manufacturers and a substantial portion of the snap fasteners sold to U.S.
apparel manufacturers.
The Industrial Group, primarily through its DOT and PCI product lines,
produces specialty industrial fasteners including large snaps, windshield
clips, turn buttons, eyelets, grommets, screw studs, gypsy studs and other
specialty fasteners. These products are used in a broad range of industries,
including marine textile, automotive, aerospace, military, medical/surgical
products, luggage, leather goods, electronic equipment, sporting and
recreational goods and consumer batteries. The end-users of the Company's
products include a wide variety of companies, including Ford, Boeing, Baxter,
Samsonite, U.S. Marine for its Bayliner Boats, Johnston & Murphy, Eveready
Battery, Riddell for its football helmets and the U.S. Army. The Company
believes that it sells a significant portion of the specialty industrial
fasteners sold in the product markets in which it competes.
For the twelve months ended September 30, 1997 (the "LTM Period"), the
Company's net sales and pro forma Adjusted EBITDA (as defined) were $95.3
million and $22.7 million, respectively. From 1992 to the LTM Period, the
Company's net sales increased by 41.5%, from $67.4 million to $95.3 million,
and pro forma Adjusted EBITDA increased by 84.1%, from $12.3 million to $22.7
million. From 1992 to the pro forma LTM Period, the Company's gross margin
improved from 24.4% to 30.7% and Adjusted EBITDA margin improved from 18.3% to
23.8%. By rationalizing and developing existing and acquired businesses, the
Company has achieved operating efficiencies and improved financial performance.
INDUSTRY
The Company operates in an industry characterized by customer switching
costs, a broad customer base in which no single customer dominates as a
purchaser of fasteners, substantial economies of scale and few manufacturers
who can match the level of service that the Company provides. Customers in the
apparel and specialty industrial fastener industries tend to be more quality-
driven than price-driven in their purchase decisions because (i) a particular
fastener constitutes a very small portion of the overall cost of a customer's
end product, (ii) defective or improperly attached fasteners can result in
costly rework or scrap and (iii) the customers' cost of
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attaching a fastener is typically substantially more than the cost of the
fastener itself, which leads customers to focus on the speed, precision and
flexibility of the fastener attaching system. These factors result in steady,
long-term customer relationships for those industry participants that offer
quality and service.
The apparel snap fastener market includes snap fasteners, tack buttons,
rivets and burrs and excludes other apparel devices such as zippers, buttons
and Velcro. The primary customers for apparel snap fasteners include
manufacturers of basic garments such as jeans, infantswear, childrenswear and
outerwear. Demand for apparel snap fasteners is related to apparel industry
trends generally, which, in turn, are affected by demographics. The production
of each category of apparel depends upon population trends and consumer
spending in each apparel category. According to U.S. Department of Commerce
estimates, the value of domestic shipments of apparel and other finished
textiles has averaged over 4% growth per year since 1976. During that time, the
domestic apparel industry generally has exhibited low cyclicality, with the
value of such shipments having increased in all but two years. In foreign
markets, the Company believes that expected population growth over the next
several years and improved standards of living will result in increased apparel
sales abroad.
The specialty industrial fastener market is large and highly fragmented. The
market is comprised of a variety of niche segments with specialized customers,
competitors and products in which the Company generally earns higher margins
than it does in the apparel market. The Company estimates that the market
segments in which it currently competes constitute less than 10% of the overall
market. The Company believes that there is no dominant manufacturer that
competes in all of its markets, and the Company intends to broaden its
participation through new products and product line extensions.
COMPETITIVE STRENGTHS
The Company attributes its historical success and significant opportunities
for continued growth to the following competitive strengths:
Leading Market Position. The Company is the oldest and most established
manufacturer of a variety of apparel and specialty industrial fasteners in the
United States. The Company's fasteners have been used in many products
throughout its history, from U.S. military uniforms since the War of 1812 to
the flight suits worn by NASA shuttle astronauts. The Company's reputation for
high quality and its well-known brand names, including Scovill, Gripper and
DOT, make it a leading presence in domestic markets and provide it with a
platform for enhanced global expansion. The Company believes that it supplies
the majority of the snap fasteners sold to U.S. infantswear manufacturers, a
substantial portion of the snap fasteners sold to U.S. apparel manufacturers
generally and a significant portion of the specialty industrial fasteners sold
in the product markets in which it competes.
"Total System" Approach. In addition to manufacturing and distributing
fasteners to its customers, the Company also leases approximately 8,000
proprietary attaching machines to attach its products to those of its
customers, primarily in the apparel industry. The Company's large size enables
it to (i) employ what the Company believes to be the industry's only existing
dedicated field service force that provides on-site maintenance, which
minimizes equipment down-time, (ii) have ready access, through its servicing
relationships, to its customers' facilities, providing the Company with
opportunities to cross-sell products and to test new fastener machinery, (iii)
continue to develop next-generation attaching machines, such as the new Gemini
system, which has lower manufacturing and maintenance costs and improved
fastener application flexibility and attaching speed, and (iv) maintain an
applications development and design lab that enables customers to outsource
design functions to the Company. The Company's "total system" approach enables
it to compete based on its ability to decrease its customers' costs and improve
the quality of their products, rather than on the unit price of the Company's
fasteners.
Large Installed Base of Attaching Machines. The Company has the industry's
largest installed base of attaching machines in the United States, which
enables it to generate a recurring stream of cash flow from high
5
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volume sales of fasteners. These machines are designed to be used only with the
Company's fasteners. The Company believes that customers are reluctant to
switch to other manufacturers in order to avoid the costs associated with
retraining personnel, reduced productivity and the business interruption that
results from the need to replace an entire network of machines in a plant or a
production line in order to maintain the compatibility of the network. The
Company has been able to maintain a high level of customer retention. In 1996,
approximately 99% of all of its attaching machine leases were renewed.
Broad Customer Base and Product Line. The Company's customers include many
large and well-known apparel and industrial manufacturing companies. The
Company is a leading supplier for private-label infantswear sold at Kmart,
Wal*Mart, Target and Sears stores. In 1996, no single customer accounted for
more than 8% of the Company's total net sales, and the Company's 10 largest
customers accounted for approximately 26% of the Company's total net sales. The
Company's broad line of products for apparel and specialty industrial use
reduces its exposure to any one customer segment and to fashion trends.
Reputation for High Quality. The Company has built its reputation by
producing high quality products designed and manufactured to precise
specifications. The Company has developed many of the safety standards for
infantswear adopted by the American Society of Testing Methods (the "ASTM"),
and the Company's senior quality manager is currently chairman of the ASTM
subcommittee responsible for establishing testing methodologies for the apparel
fastener industry. These methodologies provide the basis for determining
compliance with requirements for apparel set by the Consumer Products Safety
Commission.
Experienced Management Team. The Company's senior management team has an
average of over 15 years of experience in the fastener industry. Since its
formation in 1992, the management team has delivered significant revenue and
EBITDA improvements by successfully reorganizing the business and positioning
the Company for growth. From 1992 to the pro forma LTM Period, Adjusted EBITDA
margin improved from 18.3% to 23.8%. Management has achieved these results by
rationalizing existing operations, exiting an unprofitable product line and
integrating domestic and international acquisitions. This team has successfully
identified, integrated and consolidated three significant acquisitions since
1992 and established a platform for international growth. Senior management
rolled over an aggregate of $3.3 million of their stock options in KSCO into
equity of Parent, representing approximately one-half of the proceeds they
would have received in the Acquisition.
BUSINESS STRATEGY
The Company seeks to enhance its competitive position while increasing its
net sales and operating cash flow by continuing to implement the following
components of its business strategy:
Continue to Strengthen Customer Relationships. The Company intends to
continue to distinguish itself from competitors as a full-service provider. The
Company will continue to foster long-term partnerships with its customers by
providing a broad range of high quality products, consistent delivery
performance, comprehensive product support, efficient attaching machinery and
dedicated field service. The introduction of the Gemini attaching machine,
which accommodates rapid and cost-efficient switching of fastener types and is
designed to address ergonomic concerns, illustrates the Company's commitment to
customer service. The Company also continues to develop and implement value-
added services, such as specialized billing and delivery systems.
Reduce Customers' CPAF. The Company intends to develop new means to continue
its commitment to lower its customers' cost per attached fastener ("CPAF").
Customers incur significant costs beyond the unit price of fasteners; an
individual fastener typically represents only 10% of an average customer's
CPAF. CPAF is also a function of factors such as attaching speed, production
errors, equipment downtime due to changeover and maintenance and the attaching
machinery lease expense or cost. The Company's "total system" approach and its
focus on CPAF are designed to reduce the remaining costs associated with the
attaching of its fasteners.
6
<PAGE>
Seek Higher Margin Specialty Applications. The Company intends to take
advantage of its diverse and flexible manufacturing capabilities to enhance its
line of specialty applications, which offers higher margins. Examples of
specialty applications are stainless steel buckles for football, hockey and
cycling helmets; engineered eyelets for consumer electronics; and male/female
connectors for batteries. The Company intends to develop new applications for
current products, engineer new products and re-engineer those products obtained
through acquisitions. Unlike smaller manufacturers, the Company possesses its
own tooling, stamping, plating and finishing equipment and, therefore, can
develop specialty applications without significant capital expenditures.
Strengthen "Retail Pull." The Company seeks to have large retailers specify
the use of the Company's products in their private label apparel lines. The
Company has been designated as the sole or preferred fastener supplier for the
private-label infantswear manufactured for and sold by Wal*Mart, Kmart, Target
and Sears. Additionally, the Company's reputation for high quality and consumer
awareness has led to Kmart's joint branding on garment tags to highlight the
names of Scovill and Klikit, a Gripper brand. The Company intends to expand its
international opportunities by leveraging existing relationships with customers
that move sourcing abroad and by expanding its distribution channels overseas
to better serve them. The Company believes that the high quality of its
products, its "total system" approach and its Asian distribution channels
enhance the Company's ability to effect this strategy.
Leverage Existing Manufacturing Base. The Company intends to continue to
leverage its existing manufacturing base by incrementally expanding the
capacity of the Clarkesville facility. By optimizing its operations, adding
shifts and outsourcing particular activities, the Company believes that it can
significantly increase the output of the Clarkesville facility with limited
capital expenditures. Through the addition of increased revenue at minimal
incremental fixed costs, the Company has been able to increase EBITDA margins.
The Company expects to increase revenue through new product development and
tuck-in acquisitions, such as the 1996 acquisitions of Rau Fastener Company,
L.L.C. ("Rau") and PCI Group, Inc. ("PCI"), whose operations were consolidated
into the Company's Clarkesville, Georgia facility.
Pursue Attractive Acquisition Opportunities. The Company will continue to
evaluate opportunities to expand its sales and product offerings through
smaller, easily integrated domestic add-on acquisitions. The Company may also
explore larger international acquisitions, primarily in Europe and Asia. The
criteria for identifying attractive acquisition candidates include (i) revenue
potential, (ii) increases in manufacturing, production and other cost
efficiencies and (iii) diversification and expansion of the Company's product
lines and customer base.
THE TRANSACTIONS
Predecessor and Parent were formed by Saratoga Partners III, L.P.
("Saratoga") to effect the acquisition of the Company. On October 10, 1997,
Predecessor entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement") with KSCO Acquisition Corporation ("KSCO"), which owned all of the
capital stock of Fasteners, and the stockholders and optionholders of KSCO.
Under the Stock Purchase Agreement, Predecessor agreed to purchase all of the
capital stock of KSCO for a purchase price in cash of approximately $168.8
million less the amount of indebtedness of the Company existing immediately
prior to closing of the acquisition (including indebtedness that will not be
repaid in connection with the Transactions).
Concurrently with the consummation of the Offerings, Predecessor merged with
and into KSCO, and KSCO merged with and into Fasteners, with Fasteners
surviving the mergers. Following such mergers, the Notes became obligations of
Fasteners. The purchase of KSCO capital stock by Predecessor and the mergers of
Predecessor and KSCO into Fasteners are together referred to herein as the
"Acquisition."
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In connection with the Acquisition, Saratoga and certain other investors made
a $36.6 million equity investment, consisting of (i) $0.4 million in shares of
Parent's Common Stock, par value $0.0001 per share (the "Common Stock"), and
(ii) $36.2 million aggregate liquidation preference of Parent's Series B
Preferred Stock, par value $0.0001 per share (the "Series B Preferred Stock")
(collectively, the "Saratoga Investment"). Management and the Chairman of the
Board rolled over $3.4 million of their stock options in KSCO into options to
purchase Common Stock and Series B Preferred Stock (the "Management
Investment"). The Saratoga Investment and the Management Investment are
referred to as the "Equity Investments." Concurrently with the Notes Offering,
Parent sold, for gross proceeds of $10.0 million, 100,000 Units, each Unit
consisting of $100 liquidation preference of Parent's Series A Cumulative
Redeemable Exchangeable Preferred Stock (the "Senior Preferred Stock") and one
warrant (the "Warrants") to purchase Common Stock. The net proceeds of the
Equity Investments and the Units Offering totalled $49.4 million, after fees
and expenses to Parent of $0.6 million. Parent contributed (the "Equity
Contribution") such amount to Fasteners in the form of common equity.
In connection with the Acquisition, Fasteners entered into a new senior
secured credit facility (the "New Credit Facility"), consisting of a $28.0
million term loan (the "Term Loan") and a $25.0 million revolving credit
facility (the "Revolving Credit Facility"). See "Description of Other
Indebtedness--New Credit Facility."
Proceeds from the Equity Contribution, the Notes Offering and the Term Loan
were used to finance the purchase price in the Acquisition, repurchase
attaching machinery subject to a synthetic lease (the "Synthetic Lease"), repay
the Company's existing credit facility (the "Existing Credit Facility") and pay
related fees and expenses. The Acquisition, the repurchase of attaching
machinery subject to the Synthetic Lease, the repayment of the Existing Credit
Facility, the Offerings, the Equity Contribution, the borrowing of the Term
Loan and the payment of related fees and expenses are collectively referred to
herein as the "Transactions." The following table illustrates the sources of
funds to the Company and uses of funds by the Company relating to the
Transactions, assuming they were consummated on September 30, 1997:
<TABLE>
<CAPTION>
SOURCES OF FUNDS
<S> <C>
Notes..................... $100.0
Term Loan................. 28.0
Equity Contribution(a).... 49.4
------
Total................... $177.4
======
<CAPTION>
USES OF FUNDS
(Dollars in millions)
<S> <C>
Cash to selling stockholders. $ 98.1
Repurchase of equipment
subject to Synthetic Lease.. 29.2
Repay Existing Credit Facili-
ty.......................... 39.3
Fees and expenses(b)......... 10.8
------
Total...................... $177.4
======
</TABLE>
- --------
(a) Parent funded the Equity Contribution from the Equity Investments and the
Units Offering (net of estimated fees and expenses).
(b) Excludes estimated fees and expenses of Parent related to the Units
Offering of $0.6 million.
The diagrams on the next page illustrate the Transactions and the post-
closing structure of the Company.
Saratoga is a private investment fund which, together with its related funds
(collectively, the "Saratoga Funds"), has managed corporate buyout partnerships
totaling $500 million in committed and contributed capital. The Saratoga Funds
have invested in 22 companies with an aggregate purchase valuation of
approximately $2.4 billion. Individual acquisition valuations have ranged from
$20 million to $400 million. In all of these acquisitions, the Saratoga Funds
have been the lead investor, either with sole voting control or in partnership
with other investors.
8
<PAGE>
Transaction Structure Post-Closing Structure
------------------------ ------------------------
Saratoga, Management Saratoga, Management
and other investors and other investors
------------------------ ------------------------
$40
$10m
------------------------ ------------------------
Senior $10
Preferred Senior
Scovill Holdings Inc.(a) Stock Scovill Holdings Inc.(a)Preferred
("Parent") ("Parent") Stock
Warrants
Warrants
------------------------
------------------------
$49.4m(a)
------------------------
------------------------ $28m
Term
Scovill Acquisition Inc. Loan(a)
("Issuer")
$100m Revolving
Senior Notes(b) Credit
------------------------ Scovill Fasteners Inc. Facility
Issuer merged with and into (b)(c)
KSCO (with KSCO surviving)
Senior
------------------------ Notes(b)
$100m
-----------------------
KSCO Acquisition
Corporation
-----------------------
------------------------
KSCO merged with and into Fasteners Subsidiaries
(with Fasteners surviving)
$28m
-----------------------
------------------------
Term Loan(b)
Scovill Fasteners Inc. Revolving Credit
Facility(b)(c)
------------------------
Subsidiaries
------------------------
(a) After fees and expenses of $0.6 million.
(b) Parent guarantees the Term Loan, the Revolving Credit Facility and the
Notes.
(c) Undrawn at closing, but would provide availability, subject to a borrowing
base, of up to $25 million.
9
<PAGE>
THE EXCHANGE OFFER
REGISTRATION RIGHTS AGREEMENT... The Initial Notes were sold by the Company on
November 26, 1997 to the Initial Purchasers
who resold the Initial Notes (i) to
"qualified institutional buyers" (as defined
in Rule 144A under the Securities Act) in
reliance upon Rule 144A under the Securities
Act and (ii) outside the United States to
persons other than U.S. persons in reliance
upon Regulation S under the Securities Act.
In connection therewith, Predecessor, Parent
and the Initial Purchasers entered into the
Registration Rights Agreement dated as of
November 26, 1997 (the "Registration Rights
Agreement"), providing for, among other
things, the Exchange Offer.
THE EXCHANGE OFFER.............. The Company is offering to exchange up to
$100,000,000 aggregate principal amount of
Exchange Notes for up to $100,000,000
aggregate principal amount of Initial Notes
issued in the Initial Offering in reliance
upon an exemption from registration under the
Securities Act. Upon consummation of the
Exchange Offer, the terms of the Exchange
Notes (including principal amount, interest
rate, maturity and ranking) will be identical
in all material respects to the term of the
Initial Notes for which they may be exchanged
pursuant to the Exchange Offer, except that
the Exchange Notes have been registered under
the Securities Act and therefore will not
bear legends restricting their transfer and
will not contain terms providing for an
increase in the interest rate thereon under
certain circumstances described in the
Registration Rights Agreement.
MINIMUM CONDITION............... The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of
Initial Notes being tendered for exchange.
EXPIRATION DATE................. The Exchange Offer will expire at 5:00 p.m.,
New York city time, on , 1998, unless
extended (the "Expiration Date").
EXCHANGE DATE................... The date of acceptance for exchange of the
Initial Notes will be the first business day
practicable following the Expiration Date.
CONDITIONS TO THE EXCHANGE
OFFER........................... The obligation of the Company to consummate
the Exchange Offer is subject to certain
conditions. See "The Exchange Offer--
Conditions." The Company reserves the right
to terminate or amend the Exchange Offer at
any time prior to the Expiration Date upon
the occurrence of any such condition.
10
<PAGE>
WITHDRAWAL RIGHTS............... Tenders may be withdrawn at any time prior to
the Expiration Date. Any Initial Notes not
accepted for any reason will be returned
without expense to the tendering holders
thereof as promptly as practicable after the
expiration or termination of the Exchange
Offer.
PROCEDURES FOR TENDERING
INITIAL NOTES................... See "The Exchange Offer--Procedures for
Tendering."
FEDERAL INCOME TAX
CONSEQUENCES.................... The exchange of Initial Notes for Exchange
Notes by Holders will not be a taxable
exchange for federal income tax purposes, and
Holders should not recognize any taxable gain
or loss or any interest income as a result of
such exchanges.
CERTAIN REPRESENTATIONS......... Each Holder desiring to participate in the
Exchange Offer will be required to represent,
among other things, that (i) it is not an
"affiliate" (as defined in Rule 405 of the
Securities Act) of the Company, (ii) 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 Exchange Notes and (iii)
it is acquiring the Exchange Notes in the
ordinary course of its business (a Holder
unable to make the foregoing representations
is referred to as a "Restricted Holder").
TRANSFER RESTRICTIONS ON NEW
NOTES........................... Based upon interpretations by the staff of
the Commission, the Company believes that
Exchange Notes issued pursuant to the
Exchange Offer to Participating Broker-
Dealers may be offered for resale, resold,
and otherwise transferred by a Participating
Broker-Dealer upon compliance with the
prospectus delivery requirements, but without
compliance with the registration requirements
of the Securities Act. The Company has agreed
that for a period of nine months following
consummation of the Exchange Offer it will
make this Prospectus available, for use in
connection with any such resale, to any
Participating Broker-Dealer that notifies the
Company in the Letter of Transmittal that it
may be subject to such prospectus delivery
requirements. The Company believes that
during such period of time, delivery of this
Prospectus, as it may be amended or
supplemented, will satisfy the prospectus
delivery requirements of a Participating
Broker-Dealer engaged in market-making or
other trading activities. See "The Exchange
Offer" and "Plan of Distribution." Based upon
interpretations by the staff of the
Commission, the Company believes that
Exchange Notes issued pursuant to the
Exchange Offer may be offered for resale,
resold, and otherwise transferred by a
Holder thereof (other than a Restricted
Holder or a Participating Broker-Dealer)
without compliance with the registration and
prospectus delivery requirements of the
Securities Act.
11
<PAGE>
EFFECT ON HOLDERS OF INITIAL
NOTES........................... As a result of the making of this Exchange
Offer, and upon acceptance for exchange of
all validly tendered Initial Notes pursuant
to the terms of the Exchange Offer, the
holders of the Initial Notes will have no
further registration or other rights under
the Registration Rights Agreement, except
under certain limited circumstances. Holders
of the Initial Notes who do not tender their
Initial Notes in the Exchange Offer will
continue to hold such Initial Notes and will
be entitled to all the rights and limitations
applicable thereto under the Indenture dated
as of November 26, 1997 among the
Predecessor, Parent, and United States Trust
Company of New York, as trustee (the
"Trustee"), relating to the Initial Notes and
the Exchange Notes (as amended, the
"Indenture"). All untendered, and tendered
but unaccepted, Initial Notes will continue
to be subject to the restrictions on transfer
provided for in the Initial Notes and the
Indenture. To the extent that Initial Notes
are tendered and accepted in the Exchange
Offer, the trading market, if any, for the
Initial Notes could be adversely affected.
See "Risk Factors--Consequences of Failure to
Exchange."
CHANGE OF CONTROL............... Upon the occurrence of a Change of Control,
the Company will be required to offer to
purchase all or any part of each holder's
Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
purchase. There can be no assurance that the
Company will have the financial resources
necessary, or be permitted by its debt or
other agreements, to purchase the Notes upon
a Change of Control. See "Risk Factors--
Change of Control" and "Description of
Notes--Change of Control."
CERTAIN COVENANTS............... The Indenture contains certain covenants
that, among other things, limit the ability
of the Company and the Restricted
Subsidiaries to incur additional
indebtedness, pay dividends or make other
distributions, enter into sale and leaseback
transactions, make certain investments, incur
certain secured indebtedness, enter into
certain transactions with affiliates, or
enter into certain mergers or consolidations
or sell all or substantially all of the
assets of the Company and the Restricted
Subsidiaries. These covenants are subject to
a number of significant exceptions and
qualifications. See "Description of Notes--
Certain Covenants."
USE OF PROCEEDS................. The Company will receive no cash proceeds
from the Exchange Offer.
12
<PAGE>
CONCURRENT UNITS OFFERING
Concurrent with the Notes Offering, Parent offered 100,000 Units, each Unit
consisting of $100 liquidation preference of Senior Preferred Stock and one
warrant to purchase shares of Common Stock. The Senior Preferred Stock will be
exchangeable, at the option of Parent, into Parent's Subordinated Exchange
Debentures due 2009 (the "Exchange Debentures"), subject to certain conditions.
The Senior Preferred Stock will be mandatorily redeemable on November 30, 2009.
Dividends on the Senior Preferred Stock will be payable quarterly in arrears,
in cash or, prior to November 30, 2002 at Parent's option, in additional shares
of Senior Preferred Stock. See "Description of Units."
RISK FACTORS
For a discussion of certain factors that should be considered in evaluating
the Exchange Offer, see "Risk Factors."
13
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table presents (i) summary historical consolidated financial
data of the Predecessor (as defined) and KSCO as of the date and for the
periods indicated, including the results of operations of acquired companies
from their respective dates of acquisition, and (ii) summary pro forma
financial data of the Company as of the date and for the periods indicated
after giving effect to the Transactions as though they had occurred at the
beginning of the periods presented in the case of statement of operations data
and September 30, 1997 in the case of balance sheet data. The financial data
for the period from January 1, 1995 to October 17, 1995, the period from
October 17, 1995 to December 31, 1995 and the year ended December 31, 1996 have
been derived from the consolidated financial statements of the Predecessor and
KSCO audited by Arthur Andersen llp, independent public accountants. The
financial data for the year ended December 31, 1994 have been derived from the
consolidated financial statements of the Predecessor audited by Deloitte &
Touche llp, independent auditors. The financial data as of September 30, 1997
and for the nine months ended September 30, 1996 and 1997 have been derived
from unaudited consolidated financial statements of KSCO, which, in the opinion
of management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data. Results for the
nine months ended September 30, 1997 are not necessarily indicative of results
to be expected for the full year. The pro forma financial data are not
necessarily indicative of operating results or financial position that would
have been achieved had the Transactions been consummated on the dates indicated
and should not be construed as representative of future operating results or
financial position. The summary historical and pro forma financial data should
be read in conjunction with "Selected Historical Financial Data," "Pro Forma
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto included elsewhere in this Prospectus.
14
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR(1) KSCO THE COMPANY
-------------------- --------------------------------------- ---------------------------
PRO FORMA
---------------------------
NINE MONTHS
PERIOD PERIOD ENDED NINE TWELVE
YEAR ENDED FROM FROM YEAR ENDED SEPTEMBER 30, YEAR ENDED MONTHS MONTHS
DECEMBER 1/1/95 TO 10/17/95 TO DECEMBER ---------------- DECEMBER ENDED ENDED
31, 1994 10/17/95 12/31/95 31, 1996 1996 1997 31, 1996 9/30/97 9/30/97
---------- --------- ----------- ---------- ------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............... $65,428 $53,589 $12,799 $91,632 $69,796 $73,466 $91,632 $73,466 $95,302
Gross profit............ 18,383 13,329 3,446 27,032 19,533 20,362 27,282 21,484 29,233
Selling, general and
administrative
expenses(2)............ 10,534 7,822 1,827 17,051 12,733 11,697 16,626 11,322 15,557
Amortization expense.... 411 320 239 2,557 2,046 2,025 3,729 2,874 3,708
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income ....... 7,438 5,187 1,380 7,424 4,754 6,640 6,927 7,288 9,968
Interest expense........ 5,092 3,472 892 5,953 4,848 2,698 14,570 10,929 14,570
Other expense (income).. (629) 551 214 450 102 430 346 322 674
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
taxes and extraordinary
loss................... 2,975 1,164 274 1,021 (196) 3,512 (7,989) (3,963) (5,276)
Tax provision (benefit). 634 -- 158 923 258 1,586 (2,005) (919) (1,088)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary loss..... 2,341 1,164 116 98 (454) 1,926 (5,984) (3,044) (4,188)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)(3).... $ 2,341 $ 1,164 $ 116 $ (852) $(1,404) $ 1,926 $(5,984) $(3,044) $(4,188)
======= ======= ======= ======= ======= ======= ======= ======= =======
OTHER DATA:
EBITDA(4)............... $14,514 $10,814 $ 2,886 $17,218 $12,210 $16,310 $17,747 $16,791 $21,878
Adjusted EBITDA(5)...... 14,346 11,242 3,163 18,365 12,772 17,115 18,365 17,115 22,708
Depreciation............ 6,559 5,735 1,481 6,829 5,512 4,213 7,437 6,952 8,877
Capital expenditures.... 7,363 4,962 1,168 5,695 4,437 4,114 5,695 4,114 5,372
Adjusted Interest
Expense(6)............. 4,995 3,255 757 5,633 4,608 2,493 13,749 10,313 13,749
Earnings/Fixed
Charges(7)............. 1.56x 1.32x 1.29x 1.16x -- 1.81x -- -- --
<CAPTION>
PRO FORMA
----------------
NINE TWELVE
MONTHS MONTHS
ENDED ENDED
9/30/97 9/30/97
SELECTED RATIOS: ------- -------
<S> <C> <C>
EBITDA/Adjusted Interest Expense............................................................... 1.63x 1.59x
Adjusted EBITDA/Adjusted Interest Expense...................................................... 1.66x 1.65x
Total debt/EBITDA.............................................................................. N/A 5.95x
Total debt/Adjusted EBITDA..................................................................... N/A 5.74x
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
ACTUAL PRO FORMA
-------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital(8)........................................... $ 21,437 $ 23,443
Total assets................................................. 108,742 220,515
Total debt(9)................................................ 40,130 130,269
Stockholders' equity(10)..................................... 22,762 41,569
</TABLE>
- --------
(1) On October 17, 1995, Fasteners was acquired (the "Kohlberg Acquisition") by
KSCO, which was organized by Kohlberg & Co. ("Kohlberg") for the purpose of
acquiring the capital stock of Fasteners. The Kohlberg Acquisition was
accounted for using the purchase method of accounting. Financial
information for periods prior to October 17, 1995 are for Fasteners when it
was a wholly owned subsidiary of Alper Holdings USA, Inc. ("Alper") (in
such capacity, Fasteners is referred to herein as the "Predecessor"). The
Kohlberg Acquisition and the related application of purchase accounting
resulted in changes to the capital structure of the Predecessor and the
historical basis of various assets and liabilities. The effect of such
changes significantly impairs the comparability of the financial position
and results of operations of the Predecessor to those of KSCO.
15
<PAGE>
(2) Selling, general and administrative expenses ("SG&A") includes non-
recurring income of $600 in 1994 primarily related to the favorable
resolution of matters previously accrued. SG&A also includes a non-
recurring charge for severance payments made to employees at the
Clarkesville facility who were terminated when certain Rau and PCI
employees were transferred to the Clarkesville facility. Such charge
amounted to $118, $272 and $154 for the nine months ended September 30,
1996, the year ended December 31, 1996 and the pro forma twelve months
ended September 30, 1997, respectively.
(3) In January 1996, the Company refinanced its previously existing credit
agreements with the Existing Credit Facility, which resulted in an
extraordinary after-tax charge of $950 in the first quarter of 1996 from
the write-off of related deferred financing costs.
(4) EBITDA is defined as net income (loss) before interest expense (including
amortization of deferred financing costs), provision for income taxes,
depreciation, amortization, rental payments on the Synthetic Lease, the
non-cash portion of other expense (income) and extraordinary items.
Payments on the Synthetic Lease were $858 and $3,861 for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively. The non-cash portion of other expense (income) was $(523) and
$123 for the year ended December 31, 1994 and for the period from January
1, 1995 to October 17, 1995, respectively, and was insignificant for all
other periods presented.
(5) Adjusted EBITDA is defined as EBITDA (as defined in footnote (4) above)
plus (i) non-recurring expense (income) included in SG&A (see footnote (2)
above), (ii) the portion of other expense (income) not included in EBITDA,
which consists of miscellaneous non-operating cash items, and (iii)
management fees to Alper and Kohlberg. On an historical basis, management
fees paid to Alper and Kohlberg, included in the general and administrative
expenses, were $538, $0, $63, $425, $342 and $375 for the year ended
December 31, 1994, the period from January 1, 1995 to October 17, 1995, the
period from October 17, 1995 to December 31, 1995, the year ended December
31, 1996 and the nine months ended September 30, 1996 and 1997,
respectively.
The Company has included information concerning EBITDA and Adjusted EBITDA
because it is used by certain investors as a measure of a company's ability
to service its debt. EBITDA and Adjusted EBITDA are not required by
generally accepted accounting principles ("GAAP") and should not be
considered alternatives to net income determined in accordance with GAAP as
an indicator of operating performance or as an alternative to cash flow
from operating activities determined in accordance with GAAP as a measure
of liquidity. The Company's use of EBITDA may not be comparable to
similarly titled measures due to the use by other companies of different
financial statement components in calculating EBITDA.
(6) Adjusted Interest Expense is defined as interest expense less the
amortization of deferred financing costs.
(7) For the purpose of determining the ratio of earnings to fixed charges,
"earnings" consist of income before provision for income taxes and fixed
charges. "Fixed charges" consist of interest expense (including
amortization of deferred financing costs) and one-third of rental expense,
representing that portion of rental expense deemed representative of the
interest factor. Earnings were insufficient to cover fixed charges by $196,
$7,989, $3,963 and $5,276 for the nine months ended September 30, 1996, the
pro forma year ended December 31, 1996, the pro forma nine months ended
September 30, 1997 and the pro forma twelve months ended September 30,
1997, respectively.
(8) Working capital is defined as current assets less current liabilities.
(9) Excludes off-balance sheet financing pursuant to the Synthetic Lease,
proceeds of which were applied toward repayment of debt of $31,268 in
November 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
(10) Pro forma stockholder's equity reflects the Equity Contribution. See "The
Transactions," "Capitalization" and "Description of Capital Stock." Pro
forma stockholder's equity is presented net of $7,831 which represents the
non-cash accounting treatment required for management's continuing
ownership interest, in accordance with the provisions of Emerging Issues
Task Force Issue No. 88-16 of the Financial Accounting Standards Board
(the "FASB").
16
<PAGE>
RISK FACTORS
Holders of Initial Notes should carefully consider the following factors, as
well as the other information and financial data contained in this Prospectus,
before exchanging Initial Notes for Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Issuance of the Exchange Notes in exchange for the Initial Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Initial Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of the
Initial Notes desiring to tender such Initial Notes in exchange for Exchange
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 the tenders of Initial Notes for exchange.
Holders of Initial Notes who do not exchange their Initial Notes for
Exchange Notes pursuant to the Exchange Offer, including Holders whose Initial
Notes are tendered but not accepted, will continue to be subject to the
restrictions on transfer of such Initial Notes as set forth in the legend
thereon, and, except in certain limited circumstances, will no longer have any
registration rights with respect to the Initial Notes. In general, the Initial
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
intend to register the Initial Notes under the Securities Act.
As a condition to its participation in the Exchange Offer pursuant to the
terms of this Agreement, each Holder of Initial Notes shall furnish, upon the
request of the Company, prior to the consummation of the Exchange Offer, a
written representation to the Company and the Guarantor (which may be
contained in the Letter of Transmittal) to the effect that (A) it is not an
affiliate of the Company or the Guarantor within the meaning of the Act, (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
Exchange Notes to be issued in the Exchange Offer and (C) it is acquiring the
Exchange Notes in its ordinary course of business. Holders of Initial Notes
shall use their best efforts to cooperate in the Company's and the Guarantor's
preparations for the Exchange Offer.
Each broker-dealer that holds Initial Notes that were acquired for its own
account as a result of market-making activities or other trading activities
may exchange the Initial Notes for Exchange Notes; provided however, that such
broker-dealer must deliver a prospectus in connection with any resale of such
Exchange Notes. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with the resales of
Exchange Notes received in exchange for Initial Notes where such Initial Notes
were acquired by such broker-dealer as a result of market-making activities.
The Company has agreed that, for a period of nine months after the
consummation of the Exchange Offer it will keep this Prospectus effective,
supplemented, and amended, as required by the Registration Rights Agreement,
to the extent necessary to ensure that it is available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution." To the
extent Initial Notes are exchanged, the tender of Initial Notes pursuant to
the Exchange Offer will reduce the principal amount of the Initial Notes
outstanding, which may have an adverse effect upon, and increase the
volatility of, the market price of the Initial Notes due to a reduction in
liquidity.
SUBSTANTIAL LEVERAGE; RESTRICTIVE COVENANTS
The Company is highly leveraged. At September 30, 1997, on a pro forma basis
after giving effect to the Transactions, the total debt of the Company would
have been $130.3 million (excluding the $25.0 million Revolving Credit
Facility) and its stockholder's equity would have been $41.6 million. Subject
to the restrictions in the Indenture and the New Credit Facility, the Company
may incur additional indebtedness from time to time to provide working
capital, to finance acquisitions or capital expenditures and for other
corporate purposes. The level of the Company's indebtedness will have
important consequences for holders of the 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
17
<PAGE>
working capital, acquisitions or capital expenditures may be limited, (iii)
certain of the Company's indebtedness contains financial and other restrictive
covenants which, if breached, could result in an event of default under such
indebtedness, (iv) the Company's borrowings under the New Credit Facility are
and will continue to be at variable rates of interest, which causes the
Company to be vulnerable to increases in interest rates and (v) the Company's
level of indebtedness could limit its flexibility in planning for and reacting
to, and make it more vulnerable to, competitive pressures and changes in
industry and economic conditions generally. In addition, indebtedness incurred
under the New Credit Facility is scheduled to become due prior to the time any
principal payments are required on the Notes and therefore the Company may
need to refinance such indebtedness. The Company's ability to refinance the
New Credit Facility, if necessary, will depend on, among other things, its
financial condition at the time, the restrictions in the instruments governing
its then outstanding indebtedness and other factors, including market
conditions, that are beyond the control of the Company.
The Company's ability to pay interest and principal on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance. Future operating performance will be affected by prevailing
economic conditions and financial, business and other factors, many of which
are beyond the Company's control. Based upon the current level of operations
and anticipated future growth, the Company believes that its operating cash
flow, together with borrowings under the New Credit Facility, will be
sufficient to meet its operating expenses and capital requirements and its
debt service requirements. There can be no assurance, however, that the
Company's business will continue to generate cash flow at or above current
levels or that anticipated future growth can be achieved. If the Company is
unable to generate sufficient cash flow to service its indebtedness and fund
its capital or other expenditures, it will be forced to adopt an alternative
strategy that may include reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness (including the Notes),
or seeking additional equity or debt capital. There can be no assurance that
any of these strategies could be effected on satisfactory terms, if at all,
particularly in view of the Company's high leverage following the Transactions
and the fact that substantially all of its assets are pledged to secure
borrowings under the New Credit Facility and other secured obligations.
The terms of the New Credit Facility, the Indenture, and the other
agreements governing the Company's indebtedness impose operating and financing
restrictions on the Company. Such restrictions affect, and in many respects
limit or prohibit, among other things, the ability of the Company to incur
additional indebtedness, pay dividends or repurchase stock or make other
distributions, create liens, make certain investments, sell assets, or enter
into mergers or consolidations. The New Credit Facility requires the Company
to comply with certain financial ratios and tests, under which the Company is
required to achieve certain financial and operating results. These
restrictions could limit the ability of the Company to plan for or react to
market conditions or meet extraordinary capital needs or otherwise could
restrict corporate activities. See "Description of Notes--Certain Covenants"
and "Description of Other Indebtedness." There can be no assurance that such
restrictions will not adversely affect the Company's ability to finance its
future operations or capital needs or to engage in other business activities
that would be in the interest of the Company. Moreover, any default under the
documents governing the indebtedness of the Company could have a significant
adverse effect on the market value of the Notes.
EFFECTIVE SUBORDINATION OF THE NOTES AND THE GUARANTEES
The Notes and each Guarantee are effectively subordinated to all secured
obligations of the Company and the guarantor thereof, respectively, to the
extent of the assets securing such obligations. At September 30, 1997, after
giving pro forma effect to the Transactions, the Company would have had
approximately $30.3 million of secured indebtedness outstanding, excluding the
$25.0 million Revolving Credit Facility. The New Credit Facility is secured by
all of the capital stock of the Company's domestic subsidiaries, 66% of the
capital stock of the Company's foreign subsidiaries and substantially all of
the domestic assets of the Company and its subsidiaries.
The Notes are structurally subordinated to all obligations (including trade
payables and accrued liabilities) of the Company's subsidiaries, other than
any subsidiary that issues a Subsidiary Guarantee. No
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Subsidiary Guarantees will be required on the date of the issuance of the
Notes. The Indenture permits the Company and its subsidiaries to incur
additional indebtedness, including secured indebtedness, subject to certain
limitations. The Indenture does not limit Parent's ability to incur
indebtedness.
FOREIGN SALES AND OPERATIONS; IMPACT OF NAFTA
In 1996 and the first nine months of 1997, approximately 22.1% and 26.6%,
respectively, of the Company's net sales were derived from foreign sales and
operations and export sales. In addition, a significant portion of the
Company's anticipated growth is expected to come from foreign sales and
operations. Foreign sales and operations involve varying degrees of risks and
uncertainties inherent in doing business abroad. Such risks include the
possibility of unfavorable circumstances arising from host country laws or
regulations, including unexpected changes of interpretations thereof. Other
risks include partial or total expropriation; export duties and quotas;
currency exchange rate fluctuations; restrictions on repatriation of funds;
the disruption of operations from labor and political disturbances,
insurrection, or war; and the requirements of partial local ownership of
operations in certain countries. Furthermore, customer credit risks are
exacerbated in foreign sales and operations because there often is little
information available about the credit histories of customers in certain
countries.
The value of the Company's foreign sales and earnings may vary with currency
exchange rate fluctuations. To the extent that the Company does not take steps
to mitigate the effects of changes in relative values, changes in currency
exchange rates could have an adverse effect upon the Company's results of
operations, which in turn could adversely affect the ability of Parent and the
Company to meet their debt and preferred stock obligations, including payments
on the Securities.
The North American Free Trade Agreement ("NAFTA"), implemented on January 1,
1994, removes barriers to free trade among Canada, the United States, and
Mexico. The removal of these barriers will take place over a ten-year period
between Mexico and the United States and over five years between Canada and
the United States. There can be no assurance that NAFTA will not result in an
increase in apparel imports from Mexico that compete against products
manufactured by the Company's customers in the United States. Such a
development could materially adversely affect the Company's sales in the
United States. Historically, a majority of the Company's net sales has been to
customers in the United States. No assurance can be given that the Company
will be able to increase sales outside of the United States in the event of a
decline in sales to customers in the United States.
ACQUISITION RISKS
The Company's growth in recent years has been attributable in part to
strategic business acquisitions. The Company intends to seek additional
acquisition opportunities that will allow it to increase its market
penetration, product offerings and distribution capabilities both domestically
and internationally. The criteria for identifying attractive acquisition
candidates include revenue potential, increases in manufacturing, production
and other cost efficiencies and the diversification and expansion of the
Company's product lines and customer base. There can be no assurance that the
Company will be able to successfully identify suitable acquisition candidates,
complete acquisitions, integrate acquired operations into its existing
operations or expand into new markets. The diversion of management's
attention, as well as any unforeseen difficulties or liabilities, expenses,
complications or delays that may be encountered in the integration of acquired
businesses, could have a material adverse effect on the Company. Further, once
integrated, acquired operations may not achieve levels of revenues,
profitability or productivity comparable with those achieved by the Company's
existing operations, or otherwise perform as expected. There can be no
assurance that the Company will, in future acquisitions, continue to achieve
results comparable to those from recent acquisitions.
Depending upon the nature, size and timing of future acquisitions, the
Company may be required to raise additional financing. The Company expects
that a substantial portion of the financing of any acquisition would be
additional indebtedness. Additional indebtedness incurred to finance
acquisitions could adversely affect the
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Company's liquidity and financial condition. There can be no assurance that
the New Credit Facility, the Indenture or any other loan agreements to which
the Company may become a party or subject to will permit such additional
financing or that such additional financing will be available to the Company
on terms acceptable to its management or at all. See "Business--Business
Strategy."
RAW MATERIALS
In 1996, the Company purchased approximately 11 million pounds of brass, 1.1
million pounds of steel, 0.3 million pounds of stainless steel and 0.7 million
pounds of aluminium for use in manufacturing its products. The volatility of
the prices of these materials, particularly brass, which typically is composed
of 70% copper and 30% zinc, could have a material impact on the Company's
results of operations. The cost of copper has been subject to considerable
volatility, ranging between $0.78 and $1.40 per pound in 1994, between $1.21
and $1.46 per pound in 1995 and between $0.87 and $1.30 per pound in 1996. The
volatility of copper prices has in the past adversely affected the Company's
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Fiscal Year 1995
(Combined KSCO and Predecessor) Compared with Fiscal Year 1994 (Predecessor)."
The Company seeks to minimize the impact of price volatility by entering
into hedging arrangements. It has hedged a substantial portion of its raw
material needs through June 1998. To the extent that prices for the Company's
remaining expected needs increase before prices are set in hedging contracts,
there can be no assurance that the Company will be able to achieve adequate
margins on finished products. However, there can be no assurance that the
Company will be able to do so in the future. If the Company is unable to
maintain an adequate differential between finished product prices and material
prices and the effect cannot largely be passed on to its customers, the
Company's operating results would be materially adversely affected.
CONCENTRATION OF MANUFACTURING FACILITIES
Approximately 80% of the Company's products sold in 1996 were manufactured
at its Clarkesville, Georgia facility. The Company anticipates that a
similarly significant amount of its products will continue to be manufactured
at the Clarkesville facility. Should a natural disaster or other event result
in the operations at the Clarkesville facility being disrupted for any
significant period of time or inventory located there being damaged, the
results of operations and financial condition of the Company could be
materially adversely affected. Although the Company maintains insurance
coverage on its production facilities (including business interruption
insurance designed to reduce the impact of significant damage to its
Clarkesville facility), there can be no assurance that such insurance proceeds
would be available on a timely basis or be sufficient to offset fully such
losses. See "Business--Insurance."
COMPETITION
The Company operates in a highly competitive environment. Some of the
Company's competitors are larger, have greater financial resources and may be
less leveraged than the Company. See "Business--Competition."
CONTROLLING STOCKHOLDER
Upon consummation of the Transactions, Saratoga became the beneficial owner
of approximately 75% of the voting stock of Parent, which owns all of the
capital stock of the Company. By virtue of such ownership, Saratoga is in a
position to direct the management and affairs of the Company. Saratoga may
have an interest in pursuing acquisitions, divestitures or other transactions
that, in its judgment, could enhance its equity investment, even though such
transactions might involve risks to the holders of the Securities.
RELIANCE ON KEY PERSONNEL
The Company depends to a large extent upon the abilities and continued
efforts of its senior management, the loss of any of whom could have an
adverse impact on the Company. The Company does not maintain "key
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man" insurance on any of its employees. Furthermore, the Company likely will
be dependent on the senior management of any businesses acquired in the
future. Although the Company has entered into employment agreements with
certain executive officers, if any of these persons becomes unavailable to
continue in such capacity, or if the Company is unable to attract and retain
other qualified employees, the Company's business or prospects could be
materially adversely affected. See "Management." In addition, the Company's
growth and success depend on its ability to attract and retain skilled
personnel to operate machinery used in the Company's manufacturing processes.
LIMITED PRACTICAL VALUE OF PARENT GUARANTEE
Parent will unconditionally guarantee all payments of principal and interest
on the Notes. However, since at present Parent's only significant asset is the
capital stock of the Company (and such asset is pledged to the lenders under
the New Credit Facility), if the Company should be unable to meet its payment
obligations with respect to the Notes, it is unlikely that Parent would be
able to do so.
ENVIRONMENTAL MATTERS
Like similar companies, the Company's operations and properties are subject
to a wide variety of increasingly complex and stringent federal, state, local
and foreign environmental laws and regulations, including those governing the
use, storage, handling, generation, treatment, emission, release, discharge
and disposal of certain materials and wastes, the remediation of contaminated
soil and groundwater, and the health and safety of employees (collectively,
"Environmental Laws"). As such, the nature of the Company's current and former
operations, and those of its predecessors in interest, exposes it to the risk
of claims with respect to such matters and there can be no assurance that
material costs and liabilities will not be incurred in connection with such
claims. The Company is currently subject, and may in the future be subject, to
liability for violations of Environmental Laws and remediation of
contamination at currently or formerly owned or operated facilities, including
its Clarkesville, Georgia facility. Based upon its experience to date, the
Company believes that the future cost of compliance with the existing
Environmental Laws, and liability for known environmental claims pursuant to
such Environmental Laws, will not have a material adverse effect on the cash
flow, financial condition or results of operation of the Company. However,
future events, such as new information, changes in
existing Environmental Laws or their interpretation, and more vigorous
enforcement policies of regulatory agencies, may give rise to additional
expenditures or liabilities that could be material. See "Business--
Environmental Matters."
PENSION MATTERS
As described in Note 11 to the Company's consolidated financial statements,
at December 31, 1996, the projected benefit obligations under the Company's
defined benefit pension plan exceeded the fair value of plan assets (excluding
the effect of unrecognized net gain relating thereto) by approximately $9.8
million, based on certain assumptions by the Company set forth in the Note,
which could be different from those used by the Pension Benefit Guaranty
Corporation (the "PBGC"). On November 19, 1997, the Company received a request
for information from the PBGC, a quasi-government agency which guarantees
certain benefits under defined benefit pension plans and monitors such plans.
Among its powers, the PBGC may institute proceedings to terminate a defined
pension benefit plan. The PBGC has requested information with respect to the
Acquisition and its potential effect on the Company's pension plan. The
Company is complying with the PBGC's request, but cannot predict whether the
PBGC will seek to require the Company to take any actions as a result of the
Acquisition, including accelerated payment to the pension plan. The Company,
Saratoga and Kohlberg intend to cooperate with the PBGC to resolve in a timely
manner any concerns it may have. Any such actions could increase the Company's
costs of maintaining its pension plan, which could have an adverse effect on
the cash flow, financial condition or results of operations of the Company.
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MATURE INDUSTRY
The fastener industry is a mature industry in which minimal growth in sales
of fasteners is expected. Accordingly, growth in the Company's revenues and
earnings will depend significantly on the Company's ability to acquire and
consolidate profitable companies, to develop and sell higher margin specialty
applications and to achieve further cost reductions through improved
manufacturing technology.
FRAUDULENT CONVEYANCE CONSIDERATIONS
A significant portion of the net proceeds of the Offerings was distributed
to the stockholders of KSCO. In connection with the Transactions, affiliates
of Kohlberg and KSCO's other existing stockholders received an aggregate of
approximately $98.1 million. Under fraudulent transfer law, if a court were to
find in a bankruptcy, reorganization or rehabilitation case or similar
proceeding or a lawsuit by or on behalf of other creditors of the Company,
that the Initial Notes were issued with the intent to defraud, hinder or delay
creditors, or that the Company received less than fair consideration or
reasonably equivalent value for incurring the indebtedness represented by the
Initial Notes and, at the time of such incurrence, the Company (i) was
insolvent or was rendered insolvent by reason of such incurrence, (ii) was
engaged or about to engage in a business or transaction for which its
remaining property constituted unreasonably small capital or (iii) intended to
incur, or believed it would incur, debts beyond its ability to pay such debts
as they mature, such court could, among other things, (a) void all or a
portion of the Company's obligations to the holders of Notes and/or (b)
subordinate the Company's obligations to the holders of the Notes to other
existing and future indebtedness of the Company the effect of which would be
to entitle such other creditors to be paid in full before any payment could be
made on the Notes. The measure of insolvency for purposes of determining
whether a transfer is avoidable as a fraudulent transfer varies depending upon
the law of the jurisdiction which is being applied. Generally, however, a
debtor would be considered insolvent if the sum of all of its liabilities were
greater than the value of all of its property at a fair valuation, or if the
present fair saleable value of the debtor's assets were less than the amount
required to repay its probable liability on its debts as they become absolute
and mature. There can be no assurance as to what standard a court would apply
in order to determine solvency.
Management believed the Initial Notes were being issued without the intent
to hinder, defraud or delay creditors, for proper purposes and in good faith.
To the extent that proceeds from the sale of the Initial Notes were used to
finance the distribution to stockholders, a court may find that the Company
did not receive fair consideration or reasonably equivalent value for the
incurrence of the indebtedness represented by the Notes. Management believed
that the Company received equivalent value at the time the indebtedness under
the Initial Notes was incurred. As of September 30, 1997 on a pro forma basis
after giving effect to the Transactions, the Company would have had
stockholders' equity of $41.6 million. See "Capitalization." Management
believed that, although a significant portion of the net proceeds from the
sale of the Notes was distributed to stockholders of KSCO, for purposes of the
U.S. Bankruptcy Code and state fraudulent transfer or conveyance laws, the
Company was and, after the issuance of the Initial Notes and the application
of the proceeds therefrom, was, solvent, had sufficient capital for carrying
on its business and was able to pay its debts as they matured. These beliefs
were based upon the Company's operating history, management's analysis of cash
flows, the estimated fair value of the Company's assets and the Company's
estimated liabilities after giving effect to the Transactions. In determining
the estimated fair value of the Company's assets, the Board of Directors
utilized a written report of an expert in appraisals as to the equity value of
the Company and as to certain other valuation and solvency matters. The
various factors considered by the Board as enumerated above, supported the
Board's conclusions regarding the sufficiency of the Company's capital and no
one factor was given more significance than others by the Board in reaching
its conclusions. As a result of the uncertainty of the application of
fraudulent transfer or conveyance law in transactions similar to the
Transactions, including the distribution to stockholders, there can be no
assurance that a court passing on any of the foregoing issues would agree with
management's views.
In addition, the Subsidiary Guarantees, if any are issued, may be subject to
review under fraudulent conveyance statutes in a bankruptcy, reorganization or
rehabilitation case or similar proceeding or a lawsuit by or on behalf of
other creditors of any of the guarantors thereof. In such a case, the analysis
set forth above would
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generally apply, except that the Subsidiary Guarantees could also be subject
to the claim that, since the Subsidiary Guarantees were incurred for the
benefit of the Company (and only indirectly for the benefit of the guarantors
thereof), they were incurred for less than reasonably equivalent value or fair
consideration. A court could therefore subordinate the Subsidiary Guarantees
to the other obligations of the guarantors thereof, or take other action
detrimental to holders of the Notes, including, under certain circumstances,
invalidating the Subsidiary Guarantees. No Subsidiary Guarantees will be
required on the Issue Date.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to purchase all of the outstanding Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of purchase. There can
be no assurance that the Company will have sufficient funds available, will be
able to raise sufficient funds through a refinancing of the Notes, or will be
permitted by its other debt agreements to purchase the Notes upon the
occurrence of a Change of Control. In addition, a Change of Control may
require the Company to offer to purchase other outstanding indebtedness and
would cause a default under the New Credit Facility. The inability to purchase
all of the tendered Notes would constitute an Event of Default (as defined)
under the Indenture. See "Description of Notes--Change of Control."
The Change of Control provision may not necessarily afford the holders of
Notes protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger, or similar transaction involving the
Company that could adversely affect the holders because such transactions may
not involve a shift in voting power or beneficial ownership, may not involve a
shift of the required magnitude or may not otherwise fit within the definition
of Change of Control.
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The Initial Notes are eligible for trading on the Private Offerings,
Resales and Trading through Automated Linkage Market by Qualified
Institutional Buyers ("QIBs"). The Exchange Notes are new securities for which
there is no existing market. There can be no assurance as to the liquidity of
any markets that may develop for the Exchange Notes, the ability of the
holders of the Exchange Notes to sell their Exchange Notes or the price at
which holders would be able to sell their Exchange Notes. Future trading
prices of the Exchange Notes will depend on many factors, including, among
other things, prevailing interest rates, the Company's operating results, and
the market for similar securities. The Initial Purchasers have advised the
Company that they currently intend to make a market in the Notes. However, the
Initial Purchasers are not obligated to do so and any market-making may be
discontinued at any time without notice. The Company and Parent do not intend
to apply for listing of the Exchange Notes on any securities exchange.
The liquidity of, and trading market for, the Exchange Notes may also be
materially and adversely affected by declines in the market for high yield
securities generally. Such a decline may materially and adversely affect such
liquidity and trading independent of the financial performance of, and
prospects for, the Company and Parent.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Initial Notes were sold by the Company on November 26, 1997 to the
Initial Purchaser who resold the Initial Notes (i) to "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act) in reliance upon
Rule 144A under the Securities Act and (ii) outside the United States to
persons other than U.S. persons in reliance upon Regulation S under the
Securities Act. In connection therewith, Predecessor, Guarantor and the
Initial purchasers entered into the Registration Rights Agreement, pursuant to
which Predecessor and Guarantor
agreed for the benefit of the Holders of the Initial Notes, that they would,
at their sole cost, (i) within 90 days following the original issuance of the
Initial Notes, file with the Commission the Exchange Offer Registration
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Statement (of which this Prospectus is a part) under the Securities Act with
respect to an issue of a series of new notes of the Company identical in all
material respects to the series of Initial Notes and (ii) use their reasonable
best efforts to cause such Exchange Offer Registration Statement to become
effective under the Securities Act within 120 days following the original
issuance of the Initial Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer to the Holders of the Initial
Notes the opportunity to exchange their Initial Notes for a like principal
amount of Exchange Notes, to be issued without a legend restricting their
transfer and which may, subject to certain exceptions described below, be
reoffered and resold by the Holder without restrictions or limitations under
the Securities Act. The term "Holder" with respect to any Note means any
person in whose name such Note is registered on the books of the Company.
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as
defined in Rule 405 of the Securities Act) of the Company or the Guarantor
(ii) 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 Exchange Notes and (iii) it is acquiring the Exchange Notes in the
ordinary course of its business (a Holder unable to make the foregoing
representation is referred to as a "Restricted Holder"). A Restricted Holder
will not be able to participate in the Exchange Offer and may only sell its
Initial Notes pursuant to a registration statement containing the selling
security holder information required by Item 507 of Regulation S-K under the
Securities Act, or pursuant to an exemption from the registration requirement
of the Securities Act.
Each broker-dealer (other than a Restricted Holder) that receives Exchange
Notes for its own account pursuant to the Exchange Offer (a "Participating
Broker-Dealer") is required to acknowledge in the Letter of Transmittal that
it acquired the Initial Notes as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with
the resale of such Exchange Notes. Based upon interpretations by the staff of
the Commission, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. The Company has
agreed that for a period of nine months following consummation of the Exchange
Offer it will make this Prospectus available, for use in connection with any
such resale, to any Participating Broker-Dealer that notifies the Company in
the Letter of Transmittal that it may be subject to such prospectus delivery
requirements. The Company believes that during such period of time, delivery
of this Prospectus, as it may be amended or supplemented, will satisfy the
prospectus delivery requirements of a Participating Broker-Dealer engaged in
market-making or other trading activities. See "The Exchange Offer" and "Plan
of Distribution".
Based upon interpretations by the staff of the Commission, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer may be
offered for resale, resold, and otherwise transferred by a Holder thereof
(other than a Restricted Holder or a Participating Broker-Dealer) without
compliance with the registration and prospectus delivery requirements of the
Securities Act.
If (i) prior to the consummation of the Exchange Offer, it is reasonably
determined in good faith that (A) the Exchange Notes upon receipt would not be
tradable by Holders thereof, other than Restricted Holders, without
registration under the Securities Act and applicable state securities laws or
(B) the Commission is unlikely to permit the consummation of the Exchange
Offer or (ii) the Exchange Offer commenced but not consummated prior to May
25, 1998 for any reason, then the Company is required under the Registration
Rights Agreement to file with the Commission a shelf registration statement
(the "Shelf Registration Statement") to cover resales of Transfer Restricted
Securities (as defined) by the Holders thereof who satisfy certain conditions
relating to the provision of information for inclusion in the Shelf
Registration Statement. The Company is required under the Registration Rights
Agreement to file the Shelf Registration Statement as promptly as reasonably
practicable but in no event later than 60 days after the date on which the
Company becomes obligated to file same, to use its reasonable best effort to
cause the Shelf Registration Statement to be declared effective on or before
the 150th day after the obligation to file arises and, except under certain
circumstances, to keep the
Shelf Registration Statement continuously effective under the Securities Act
until November 30, 2007, or such earlier time when all Notes are sold. For
purposes of the foregoing, "Transfer Restricted Securities" means each
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Initial Note and each Exchange Note to which clause (i)(A) of the first
sentence of this paragraph is applicable, until in the case of any such Notes
(i) such Notes have been sold pursuant to an effective registration statement,
(ii) such Notes have been sold in compliance with Rule 144 under the
Securities Act or would be permitted to be sold pursuant to Rule 144(k)
thereunder or (iii) such Notes cease to be outstanding.
The Company will, in the event of the filing of the Shelf Registration
Statement, provide to each Holder of Transfer Restricted Securities covered by
the Shelf Registration Statement copies of any Shelf Registration Statement or
any prospectuses which is a part thereof, notify each such Holder when the
Shelf Registration Statement has become effective and take certain other
actions as are required to permit unrestricted resales of Transfer Restricted
Securities. A Holder of Transfer Restricted Securities that sells such
Transfer Restricted Securities pursuant to the Shelf Registration Statement
generally will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to the purchaser, will be
subject to certain of the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such Holder (including
certain indemnification obligations). In addition, Holders of Transfer
Restricted Securities will be required to deliver information to be used in
connection with the Shelf Registration Statement within a reasonable time in
order to have their Transfer Restricted Securities included in the Shelf
Registration Statement and receive any Liquidated Damages (as defined). The
Company will notify such Holders of the occurrence of any event that makes any
statement made in the Shelf Registration Statement untrue in any material
respect or that requires the making of any changes so that it will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, in which case such Holders will be prohibited from using the Shelf
Registration Statement and any prospectus which is a part thereof until the
Company amends or supplements the same.
If (a) the Company and the Guarantor fail to file within 90 days, or cause
to become effective within 120 days, the Exchange Offer Registration Statement
or (b) the Company and the Guarantor are obligated to file the Shelf
Registration Statement and such Shelf Registration Statement is not filed
within 90 days, or declared effective within 150 days, of the date on which
the Company and the Guarantor became so obligated or (c) the Company and the
Guarantor fail to consummate the Exchange Offer within 30 days of the Exchange
Offer Effective Date or (d) the Shelf Registration Statement or the Exchange
Offer Registration Statement is declared effective but thereafter 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 and the Guarantor will pay liquidated damages
("Liquidated Damages") to each Holder of Transfer Restricted Securities,
during the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of Notes constituting Transfer Restricted Securities held by such
Holder. The amount of the Liquidated Damages will increase an additional $.05
per week per $1,000 principal amount constituting Transfer Restricted
Securities for each subsequent 90-day period until the applicable Registration
Default has been cured, up to a maximum amount of Liquidated Damages of $.30
per week per $1,000 principal amount of Notes constituting Transfer Restricted
Securities. All accrued Liquidated Damages will be paid by the Company on the
applicable interest payment dates to the Global Note Holder by wire transfer
of immediately available funds or by federal funds check and to the Holder of
certificated securities by mailing a check to such Holders' registered
addresses. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Payment of Liquidated Damages is the sole remedy available to the Holders of
Transfer Restricted Securities in the event that the Company does not comply
with the deadlines set forth in the Registration Rights Agreement with respect
to the registration of Transfer Restricted Securities for resale under the
Shelf Registration Statement.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Initial
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Initial Notes accepted in the Exchange Offer. Holders
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may tender some or all of their Initial Notes pursuant to the Exchange Offer.
However, Initial Notes may be tendered only in integral multiples of $1,000.
The terms of the Exchange Notes will be identical in all material respects
to the terms of the Initial Notes, except that the Exchange Notes have been
registered under the Securities Act and therefore will not bear legends
restricting their transfer and will not be entitled to Liquidated Damages, if
any, under certain circumstances described in the Registration Rights
Agreement. The Exchange Notes will evidence the same debt as the Initial Notes
and will be entitled to the benefits of the Indenture under which the Initial
Notes were, and the Exchange Notes will be, issued.
As of the date of this Prospectus, $100.0 million aggregate principal amount
of the Initial Notes is outstanding. The Company has fixed the close of
business on , 1998 as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus, together with the
Letter of Transmittal, will initially be sent.
Holders of the Initial Notes do not have any appraisal or dissenters' rights
under law or the Indenture in connection with 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 of the
Commission thereunder.
Holders who tender Initial Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Initial
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent (as defined) of any extension by oral or written notice and will make a
public announcement thereof prior to 9:00 a.m., New York City time, on the
next business day after each previously scheduled Expiration Date unless
otherwise required by applicable law or regulation.
The Company reserves the right, in its reasonable discretion, (i) to delay
accepting any Initial Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under the caption "--Conditions" shall not have
been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent or (ii)
to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by a public announcement thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered Holders, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure
to the registered Holders, if the Exchange Offer would otherwise expire during
such five to ten business day period.
Without limiting the manner in which the Company may choose to make a public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely
release to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a Holder of Initial Notes may tender such Initial Notes in the Exchange
Offer. A Holder who wishes to tender Initial Notes for exchange pursuant to
the Exchange Offer must transmit a properly completed and duly executed Letter
of Transmittal, or a facsimile thereof, together with any required signature
guarantees, or, in the
26
<PAGE>
case of a book-entry transfer, an Agent's Message (as defined), and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) certificates for such
Initial Notes must be received by the Exchange Agent prior to the Expiration
Date along with the Letter of Transmittal, (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Initial Notes into
the Exchange Agent's account at The Depository Trust Company ("DTC" or 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. To be tendered effectively, the Initial Notes, or
Book-Entry Confirmation, as the case may be, the Letter of Transmittal and
other required documents must be received by the Exchange Agent at the address
set forth below under "--Exchange Agent" prior to 5:00 p.m., New York City
time, on the Expiration Date. DELIVERY OF DOCUMENTS TO THE BOOK ENTRY TRANSFER
FACILITY IN ACCORDANCE WITH ITS PROCEDURE DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
DTC has authorized DTC participants that hold Initial Notes on behalf of
beneficial owners of Initial Notes through DTC to tender their Initial Notes
as if they were Holders. To effect a tender of Initial Notes, DTC participants
should either (i) complete and sign the Letter of Transmittal (or a manually
signed facsimile thereof), have the signature thereon guaranteed if required
by the instructions to the Letter of Transmittal, and mail or deliver the
Letter of Transmittal (or such manually signed facsimile) to the Exchange
Agent pursuant to the procedure set forth in "Procedures for Tendering" or
(ii) transmit their acceptance to DTC through the DTC Automated Tender Offer
Program ("ATOP") for which the transaction will be eligible and follow the
procedure for book-entry transfer set forth in "--Book-Entry Transfer."
The tender by a Holder will constitute an agreement between such Holder and
the Company in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal.
The method of delivery of the Initial Notes and the Letter of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the Holder. Instead of delivery by mail, it is recommended that
Holders use an overnight or hand delivery service. In all cases, sufficient
time should be allowed to assure delivery to the Exchange Agent before the
Expiration Date. No Letter of Transmittal or Initial Notes, or Book-Entry
Confirmation, as the case may be, should be sent to the Company.
Any beneficial owner whose Initial Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
owner must, prior to completing and executing the Letter of Transmittal and
delivering such beneficial owner's Initial Notes, either make appropriate
arrangement to register ownership of the Initial Notes in such owner's name or
obtain a properly completed bond power from the registered Holder. The
transfer of registered ownership may take considerable time.
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Initial Notes listed therein, such Initial Notes must be
endorsed or accompanied by a properly completed bond power and signed by such
registered Holder as such registered Holder's name appears on such Initial
Notes.
If the Letter of Transmittal or any Initial Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Initial Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. 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,
27
<PAGE>
such guarantee must be by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of
Rule 17Ad15 under the Exchange Act (an "Eligible Institution").
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Initial Notes 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 Initial Notes not properly tendered or any Initial Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Initial Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Initial Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall incur any liability for failure to give notice of any defect or
irregularity with respect to any tender of Initial Notes. Tenders of Initial
Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Initial Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will not be deemed to have been
properly tendered. Such Initial Notes will be returned by the Exchange Agent
to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
By tendering, each Holder will represent to the Company, among other things,
that such Holder is not a Restricted Holder. In addition, each Participating
Broker-Dealer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
For each Initial Note accepted for exchange, the Holder of such Initial Note
will receive an Exchange Note having a principal amount equal to that of the
surrendered Initial Note. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted properly tendered Initial Notes for exchange
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent.
In all cases, issuance of Exchange Notes for Initial Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Initial Notes or a
timely Book-Entry Confirmation of such Initial Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal or Agent's Message and all other required
documents. If any tendered Initial Notes are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer or if Initial Notes
are submitted for a greater principal amount than the Holder desires to
exchange, such unaccepted or non-exchanged Initial Notes will be returned
without expense to the tendering Holder thereof (or, in the case of Initial
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, such non-exchanged Initial Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the Expiration Date.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish a new account or utilize an existing
account with respect to the Initial Notes at DTC promptly after the date of
this Prospectus, and any financial institution that is a participant in DTC
and whose name appears on a security position listing as the owner of Initial
Notes may make a book-entry tender of Initial Notes by causing DTC to transfer
such Initial Notes into the Exchange Agent's account in accordance with DTC's
procedures for such transfer. However, although tender of Initial Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
the Letter of Transmittal (or a manually signed facsimile thereof), properly
completed and validly executed, with any required signature guarantees, or an
Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must, in any case, be
28
<PAGE>
received by the Exchange Agent at its address set forth below under the
caption "Exchange Agent" on or prior to the Expiration Date, or the guaranteed
delivery procedures described below must be complied with. The confirmation of
book-entry transfer of Initial Notes into the Exchange Agent's account at DTC
as described above is referred to herein as a "Book-Entry Confirmation."
Delivery of documents to DTC in accordance with DTC's procedures does not
constitute delivery to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a Book-Entry
Confirmation, which states that DTC has received an express acknowledgement
from the participant in DTC tendering the Initial Notes stating (i) the
aggregate principal amount of Initial Notes which have been tendered by such
participant, (ii) that such participant has received and agrees to be bound by
the terms of the Letter of Transmittal and (iii) that the Company may enforce
such agreement against the participant.
GUARANTEE DELIVERY PROCEDURES
Holders who wish to tender their Initial Notes and (i) whose Initial Notes
are not immediately available, (ii) who cannot deliver their Initial Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date or (iii) who cannot complete the procedure
for book-entry transfer on a timely basis, may effect a tender if:
(a) the tender if made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate
numbers(s) of such Initial Notes and the principal amount of Initial 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, the Letter of Transmittal (or facsimile thereof) or, in
the case of a book-entry transfer, an Agent's Message, together with the
certificate(s) representing the Initial Notes, or 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
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof) or, in the case of a book-entry transfer, an Agent's
Message, as well as the certificate(s) representing all tendered Initial
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 New York Stock Exchange
trading days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Initial Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Initial Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Initial Notes to be withdrawn (the
"Depositor"), (ii) identify the Initial Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Initial Notes),
(iii) be signed by the Holder in the same manner as the original signature on
the Letter of Transmittal by which such Initial Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Initial Notes register the
transfer of such Initial Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any such Initial Notes are to be
registered, if different from that of the Depositor. If certificates for
Initial 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 Initial
Notes
29
<PAGE>
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
Initial Notes and otherwise comply with the procedures of the Book-Entry
Transfer Facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company
in its sole discretion, which determination shall be final and binding on all
parties. Any Initial Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Initial Notes so withdrawn are
validly retendered. Properly withdrawn Initial Notes may be retendered by
following one of the procedures described above under "-- Procedures for
Tendering" at any time prior to the Expiration Date.
Any Initial Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer to the Holder thereof without cost
to such Holder (or, in the case of Initial 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 Initial
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility for the Initial Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any
Initial Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Initial Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company, or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries;
(b) any change, or any development involving a prospective change, in the
business or financial affairs of the Company or any of its subsidiaries has
occurred which, in the reasonable judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company;
(c) any law, statute, rule or regulation is proposed, adopted or enacted,
which in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company;
(d) there shall have occurred (i) any general suspension of trading in,
or general limitation on prices for securities on the New York Stock
Exchange, (ii) a declaration of a banking noratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority that adversely affects the extension of
credit to the Company or (iii) a commencement of war, armed hostilities or
other similar international calamity directly or indirectly involving the
United States; or, in the case any of the foregoing exists at the time of
commencement of the Exchange Offer, a material acceleration or worsening
thereof; or
(e) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its reasonable discretion. The failure by the Company
at any time to exercise any of the foregoing rights shall not be deemed a
waiver of such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any
Exchange Notes and return all tendered Exchange Notes to the Tendering
30
<PAGE>
Holders, (ii) extend the Exchange Offer and retain all Exchange Notes tendered
prior to the expiration of the Exchange Offer, subject, however, to the rights
of Holders to withdraw such Initial Notes (see "--Withdrawal of Tenders"
above) or (iii) waive such unsatisfied conditions with respect to the Exchange
Offer and accept all properly rendered Initial Notes which have not been
withdrawn. If such waiver constitutes a material change to the Exchange Offer,
the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Holders, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered Holders, if the Exchange Offer would otherwise expire during
such five to six business day period.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Office Requests for additional copies of this Prospectus or
of the Letter of Transmittal should be directed to the Exchange Agent
addressed as follows:
To: United States Trust Company of New York
By Hand (before 4:30 p.m.);
United States Trust Company of New York
111 Broadway
New York, New York 10006 By Overnight Courier/By Hand (after 4:30 p.m.); 770
Broadway 13th Floor New York, New York 10003
Attn: Lower Level Corporate Trust Window
Facsimile Transmission
(212) 780-0592
Confirm by Telephone: (800) 548-6565
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telephone or in person by officers and regular employees of the
Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Initial Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes, or Initial Notes for principal amounts not
tendered or accepted for exchange, are to be delivered to, or are to be issued
in the name of, any person other than the registered Holder of the Initial
Notes tendered, or if tendered Initial Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Initial
Notes pursuant to the Exchange Offer, then 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 with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.
31
<PAGE>
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Initial Notes, which is the principal amount as reflected in the Company's
accounting records on the date of the exchange. Accordingly, no gain or loss
for accounting purposes will be recognized. The expenses of the Exchange Offer
and the unamortized expenses related to the issuance of the Initial Notes will
be amortized over the term of the Notes.
REGULATORY APPROVALS
The Company does not believe that the receipt of any material federal or
state regulatory approvals will be necessary in connection with the Exchange
Offer, other than the effectiveness of the Exchange Offer Registration
Statement under the Securities Act.
OTHER
Participation in the Exchange Offer is voluntary and Holders of Initial
Notes should carefully consider whether to accept the terms and conditions
thereof. Holders of the Initial Notes are urged to consult their financial and
tax advisors in making their own decisions on what action to take with respect
to the Exchange Offer.
CONSEQUENCES OF FAILURE TO PROPERLY TENDER OLD NOTES IN THE EXCHANGE OFFER
Issuance of the Exchange Notes in exchange for the Initial Notes pursuant to
the Exchange Offer will be made only after timely receipt by the Exchange
Agent of such Initial Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, Holders of the
Initial Notes desiring to tender such Initial Notes in exchange for Exchange
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 Initial Notes for exchange. Initial Notes that are not tendered
or that are tendered but not accepted by the Company for exchange, will,
following consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof under the Securities Act and, upon
consummation of the Exchange Offer, certain rights under the Registration
Rights Agreement will terminate.
In the event the Exchange Offer is consummated, the Company will not be
required to register the unexchanged Initial Notes. Unexchanged Initial Notes
will continue to be subject to the following restrictions on transfer: (i) the
unexchanged Initial Notes may be resold only if registered pursuant to the
Securities Act, if any exemption from registration is available thereunder or
if neither such registration nor such exemption is required by law and (ii)
the unexchanged Initial Notes will bear a legend restricting transfer in the
absence of registration or an exemption therefrom. The Company does not
currently anticipate that it will register the unexchanged Initial Notes under
the Securities Act. To the extent that Initial Notes are tendered and accepted
in connection with the Exchange Offer, any trading market for unexchanged
Initial Notes could be adversely affected.
32
<PAGE>
THE TRANSACTIONS
Predecessor and Parent were formed by Saratoga to effect the acquisition of
the Company. Predecessor entered into the Stock Purchase Agreement with KSCO,
which owned all of the capital stock of Fasteners, and the stockholders and
optionholders of KSCO. Under the Stock Purchase Agreement, Predecessor agreed
to purchase all of the capital stock of KSCO for a purchase price in cash of
approximately $168.8 million less the amount of indebtedness of the Company
existing immediately prior to closing of the acquisition (including
indebtedness that will not be repaid in connection with the Transactions).
Concurrently with the consummation of the Offerings, Predecessor merged with
and into KSCO, and KSCO merged with and into Fasteners, with Fasteners
surviving the mergers. Following such mergers, the Notes became obligations of
Fasteners. The purchase of KSCO capital stock by Predecessor and the mergers
of Predecessor and KSCO into Fasteners are together referred to herein as the
"Acquisition."
In connection with the Acquisition, Saratoga and certain other investors
made a $36.6 million equity investment, consisting of (i) $0.4 million in
shares of Parent's Common Stock, par value $0.0001 per share (the "Common
Stock"), and (ii) $36.2 million aggregate liquidation preference of Parent's
Series B Preferred Stock, par value $0.0001 per share (the "Series B Preferred
Stock") (collectively, the "Saratoga Investment"). Management and the Chairman
of the Board rolled over $3.4 million of their stock options in KSCO into
options to purchase Common Stock and Series B Preferred Stock (the "Management
Investment"). The Saratoga Investment and the Management Investment are
referred to as the "Equity Investments." Concurrently with the Notes Offering,
Parent offered, for gross proceeds of $10.0 million, 100,000 Units, each Unit
consisting of $100 liquidation preference of Parent's Series A Cumulative
Redeemable Exchangeable Preferred Stock (the "Senior Preferred Stock") and one
warrant (the "Warrants") to purchase Common Stock. The net proceeds of the
Equity Investments and the Units Offering totalled $49.4 million, after fees
and expenses to Parent of $0.6 million. Parent contributed (the "Equity
Contribution") such amount to Fasteners in the form of common equity. In
connection with the Acquisition, Fasteners entered into the New Credit
Facility, which consists of the $28.0 million Term Loan and the $25.0 million
Revolving Credit Facility. See "Description of Other Indebtedness--New Credit
Facility."
Proceeds from the Equity Contribution, the Notes Offering and the Term Loan
were used to finance the purchase price in the Acquisition, repurchase
attaching machinery subject to the Synthetic Lease, repay the Existing Credit
Facility and pay related fees and expenses. The Acquisition, the repurchase of
attaching machinery subject to the Synthetic Lease, the repayment of the
Existing Credit Facility, the Offerings, the Equity Contribution, the
borrowing of the Term Loan and the payment of related fees and expenses are
collectively referred to herein as the "Transactions." The following table
illustrates the sources of funds to the Company and uses of funds by the
Company relating to the Transactions, assuming they were consummated on
September 30, 1997:
<TABLE>
<CAPTION>
SOURCES OF FUNDS
<S> <C>
Notes..................... $100.0
Term Loan................. 28.0
Equity Contribution(a).... 49.4
------
Total................... $177.4
======
<CAPTION>
USES OF FUNDS
(Dollars in millions)
<S> <C>
Cash to selling stockholders. $ 98.1
Repurchase of equipment
subject to Synthetic Lease.. 29.2
Repay Existing Credit Facili-
ty.......................... 39.3
Fees and expenses(b)......... 10.8
------
Total...................... $177.4
======
</TABLE>
- -------
(a) Parent funded the Equity Contribution from the Equity Investments and the
Units Offering (net of estimated fees and expenses).
(b) Excludes estimated fees and expenses of Parent related to the Units
Offering of $0.6 million.
33
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth, as of September 30, 1997, the consolidated
capitalization of (i) KSCO and its subsidiaries on an historical basis and
(ii) the Company and its subsidiaries after giving pro forma effect to the
Transactions. This table should be read in conjunction with "The
Transactions," "Pro Forma Consolidated Financial Statements" and the
consolidated financial statements and the notes thereto included elsewhere in
this Offering Memorandum.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------
KSCO COMPANY
ACTUAL PRO FORMA
-------- ----------
<S> <C> <C>
Long-term debt (including current maturities)(1):
Existing Credit Facility................................ $ 37,861 $ --
New Credit Facility(2).................................. -- 28,000
11 1/4% Senior Notes due 2007........................... -- 100,000
Other(3)................................................ 2,269 2,269
-------- ---------
Total long-term debt (including current maturities)... 40,130 130,269
-------- ---------
Stockholders' equity:
Common stock, par value $0.01 per share, 15,000,000
shares authorized, 8,880,102 shares issued and
outstanding, actual; 1,000 shares authorized,
100 shares issued and outstanding, pro forma........... 89 --
Preferred stock, par value $0.01 per share, 20,000
shares authorized, no shares issued and outstanding,
actual and pro forma................................... -- --
Additional paid-in capital.............................. 22,086 49,400
Retained earnings....................................... 1,191 --
Foreign currency translation adjustment................. (604) --
Predecessor basis adjustment(4)......................... -- (7,831)
-------- ---------
Total stockholders' equity............................ 22,762 41,569
-------- ---------
Total capitalization.................................. $ 62,892 $ 171,838
======== =========
</TABLE>
- --------
(1) Excludes off-balance sheet financing pursuant to the Synthetic Lease,
proceeds of which were applied toward repayment of debt of $31,268 in
November 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
(2) Excludes the $25,000 Revolving Credit Facility, which will be undrawn at
closing. See "Description of Other Indebtedness--New Credit Facility."
(3) Includes long-term debt at Scovill Europe and various capital lease
obligations.
(4) Represents the non-cash accounting treatment required for management's
continuing ownership interest in accordance with the provisions of
Emerging Issues Task Force Issue No. 88-16 of the FASB.
34
<PAGE>
The following table sets forth the consolidated capitalization of Parent and
its subsidiaries (including the Company) as of September 30, 1997 assuming
that Parent had been formed at such date and after giving pro forma effect to
the Transactions. This table should be read in conjunction with "The
Transactions," "Pro Forma Consolidated Financial Statements" and the
consolidated financial statements and the notes thereto included elsewhere in
this Offering Memorandum.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
PARENT
PRO FORMA
------------------
<S> <C>
Long-term debt (including current maturities)(1):
New Credit Facility(2) ................................... $ 28,000
11 1/4% Senior Notes due 2007............................. 100,000
Other(3) ................................................. 2,269
--------
Total long-term debt (including current maturities)..... 130,269
--------
Series A Cumulative Redeemable Exchangeable Preferred
Stock(4)................................................... 9,400
Stockholders' equity:
Series B Preferred Stock.................................. 39,600
Common Stock.............................................. --
Additional paid-in capital................................ 400
Retained earnings......................................... --
Predecessor basis adjustment(5)........................... (7,831)
--------
Total stockholders' equity.............................. 32,169
--------
Total capitalization.................................... $171,838
========
</TABLE>
- --------
(1) Excludes off-balance sheet financing pursuant to the Synthetic Lease,
proceeds of which were applied toward repayment of debt of $31,268 in
November 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
(2) Excludes the $25,000 Revolving Credit Facility, which was undrawn at
closing. See "Description of Other Indebtedness--New Credit Facility."
(3) Includes long-term debt at Scovill Europe and various capital lease
obligations.
(4) After fees and expenses paid by Parent of $600.
(5) Represents the non-cash accounting treatment required for management's
continuing ownership interest in accordance with the provisions of
Emerging Issues Task Force Issue No. 88-16 of the FASB.
35
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table presents selected historical financial data of the
Predecessor and KSCO as of the dates and for the periods indicated, including
the results of operations of acquired companies from their respective dates of
acquisition. The financial data as of December 31, 1995 and 1996 and for the
period from January 1, 1995 to October 17, 1995, the period from October 17,
1995 to December 31, 1995 and the year ended December 31, 1996 have been
derived from the consolidated financial statements of the Predecessor and KSCO
audited by Arthur Andersen LLP, independent public accountants. The financial
data for the year ended December 31, 1994 have been derived from the
consolidated financial statements of the Predecessor audited by Deloitte &
Touche LLP, independent auditors. The financial data for the years ended
December 31, 1992 and 1993 have been derived from the audited consolidated
financial statements of the Predecessor. The financial data as of September
30, 1997 and for the nine months ended September 30, 1996 and 1997 have been
derived from unaudited consolidated financial statements of KSCO, which, in
the opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such data. Results
for the nine months ended September 30, 1997 are not necessarily indicative of
results to be expected for the full year. The selected historical financial
data should be read in conjunction with "Pro Forma Consolidated Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) KSCO
-------------------------------------- -------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, PERIOD FROM PERIOD FROM YEAR ENDED SEPTEMBER 30,
------------------------- 1/1/95 TO 10/17/95 TO DECEMBER 31, ------------------
1992 1993 1994 10/17/95 12/31/95 1996 1996 1997
------- ------- ------- ----------- ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $67,352 $65,066 $65,428 $53,589 $12,799 $91,632 $ 69,796 $ 73,466
Gross profit............ 16,421 15,988 18,383 13,329 3,446 27,032 19,533 20,362
Selling, general and
administrative
expenses(2)............ 8,409 14,120 10,534 7,822 1,827 17,051 12,733 11,697
Amortization expense.... 388 388 411 320 239 2,557 2,046 2,025
------- ------- ------- ------- ------- ------- -------- --------
Operating income........ 7,624 1,480 7,438 5,187 1,380 7,424 4,754 6,640
Interest expense........ 5,216 5,320 5,092 3,472 892 5,953 4,848 2,698
Other expense (income).. (308) (263) (629) 551 214 450 102 430
------- ------- ------- ------- ------- ------- -------- --------
Income (loss) before
income taxes and
extraordinary loss..... 2,716 (3,577) 2,975 1,164 274 1,021 (196) 3,512
Tax provision (benefit). 1,308 (163) 634 -- 158 923 258 1,586
------- ------- ------- ------- ------- ------- -------- --------
Income (loss) before
extraordinary loss..... 1,408 (3,414) 2,341 1,164 116 98 (454) 1,926
------- ------- ------- ------- ------- ------- -------- --------
Net income (loss)(3).... $ 1,408 $(3,414) $ 2,341 $ 1,164 $ 116 $ (852) $(1,404) $ 1,926
======= ======= ======= ======= ======= ======= ======== ========
OTHER DATA:
EBITDA(4)............... $11,393 $ 8,492 $14,514 $10,814 $ 2,886 $17,218 $ 12,210 $ 16,310
Adjusted EBITDA(5)...... 12,332 12,279 14,346 11,242 3,163 18,365 12,772 17,115
Depreciation............ 5,820 6,131 6,559 5,735 1,481 6,829 5,512 4,213
Capital expenditures.... 9,182 8,566 7,363 4,962 1,168 5,695 4,437 4,114
Adjusted Interest
Expense(6)............. 5,216 5,320 4,995 3,255 757 5,633 4,608 2,493
Earnings/Fixed
Charges(7)............. 1.50x -- 1.56x 1.32x 1.29x 1.16x -- 1.81x
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR KSCO
----------------------- ------------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
----------------------- ---------------- -------------
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(8)...... $ 9,072 $11,141 $ 7,810 $ 6,688 $ 17,562 $ 21,437
Total assets............ 70,670 72,521 76,448 88,577 103,866 108,742
Total debt(9)........... -- -- 14,516 41,538 37,718 40,130
Redeemable preferred
stock.................. -- -- 19,439 -- -- --
Stockholders'
equity(10)............. 36,998 37,369 29,043 18,263 21,421 22,762
</TABLE>
36
<PAGE>
- --------
(1) On October 17, 1995, Fasteners was acquired by KSCO, which was organized
by Kohlberg for the purpose of acquiring the capital stock of Fasteners.
The Kohlberg Acquisition was accounted for using the purchase method of
accounting. Financial information for periods prior to October 17, 1995
are for Fasteners when it was a wholly owned subsidiary of Alper. The
Kohlberg Acquisition and the related application of purchase accounting
resulted in changes to the capital structure of the Predecessor and the
historical basis of various assets and liabilities. The effect of such
changes significantly impairs the comparability of the financial position
and results of operations of the Predecessor to those of KSCO.
(2) SG&A includes non-recurring expense (income) as follows: 1992--($1,500),
primarily related to reversing accruals for the disposal of the zipper
product line in an earlier year; 1993--$3,500, primarily related to the
accrual of an environmental matter at a former facility; and 1994--$(600),
primarily related to the favorable resolution of matters previously
accrued. SG&A also includes a non-recurring charge for severance payments
made to employees at the Clarkesville facility who were terminated when
certain Rau and PCI employees were transferred to the Clarkesville
facility. Such charge amounted to $118 and $272 for the nine months ended
September 30, 1996 and the year ended December 31, 1996, respectively.
(3) In January 1996, the Company refinanced its previously existing credit
agreements with the Existing Credit Facility, which resulted in an
extraordinary after-tax charge of $950 in the first quarter of 1996 from
the write-off of related deferred financing costs.
(4) EBITDA is defined as net income (loss) before interest expense (including
amortization of deferred financing costs), provision for income taxes,
depreciation, amortization, rental payments on Synthetic Lease, the non-
cash portion of other expense (income) and extraordinary items. Payments
on the Synthetic Lease were $858 and $3,861 for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively. The
non-cash portion of other expense (income) was $(2,747), $230, $(523) and
$123 for the years ended December 31, 1992, 1993 and 1994, and for the
period from January 1, 1995 to October 17, 1995, respectively, and was
insignificant for all other periods presented.
(5) Adjusted EBITDA is defined as EBITDA (as defined in footnote (4) above)
plus (i) non-recurring expense (income) included in SG&A (see footnote (2)
above), (ii) the portion of other expense (income) not included in EBITDA,
which consists of miscellaneous non-operating cash items, and (iii)
management fees to Alper and Kohlberg. On an historical basis, management
fees paid to Alper and Kohlberg, included in the general and
administrative expenses, were $0, $780, $538, $0, $63, $425, $342 and $375
for the years ended December 31, 1992, 1993 and 1994, the period from
January 1, 1995 to October 17, 1995, the period from October 17, 1995 to
December 31, 1995, the year ended December 31, 1996 and the nine months
ended September 30, 1996 and 1997, respectively.
The Company has included information concerning EBITDA and Adjusted EBITDA
because it is used by certain investors as a measure of a company's ability
to service its debt. EBITDA and Adjusted EBITDA are not required by GAAP
and should not be considered alternatives to net income determined in
accordance with GAAP as an indicator of operating performance or as an
alternative to cash flow from operating activities determined in accordance
with GAAP as a measure of liquidity. The Company's use of EBITDA may not be
comparable to similarly titled measures due to the use by other companies
of different financial statement components in calculating EBITDA.
(6) Adjusted Interest Expense is defined as interest expense less the
amortization of deferred financing costs.
(7) For the purpose of determining the ratio of earnings to fixed charges,
"earnings" consist of income before provision for income taxes and fixed
charges. "Fixed charges" consist of interest expense (including
amortization of deferred financing costs) and one-third of rental expense,
representing that portion of rental expense representative of the interest
factor. Earnings were insufficient to cover fixed charges by $3,577 and
$196 for the year ended December 31, 1993 and the nine months ended
September 30, 1996, respectively.
(8) Working capital is defined as current assets less current liabilities.
(9) Excludes off-balance sheet financing pursuant to the Synthetic Lease,
proceeds of which were applied toward repayment of debt of $31,268 in
November 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
(10) Stockholders' equity includes affiliate advances, demand notes and
debentures from the Predecessor's parent at December 31, 1992, 1993 and
1994 of $56,243, $62,046 and $31,237, respectively.
37
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statements of operations for
the year ended December 31, 1996, the nine months ended September 30, 1997 and
the twelve months ended September 30, 1997 give effect to the Transactions as
though they had occurred at the beginning of the periods presented. The
following unaudited pro forma consolidated balance sheet as of September 30,
1997 gives effect to the Transactions as though they had occurred on September
30, 1997.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable under the circumstances.
The pro forma consolidated financial statements are not necessarily indicative
of operating results or financial position that would have been achieved had
the Transactions been consummated on the dates indicated and should not be
construed as representative of future operating results or financial position.
The pro forma consolidated financial statements should be read in conjunction
with "The Transactions" and the consolidated financial statements and the
notes thereto included elsewhere in this Offering Memorandum.
The pro forma adjustments were applied to the respective historical
consolidated financial statements to reflect and account for the Acquisition
using the purchase method of accounting. The total purchase cost will be
allocated to the tangible and intangible assets acquired and liabilities
assumed based on their respective fair values adjusted to reflect their
carryover basis at the time the Transactions are consummated. The allocation
of the aggregate purchase price reflected in the pro forma consolidated
financial statements is preliminary. The actual purchase adjustments to
reflect the fair values of the assets and liabilities assumed will be based
upon appraisal studies that are not yet complete and management's evaluation
of such assets and liabilities and, accordingly, the adjustments that have
been included in the pro forma consolidated financial statements are subject
to change pending the final allocation of the total purchase cost of the
Acquisition. Management does not expect that differences between the
preliminary and final purchase price allocation will have a material impact on
the Company's financial position.
38
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................. $ 1,194 $ 64 (A) $ 1,258
Accounts receivable, net of allowance..... 15,048 -- 15,048
Inventories............................... 24,025 -- 24,025
Other..................................... 741 -- 741
-------- -------- --------
Total Current Assets.................... 41,008 64 41,072
-------- -------- --------
Property, Plant and Equipment, net.......... 41,473 29,200 (B) 70,673
-------- -------- --------
Other Assets
Goodwill.................................. 15,559 66,065 (C) 81,624
Trademarks................................ 2,066 14,000 (C) 16,066
Non-compete agreements.................... 2,764 -- 2,764
Deferred acquisition and financing fees... 3,725 (3,725)(C) --
-- 7,467 (A) 7,467
Deferred taxes............................ 1,298 (1,298)(D) --
Other assets.............................. 849 -- 849
-------- -------- --------
Total Other Assets...................... 26,261 82,509 108,770
-------- -------- --------
Total Assets.......................... $108,742 $111,773 $220,515
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt...... $ 1,013 $ (467)(A) $ 546
Accounts payable.......................... 9,612 -- 9,612
Accrued liabilities....................... 8,946 (1,475)(A) 7,471
-------- -------- --------
Total Current Liabilities............... 19,571 (1,942) 17,629
Long-Term Liabilities
Revolving line of credit.................. 11,930 (11,930)(A) --
Term loan................................. 25,464 (25,464)(A) --
-- 28,000 (A) 28,000
11 1/4% Senior Notes due 2007............. -- 100,000 (A) 100,000
Other debt................................ 1,723 -- 1,723
Employee benefits......................... 24,351 -- 24,351
Deferred taxes............................ -- 5,600 (C)
(1,298)(D) 4,302
Other..................................... 2,941 -- 2,941
-------- -------- --------
Total Long-Term Liabilities............. 66,409 94,908 161,317
-------- -------- --------
Stockholders' Equity
Common stock.............................. 89 (89)(C) --
Additional paid-in capital................ 22,086 (22,086)(C) --
49,400 (A) 49,400
Retained earnings......................... 1,191 (1,191)(C) --
Predecessor basis adjustment.............. -- (7,831)(C) (7,831)
Foreign currency translation adjustment... (604) 604 (C) --
-------- -------- --------
Total Stockholders' Equity.............. 22,762 18,807 41,569
-------- -------- --------
Total Liabilities and Stockholders'
Equity............................... $108,742 $111,773 $220,515
======== ======== ========
</TABLE>
39
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................. $91,632 $ -- $91,632
Cost of sales............. 64,600 (250)(E) 64,350
------- ------- -------
Gross profit............. 27,032 250 27,282
Selling expenses.......... 10,220 -- 10,220
General and administrative
expenses................. 6,831 (425)(F) 6,406
Amortization expense...... 2,557 1,172 (G) 3,729
------- ------- -------
Operating income......... 7,424 (497) 6,927
Other expense (income).... 450 (104)(H) 346
Interest expense.......... 5,953 8,617 (I) 14,570
------- ------- -------
Income (loss) before
income tax provision..... 1,021 (9,010) (7,989)
Income tax provision
(benefit)................ 923 (2,928)(D) (2,005)
------- ------- -------
Net income (loss)......... $ 98 $(6,082) $(5,984)
======= ======= =======
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................. $73,466 $ -- $73,466
Cost of sales............. 53,104 (1,122)(E) 51,982
------- ------- -------
Gross profit............. 20,362 1,122 21,484
Selling expenses.......... 7,192 -- 7,192
General and administrative
expenses................. 4,505 (375)(F) 4,130
Amortization expense...... 2,025 849 (G) 2,874
------- ------- -------
Operating income......... 6,640 648 7,288
Other expense (income).... 430 (108)(H) 322
Interest expense.......... 2,698 8,231 (I) 10,929
------- ------- -------
Income (loss) before
income tax provision..... 3,512 (7,475) (3,963)
Income tax provision
(benefit)................ 1,586 (2,505)(D) (919)
------- ------- -------
Net income (loss)......... $ 1,926 $(4,970) $(3,044)
======= ======= =======
</TABLE>
40
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- ------------
<S> <C> <C> <C>
Net sales...................... $ 95,302 $ -- $ 95,302
Cost of sales.................. 67,441 (1,372)(E) 66,069
------------ ------------- ------------
Gross profit................. 27,861 1,372 29,233
Selling expenses............... 9,725 -- 9,725
General and administrative
expenses...................... 6,290 (458)(F) 5,832
Amortization expense........... 2,536 1,172 (G) 3,708
------------ ------------- ------------
Operating income............. 9,310 658 9,968
Other expense (income)......... 778 (104)(H) 674
Interest expense............... 3,803 10,767 (I) 14,570
------------ ------------- ------------
Income (loss) before income tax
provision..................... 4,729 (10,005) (5,276)
Income tax provision (benefit). 2,251 (3,339)(D) (1,088)
------------ ------------- ------------
Net income (loss).............. $ 2,478 $ (6,666) $ (4,188)
============ ============= ============
</TABLE>
41
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(A) These adjustments record (i) the issuance of the Notes, (ii) the borrowing
of the Term Loan, (iii) the Equity Contribution (see "The Transactions,"
"Capitalization" and "Description of Capital Stock"), (iv) the use of a
portion of the net proceeds to repurchase equipment subject to the
Synthetic Lease and to repay the Existing Credit Facility and (v) the
capitalization of deferred financing costs of $7,467. The table below
reflects the financing transactions:
<TABLE>
<CAPTION>
<S> <C>
Notes............................................................ $100,000
Term Loan........................................................ 28,000
Equity Contribution.............................................. 49,400
--------
$177,400
========
Repayment of existing indebtedness:
Current maturities and accrued interest......................... $ 1,084
Accrued Synthetic Lease payments................................ 858
Long-term loan.................................................. 25,464
Revolving line of credit........................................ 11,930
Transaction fees and expenses.................................... 7,467
--------
$ 46,803
========
</TABLE>
(B) Represents the capitalization of attaching machinery and equipment
resulting from the repurchase of equipment subject to the Synthetic Lease.
(C) The pro forma cost and the preliminary pro forma calculation of the excess
of the cost over the book value of net assets acquired is as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash purchase price of equity................................... $101,333
--------
Book value of KSCO's equity..................................... 22,762
Predecessor basis adjustment.................................... 7,831
Elimination of existing deferred financing, acquisition and
organization costs............................................. (3,725)
--------
Adjusted book value of net assets acquired...................... 26,868
Purchase price allocated to trademarks.......................... 14,000
Deferred income taxes related to valuation of trademarks........ (5,600)
--------
Excess of purchase cost over book value......................... $ 66,065
========
</TABLE>
Certain transaction fees and expenses totaling $3,233 that will be incurred
in connection with the Acquisition are included in the excess of purchase
cost over book value.
(D) Reflects the deferred tax benefit related to the loss from operations.
Based on present estimates of future operations and debt servicing related
to the Acquisition, it is management's opinion that it is more likely than
not that future tax benefits related to the Acquisition will not be
realized beyond the amount of reversing taxable temporary differences.
(E) Represents depreciation expense adjustment related to repurchase of
equipment subject to the Synthetic Lease assuming an eight-year life.
Adjustment is reflected net of operating lease expense incurred under the
prior lease agreement.
(F) Reflects the elimination of management fees historically paid to Kohlberg.
Upon consummation of the Transactions, Parent will enter into a management
agreement with Saratoga, pursuant to which Parent will pay $600 per year
to Saratoga. Such payments will be funded with a dividend from Fasteners
and, therefore, will not be recorded as an expense of Fasteners following
the Transactions.
42
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(G) Represents the incremental amortization of goodwill based on preliminary
estimated fair values of the assets acquired and liabilities assumed using
a 40-year life. See note (C).
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
----------------- ------------------ -------------------
<S> <C> <C> <C>
Goodwill................ $ 1,651 $1,238 $1,651
Trademark............... 350 263 350
Less: historical
amortization of
deferred transaction
costs................ (829) (652) (829)
------- ------ ------
$ 1,172 $ 849 $1,172
======= ====== ======
</TABLE>
(H) The adjustment represents the charge for commitment fees on the unused
portion of the Existing Credit Facility which will be repaid upon closing
of the Transactions.
(I) The pro forma adjustments to interest expense reflect the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
----------------- ------------------ -------------------
<S> <C> <C> <C>
Interest expense on new
financing:
Term Loan(1).......... $ 2,352 $ 1,764 $ 2,352
Notes................. 11,250 8,438 11,250
Interest expense on
historical debt
repaid................. (5,806) (2,587) (3,656)
------- ------- -------
7,796 7,615 9,946
Net deferred financing
cost adjustment(2)..... 821 616 821
------- ------- -------
Total adjustment........ $ 8,617 $ 8,231 $10,767
======= ======= =======
</TABLE>
--------
(1) The assumed interest rate on the Term Loan is 8.4%. A change in the
interest rate on the Term Loan of 1% would change interest expense by
$280, $210 and $280 for the year ended December 31, 1996, the nine
months ended September 30, 1997 and the twelve months ended September
30, 1997, respectively.
(2) Deferred financing costs are amortized over the life of the related
debt, using a weighted average life of ten years for the Notes and six
years for the Term Loan.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the notes thereto included elsewhere in
this Offering Memorandum. All dollar figures have been rounded to the nearest
one-tenth of one million for presentation purposes.
GENERAL
The Company, whose business has been in continuous operation since 1802, is
a leading designer, manufacturer and distributor of apparel and specialty
industrial fasteners. The Scovill name is the oldest and one of the most well-
known brands in the fasteners industry. In the twelve-month period ended
September 30, 1997, the Company sold more than 10 billion fastener units
worldwide. The Company has achieved and maintained its reputation by offering
its customers an integrated system of high quality fasteners, proprietary
attaching machines, technical service, on-site maintenance and customized
applications and design services tailored to individual customer needs.
The Company has two main product groups: the Apparel Group and the
Industrial Group. For the periods covered by the financial statements included
in this Offering Memorandum, the Company does not account for the results of
operations of its subsidiaries in the Apparel Group or the Industrial Group.
Revenues include sales of fastener products and rental income from the
leasing of attaching machines to customers. Cost of sales includes the costs
of raw material, labor and variable and fixed manufacturing overheads.
Selling, general and administrative expenses ("SG&A") consist primarily of
salaries and benefits paid to sales and administrative personnel, commissions,
and travel, marketing and advertising expenses.
During 1996, the Company acquired three companies and integrated their
operations into existing facilities. On January 24, 1996, the Company acquired
Rau, a Rhode Island apparel fastener manufacturer, for $7.9 million and PCI, a
Massachusetts-based eyelet manufacturer, for $15.6 million. The Rau
acquisition expanded the Company's customer base in its existing product
offerings. Rau's Klikit brand was integrated into the Gripper line. In April,
Rau's domestic facility was closed, relocated and integrated into the
Company's Clarkesville, Georgia facility. The Company consolidated the Rau
Canada operation with the Scovill Canada facility. PCI's operations were
integrated into the Clarkesville, Georgia facility in October. In March, the
Company also purchased Daude, a French fastener manufacturer, for $2.5
million, which was integrated into the Scovill Europe facility in Belgium in
June 1996. The Rau, PCI and Daude acquisitions were accounted for using the
purchase method of accounting and, as a result, the Company's financial
statements include the results of operations of Rau, PCI and Daude from their
dates of acquisition.
The Company ceased operations of the unprofitable zipper product line in
late 1995. In 1996, the Company relocated the PCI machine tool business of PCI
to Scovill Canada and opened a sales, warehouse and machine repair center in
Torreon, Mexico. A new distribution network was also established in Asia in
late 1996.
In November 1996, the Company refinanced its attaching machinery under the
Synthetic Lease with General Electric Capital Corporation ("GECC"). Pursuant
to the Synthetic Lease, GECC leased to the Company various fastener equipment,
which the Company then subleased to its customers. The Company originally sold
the equipment to GECC for $31.3 million. The lease was accounted for as an
operating lease in accordance with Statement of Financial Accounting Standards
No. 13, "Accounting for Leases." The sale reduced the Company's plant,
property and equipment account by $19.5 million, consisting of $22.5 million
for the cost of the attaching equipment and $3.1 million for the related
accumulated depreciation. The increase to fair market value over the amount of
the purchase price originally allocated to the attaching equipment was
recorded as a reduction of goodwill recorded in the Kohlberg Acquisition. See
Note 9 to the audited financial statements. Proceeds from the Synthetic Lease
were used to repay a term loan under the Existing Credit Facility, which
repayment resulted in a $1.0 million write-off of certain related deferred
financing costs (the "Synthetic Lease
44
<PAGE>
Charge"). The Synthetic Lease will be terminated, and the equipment subject
thereto will be repurchased, in connection with the Transactions. See "The
Transactions" and "Pro Forma Consolidated Financial Statements."
On October 17, 1995, Fasteners was acquired by KSCO, which was organized by
Kohlberg & Co. for the purpose of acquiring the capital stock of Fasteners.
The Kohlberg Acquisition was accounted for using the purchase method of
accounting. Financial information for periods prior to October 18, 1995 are
for Fasteners when it was a wholly owned subsidiary of Alper Holdings USA,
Inc. (the "Predecessor"). The Kohlberg Acquisition and the related application
of purchase accounting resulted in changes to the capital structure of the
Predecessor and the historical basis of various assets and liabilities. The
effect of such changes significantly impairs the comparability of the
financial position and results of operations of the Predecessor and KSCO. The
results of operations of the Predecessor and KSCO have been combined for
purposes of discussion of the results of operations for fiscal year 1995.
RESULTS OF OPERATIONS
The table below sets forth certain items in the statement of operations
expressed as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------- ------------
1994 1995 1996 1996 1997
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.......................... 28.1 25.3 29.5 28.0 27.7
Selling, general and administrative
expenses............................. 16.1 14.5 18.6 18.2 15.9
Operating income...................... 11.4 9.9 8.1 6.8 9.0
Interest expense...................... 7.8 6.6 6.5 6.9 3.7
Income tax provision.................. 1.0 0.2 1.0 0.4 2.2
Net income (loss)..................... 3.6 1.9 (0.9) (2.0) 2.6
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net Sales. Net sales increased $3.7 million, or 5.3%, from $69.8 million to
$73.5 million. The increase was attributable, in part, to receipt of revenues
from the former Rau and PCI operations for a full nine months in 1997,
compared to approximately eight months of revenues in 1996, measured from the
dates of acquisition. Strong jeans and denimwear orders also contributed
additional overall Apparel Group sales. The Company's international
subsidiaries also experienced increased sales, resulting from the acquisition
of Daude. These increases were partially offset by initial sales declines
resulting from customer concerns relating to publicized workforce unrest due
to the relocation of the PCI operations during the latter part of 1996.
Gross Profit. Gross profit increased $0.8 million, or 4.2%, from $19.5
million to $20.4 million. Gross margin decreased from 28.0% to 27.7%. The cost
of goods sold in 1997 includes rental expense of $1.1 million related to the
Synthetic Lease. Without the effect of the Synthetic Lease transaction, gross
profit would have increased by $1.1 million to $21.5 million, and gross margin
would have increased to 29.3%, primarily as the result of the Company's
relocation and integration of operations from the Rau, PCI and Daude
acquisitions during 1996. In the case of the Rau and PCI integrations,
additional manufacturing volume at the Clarkesville facility absorbed a
greater portion of fixed costs.
Selling, General and Administrative Expenses. SG&A decreased $1.0 million,
or 8.1%, from $12.7 million to $11.7 million. The decrease was primarily
attributable to reductions, in late 1996, in the number of salespeople after
integration of the Rau and PCI operations and the related decrease in travel,
advertising and commission expenses. SG&A was 15.9% of net sales for the first
nine months of 1997 compared to 18.2% for the comparable period in 1996.
45
<PAGE>
Operating Income. Operating income increased $1.9 million, or 39.7%, from
$4.8 million to $6.6 million. The increase was attributable to the factors
described above.
Interest Expense. Interest expense decreased $2.2 million, or 44.3%, from
$4.8 million to $2.7 million. This decrease was attributable to the repayment
of indebtedness with proceeds from the Synthetic Lease.
Income Tax Provision. The provision for income taxes was $1.6 million in
1997 compared to $0.3 million for 1996.
Net Income. Net income for the first nine months of 1997 was $1.9 million
compared to a loss of $1.4 million in 1996, of which loss $1.0 million was
attributable to the Synthetic Lease Charge. The remaining impact was
attributable to the factors discussed above.
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995 (COMBINED KSCO AND
PREDECESSOR)
Net Sales. Net sales increased $25.2 million, or 38.0%, from $66.4 million
to $91.6 million. This increase was primarily attributable to increased sales
volume as a result of the 1996 acquisitions of Rau, PCI and Daude. The Rau
acquisition increased revenues in both apparel and industrial fasteners. The
PCI acquisition was a product line extension that increased industrial
fastener sales. Finally, the Daude acquisition, also a product line extension
in Europe, increased the Company's European sales.
Gross Profit. Gross profit increased $10.2 million, or 61.1%, from $16.8
million to $27.0 million. Gross margin increased from 25.3% to 29.5%. The
increases in gross profit and margin were primarily the result of the
Company's acquisitions in early 1996. The Rau and Daude facilities were
operated until April 1996 and June 1996, respectively, when operations from
the Rau facility were relocated to the Company's main manufacturing facility
in Clarkesville and the Daude operations were relocated to the Company's
facility in Belgium. The PCI facility was operated through October 1996. To a
lesser extent, the Company's increases in gross profit reflected absorption of
a greater percentage of fixed costs at the Clarkesville facility as a result
of relocating the acquired operations.
Selling, General and Administrative Expenses. SG&A increased $7.4 million,
or 76.7%, from $9.6 million to $17.1 million. The increase was a result of the
addition of administrative and selling personnel from the acquired companies.
SG&A was 18.6% of net sales for 1996 compared to 14.5% for 1995. This increase
was due to the expenses related to duplicate functions and administrative
operations of the acquired businesses prior to their integration into the
Company's existing operations.
Operating Income. Operating income increased $0.9 million, or 13.1%, from
$6.6 million to $7.4 million. The increase was attributable to the Company's
acquisitions and increased sales volume.
Interest Expense. Interest expense increased $1.6 million, or 36.4%, from
$4.4 million to $6.0 million. This increase was primarily attributable to the
additional debt incurred under the Existing Credit Facility in October 1995 in
connection with the Kohlberg Acquisition and in January 1996 in connection
with the Rau and PCI acquisitions.
Income Tax Provision. The provision for income taxes was $0.9 million in
1996 compared to $0.2 million for 1995.
Net Income. Net loss in 1996 was $0.9 million (of which $1.0 million was
attributable to the Synthetic Lease Charge) compared to net income of $1.3
million in 1995. The remaining impact was attributable to the factors
discussed above.
FISCAL YEAR 1995 (COMBINED KSCO AND PREDECESSOR) COMPARED WITH FISCAL YEAR
1994 (PREDECESSOR)
Net Sales. Net sales increased $1.0 million, or 1.5%, from $65.4 million to
$66.4 million. A $2.2 million, or 3.3%, increase in net sales from continuing
business lines was primarily attributable to increased sales of DOT and
plastic products, offset by reduced sales from the Company's discontinued
zipper product line.
46
<PAGE>
Gross Profit. Gross profit decreased $1.6 million, or 8.7%, from $18.4
million to $16.8 million. Gross margin decreased from 28.1% to 25.3%. The
decreases in gross profit and margin were primarily the result of underlying
raw material cost increases. The Company's primary raw material, brass, and
its components, copper and zinc, are subject to cost variations. See "Risk
Factors -- Raw Materials." These increases were partially offset by a
reduction of manufacturing costs as a result of management's continued cost
control efforts initiated in 1994. See "-- Hedging Activities."
Selling, General and Administrative Expenses. SG&A decreased $0.9 million,
or 8.4%, from $10.5 million to $9.6 million. The decrease was a result of the
cost reduction activities initiated by management and management incentive
payments in 1994 that were not paid in 1995. SG&A was 14.5% of net sales for
1995 compared to 16.1% for 1994.
Operating Income. Operating income decreased $0.9 million, or 11.7%, from
$7.4 million to $6.6 million. The decrease was attributable to increased raw
material prices. The decrease was offset by reduced manufacturing costs and
SG&A.
Interest Expense. Interest expense decreased $0.7 million, or 14.3%, from
$5.1 million to $4.4 million. The decrease resulted from the reduction in debt
in connection with the Kohlberg Acquisition in October 1995.
Income Tax Provision. The provision for income taxes was $0.2 million in
1995 compared to $0.6 million for 1994.
Net Income. Net income for 1995 was $1.3 million compared to $2.3 million in
1994. The decrease was attributable to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company derived its cash from funds generated by
operations and from third-party financings, including the Existing Credit
Facility. As of September 30, 1997, $11.9 million was outstanding under the
revolving line of credit available under the Existing Credit Facility. After
the Transactions, the Company's liquidity requirements will consist primarily
of scheduled payments of principal and interest on its indebtedness, working
capital needs and capital expenditures. After consummation of the
Transactions, the Company believes that its operating cash flow, together with
borrowings under the New Credit Facility, will be sufficient to meet its
operating expenses and capital requirements, and its debt service requirements
through 1998.
Capital Expenditures
The Company's capital expenditures during the first nine months of 1997
aggregated approximately $4.1 million and are not expected to exceed $6.0
million for 1997. Such expenditures were primarily for reconditioning and
purchases of attaching machines and plant machinery and equipment. Capital
expenditures for 1998 and 1999 are expected to be less than $5.0 million per
year.
Cash Flows
Net cash provided in the Company's operating activities was $2.5 million for
the first nine months of 1997. Principal working capital changes included
increases of $2.6 million and $2.4 million in accounts receivable and
inventory, respectively. The Company's cash used in investing activities
during the first nine months of 1997 related principally to capital
expenditures. Net cash provided by financing activities was $2.2 million,
reflecting $2.5 million in borrowings under the Existing Credit Facility
offset by $0.3 million in long-term debt payments.
Net cash used by the Company's operations in 1996 was $1.4 million.
Principal working capital changes included a $6.2 million increase in
inventory, a $4.0 million decrease in accrued liabilities and a $3.0 million
increase in accounts payable. The Company's cash used in investing activities
during 1996 was $28.7 million, of which $25.3 million related to the Rau and
PCI acquisitions, including acquisition costs. Additionally, the
47
<PAGE>
Company had capital expenditures of $5.7 million. Net cash provided by
financing activities was $30.3 million, reflecting a net decrease in
borrowings under the Existing Credit Facility of $5.0 million, $31.3 million
in proceeds from the Synthetic Lease transaction and $4.0 million related to
the issuance of common stock.
The Indenture and the New Credit Facility will place significant
restrictions on the Company's ability to incur additional indebtedness, pay
dividends or repurchase stock or make other distributions, create liens, make
certain investments, sell assets, or enter into mergers or consolidations. See
"Description of Notes," "Description of Other Indebtedness" and "Risk
Factors--Substantial Leverage; Restrictive Covenants."
INFLATION
Inflation had a nominal impact on operations during the last three years.
Increases in operating costs were consistent with the general inflation rate
and were offset by management cost control measures and productivity
improvements.
HEDGING ACTIVITIES
Since late 1995, the Company has entered into certain hedging transactions
regarding its raw material purchases. The Company regularly purchases copper
and zinc call and put options that are regularly traded on exchanges. These
transactions (commonly referred to as "Bull Spreads") attempt to effectively
ensure maximum and minimum net purchase costs. These options extend through
June 1998 at various trading ranges. See "Business--Raw Materials" and Note 2
to the audited financial statements.
ACQUISITIONS
The Company intends to pursue attractive acquisition opportunities that
provide products and services that complement those currently offered by the
Company. Depending upon the nature, size and timing of future acquisitions,
the Company may be required to raise additional financing. The Company expects
that a substantial portion of the financing of any acquisition would be
additional indebtedness. Additional indebtedness incurred to finance
acquisitions could adversely affect the Company's liquidity and financial
condition. There can be no assurance that the New Credit Facility, the
Indenture or any other loan agreements to which the Company may become a party
or subject to will permit such additional financing or that such additional
financing will be available to the Company on terms acceptable to its
management or at all. See "Business--Business Strategy." The timing, size or
success of any acquisition effort and the associated potential capital
commitments are currently not known. While there can be no assurance, based on
current facts and circumstances, management believes it has adequate cash
flows and financing alternatives to fund its current operations and to
implement its acquisition strategy.
ACCOUNTING STANDARDS
In 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 130 establishes standards to measure
all changes in equity that result from transactions and other economic events
other than transactions with owners. Comprehensive income is the total of net
income and all other nonowner changes in equity. SFAS 131 introduces a new
segment reporting model called the "management approach." The management
approach is based on the manner in which management organizes segments within
a company for making operating decisions and assessing performance. The
management approach replaces the notion of industry and geographic segments.
The Company will adopt SFAS 130 and SFAS 131 in fiscal year 1998. Management
believes adoption of SFAS 130 and SFAS 131 will not significantly affect the
Company's financial position or results of operations.
48
<PAGE>
BUSINESS
The Company, whose business has been in continuous operation since 1802, is
a leading designer, manufacturer and distributor of apparel fasteners and
specialty industrial fasteners. The Scovill name is the oldest and one of the
most well-known brands in the fasteners industry. In the twelve-month period
ended September 30, 1997, the Company sold more than 10 billion fastener units
worldwide. The Company has achieved and maintained its reputation by offering
its customers an integrated system of high quality fasteners, proprietary
attaching machines, technical service, on-site maintenance and customized
applications and design services tailored to individual customer needs.
The Company has two main product groups: the Apparel Group and the
Industrial Group. The Apparel Group, through its Gripper and DuraMark brands,
produces snaps, tack buttons, rivets, burrs and other snap fastener products
used in numerous apparel applications. The Company's customers include many
leading apparel design and manufacturing companies, including Wrangler,
OshKosh B'Gosh, Gerber Childrenswear, William Carter Company, Tommy Hilfiger,
Polo Ralph Lauren, Liz Claiborne and L.L. Bean. The Company believes that it
supplies the majority of the snap fasteners sold to U.S. infantswear and
childrenswear manufacturers and a substantial portion of the snap fasteners
sold to U.S. apparel manufacturers.
The Industrial Group, primarily through its DOT and PCI product lines,
produces specialty industrial fasteners including large snaps, windshield
clips, turn buttons, eyelets, grommets, screw studs, gypsy studs and other
specialty fasteners. These products are used in a broad range of industries,
including marine textile, automotive, aerospace, military, medical/surgical
products, luggage, leather goods, electronic equipment, sporting and
recreational goods and consumer batteries. The end-users of the Company's
products include a wide variety of companies, including Ford, Boeing, Baxter,
Samsonite, U.S. Marine for its Bayliner Boats, Johnston & Murphy, Eveready
Battery, Riddell for its football helmets and the U.S. Army. The Company
believes that it sells a significant portion of the specialty industrial
fasteners sold in the product markets in which it competes.
For the twelve months ended September 30, 1997 (the "LTM Period"), the
Company's net sales and pro forma Adjusted EBITDA (as defined) were $95.3
million and $22.7 million, respectively. From 1992 to the LTM Period, the
Company's net sales increased by 41.5%, from $67.4 million to $95.3 million,
and pro forma Adjusted EBITDA increased by 84.1%, from $12.3 million to $22.7
million. From 1992 to the pro forma LTM Period, the Company's gross margin
improved from 24.4% to 30.7% and Adjusted EBITDA margin improved from 18.3% to
23.8%. By rationalizing and developing existing and acquired businesses, the
Company has achieved operating efficiencies and improved financial
performance.
Scovill Acquisition Inc. and Scovill Holdings Inc. were organized as
Delaware corporations in October and November 1997, respectively, in
connection with the Acquisition. KSCO Acquisition Corporation was organized as
a Delaware corporation in August 1995. Scovill Fasteners Inc., a Delaware
corporation, was incorporated in 1985 as the successor to the business
operated by the fasteners division of Scovill Inc. The Company's executive
offices are located at 1802 Scovill Drive, Clarkesville, Georgia 30523, and
its telephone number is (706) 754-4181.
COMPETITIVE STRENGTHS
The Company attributes its historical success and significant opportunities
for continued growth to the following competitive strengths:
Leading Market Position. The Company is the oldest and most established
manufacturer of a variety of apparel and specialty industrial fasteners in the
United States. The Company's fasteners have been used in many products
throughout its history, from U.S. military uniforms since the War of 1812 to
the flight suits worn by NASA shuttle astronauts. The Company's reputation for
high quality and its well-known brand names, including Scovill, Gripper and
DOT, make it a leading presence in domestic markets and provide it with a
platform for enhanced global expansion. The Company believes that it supplies
the majority of the snap fasteners sold to U.S.
49
<PAGE>
infantswear manufacturers, a substantial portion of the snap fasteners sold to
U.S. apparel manufacturers generally and a significant portion of the
specialty industrial fasteners sold in the product markets in which it
competes.
"Total System" Approach. In addition to manufacturing and distributing
fasteners to its customers, the Company also leases approximately 8,000
proprietary attaching machines to attach its products to those of its
customers, primarily in the apparel industry. The Company's large size enables
it to (i) employ what the Company believes to be the industry's only existing
dedicated field service force that provides on-site maintenance, which
minimizes equipment down-time, (ii) have ready access, through its servicing
relationships, to its customers' facilities, providing the Company with
opportunities to cross-sell products and to test new fastener machinery, (iii)
continue to develop next-generation attaching machines, such as the new Gemini
system, which has lower manufacturing and maintenance costs and improved
fastener application flexibility and attaching speed, and (iv) maintain an
applications development and design lab that enables customers to outsource
design functions to the Company. The Company's "total system" approach enables
it to compete based on its ability to decrease its customers' costs and
improve the quality of their products, rather than on the unit price of the
Company's fasteners.
Large Installed Base of Attaching Machines. The Company has the industry's
largest installed base of attaching machines in the United States, which
enables it to generate a recurring stream of cash flow from high volume sales
of fasteners. These machines are designed to be used only with the Company's
fasteners. The Company believes that customers are reluctant to switch to
other manufacturers in order to avoid the costs associated with retraining
personnel, reduced productivity and the business interruption that results
from the need to replace an entire network of machines in a plant or a
production line in order to maintain the compatibility of the network. The
Company has been able to maintain a high level of customer retention. In 1996,
approximately 99% of all of its attaching machine leases were renewed.
Broad Customer Base and Product Line. The Company's customers include many
large and well-known apparel and industrial manufacturing companies. The
Company is a leading supplier for private-label infantswear sold at Kmart,
Wal*Mart, Target and Sears stores. In 1996, no single customer accounted for
more than 8% of the Company's total net sales, and the Company's 10 largest
customers accounted for approximately 26% of the Company's total net sales.
The Company's broad line of products for apparel and specialty industrial use
reduces its exposure to any one customer segment and to fashion trends.
Reputation for High Quality. The Company has built its reputation by
producing high quality products designed and manufactured to precise
specifications. The Company has developed many of the safety standards for
infantswear adopted by the American Society of Testing Methods (the "ASTM"),
and the Company's senior quality manager is currently chairman of the ASTM
subcommittee responsible for establishing testing methodologies for the
apparel fastener industry. These methodologies provide the basis for
determining compliance with requirements for apparel set by the Consumer
Products Safety Commission.
Experienced Management Team. The Company's senior management team has an
average of over 15 years of experience in the fastener industry. Since its
formation in 1992, the management team has delivered significant revenue and
EBITDA improvements by successfully reorganizing the business and positioning
the Company for growth. From 1992 to the pro forma LTM Period, Adjusted EBITDA
margin improved from 18.3% to 23.8%. Management has achieved these results by
rationalizing existing operations, exiting an unprofitable product line and
integrating domestic and international acquisitions. This team has
successfully identified, integrated and consolidated three significant
acquisitions since 1992 and established a platform for international growth.
Senior management rolled over an aggregate of $3.3 million of their stock
options in KSCO in equity for Parent, representing approximately one-half of
the proceeds they would have received in the Acquisition.
50
<PAGE>
BUSINESS STRATEGY
The Company seeks to enhance its competitive position while increasing its
net sales and operating cash flow by continuing to implement the following
components of its business strategy:
Continue to Strengthen Customer Relationships. The Company intends to
continue to distinguish itself from competitors as a full-service provider.
The Company will continue to foster long-term partnerships with its customers
by providing a broad range of high quality products, consistent delivery
performance, comprehensive product support, efficient attaching machinery and
dedicated field service. The introduction of the Gemini attaching machine,
which accommodates rapid and cost-efficient switching of fastener types and is
designed to address ergonomic concerns, illustrates the Company's commitment
to customer service. The Company also continues to develop and implement
value-added services, such as specialized billing and delivery systems.
Reduce Customers' CPAF. The Company intends to develop new means to continue
its commitment to lower its customers' cost per attached fastener ("CPAF").
Customers incur significant costs beyond the unit price of fasteners; an
individual fastener typically represents only 10% of an average customer's
CPAF. CPAF is also a function of factors such as attaching speed, production
errors, equipment downtime due to changeover and maintenance and the attaching
machinery lease expense or cost. The Company's "total system" approach and its
focus on CPAF are designed to reduce the remaining costs associated with the
attaching of its fasteners.
Seek Higher Margin Specialty Applications. The Company intends to take
advantage of its diverse and flexible manufacturing capabilities to enhance
its line of specialty applications, which offers higher margins. Examples of
specialty applications are stainless steel buckles for football, hockey and
cycling helmets; engineered eyelets for consumer electronics; and male/female
connectors for batteries. The Company intends to develop new applications for
current products, engineer new products and re-engineer those products
obtained through acquisitions. Unlike smaller manufacturers, the Company
possesses its own tooling, stamping, plating and finishing equipment and,
therefore, can develop specialty applications without significant capital
expenditures.
Strengthen "Retail Pull." The Company seeks to have large retailers specify
the use of the Company's products in their private label apparel lines. The
Company has been designated as the sole or preferred fastener supplier for the
private-label infantswear manufactured for and sold by Wal*Mart, Kmart, Target
and Sears. Additionally, the Company's reputation for high quality and
consumer awareness has led to Kmart's joint branding on garment tags to
highlight the names of Scovill and Klikit, a Gripper brand. The Company
intends to expand its international opportunities by leveraging existing
relationships with customers that move sourcing abroad and by expanding its
distribution channels overseas to better serve them. The Company believes that
the high quality of its products, its "total system" approach and its Asian
distribution channels enhance the Company's ability to effect this strategy.
Leverage Existing Manufacturing Base. The Company intends to continue to
leverage its existing manufacturing base by incrementally expanding the
capacity of the Clarkesville facility. By optimizing its operations, adding
shifts and outsourcing particular activities, the Company believes that it can
significantly increase the output of the Clarkesville facility with limited
capital expenditures. Through the addition of increased revenue at minimal
incremental fixed costs, the Company has been able to increase EBITDA margins.
The Company expects to increase revenue through new product development and
tuck-in acquisitions, such as the 1996 acquisitions of Rau Fastener Company,
L.L.C. ("Rau") and PCI Group, Inc. ("PCI"), whose operations were consolidated
into the Company's Clarkesville, Georgia facility.
Pursue Attractive Acquisition Opportunities. The Company will continue to
evaluate opportunities to expand its sales and product offerings through
smaller, easily integrated domestic add-on acquisitions. The Company may also
explore larger international acquisitions, primarily in Europe and Asia. The
criteria for identifying attractive acquisition candidates include (i) revenue
potential, (ii) increases in manufacturing, production and other cost
efficiencies and (iii) diversification and expansion of the Company's product
lines and customer base.
51
<PAGE>
PRODUCT OVERVIEW
Recognizing the opportunity to improve production while enhancing the
services provided to customers, the Company has divided its operations into
two main product groups: the Apparel Group and the Industrial Group. Creating
both groups has provided the Company with several distinct advantages over
competitors. First, because each group services different customers, each
possesses a greater appreciation for the needs and specifications of
particular customers. Second, division into groups provides for better
management of working capital. Third, in focusing on their individual customer
segments, each group improves the delivery and quality of the products and
services it provides.
The following table sets forth, for the periods specified, the net sales and
the percentage of total net sales contributed by each product category
(dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total net sales......... $67,352 $65,066 $65,428 $66,388 $91,632 $ 69,796 $ 73,466
Apparel Group
Net sales............. $44,437 $43,964 $45,536 $46,309 $48,258 $ 36,683 $ 40,135
% of total net sales.. 66.0% 67.6% 69.6% 69.8% 52.7% 52.6% 54.6%
Industrial Group(1)
Net sales............. $16,596 $16,117 $14,175 $14,924 $19,747 $ 13,386 $ 21,987
% of total net sales.. 24.6% 24.8% 21.7% 22.5% 21.6% 19.2% 29.9%
Other(2)
Net sales............. $ 6,319 $ 4,985 $ 5,717 $ 5,155 $23,627 $ 19,727 $ 11,344
% of total net sales.. 9.4% 7.7% 8.7% 7.8% 25.8% 28.3% 15.4%
</TABLE>
- --------
(1) Includes all Canadian operations.
(2) Includes (a) European operations, (b) the zipper product line, which was
discontinued in 1995, and (c) Rau and PCI prior to their integration in
April and October 1996, respectively, into the Clarkesville facility.
Amounts also include Scovill Europe subsequent to the Rau and Daude
acquisitions in January and March 1996.
APPAREL GROUP
Industry Overview
The apparel snap fastener market includes snap fasteners, tack buttons,
rivets and burrs and excludes other apparel devices such as zippers, buttons
and Velcro. The primary customers for apparel snap fasteners are manufacturers
of basic garments such as jeans, infantswear, childrenswear and outerwear.
Demand for apparel snap fasteners is related to apparel industry trends
generally, which, in turn, are affected by demographics. The production of
each category of apparel depends upon population trends and consumer spending
in each apparel category. According to U.S. Department of Commerce estimates,
the value of domestic shipments of apparel and other finished textiles has
averaged over 4% growth per year since 1976. During that time, the domestic
apparel industry has exhibited low cyclicality, with the value of such
shipments having increased in all but two years. In foreign markets, the
Company believes expected population growth over the next several years and
improved standards of living will result in increased apparel sales abroad.
52
<PAGE>
[LINE GRAPH APPEARS HERE]
Despite improvements in technology, manufacturing processes in the apparel
industry are still quite labor-intensive. Because labor is such a significant
cost component in apparel manufacturing, manufacturers in low-wage, developing
countries enjoy a cost advantage over U.S. manufacturers. In response, many
U.S. companies have been shifting assembly operations to low-wage countries or
turning to foreign-based contractors in an effort to lower their production
costs. As a result, some export growth has consisted of shipments of garment
parts for assembly abroad and subsequent re-importation into the United
States. The Company has been able to follow a large portion of its customers
production abroad, as evidenced by its more than 2,500 attaching machines
located outside of the United States. In addition, in marketing to national
accounts such as Sears, The Gap, and Wal*Mart, the Company will continue to
implement its "retail pull" strategy by leveraging relationships with
customers that move sourcing abroad and expanding its distribution channels
overseas to better serve them.
Product Lines
The Company's Apparel Group is composed of three main product lines:
Gripper, DuraMark and Attaching Machines. The following table sets forth, for
the periods indicated, the net sales and percentage of the Company's total net
sales contributed by each product line (dollars in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- --------------------
% OF TOTAL % OF TOTAL % OF TOTAL
NET SALES NET SALES NET SALES NET SALES NET SALES NET SALES
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gripper................. $19,683 30.1% $19,599 29.5% $20,734 22.6%
DuraMark................ 21,416 32.7 21,581 32.5 22,296 24.3
Attaching Machines...... 4,437 6.8 5,129 7.8 5,228 5.7
------- ---- ------- ---- ------- ----
Total................. $45,536 69.6% $46,309 69.8% $48,258 52.7%
======= ==== ======= ==== ======= ====
</TABLE>
The Apparel Group serves six apparel market segments: infantswear,
childrenswear, jeans, workwear, leisurewear/fashion and disposables. The Company
competes in the apparel fastener markets in the Americas, Asia, the Pacific Rim
and Europe.
The Company has remained a leader in the apparel market through the
manufacture and sale of its Gripper product line, which consists of a variety
of fasteners such as ring sockets, segmented sockets, short and long prongs
and western pearls. In addition, the Company has become a market leader
through its growing DuraMark product line, which consists of large snap
fasteners, tack buttons, rivets and burrs. Through its "total system"
approach, the Company leases approximately 8,000 attaching machines so that
customers may attach the apparel fasteners to their apparel products. When
viewed together, the Apparel Group's product offerings, attaching machines and
support services have enabled the Company to provide a comprehensive fastener
system that improves customer product quality and lowers customers' product
costs.
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The Company, in connection with its distributor in Asia, Acotex, seeks to
increase distribution capacity in China and other countries in Asia.
Management believes this expansion will allow the Company to maintain its
customer base as U.S. manufacturers, seeking to reduce costs, seek sources for
their products outside the United States. The Company utilizes a "retail pull"
strategy, whereby it seeks to have large retailers specify the use of the
Company's products in their private label apparel lines. The Apparel Group
also seeks to increase its customer base through the deployment of its new
Gemini attaching machine. The ergonomically designed Gemini machine provides
customers with high speed attaching capability and the ability to change types
quickly and efficiently, through interchangeable hopper and feed units, a
feature which most competitors' machines lack.
Gripper. Gripper is a type of snap fastener with a stud-and-socket design
that was trademarked by the Company in 1937. The Gripper trademark is so
widely recognized that it effectively defines this type of snap fastener.
Although Gripper is a versatile snap fastener that can be used on almost any
type of garment, it is most commonly used with infantswear, toddler clothing,
workwear, uniforms, western-style shirts and womenswear. The Company sells
Gripper fasteners to some of the most widely recognized brand names in the
infantswear and childrenswear industry, including OshKosh B'Gosh, William
Carter and Gerber Childrenswear. In addition to apparel applications, Gripper
fasteners are used in toys, wallets and a variety of other accessories.
The Rau acquisition has allowed the Company to increase its Gripper sales,
as Gripper fasteners are now marketed to Rau's Klikit customers. The Company
intends to reposition Klikit as the premium brand in the Gripper product line.
In certain applications, Klikit's ring-socket design provides a competitive
advantage against segmented-socket styles. The Company is the only significant
manufacturer of small ring-socket fasteners that are designed to high
performance specifications. The Gripper product line generally provides higher
profit margins than other products in the Apparel Group.
DuraMark. The DuraMark product line includes large snap fasteners and tack
buttons, rivets and burrs made from brass, steel, aluminum, zinc and copper.
Large snap fasteners differ from Gripper fasteners in that they are based on a
ring-socket design rather than the segmented-socket design used in Gripper
fasteners. The Company's large snap fasteners are marketed under their trade
names: Mighty-Snap and Maxi-Snap. Mighty Snap and Maxi-Snap fasteners are
generally larger than Gripper fasteners and are normally used in apparel-
related applications where greater strength is required, such as outerwear
garments. Some of the Company's customers for these snap fasteners include
such well-known names as OshKosh B'Gosh, Wrangler and Land's End.
Tack buttons are most commonly used as the waist-fastening button above the
zipper on jeans or other types of pants. Tack buttons derive their name from
the fact that they are attached to the garment from the back with a tack,
rather than being sewn to the garment. Rivets and burrs are generally sold in
tandem with tack buttons for reinforcement in stressed areas of heavy clothing
such as jeans. In addition to being functional, tack buttons, rivets and burrs
typically serve decorative functions. Accordingly, they have matching finishes
and designs. They are produced in numerous sizes and colors and typically
include a customer brand logo. Certain of the brand names which use the
Company's tack buttons, rivets and burrs include Wrangler, Polo Ralph Lauren,
The Gap and Arizona Jean.
Attaching Machine Leases. The Company leases to its customers, pursuant to
short-term lease agreements (generally one year, subject to renewal, with a
60-day notice clause), approximately 8,000 attaching machines, which are used
at customer locations to attach its products. The reliability and efficiency
of the Company's attaching machinery, which include patented components, have
proven to be key factors in maintaining a stable base of apparel fastener
sales. The Company has the industry's largest installed base of attaching
machines in the United States, which enables it to generate a recurring stream
of cash flow from high volume sales of fasteners. These machines are designed
to be used only with the Company's fasteners. The Company believes that
customers are reluctant to switch to other manufacturers in order to avoid the
costs associated with retraining personnel, reduced productivity and the
business interruption that results from the need to replace an entire
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<PAGE>
network of machines in a plant or a production line in order to maintain the
compatibility of the network. Accordingly, the Company has been able to
maintain a high level of customer retention. In 1996, approximately 99% of all
of its attaching machine leases were renewed.
The attaching machines are used primarily for apparel products. They are
used less frequently for industrial products because attaching machines are
better suited for high volume, non-bulky items that can be readily fed through
the guides at the point of attachment. Many industrial fasteners are attached
by hand or as part of another manufacturing process.
The Company supplies its customers with three core models of apparel
fastener attaching machinery that can be customized to customers'
specifications through the addition of auxiliary attachments. The Company
designed these machines and historically contracted to have them manufactured
and serviced in Connecticut. However, the assembly and reconditioning of these
machines have recently been moved to the Clarkesville facility in order to
improve control and reduce servicing costs.
The Company recently introduced a new line of attaching machines--the
Gemini. Gemini attaching machines permit an operator to change styles and
types of fasteners within minutes. The Gemini model is ergonomically designed,
has fewer moving/wear parts, and costs less to assemble when compared to
conventional attaching machines. The Company intends to selectively market
this line of machines to jeans and denimwear manufacturers as a means to gain
new customers.
The following table sets forth the Company's active attaching machine base
as of September 30, 1997:
<TABLE>
<CAPTION>
NUMBER % OF TOTAL
------ ----------
<S> <C> <C>
United States............................................ 5,484 68.6%
Canada................................................... 912 11.4
Caribbean................................................ 515 6.4
Mexico................................................... 330 4.1
Central America.......................................... 247 3.1
Belgium.................................................. 231 2.9
Other Europe............................................. 126 1.6
South America............................................ 56 0.7
Asia..................................................... 9 0.1
Other.................................................... 82 1.1
----- -----
Total.................................................. 7,992 100.0%
===== =====
</TABLE>
Typically, as part of the leasing arrangements, the Company's field
technicians provide on-site maintenance services with guaranteed 24-hour
response time (primarily in the Americas). Some customers perform the
maintenance themselves with Company-trained personnel. When machines require
more comprehensive reconditioning services, they are sent to the in-house
reconditioning center in Clarkesville. The Company has dedicated facilities
and employees through which the Company has lowered the reconditioning cost
component of capital expenditures. Not only has the Company achieved
significant cost savings per machine, but the Company also expects in-house
servicing to reduce the overall number of machines requiring reconditioning
through better administration of this process. This approach is also expected
to further improve communications and coordination between the Company's
manufacturing and field service operations and lead to shorter reconditioning
turnaround times. See "--Marketing and Sales."
55
<PAGE>
INDUSTRIAL GROUP
Industry Overview
The industrial fastener market serves a wide range of manufacturers,
including those in the marine textiles, automotive, aerospace, military,
medical/surgical products, electronic equipment, sporting goods and consumer
battery industries. Growth in this market is influenced by both the economy
generally and consumer purchases of electronics, automobiles, housing and
footwear. The industrial fastener market is large and highly fragmented. The
market is comprised of a variety of niche segments with specialized customers,
competitors and products in which the Company generally earns higher margins
than it does in the apparel market. The Company estimates that the market
segments in which it currently competes constitute less than 10% of the
overall market. The Company believes that there is no dominant manufacturer
that competes in all of its markets, and the Company intends to broaden its
participation through new products and product line extensions.
The markets the Company serves with its DOT, PCI and Plastics product lines
are largely in North America. The Company has made limited sales of DOT
products in the European market. The Company plans to increase sales through
the efforts of Scovill Europe in Belgium. Other specialty fastener markets in
Europe are currently served by Scovill Europe in France.
The Company believes that there are opportunities to expand its product
offerings to include electronic equipment (such as PC boards), consumer
batteries (such as male and female connectors), identification bracelets (Tag
Lock, one-time fasteners), and grommets and washers (such as leisure products
and utility bags), among others.
Product Lines
The Company's Industrial Group is comprised of three main product lines:
DOT, PCI and Plastic Fasteners. The following table sets forth, for the
periods indicated, the net sales and percentage of net sales contributed by
each product line (dollars in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- --------------------
% OF TOTAL % OF TOTAL % OF TOTAL
NET SALES NET SALES NET SALES NET SALES NET SALES NET SALES
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
DOT..................... $10,940 16.7% $11,116 16.7% $14,080 15.5%
PCI..................... -- -- -- -- 2,054 2.2
Plastic Fasteners....... 3,235 5.0 3,808 5.8 3,613 3.9
------- ---- ------- ---- ------- ----
Total................. $14,175 21.7% $14,924 22.5% $19,747 21.6%
======= ==== ======= ==== ======= ====
</TABLE>
Industrial fasteners are sold through direct sales and authorized
distributors to a wide variety of customers, including manufacturers of marine
textiles, sporting and recreational products, electronics, electrical
equipment and footwear. The Company competes mostly in the specialty fastener
market in the Americas (including Canada) and, to a more limited extent, in
Europe and Asia.
The Company's acquisition of the DOT product line in 1991 has enabled it to
supply heavy duty snap fasteners to additional markets, including marine
textiles, automotive, luggage, medical, sporting and recreational, aircraft,
military and health-related goods. The PCI product line, acquired in 1996,
further expanded the Company's offering of industrial fasteners, which the
Company has been able to sell through its existing DOT distribution channels.
The Company's Plastic Fastener product line provides fasteners for a variety
of end uses, including use with the Company's own Gripper and DuraMark
products, as well as for those of Johnson & Johnson.
To remain competitive in the industrial fastener industry, the Company
intends to focus on methods of improving plant efficiency and cost reduction.
While investing in research and development to create new
56
<PAGE>
products and to re-engineer product lines acquired through acquisitions, the
Company is also actively developing new applications for its current
industrial products.
DOT and PCI Product Lines. DOT fasteners include large snaps, windshield
clips, turn buttons, screw studs, gypsy studs and other specialty fasteners.
An advantage of certain DOT products is their locking feature. Examples of DOT
products with a locking feature include Pull-the-DOT, which is a
unidirectional lock designed to open only when properly aligned, and the
Common Sense line, which has a positive locking feature that offers strength
and durability. DOT fasteners are used for, among other things: marine
textiles, automobiles, awnings, luggage, athletic outerwear, sporting goods,
tents and packaging. DOT end-users include Micron, Samsonite, Boeing and NASA.
With the acquisition of PCI, the Company expanded its industrial product
line to include footwear eyelets, grommets, washers, industrial eyelets, and
specialty stampings. PCI end-users include Zenith, Converse and Eveready. The
Company's supply division provides specialized setting tools and supplies so
that PCI customers can customize third-party manufactured attaching machines
to accommodate PCI fasteners. These products are largely able to utilize the
DOT distribution channels.
Plastic Fasteners. The Company's plastic fastener line is principally
composed of three products that are known by their trade names: Whipper Snap,
Color Snap and Tag Lock. The Whipper Snap was the first plastic snap fastener.
Each Whipper Snap is composed of four parts and employs a four-prong design
that grips fabric securely without tearing. Currently, the Whipper Snap is the
most important of the Company's plastic fasteners, measured by sales volumes,
and is primarily sold for use in protective disposable medical apparel. Since
late 1992, the demand for disposable medical garments has increased as a
result of new OSHA regulations governing the medical profession.
Color Snaps are used in packaging and other non-apparel applications. The
Tag Lock fastener is a one-way fastener that is most commonly used for one-
time use identification bracelets such as hospital bracelets and amusement
park entrance wrist bands.
MANUFACTURING AND DISTRIBUTION OPERATIONS
The Company's U.S. manufacturing facilities are situated on 31 acres owned
by the Company in Clarkesville, Georgia (approximately 90 miles northeast of
Atlanta, Georgia) and include a 230,000 square foot building used for
manufacturing and administration, as well as a 26,400 square foot attaching
machine center. The Company also leases manufacturing facilities in Montreal,
Canada, and owns a manufacturing facility in Braine le Comte, Belgium.
Beginning in 1992, the Company reorganized its manufacturing operations,
resulting in a substantial reduction in the number of employees and in total
operating costs. The Company reduced its manufacturing employee headcount from
635 at the end of 1992 to 545 at the end of 1995, prior to the acquisitions of
Rau and PCI. By integrating acquired operations into its Clarkesville
facility, the Company has increased production volume at the facility, which
has enabled it to absorb more fixed costs and indirect labor costs. In
addition, the Company reorganized its manufacturing organization to focus on
its product lines rather than production processes. The Company established
five separate production units, each dedicated to a particular product line.
These production units, in turn, are subdivided into a number of manufacturing
cells. Each production unit consists of dedicated equipment, employees and
management. As a result of the sale of its zipper line, the Company was able
to integrate the manufacturing operations of Rau and PCI at the Clarkesville
facility in 1996.
The implementation of improved manufacturing techniques, including "Total
Quality Management," "Statistical Process Control" and "Just In Time"
inventory management, has substantially increased plant production throughout
the Company by reducing bottlenecks, improving material flows and focusing the
Company on manufacturing process improvements. The Company regularly performs
maintenance under "Total Preventative Maintenance" practices on its machines
and equipment to reduce downtime and improve production efficiency. Additional
examples of improved techniques implemented by the Company include the
establishment
57
<PAGE>
of corrective action teams, educational programs for manufacturing employees
and vendor-certification programs.
In conjunction with the restructuring of the Company's manufacturing
organization and implementation of improved manufacturing techniques, the
Company commenced a value-added capital expenditures program. This program
emphasizes investments that improve the efficiency of the Company's
manufacturing operations, increase product quality, enhance the safety of
workers and in some cases, require a reduction in the number of employees.
These initiatives have significantly lowered the Company's manufacturing costs
and have contributed to improved gross margins.
The manufacture of a majority of the Company's products begins with the
stamping of the relevant raw material. Some products are formed through a
series of stamping steps using progressive dies while others are formed
through a single stamping step using sophisticated forming dies. These
products are then cleaned to reduce lubricant residues and prepare the surface
for finishing before being assembled and packed for shipping. To facilitate
shipping, the Company works with several different common carriers and its
manufacturing facility is readily accessible to the interstate highway system.
Availability and cost of transportation are not competitive factors affecting
the Company's business.
The Company maintains a central distribution warehouse at its manufacturing
facility and satellite warehouses in Texas and Mexico. Its products are also
available from distributor facilities located throughout the United States and
in Western Europe, Central America, South America, and the Far East. The
Company intends to use its facilities in Brussels, acquired in connection with
Rau acquisition, to increase the distribution of its products in Europe. Goods
are packaged to meet market needs for safe handling and effective storage, and
customized packaging is available for distributors in select market channels
such as the marine product line.
The Company defines capacity by individual manufacturing cells within five
product line-oriented production units, as opposed to functional processes
such as stamping or plating. The Company believes it has sufficient
manufacturing capacity in each of its product lines, including the recently
acquired Rau and PCI product lines, to meet current customer demands,
including anticipated growth thereof. By optimizing its operations, adding
shifts and outsourcing particular activities, the Company believes that it can
significantly increase the output of the Clarkesville facility with limited
capital expenditures.
INSURANCE
The Company maintains property insurance, liability insurance, business
interruption insurance and other insurance policies customary to the
manufacturing industry. The Company believes that its policies are sufficient
to cover any potential loss or liability that is likely to arise in the
future.
RAW MATERIALS
The prices of raw materials are subject to volatility. The Company's
principal raw materials are brass, steel, zinc, nickel alloys, and plastic
resins, of which brass is the most significant. These raw materials are
commodities that are widely available. In 1996, the Company purchased
approximately 11 million pounds of brass, 1.1 million pounds of steel, 0.3
million pounds of stainless steel and 0.7 million pounds of aluminum for use
in manufacturing its products. See "Risk Factors--Raw Materials."
The Company seeks to minimize the impact of price volatility through hedging
practices. The Company has hedged a substantial portion of its expected raw
material needs, largely for brass, through June 1998. To the extent that the
price for the Company's remaining needs increases before prices are set, there
can be no assurance that the Company will be able to set the price low enough
to enable the Company to achieve adequate margins on finished products,
although it has in the past been able to pass a portion of any price increase
in materials to its customers.
The Company has strong relationships with many of the largest suppliers of
raw and processed materials in the United States. The Company's policy is to
establish arrangements with select vendors, based upon price,
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<PAGE>
quality, and delivery terms. By limiting the number of its suppliers, the
Company believes that it obtains materials of consistently high quality at
favorable prices. In addition to purchase contracts, the Company has tolling
agreements with some of its suppliers whereby the suppliers reprocess the
Company's scrap for a fixed charge. These relationships afford the Company
certain purchasing advantages, including stable supply and favorable pricing
arrangements.
MARKETING AND SALES
The Company's sales and marketing organization consists of four functional
areas: sales, customer service, field service and product support. These four
areas work in close cooperation with one another in an effort to maximize the
Company's sales revenue and to offer superior customer service. The general
marketing strategy of the Company is to differentiate itself from other
fastener manufacturers by offering a full range of premium branded products
and services. Components of this strategy include offering attaching machine
service, engineering and sales support through the maintenance of a network of
service personnel, a large direct field sales organization, applications
engineering, and product design and development.
Sales
After the Rau and PCI acquisitions, the Company divided its sales personnel
between the Apparel and Industrial Groups. The sales organization is further
divided by domestic U.S. regions. Regional sales managers have supervisory and
administrative responsibility for the sales personnel in their respective
regions, as well as direct sales responsibility for certain large regional
accounts.
The Company recently created a new position to handle large national
accounts such as JC Penney, Wal* Mart, Kmart, Sears, The Gap, The Limited and
other large private label apparel merchandisers. These large national
retailers contract with independent garment manufacturing firms to produce
their private label apparel products. The Company seeks to strengthen the
"retail pull" of large retailers by having them specify the use of the
Company's products in their private label lines. See "--Business Strategy."
The Company believes that this strategy will help increase its sales to
contractors abroad that service domestic retailers.
The Company sells its products through a twelve-person apparel sales force
and an eleven-person specialty industrial sales force. Products in Europe are
sold through a combination of direct sales in Belgium and France, as well as
through distributors in fifteen European countries. The Company has recently
signed a distribution agreement with Acotex, which provides the Company with
expanded distribution capability (including local finishing and stocking of
products) in Southeast Asia.
Marketing
The Company services lower volume customers (particularly DOT customers)
through a telemarketing office in Clarkesville, Georgia, which enables the
Company to cost-effectively reach a large number of diversified customers
throughout the United States in a cost-effective manner.
The Company maintains published price lists generally based on a single
price philosophy, subject under certain conditions to adjustments for
finishes, small lots and, in the case of DOT products, large volume. The
Company may modify pricing under specific and strict procedures in response to
competitive pricing action. To reach its markets, the Company employs a
general promotional mix, utilizing a direct field sales staff, a telemarketing
group and authorized distributors. The sales activity is supported by
participation in trade exhibitions, as well as a full advertising program in
trade publications. Other promotional activities include publicity
announcements, entertainment functions, advertising novelties and a Company
website.
Customer Service
The Company provides customers with a "total system" approach, which
includes the fasteners, attaching equipment and dedicated field service. The
Company believes that its sales depend on in-depth knowledge of
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<PAGE>
customer manufacturing procedures, responsiveness to product design changes,
consistent product quality, timely delivery, and efficient and reliable
attaching machinery. Typically, the buying decision requires a consensus among
the customer's plant managers, plant engineers and merchandising and
purchasing personnel. The Company's sales force has been able to develop and
maintain long-term customer relationships, providing it with a competitive
advantage. The Company's customer service center is located in Clarkesville,
Georgia and is dedicated to handling customer orders. The center is staffed by
twelve customer service representatives. These representatives work with the
Company's sales personnel and customer purchasing representatives to process
orders and ensure that all specifications are met. The customer service center
also handles inquiries regarding order changes, delivery and billing.
Field Service
The Company provides product support through a field service organization of
24 professionals. The Company believes its field service force is the only one
in the industry dedicated exclusively to maintenance service. These service
representatives regularly visit customer locations. Through the service
representatives, the Company is able to minimize the downtime of its attaching
machinery and increase machine efficiency, hence reducing CPAF for its
customers.
Product Support
The Company's product support includes a quality assurance department that
maintains an applications laboratory staffed by an applications engineer and
three technicians. The applications laboratory performs a variety of tests,
including strength and durability testing, in order to evaluate the
suitability of a fastener for a customer's application. The Company's
engineering department employs three dedicated graphics designers. These
designers work with a CAD/CAM system to adapt customers' logo designs to the
Company's fastener products. The Company believes that its comprehensive
product support services distinguish the Company from competitors. The Company
also has a dedicated research and development department, staffed by four
full-time employees, which focuses on new product development and
manufacturing process improvements.
BACKLOG
At September 30, 1997 and 1996, the Company had backlog of $8.4 million and
$8.1 million, respectively. Management does not believe that a material amount
of orders constituting such backlog at September 30, 1997 will remain unfilled
at the end of 1997.
CUSTOMERS
The Company serves two major markets: apparel and industrial. The Apparel
Group serves six primary market segments, consisting of infantswear,
childrenswear, jeans, workwear, leisurewear/fashion and disposables. The
Industrial Group serves six primary market segments, consisting of automotive,
marine textiles, military, leather, sporting goods and medical.
The Company's apparel fastener customers include many of the leading apparel
design and manufacturing companies in the United States, including Wrangler,
OshKosh B'Gosh, Gerber Childrenswear, William Carter Company, Tommy Hilfiger,
Polo Ralph Lauren, Liz Claiborne and L.L. Bean. In addition, the Company
manufactures and leases to its apparel fastener customers a line of specially
designed automated attaching machines which attach its fasteners to customers'
products. Industrial fasteners are sold through direct sales and authorized
distributors to a wide variety of customers. End users of the Company's
industrial fasteners include Ford, Boeing, Baxter, Samsonite, U.S. Marine for
its Bayliner Boats, Johnston & Murphy, Eveready Battery, Riddell for its
football helmets and the U.S. Army.
In 1996, no single customer accounted for more than 8% of the Company's
total net sales, and the Company's 10 largest customers accounted for
approximately 26% of the Company's total net sales. The
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Company's broad line of products for apparel and specialty industrial use
reduces its exposure to any one customer segment and to fashion trends. The
Company plans to expand its customer base by introducing new products,
developing applications for existing products, and promoting the use of the
new Gemini attaching machine.
COMPETITION
The Company operates in a highly competitive environment. Some of the
Company's competitors have greater financial resources and may be less
leveraged than the Company. As a result of its presence in both the apparel
and industrial markets and the diversity of its products, the Company believes
that no single competitor competes with the Company across the entire range of
the Company's product lines.
In the United States, the Company primarily competes with Universal
Fasteners/Stocko and Morito. Universal, located in Kentucky, is a subsidiary
of YKK, a large Japanese company which supplies the zipper industry. Universal
competes primarily with the Company's DuraMark products. Universal recently
acquired Stocko. Stocko's products compete with the Gripper, plastic and DOT
product lines.
In the specialty industrial market, competition is highly fragmented. The
Company's largest competitor is E.B. Stimpson Company, which offers eyelets,
grommets and washers similar in variety and application to those of the
Company. The Company's remaining competitors are specialty manufacturers that
generally address only one segment of this market. These competitors include
Stocko, Fasnap, a distributor for Kane-Morito, a Japanese manufacturer whose
products compete with DOT; Mark Eyelet, whose products compete with PCI
products in the electronic equipment industry; Newmark, Inc. and EFI, Inc.,
whose products compete with PCI in the medical/surgical products industry;
Anstro, Inc., whose products compete with PCI in the footwear industry; and
E.E. Weller, whose products compete with PCI in the specialty eyelet industry.
Although the primary competitive factors for the Company's products vary
somewhat across different product categories, the principal factors
influencing competition are breadth of product line, cost of raw materials,
cost of attaching machinery, price, quality and customer service. Brand
recognition is also a differentiating factor in the Apparel Group, which
includes the Gripper product line, and in the Industrial Group, which includes
the DOT product line. The Company believes that it has remained competitive by
developing strong customer relations based on its ability to supply quality
products while minimizing costs and utilizing its "total system" approach.
TRADEMARKS AND PATENTS
The Company currently uses numerous trademarks and trade names in its
business, including Color Snap(R), Common Sense(TM), DOT(R), DuraMark(R),
Gemini(TM), Gripper(R), Klikit(R), Maxi-Snap(TM), Mighty-Snap(TM), PCI(TM),
Pull-the-DOT(R), Tag Lock(TM), and Whipper Snap(R). In addition, the Company
owns 19 patents relating to its fasteners and attaching machinery and it has 3
patents pending. Although the products and services underlying such trademarks
and patents have achieved significant brand recognition and, as a result, are
of significant economic value, the Company does not believe that any
individual trademark or patent is of material importance to the Company's
business.
The Company also relies upon trade secret protection of its confidential and
proprietary information. The Company routinely enters into confidentiality
agreements with both high- and low-level employees. There can be no assurance
that such measures will be successful or that competitors will not be able to
discover the trade secrets on their own.
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FACILITIES
Set forth in the table below is certain information relating to certain real
properties that the Company uses in its business. Two properties are owned by
the Company. The remaining properties are leased pursuant to leases expiring
at various dates through 2005.
<TABLE>
<CAPTION>
LOCATION USE
-------- ---
<S> <C>
Scovill Fasteners Inc.
Clarkesville, Georgia Manufacturing, Distribution,
Warehouse, Office (Owned)
Lewiston, Maine Office
El Paso, Texas Office/Warehouse
Wareham, Massachusetts Distribution, Warehouse, Office
Scovill Canada Inc.
Montreal, Quebec, Canada Manufacturing and Distribution
Montreal, Quebec, Canada Warehouse
Montreal, Quebec, Canada Office/Warehouse
Unifast Manufacturing
Braine-le-Comte, Belgium Manufacturing, Distribution,
Warehouse, Office (Owned)
Unifast-Daude
Soucie en Brie, France Office/Warehouse
Scovill Mexico
Torreon, Mexico Office/Warehouse
</TABLE>
ENVIRONMENTAL MATTERS
Like similar companies, the Company's operations and properties are subject
to a wide variety of increasingly complex and stringent federal, state, local
and foreign environmental laws and regulations, including those governing the
use, storage, handling, generation, treatment, emission, release, discharge
and disposal of certain materials and wastes, the remediation of contaminated
soil and groundwater, and the health and safety of employees (collectively,
"Environmental Laws").
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA"), and similar state laws, provide for responses to
and liability for releases of certain hazardous materials into the
environment. These obligations are imposed on the current owner or operator of
a facility, the owner or operator of a facility at the time of disposal of
hazardous materials at the facility, any person who arranged for the treatment
or disposal of hazardous materials at the facility, and any person who
accepted hazardous materials for transport to a facility selected by such
person. Liability under CERCLA is strict, and may be joint and several.
Certain federal Environmental Laws, including the Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act, the Safe Drinking Water
Act, the Emergency Planning and Community Right to Know Act, each as amended,
and similar state and local Environmental Laws, regulate air emissions, water
discharges, hazardous materials and wastes, and require public disclosure
related to the use of various hazardous materials. The Company's operations
are also governed by Environmental Laws relating to workplace safety and
worker health, primarily pursuant to the federal Occupational Safety and
Health Act, as amended. Compliance with Environmental Laws may require the
acquisition of permits or other authorizations for certain activities and
compliance with various standards or procedural requirements. The
Environmental Laws are subject to frequent amendment and have historically
become increasingly stringent. The Company is currently subject, and may in
the future be subject, to liability under Environmental Laws for remediation
of contamination at currently or formerly owned or operated facilities
including, presently, remediation at its
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Clarksville, Georgia facility. In addition, from time to time, the Company has
been cited for violations of Environmental Laws. The sanctions for failure to
comply with such Environmental Laws can include significant civil penalties,
injunctive relief and denial or loss of, or imposition of significant
restrictions on, environmental permits. In addition, the Company could be
subject to suit by third parties in connection with violations of or liability
under Environmental Laws. In the event of liability under Environmental Laws,
the Company intends to pursue available statutory and contractual remedies,
including any applicable rights of contribution and indemnification from
predecessors in interest. However, there can be no assurance that the Company
will prevail in connection with any such claims.
As of September 30, 1997, the Company had environmental reserves of
approximately $2.9 million for environmental liabilities. Of the total reserve
for environmental liabilities, $2.6 million represents contractual payments to
a former parent. Because Environmental Laws have historically become
increasingly more stringent, costs and expenses relating to environmental
control and compliance may increase in the future.
The nature of the Company's current and former operations, and those of its
predecessors in interest, exposes it to the risk of claims with respect to
environmental matters and there can be no assurance that material costs or
liabilities will not be incurred in connection with such claims. Based upon
its experience to date, the Company believes that the future cost of
compliance with existing Environmental Laws, and liability for known
environmental claims pursuant to such Environmental Laws, will not have a
material adverse effect on the cash flow, financial condition or results of
operation of the Company. However, future events, such as new information,
changes in existing Environmental Laws or their interpretation, and more
vigorous enforcement policies of regulatory agencies, may give rise to
additional expenditures or liabilities that could be material. See "Risk
Factors--Environmental Matters."
GOVERNMENTAL REGULATIONS
A number of regulations affect the Company's business. The Company believes
that it complies substantially with all laws and regulations affecting its
business and that it does not have any material liabilities under such laws
and regulations. The Company also believes that compliance with all such laws
and regulations will not, individually or in the aggregate, have a material
adverse effect on the Company's capital expenditures, earnings or competitive
position.
LEGAL PROCEEDINGS
From time to time, the Company is named in claims involving manufacturers,
contractual disputes and other matters arising in the ordinary course of the
Company's business. Currently, no legal proceedings are pending against or
involve the Company that, in the opinion of management, could reasonably be
expected to have a material adverse effect on the business, financial
condition or results of operations of the Company. See "Risk Factors--Pension
Matters."
EMPLOYEES
As of September 30, 1997, the Company employed 813 people. Approximately 170
were employed in administrative and sales positions and 643 were employed in
manufacturing positions. None of the Company's employees at the Clarkesville
or the Montreal facilities is represented by a labor union. The 84 non-
management employees at the Belgium facility may belong to a labor union, but
under Belgian law, such membership is not required to be disclosed to the
Company.
The Company believes that its relationships with its employees are
satisfactory. Because of its dependence on apparel manufacturers and other
customers, however, the Company may be adversely affected by labor strikes,
work slowdowns and walkouts at the manufacturing facilities of such
manufacturers or other customers.
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CHANGE IN INDEPENDENT AUDITORS
Following the Kohlberg Acquisition in October 1995, KSCO appointed Arthur
Andersen llp to replace Deloitte & Touche llp as the independent accountants
for KSCO and the Company. The reports of Deloitte & Touche llp on the
consolidated financial statements of the Company for the two fiscal years
prior to the change in accountants contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope
or accounting principles. In connection with the audits of the Company's
financial statements for each of the two fiscal years and any subsequent
interim periods preceding the change in accountants, there were no
disagreements with Deloitte & Touche llp on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of Deloitte & Touche llp,
would have caused Deloitte & Touche llp to make reference to the matter in
their report on the consolidated financial statements for such years.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the names, ages as of September 30, 1997, and a brief
account of the business experience of each person who will be serving as an
executive officer or director of the Company and of Parent upon consummation
of the Transactions.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David J. Barrett........ 47 President, Chief Executive Officer and Director
Martin A. Moore......... 38 Executive Vice President, Treasurer, Chief Financial Officer and Secretary
Mike Baxley............. 40 Executive Vice President--Apparel Group
John Champagne.......... 49 Executive Vice President--Industrial Group
Robert Feltz............ 48 Executive Vice President--Business Development
William F. Andrews...... 66 Chairman of the Board
Christian L. Oberbeck... 37 Director
</TABLE>
Mr. Barrett has been with the Company since November 1991, when he joined as
Vice President of Operations. He has also served as President of the Company
and Executive Vice President of Operations. Mr. Barrett has been President and
CEO since 1995. Prior to joining the Company, Mr. Barrett held various
manufacturing, operational and administrative positions with the Newell
Company and Continental Group, Inc.
Mr. Moore joined the Company as Director of Finance in February 1992. He has
also served as the Vice President of Finance and the Vice President of Finance
and Administration. Mr. Moore was promoted to Executive Vice President in
1997. Prior to joining the Company, Mr. Moore held various financial,
controller and manufacturing positions with Frantschach AG, Quality Forms,
Inc. and Society Corporation.
Mr. Baxley joined the Company as Executive Vice President--Sales and
Marketing in February 1997. Mr. Baxley became Executive Vice President--
Apparel Group in April 1997. Prior to joining the Company, Mr. Baxley served
as Senior Vice President and General Manager of ACD Tridon, Inc. from 1994 to
1996. He was also Vice President of Marketing for Johnston & Murphy (a
division of Genesco) from 1992 to 1994. Prior to 1992, Mr. Baxley held various
positions with Proctor and Gamble and the United States Navy.
Mr. Champagne joined the Company as Vice President of Manufacturing in 1996.
He was named Executive Vice President of the Industrial Group in 1997. Before
joining the Company, Mr. Champagne worked at Rau Fastener, Inc. from 1968 to
1995, serving as President and Director from 1988 to 1995. He also served as
President of Rau Fasteners, LLC from 1995 to 1996.
Mr. Feltz joined the Company as National Sales and Service Manager in 1980.
He has also served as Vice President of Sales and Marketing Worldwide. Prior
thereto, he worked at Talon, Inc., a zipper manufacturer.
Mr. Andrews has been Chairman of the Company's Board of Directors since
1996. From 1981 to 1986, he was Chairman, President and Chief Executive
Officer of Scovill Manufacturing, Co., where he worked for more than 20 years.
Mr. Andrews is also Chairman of Schrader-Bridgeport International Inc., a
manufacturer of tire valves and pressure control devices. From 1993 to 1995,
Mr. Andrews was Chairman and Chief Executive Officer of Amdura Corporation, a
manufacturer of hardware and industrial equipment. From 1990 to 1992, he was
President and Chief Executive Officer of UNR Industries, Inc., a diversified
manufacturer of steel products. Prior to 1990, Mr. Andrews was President of
Massey Investment Company and Chairman, President, and Chief Executive Officer
of Singer Sewing Company. Mr. Andrews is also a director of Black Box
Corporation; Corrections Corporation of America; Johnson Controls, Inc.; Katy
Industries; Navistar, Inc.; Northwestern Steel and Wire Co.; and Southern New
England Telephone Company.
Mr. Oberbeck became a director of the Company upon consummation of the
Transactions. Mr. Oberbeck has been a Managing Director of SBC Warburg Dillon
Read Inc. since September 1997. From February 1995 to
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September 1997, Mr. Oberbeck was a Managing Director of Dillon, Read & Co.
Inc. Prior to joining Dillon, Read & Co. Inc., Mr. Oberbeck was a Managing
Director of Castle Harlan, Inc., where he worked from October 1987 until
February 1995. He is a member of the Saratoga Partners Investment Committee
and a director of J&W Scientific Incorporated, USI Holdings Corporation and
Koppers Industries, Inc.
EMPLOYMENT AGREEMENTS
In order to assure the continued service of executive management, the
Company has entered into employment agreements ("Employment Agreements") with
Messrs. Barrett, Moore, and Feltz (each, an "Executive," and together, the
"Executives"). Each of these Employment Agreements will become effective upon
consummation of the Transactions. Mr. Barrett will serve as Chief Executive
Officer of the Company and have an annual salary of $243,750. Mr. Moore will
serve as Chief Financial Officer of the Company and will have an annual salary
of $187,813. Mr. Feltz will serve as Executive Vice President--Business
Development of the Company and will have an annual salary of $156,250. Each
contract has a three-year term and renews annually for successive one-year
periods, subject to termination upon notice by either party. Salary for such
renewal periods is to be negotiated between the Executive and the Company. The
Employment Agreements also provide for the payment of an amount equal to two
times the annual base salary of the Executive ("Incentive Payment") upon the
occurrence of an "Incentive Event." An "Incentive Event" is generally defined
as either a sale of substantially all of the Company's assets or over 50% of
its common stock, or any transaction whereby Saratoga Partners III, L.P. or
any of its affiliates no longer controls the Board of Directors. Each
Executive will be entitled to participate in the Company's benefit plans for
senior executives and will receive certain fringe benefits, including a car,
personal computer and cellular telephone.
If the Company terminates the employment of any of the Executives without
Cause (as defined in the Employment Agreements) or if an Executive terminates
his employment with the Company for a specific reason set forth in the
Employment Agreements, the Executive will be entitled to receive a severance
payment, equal to the greater of (1) two times the Executive's annual base
salary on that date and (2) the remainder of the base salary to be paid under
the initial three-year term of the Executive's Employment Agreement. If the
Executive voluntarily terminates his employment (other than for specifically
enumerated reasons) or the Executive's employment is terminated by the Company
for Cause, the Company will not be obligated to make a severance payment to
the Executive. In addition, each Executive has agreed to not compete with the
Company during the period of his employment and for 18 months following the
termination of his employment, unless the termination is without Cause, and to
comply with confidentiality covenants. In the event that the Company
terminates the employment of any of the Executives without Cause or an
Executive terminates his employment with the Company for a specific reason set
forth in his Employment Agreement in anticipation or in connection with
certain transactions or within the two-month period prior to completing
certain transactions, the Executive will be entitled to receive the Incentive
Payment, provided that any severance payments to which the Executive is
entitled upon termination of employment will be reduced by the full amount of
the Incentive Payment.
The preceding description of the Employment Agreements is intended only as a
summary and is qualified in its entirety by reference to the Employment
Agreements, which are available upon request to the Company.
See also "Certain Transactions--The Acquisition."
BOARD MEMBER COMPENSATION
The Company may compensate the members of the Board of Directors who are not
full-time employees of the Company on an annual and per meeting basis, in an
amount and on a basis as may be determined in the future. The Company also may
compensate members of committees of the Board of Directors for each Committee
meeting attended. Directors of the Company will receive reimbursement of their
reasonable out-of-pocket expenses incurred in connection with their board
activities. The Company intends to purchase directors' and officers' insurance
for its executive officers and directors, assuming that such insurance is
available on commercially reasonable terms.
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NEW INCENTIVE STOCK OPTION PLAN
Issuer and the Company have agreed to establish a new stock option plan (the
"New Plan") for key executives and managers which will provide for the grant
of stock options ("Options") to purchase up to 12.5% of the Common Stock of
Parent on a fully diluted basis. The Company presently intends for the New
Plan to have the following terms: Options granted under the New Plan will have
an exercise price equal to the fair market value of the stock underlying the
Option on the date of grant, which exercise price will increase annually at a
rate of 9%, and Options will vest over a period of 5 years commencing on the
first anniversary of the date of grant. Vested options may be exercised by
payment of the exercise price in cash or, if approved by Parent's stock option
committee, by delivery of a promissory note. Upon a participant's termination
of employment for cause, all of such participant's Options will immediately
expire. If a participant's employment terminates by reason of (i) death, (ii)
disability, (iii) retirement or (iv) voluntary resignation or termination of
employment other than for cause, the participant's unvested Options will
immediately expire and such participant's vested Options will remain
exercisable for a period of 90 days.
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table contains information concerning the
compensation provided by the Company in 1996 to its Chief Executive Officer
and the three other executive officers other than the Chief Executive Officer
(together, the "Named Executive Officers") of the Company.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
---------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- -------- ------- -------------
<S> <C> <C> <C>
David J. Barrett................................ $167,916 -- $ 4,197(1)
President and Chief Executive Officer
Martin A. Moore................................. 129,375 -- 3,234(1)
Executive Vice President and Chief Financial
Officer
John Champagne.................................. 119,356 $45,000 10,833(2)
Executive Vice President--Industrial Group
Robert Feltz.................................... 124,398 -- 43,365(3)
Executive Vice President--Business Development
</TABLE>
- --------
(1) Represents matching contributions made by the Company to the Named
Executive Officers' accounts under the Company's 401(k) plan.
(2) Represents reimbursement for relocation expenses.
(3) Includes reimbursement for relocation expenses ($36,632) and matching
contributions made by the Company to the Named Executive Officer's account
under the Company's 401(k) plan ($3,109).
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<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH KOHLBERG
Since October 1995, the Company has paid an aggregate of $863,000 in
management fees to Kohlberg & Co., pursuant to a management services agreement
that will be terminated effective as of the closing of the Acquisition. In
January 1996, the Company paid an advisory fee of $1.0 million to Kohlberg &
Co. in conjunction with the acquisitions of PCI and Rau.
TRANSACTIONS WITH SARATOGA
In connection with the Transactions, the Company paid a transaction fee of
$1.75 million to an affiliate of Saratoga in consideration for advisory
services related to the structuring and financing of the transaction.
Effective with the closing of the Acquisition, the Company will enter into an
agreement with Saratoga, pursuant to which the Company will pay a management
fee of $150,000 per quarter to Saratoga (the "Management Services Agreement").
In addition, Saratoga will provide the Company with advisory services in
connection with significant business transactions, such as acquisitions, for
which the Company will pay Saratoga compensation comparable for similarly
situated companies. See also "Plan of Distribution."
THE ACQUISITION
In connection with the Transactions, affiliates of Kohlberg and KSCO's other
existing stockholders received an aggregate of approximately $98.1 million.
Members of management received aggregate proceeds of approximately $2.9
million in cash in consideration for their stock options in KSCO, excluding
the $3.3 million that was rolled over into options to purchase Common Stock
and Series B Preferred Stock. Certain members of management entered into
employment agreements with the Company. See "Management." In addition, William
F. Andrews, the Chairman of the Board, received proceeds of approximately $1.8
million in cash in consideration for his stock and stock options of KSCO,
excluding the $150,000 that was rolled over into options to purchase Common
Stock and Series B Preferred Stock.
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DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT FACILITY
Concurrently with the consummation of the Offerings, the Company entered
into the New Credit Facility with Credit Agricole Indosuez, as administrative
agent, Swiss Bank Corporation, as documentation agent and syndication agent
(the "Agent"), and a syndicate of lenders. The following summary of the
principal terms of the New Credit Facility does not purport to be complete and
is subject to the detailed provisions of the agreement governing the New
Credit Facility, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. Capitalized
terms not defined under this caption have the meanings set forth in such
agreement.
The New Credit Facility consists of a $28.0 million senior secured
amortizing term loan (the "Term Loan") and a $25.0 million senior secured
revolving credit facility (the "Revolving Credit Facility").
The New Credit Facility is guaranteed (the "Guarantees") by Parent and each
existing and subsequently acquired or organized domestic subsidiary of the
Company (collectively referred to as "the Guarantors"). The New Credit
Facility is secured by (i) a first priority pledge of (x) all of the capital
stock of the Company and each of its domestic subsidiaries and (y) 66% of the
voting stock and 100% of the non-voting stock of each other direct subsidiary
and (ii) a first priority security interest in substantially all of the
domestic property, plant and equipment and other assets of Parent and its
subsidiaries.
Borrowings under the Revolving Credit Facility are available, subject to the
satisfaction of customary borrowing conditions, for working capital and other
general corporate purposes. A portion of the Revolving Credit Facility may be
used for letters of credit. Availability under the Revolving Credit Facility
is limited to a borrowing base, which is defined as the sum of (i) 85% of the
Eligible Receivables of the Company and the Guarantors at such time and (ii)
60% of the Eligible Inventory of the Company and the Guarantors at such time.
The interest rate on borrowings under the New Credit Facility is (i) LIBOR
plus 2.5% per annum or (ii) the Base Rate plus 1.5% per annum. The unused line
fee is 0.5% per annum. All or a portion of the New Credit Facility which is
borrowed may be prepaid at any time, at the option of the Company.
Amortization on the Term Loan will commence on December 31, 1998 in the
amount of $1.0 million, with quarterly amortization payments thereafter,
totaling $3.0 million in 1999, $5.0 million in 2000, $6.0 million in 2001,
$6.0 million in 2002 and $7.0 million in 2003. The New Credit Facility will
mature on the sixth anniversary of the Closing Date.
The New Credit Facility includes certain covenants which, subject to certain
specific exceptions and limitations, require the Company and its subsidiaries
to, among other things, (i) provide certain financial information; (ii) not
create or allow to be created any liens other than those permitted by the New
Credit Facility; (iii) refrain from engaging in a consolidation, acquisition,
merger or sale of assets except as allowed in the New Credit Facility; (iv)
not engage in any transaction with or for the benefit of any affiliate other
than certain arm's-length transactions; (v) prevent the existence of any
agreement that prevents the Company's subsidiaries from paying dividends or
other distributions on capital stock; (vi) refrain from making certain
restricted payments other than those allowed under the New Credit Facility;
(vii) not incur Debt other than Debt allowed under the New Credit Facility;
(viii) not engage in certain speculative transactions; (ix) not incur
operating lease expense except to the extent permitted in the New Credit
Facility; (x) not issue disqualified stock except to the extent permitted in
the New Credit Facility; (xi) not engage in any business other than businesses
allowed under the New Credit Facility; (xii) maintain certain financial ratios
as detailed below; and (xiii) not make consolidated capital expenditures in
any fiscal year except to the extent permitted under the New Credit Facility.
These covenants generally will be more restrictive than those set forth in the
Indenture. The New Credit Facility will
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also require the Company to maintain the following financial covenants: (a) a
minimum ratio of consolidated EBITDA to fixed charges; (b) a minimum ratio of
consolidated EBITDA to consolidated interest expense ("Interest Coverage
Ratio"); (c) a maximum ratio of consolidated indebtedness to consolidated
EBITDA; and (d) a minimum net worth. See "Risk Factors--Substantial Leverage;
Restrictive Covenants." The New Credit Facility will also contain certain
other terms and conditions, covenants and events of default.
OTHER INDEBTEDNESS
The Company's subsidiaries in Belgium have obtained various secured
revolving lines of credit from Credit General for aggregate borrowings of up
to 117,000,000 Belgian francs, which bear interest at variable rates. Such
subsidiaries are not permitted by the agreements governing such lines of
credit to make dividends or other distributions on their capital stock unless
certain financial conditions are met. Such agreements provide for an
indefinite term and are subject to Credit General's customary lending terms.
In addition, a Belgian subsidiary has obtained term loans from local lenders
aggregating 25,000,000 Belgian francs. These loans accrue interest at 6.75%
per annum, payable semiannually in arrears. Amortization payments began in
December 1996 and extend over five years.
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DESCRIPTION OF NOTES
The Initial Notes were issued, and the Exchange Notes will be issued,
pursuant to the Indenture among Scovill Acquisition Inc. (the "Company"),
Scovill Holdings Inc., as Parent Guarantor, and United States Trust Company of
New York, as trustee (the "Trustee"), a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The following is a summary of the material terms and provisions of the Notes.
The terms of the Notes include those set forth 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"). The Notes are subject to all such terms,
and prospective purchasers of the Notes are referred to the Indenture and the
Trust Indenture Act for a statement thereof. The following summary does not
purport to be a complete description of the Notes and is subject to the
detailed provisions of, and qualified in its entirety by reference to, the
Indenture, including the definitions of certain terms contained therein and
those terms made part of the Indenture by reference to the Trust Indenture
Act. The definitions of certain terms used in the following summary are set
forth below under "--Certain Definitions." Reference to the Notes under this
caption are references to the Exchange Notes unless the context otherwise
requires.
GENERAL
The Notes will represent general senior unsecured obligations of the
Company, limited to an aggregate principal amount of $100 million. The Notes
will be unconditionally guaranteed by each Guarantor on a senior unsecured
basis. The Notes will bear interest at the rate shown on the cover page of
this Offering Memorandum, payable on May 30 and November 30 of each year,
commencing on May 30, 1998, to Holders of record at the close of business on
the May 15 or November 15, as the case may be, immediately preceding the
relevant interest payment date. Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the Issue Date of the Initial Notes. The Notes will mature on
November 30, 2007 and will be issued in registered form, without coupons, and
in denominations of $1,000 and integral multiples thereof. The Notes will be
payable as to principal, premium, if any, and interest at the office or agency
of the Company maintained for such purpose within the City and State of New
York or, at the option of the Company, by wire transfer of immediately
available funds or, in the case of certificated securities only, by mailing a
check to the registered address of the Holder thereof. See "--Book-Entry,
Delivery and Form." Until otherwise designated by the Company, the Company's
office or agency in New York will be the office of the Trustee maintained for
such purpose. The Trustee will initially be the Paying Agent and Registrar
under the Indenture. The Company may act as Paying Agent and/or Registrar
under the Indenture and the Company may change the Paying Agent and/or
Registrar without notice to the Holders.
PARENT GUARANTEE; FUTURE SUBSIDIARY GUARANTEES
Parent will unconditionally guarantee the payment of Obligations of the
Company under the Notes. In addition, if the Company or any of its Restricted
Subsidiaries shall acquire or create another Subsidiary (other than any
Foreign Subsidiary) or contribute property or assets to an existing
Subsidiary, then such Subsidiary will be required to execute a Subsidiary
Guarantee, in accordance with the terms of the Indenture, unless it has been
designated as an Unrestricted Subsidiary; provided that no such Guarantee by
such Subsidiary shall be required so long as (x) the Consolidated Net Income
for the fourth fiscal quarter period immediately preceding the date of
acquisition or creation of, or contribution to, such Subsidiary for which
financial statements are available and net assets at the end of such period of
such Subsidiary does not exceed 3% of the Consolidated Net Income for such
period and net assets at such date, respectively, of the Company and its
Restricted Subsidiaries and (y) the combined Consolidated Net Income for such
period and the net assets at such date of all Restricted Subsidiaries (other
than Guarantors and Foreign Subsidiaries) does not exceed 5% of the
Consolidated Net Income for such period and the net assets at such date,
respectively, of the Company and its Restricted Subsidiaries.
Each Guarantee will be a senior unsecured obligation of the Guarantor
thereof and will rank pari passu in right of payment with all other existing
and future unsecured and unsubordinated Indebtedness of such Guarantor and
senior to all existing and future subordinated indebtedness of such Guarantor.
The obligations of each Subsidiary Guarantor under its Guarantee will be
limited so as not to constitute a fraudulent conveyance under applicable law.
No Subsidiary Guarantees were required on the Issue Date of the Initial Notes.
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The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person) another
Person whether or not affiliated with such Guarantor unless (i) the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all of the obligations of such Guarantor pursuant to a
supplemental indenture, in form and substance satisfactory to the Trustee,
under the Notes and the Indenture; (ii) immediately after giving effect to
such transaction, no Default or Event of Default exists; and (iii) immediately
after giving effect to such transaction, the Company could incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Fixed Charge
Coverage Ratio test set forth in the "Limitations on Additional Indebtedness"
covenant. The foregoing provisions will not prohibit the merger of two or more
Guarantors into each other or the merger of one or more Guarantors into the
Company.
The Indenture will provide that, in the event of a sale or other disposition
of all of the Capital Stock of any Subsidiary Guarantor (including by way of
merger or consolidation) to a Person, other than an Affiliate of the Company,
then such Guarantor will be released and relieved of any obligations under its
Subsidiary Guarantee. In such event, the Net Available Proceeds of such sale
or other disposition will be required to be applied in accordance with the
applicable provisions of the Indenture. See "--Certain Covenants--Limitations
on Asset Sales."
RANKING
The Notes and each Guarantee will be senior unsecured obligations of the
Company and the applicable Guarantor thereof, respectively, and will rank pari
passu in right of payment with all other existing and future unsecured and
unsubordinated Indebtedness of the Company and such Guarantor, respectively,
and senior to all existing and future subordinated indebtedness of the Company
and such Guarantor, respectively. The Notes and each Guarantee will be
effectively subordinated to all secured obligations of the Company and the
Guarantor thereof, respectively, to the extent of the assets securing such
obligations. At September 30, 1997, after giving pro forma effect to the
Transactions, the Company would have had approximately $30.3 million of
secured Indebtedness outstanding, excluding the $25.0 million Revolving Credit
Facility. See "Risk Factors--Substantial Leverage; Restrictive Covenants" and
"--Effective Subordination of the Notes and the Guarantees" and
"Capitalization." Subject to certain limitations, the Company and its
Subsidiaries (including the Subsidiary Guarantors) may incur additional
secured Indebtedness in the future. See "--Certain Covenants--Limitations on
Additional Indebtedness."
OPTIONAL REDEMPTION
The Notes will be redeemable, at the option of the Company, in whole or in
part, at any time on or after November 30, 2002, at the following redemption
prices (expressed as percentages of principal amount), together with accrued
and unpaid interest, if any, thereon to the redemption date, if redeemed
during the 12-month period beginning on November 30 of the years indicated
below:
<TABLE>
<CAPTION>
OPTIONAL
REDEMPTION PRICE
----------------
<S> <C>
2002.................................................... 105.625%
2003.................................................... 103.750%
2004.................................................... 101.875%
2005 and thereafter..................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to November 30, 2000,
the Company may redeem up to 35% of the aggregate principal amount of the
Notes with the net cash proceeds of one or more Public Equity Offerings at a
redemption price equal to 111.25% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the redemption date; provided that (a)
at least $65.0 million aggregate principal amount of the Notes remains
outstanding immediately after the occurrence of such redemption and (b) notice
of such redemption is given within 60 days of the date of the closing of any
such Public Equity Offering.
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If less than all of the Notes are to be redeemed at any time, selection of
the Notes to be redeemed will be made by the Trustee from among the
outstanding Notes on a pro rata basis, by lot or by any other method permitted
in the Indenture. Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder whose Notes are to
be redeemed at the registered address of such Holder. On and after the
redemption date, interest will cease to accrue on the Notes or portions
thereof called for redemption.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company shall be obligated
to make an offer to all Holders of Notes to purchase (a "Change of Control
Offer") all outstanding Notes and will purchase, on a business day not more
than 60 days nor less than 30 days after the occurrence of the Change of
Control (such purchase date being the "Change of Control Purchase Date"), all
Notes properly tendered pursuant to such offer to purchase for a cash price
(the "Change of Control Purchase Price") equal to 101% of the principal amount
of the Notes, plus accrued and unpaid interest, if any, to the Change of
Control Purchase Date. The Change of Control Offer is required to remain open
for at least 20 business days or for such longer period as is required by law.
In order to effect a Change of Control Offer, the Company shall within 30
days after the occurrence of the Change of Control mail to the Trustee, who
shall mail to each Holder of Notes, a copy of the Change of Control Offer,
which shall state, among other things, the procedures that Holders must follow
to accept the Change of Control Offer.
The Company's obligation to make a Change of Control Offer will be satisfied
if a third party makes the Change of Control Offer in the manner and at the
times and otherwise in compliance with the requirements applicable to a Change
of Control Offer made by the Company and purchases all Notes properly tendered
and not withdrawn under such Change of Control Offer. The occurrence of the
events constituting a Change of Control under the Indenture may result in an
event of default in respect of other Indebtedness of the Company and its
Subsidiaries and, consequently, the lenders thereof may have the right to
require repayment of such Indebtedness in full. If a Change of Control Offer
is made, there can be no assurance that the Company will have available funds
sufficient to pay for all or any of the Notes that might be delivered by
Holders of Notes seeking to accept the Change of Control Offer.
In addition, the Credit Agreement or other Indebtedness could restrict the
Company's ability to purchase Notes upon a Change of Control. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company would seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the Indebtedness that contains
such prohibition. If the Company does not obtain such a consent or repay such
Indebtedness, the Company could remain prohibited from purchasing Notes. In
such case, the Company's failure to make a Change of Control Offer or to
purchase Notes tendered pursuant to a Change of Control Offer would constitute
an Event of Default under the Indenture, which could, in turn, constitute a
default under such other Indebtedness.
The definition of Change of Control includes the sale of "all or
substantially all" of the assets of the Company or the Company and its
Restricted Subsidiaries taken as a whole. The phrase "all or substantially
all" is subject to interpretation under applicable legal precedent and has no
clear meaning. As a result, there may be uncertainty as to whether a Change of
Control has occurred.
The Change of Control feature of the Notes, by requiring a Change of Control
Offer, may in certain circumstances make more difficult or discourage a sale
or takeover of the Company, and, thus, the removal of incumbent management.
The Change of Control feature, however, is not part of a plan by management to
adopt a series of antitakeover provisions. Instead, the Change of Control
feature is a result of negotiations between the Company and the Initial
Purchasers. Subject to the limitations discussed below, the Company could, in
the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the Indenture, but that could increase the amount of
Indebtedness outstanding at such time or otherwise affect the Company's
capital structure or credit ratings.
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The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder, if
applicable, in connection with the purchase of Notes pursuant to a Change of
Control Offer.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitations on Additional Indebtedness. (A) (i) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
incur any Indebtedness (including without limitation Acquired Indebtedness)
and (ii) the Company will not permit any of its Restricted Subsidiaries (other
than any Guarantor) to issue (except if issued to or owned beneficially and of
record by the Company or any of its Restricted Subsidiaries) any Capital Stock
having a preference in liquidation or with respect to the payment of
dividends; provided that (a) the Company and its Restricted Subsidiaries may
incur Permitted Indebtedness and (b) the Company or any Guarantor may incur
Indebtedness if, after giving effect thereto, the Company's Consolidated Fixed
Charge Coverage Ratio on the date thereof would be at least 2.0 to 1.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness may be incurred through clause (b) of this covenant or
by meeting the criteria of one or more of the types of Permitted Indebtedness
pursuant to clause (a), the Company, in its sole discretion, (i) may classify
such item of Indebtedness under and comply with either of such clauses (or any
of such definitions), as applicable, (ii) may classify and divide such item of
Indebtedness into more than one of such clauses (or definitions), as
applicable, and (iii) may elect to comply with such clauses (or definitions),
as applicable, in any order.
(B) The Company will not, and will not permit any of its Subsidiaries that
are Guarantors to, incur any Indebtedness that is expressly subordinated to
any other Indebtedness of the Company or such Subsidiary unless such
Indebtedness by its terms is also expressly made subordinated to the Notes, in
the case of the Company, or the Subsidiary Guarantees, in the case of a
Subsidiary.
Limitations on Restricted Payments. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment (except as permitted below) if at the time of such
Restricted Payment:
(i) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof;
(ii) the Company would be unable to incur an additional $1.00 of
Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio test
set forth in the "Limitations on Additional Indebtedness" covenant; or
(iii) the amount of such Restricted Payment, when added to the aggregate
amount of all Restricted Payments made after the Issue Date (other than any
Restricted Payment permitted under clause (3)(a), (4) or (5) of the next
paragraph), exceeds the sum (the "Basket") of (A) 50% of the Company's
Consolidated Net Income (taken as one accounting period) from the beginning
of the first fiscal quarter commencing after the Issue Date to the end of
the Company's most recently ended fiscal quarter for which financial
statements are available at the time of such Restricted Payment (or, if
such aggregate Consolidated Net Income shall be a deficit, minus 100% of
such aggregate deficit), plus (B) the net cash proceeds from the issuance
and sale (other than to a Restricted Subsidiary of the Company) after the
Issue Date of Qualified Stock, plus (C) the net cash proceeds from the
issuance or sale (other than to a Restricted Subsidiary of the Company) of
Indebtedness or shares of Disqualified Stock after the Issue Date that have
been converted into or exchanged for Qualified Stock of the Company,
together with the aggregate net cash proceeds received by the Company at
the time of such conversion or exchange, plus (D) to the extent that any
Restricted Investment that was made after the Issue Date is sold for cash
or otherwise liquidated or repaid for cash, in whole or in part, the
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lesser of (x) the cash return of capital (including repayment in cash of
Indebtedness, if applicable) with respect to such Restricted Investment
(less the cost of disposition, if any) and (y) the initial amount of such
Restricted Investment, plus (E) the amount of Restricted Investment
outstanding in an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary of the Company in
accordance with the definition of "Unrestricted Subsidiary."
The foregoing provisions will not prohibit, so long as (with respect to
clauses (2) and (3) below) no Default or Event of Default shall have occurred
and be continuing, (1) the payment of any dividend within 60 days after the
date of declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture; (2) the redemption of any
Capital Stock of the Company in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of any Qualified Stock of the Company; (3) the redemption of
Subordinated Indebtedness (a) with the net proceeds from or incurrence of
Permitted Refinancing Indebtedness or (b) in exchange for, or out of the
proceeds of, the substantially concurrent issue and sale of Qualified Stock of
the Company (other than (x) Capital Stock sold to a Restricted Subsidiary of
the Company and (y) Capital Stock purchased with the proceeds of loans from
the Company or any of its Restricted Subsidiaries), (4) the redemption of any
Capital Stock of the Company or of Parent, or dividends to Parent in any
amount sufficient to and for the purpose of redeeming Capital Stock of Parent,
held by any present or former employee or director of the Company or any of
its Restricted Subsidiaries (or the estate or a trust for the benefit of any
such Person) in an aggregate amount not to exceed $1.5 million in any fiscal
year (provided that any unused amounts may be carried over to the immediately
subsequent fiscal year but not beyond such fiscal year), (5) dividends to
Parent in an amount sufficient for Parent to pay its legal, accounting and
other operating expenses incurred in the ordinary course of business, but not
to exceed $200,000 in the aggregate in any fiscal year and (6) the payment in
an amount not to exceed $600,000 per year of dividends to Parent in an amount
sufficient to and for the purpose of paying fees to Saratoga or its Affiliates
pursuant to the Management Services Agreement.
The amounts referred to in clauses (1), (2), (3)(b) and (6) shall be
included as Restricted Payments in any computation made pursuant to clause
(iii) above.
Limitations on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, create or otherwise cause or suffer to exist or become
effective any consensual Payment Restriction with respect to any of its
Restricted Subsidiaries, except for any such Payment Restriction existing
under or by reason of (a) applicable law, (b) customary non-assignment or net
worth provisions in leases or other contracts entered into in the ordinary
course of business and consistent with past practices, (c) purchase money
obligations for property acquired in the ordinary course of business that
impose restrictions on the property so acquired, (d) customary restrictions
imposed on the transfer of copyrighted or patented materials, (e) the entering
into of a contract for the sale or other disposition of assets, directly or
indirectly, so long as such restrictions do not extend to assets that are not
subject to such sale or other disposition, (f) the terms of any agreement
evidencing any Indebtedness of Restricted Subsidiaries that was permitted by
the Indenture to be incurred that only restricts the transfer of the assets
purchased with the proceeds of such Indebtedness, (g) the terms of the Credit
Agreement in effect on the Issue Date or any similar Payment Restriction under
the Credit Agreement or any similar bank credit facility, provided that such
similar Payment Restriction, taken as a whole, is not materially more
restrictive than the Payment Restriction in effect on the Issue Date under the
Credit Agreement, (h) the terms of any agreement evidencing any Acquired
Indebtedness that was permitted to be incurred pursuant to the Indenture,
provided that such Payment Restriction only applies to assets that were
subject to such restriction and encumbrances prior to the acquisition of such
assets by the Company or its Restricted Subsidiaries, (i) contracts of a
Restricted Subsidiary in effect prior to such Person becoming a Restricted
Subsidiary and not entered into in contemplation thereof, so long as such
restriction applies only to such Restricted Subsidiary or its assets, (j)
restrictions on transfer of property or assets pursuant to any Lien permitted
under the Indenture, (k) the terms of any agreement in effect on the Issue
Date as such Payment Restriction is in effect on the Issue Date or as
thereafter amended; provided that such Payment Restriction is no more
restrictive, (1) the Indenture, the Notes or the Guarantees, and (m)
Refinancing
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Indebtedness; provided that any such Payment Restrictions that arise under
such Refinancing Indebtedness are not, taken as a whole, more restrictive than
those under the agreement creating or evidencing the Indebtedness being
refinanced.
Limitations on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, in
one transaction or a series of related transactions, sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any of their
respective Affiliates (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that could
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers
to the Trustee (a) with respect to any Affiliate Transaction (or series of
related transactions) involving aggregate payments in excess of $1.0 million,
an Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and a Secretary's Certificate which sets forth and
authenticates a resolution that has been adopted by a vote of a majority of
the Disinterested Directors approving such Affiliate Transaction or states
that there are no Disinterested Directors, in which case an opinion, as
described in clause (b), shall be required and (b) with respect to any
Affiliate Transaction (or series of related transactions) involving aggregate
payments in excess of $5.0 million, the certificates described in the
preceding clause (a) and an opinion as to the fairness to the Company or such
Restricted Subsidiary from a financial point of view issued by an Independent
Financial Advisor; provided, however, that the following shall not be deemed
to be Affiliate Transactions: (i) transactions exclusively between or among
(1) the Company and one or more Restricted Subsidiaries or (2) Restricted
Subsidiaries, provided, in each case, that no Affiliate of the Company (other
than any Person that is such an Affiliate solely because of the control of
such Person by the Company) owns Capital Stock of any such Restricted
Subsidiary; (ii) transactions between the Company or any Restricted Subsidiary
and any qualified employee stock ownership plan established for the benefit of
the Company's employees, or the establishment or maintenance of any such plan;
(iii) reasonable director, officer and employee compensation and other
benefit, and indemnification, arrangements approved by the Board of Directors;
(iv) transactions permitted by the "Limitations on Restricted Payments"
covenant; (v) the existence of, or the performance by the Company or any
Restricted Subsidiary under, the Management Services Agreement with respect to
fees of up to $600,000 per year and any other agreement in effect on the Issue
Date, as such agreement is in effect on the Issue Date or as amended
thereafter in any manner no less favorable to the Holders; (vi) prepaid
expenses and loans or advances to employees or directors of the Company or any
of its Subsidiaries in the ordinary course of business; (vii) the pledge of
Capital Stock of Unrestricted Subsidiaries to support the Indebtedness
thereof; (viii) the entering into of a tax sharing agreement, or payments
pursuant thereto, between the Company and/or one or more Subsidiaries, on the
one hand, and any other Person with which the Company or such Subsidiaries are
required or permitted to file a consolidated tax return or with which the
Company or such Subsidiaries are or could be part of a consolidated group for
tax purposes, on the other hand, which payments by the Company and its
Restricted Subsidiaries are not in excess of the tax liabilities that would
have been payable by them on a stand-alone basis; and (ix) the issuance and
sale by the Company to its Affiliates of Qualified Stock.
Limitations on Liens. The Company will not incur, and will not permit any
Restricted Subsidiary to, directly or indirectly create, incur, assume or
suffer to exist any Lien on any property or asset now owned or hereafter
acquired, or on any income, profits or proceeds therefrom, or assign or convey
any right to receive income therefrom, except Permitted Liens, unless prior
thereto or simultaneously therewith the Notes are equally and ratably secured;
provided that if such Indebtedness is Subordinated Indebtedness the Lien
securing such Indebtedness shall be expressly subordinated and junior to the
Lien securing the Notes.
Limitations on Asset Sales. (a) The Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in any Asset Sale unless (i) the
Company or such Restricted Subsidiary receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value of the assets sold,
(ii) at least 80% of the consideration received by the Company or the relevant
Restricted Subsidiary in respect of such Asset
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Sale consists of (A) cash or Cash Equivalents, (B) the assumption of
Indebtedness (other than Subordinated Indebtedness) of the Company or any
Guarantor or Indebtedness of any non-Guarantor Restricted Subsidiary, (C)
Related Assets or (D) any combination of the foregoing clauses (A), (B) and
(C).
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company or any Restricted Subsidiary may either, no later than 270 days
after such Asset Sale, (i) apply all or any of the Net Available Proceeds
therefrom to repay amounts outstanding under the Credit Agreement (including
by providing cash collateral) or any other Indebtedness (other than
Subordinated Indebtedness) of the Company or any Restricted Subsidiary;
provided, in each case, that the related loan commitment (if any) is thereby
permanently reduced by the amount of such Indebtedness so repaid or (ii)
invest all or any part of the Net Available Proceeds thereof in Related
Assets. Pending final disposition of Net Available Proceeds, amounts may be
used to repay any amounts outstanding under the Credit Agreement. The amount
of such Net Available Proceeds not applied or invested as provided in this
paragraph will constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds $5.0
million, the Company will be required to make an offer to purchase, from all
Holders of the Notes, an aggregate principal amount of Notes equal to such
Excess Proceeds as follows:
(i) The Company will make an offer to purchase (a "Net Proceeds Offer")
from all Holders of the Notes in accordance with the procedures set forth
in the Indenture the maximum principal amount (expressed as a multiple of
$1,000) of Notes that may be purchased (the "Payment Amount") out of the
amount of such Excess Proceeds.
(ii) The offer price for the Notes will be payable in cash in an amount
equal to 100% of the principal amount of the Notes tendered pursuant to a
Net Proceeds Offer, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date such Net Proceeds Offer is consummated (the
"Offered Price"), in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate Offered Price of Notes tendered
pursuant to a Net Proceeds Offer is less than the Payment Amount relating
thereto (such shortfall constituting a "Net Proceeds Deficiency"), the
Company may use such Net Proceeds Deficiency, or a portion thereof, for
general corporate purposes, subject to the limitations of the "Limitations
on Restricted Payments" covenant.
(iii) If the aggregate Offered Price of Notes validly tendered and not
withdrawn by Holders thereof exceeds the Payment Amount, Notes to be
purchased will be selected on a pro rata basis.
(iv) Upon completion of such Net Proceeds Offer, the amount of Excess
Proceeds remaining shall be zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder, if
applicable, in the event that an Asset Sale occurs and the Company is required
to purchase Notes as described above.
Restrictions on Sale and Leaseback Transactions. The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into, renew or extend any Sale and Leaseback Transaction unless: (i) the
Company or such Subsidiary would be entitled, under the "Limitations on
Additional Indebtedness" covenant, to incur Indebtedness in an amount equal to
the Attributable Indebtedness with respect to such Sale and Leaseback; (ii)
such Sale and Leaseback Transaction would not result in a violation of the
"Limitation on Liens" covenant; and (iii) the Net Available Proceeds from any
such Sale and Leaseback Transaction are applied in a manner consistent with
the provisions of the "Limitations on Asset Sales" covenant.
Restrictions on Sale of Capital Stock of Restricted Subsidiaries. The
Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly sell or otherwise dispose of any of the Capital Stock of any
Restricted Subsidiary unless: (i) (a) the Restricted Subsidiary shall remain a
Restricted Subsidiary, or (b) all of the Capital Stock of such Restricted
Subsidiary shall be sold or otherwise disposed of or any Capital Stock of such
Restricted Subsidiary retained by the Company or its Restricted Subsidiaries
is treated as an Investment
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and complies with the provisions described under "Limitations on Restricted
Payments," and (ii) the Net Available Proceeds from any such sale or
disposition are applied in a manner consistent with the provisions described
under "Limitations on Asset Sales."
Reports. Whether or not required by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), so long as any Notes
are outstanding, the Company and the Guarantors will file with the Commission,
to the extent such filings are accepted by the Commission, and will furnish to
the Holders of Notes all quarterly and annual reports and other information,
documents and reports that would be required to be filed with the Commission
pursuant to Section 13 of the Exchange Act if the Company and the Guarantors
were required to file under such section. The Company and the Guarantors have
agreed that, for so long as any Notes remain outstanding, they will furnish to
the Holders and beneficial holders of Notes and to prospective purchasers of
Notes designated by the Holders of Transfer Restricted Securities and to
broker-dealers, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company will not, in a single transaction or a series of related
transactions, (i) consolidate or merge with or into (other than a merger with
a Wholly Owned Restricted Subsidiary solely for the purpose of changing the
Company's jurisdiction of incorporation to another State of the United
States), or sell, lease, transfer, convey or otherwise dispose of or assign
all or substantially all of the assets of the Company and the Restricted
Subsidiaries (taken as a whole), or assign any of its obligations under the
Notes and the Indenture, to any Person or (ii) adopt a Plan of Liquidation
unless, in either case: (a) the Person formed by or surviving such
consolidation or merger (if other than the Company) or to which such sale,
lease, conveyance or other disposition or assignment shall be made (or, in the
case of a Plan of Liquidation, any Person to which assets are transferred)
(collectively, the "Successor"), is a corporation organized and existing under
the laws of the United States or any State thereof or the District of
Columbia, and the Successor assumes by supplemental indenture in a form
satisfactory to the Trustee all of the obligations of the Company under the
Notes and the Indenture; (b) immediately prior to and immediately after giving
effect to such transaction and the assumption of the obligations as set forth
in clause (a) above and the incurrence of any Indebtedness to be incurred in
connection therewith, no Default or Event of Default shall have occurred and
be continuing; and (c) immediately after and giving effect to such transaction
and the assumption of the obligations set forth in clause (a) above and the
incurrence of any Indebtedness to be incurred in connection therewith, and the
use of any net proceeds therefrom on a pro forma basis, (1) the Consolidated
Net Worth of the Company or the Successor, as the case may be, would be at
least equal to the Consolidated Net Worth of the Company immediately prior to
such transaction and (2) the Company or the Successor, as the case may be,
could incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Fixed Charge Coverage Ratio test set forth in the "Limitations on
Additional Indebtedness" covenant; and (d) each Subsidiary Guarantor, unless
it is the other party to the transactions described above, shall have by
amendment to its guarantee confirmed that its guarantee of the Notes shall
apply to the obligations of the Company or the Successor under the Notes and
the Indenture. For purposes of this covenant, any Indebtedness of the
Successor which was not Indebtedness of the Company immediately prior to the
transaction shall be deemed to have been incurred in connection with such
transaction.
The Indenture provides that upon any consolidation or merger or any transfer
of all or substantially all of the assets of the Company in accordance with
the foregoing, the surviving Person formed by such consolidation or into which
the Company is merged or to which such transfer is made 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 Person had been
named as the Company therein; provided, however, that solely for purposes of
computing the Basket described in subclause (iii) of the first paragraph of
the covenant described under "--Limitations on Restricted Payments," the
Basket shall not be affected by the Consolidated Net Income or other
attributes of the surviving Person prior to the effective time of the merger
and any such surviving Person shall be deemed to have succeeded to and be
substituted for the Company only with respect to periods subsequent to the
effective time of such merger, consolidation or transfer of assets.
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EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) failure by the Company to pay interest on any of the Notes when it
becomes due and payable and the continuance of any such failure for 30
days;
(ii) failure by the Company to pay the principal or premium, if any, on
any of the Notes when it becomes due and payable, whether at stated
maturity, upon redemption, upon acceleration or otherwise;
(iii) the Company shall fail to comply with any of its agreements or
covenants described above under "--Merger, Consolidation and Sale of
Assets," or "--Change of Control";
(iv) failure by the Company to comply with any other covenant in the
Indenture and continuance of such failure for 30 days after notice of such
failure has been given to the Company by the Trustee or by the Holders of
at least 25% of the aggregate principal amount of the Notes then
outstanding;
(v) failure by the Company or any of its Subsidiaries to make any payment
of principal on Indebtedness of the Company or any such Subsidiary at its
stated final maturity after the expiration of any applicable grace period
in an aggregate outstanding principal amount of $5.0 million or more;
(vi) a default under any Indebtedness of the Company or any Subsidiary,
whether such Indebtedness now exists or hereafter shall be created, if (A)
such default results in the Holder or Holders of such Indebtedness causing
the Indebtedness to become due prior to its stated final maturity and (B)
the outstanding principal amount of such Indebtedness, together with the
outstanding principal amount of any other such Indebtedness the maturity of
which has been so accelerated, aggregate $5.0 million or more at any one
time;
(vii) one or more final judgments or orders that exceed $5.0 million in
the aggregate for the payment of money have been entered by a court or
courts of competent jurisdiction against the Company or any Subsidiary of
the Company and such judgment or judgments have not been satisfied, stayed,
annulled or rescinded within 60 days of being entered;
(viii) certain events of bankruptcy, insolvency or reorganization
involving the Company or any Significant Subsidiary of the Company; and
(ix) except as permitted by the Indenture or by its terms, any Guarantee
ceases to be in full force and effect or any Guarantor repudiates its
obligations under any Guarantee.
If an Event of Default (other than an Event of Default specified in clause
(viii) above involving the Company) shall have occurred and be continuing
under the Indenture, the Trustee, by written notice to the Company, or the
Holders of at least 25% in aggregate principal amount of the Notes then
outstanding by written notice to the Company and the Trustee, may declare all
amounts owing under the Notes to be due and payable immediately. Upon such
declaration of acceleration, the aggregate principal of, premium, if any, and
interest on the outstanding Notes shall immediately become due and payable. If
an Event of Default specified in clause (viii) above involving the Company
occurs, all outstanding Notes shall become due and payable without any further
action or notice. The Holders of a majority in aggregate principal amount of
the Notes then outstanding may waive an existing Default or Event of Default
and its consequences, except as a result of a failure to pay principal of,
premium, if any, or interest on any Notes or in respect of a covenant or
provision which under the Indenture cannot be modified or amended without the
consent of the Holder of each outstanding Note.
The Holders may not enforce the provisions of the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, Holders
of a majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power; provided, however, that such
direction does not conflict with the terms of the Indenture. The Trustee may
withhold from the Holders notice of any continuing
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Default or Event of Default (except any Default or Event of Default in payment
of principal of, premium, if any, or interest on the Notes) if the Trustee
determines that withholding such notice is in the Holders' interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture and, upon any Officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default and what action the Company is taking or proposes
to take with respect thereto.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations of
the Company and the Guarantors with respect to the outstanding Notes and the
Guarantees (such action being a "legal defeasance"). Such legal defeasance
means that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes and to have been discharged
from all its other obligations with respect to the Notes and the Guarantors to
have been discharged from their Guarantees, except for (i) the rights of
Holders of outstanding Notes to receive, from the trust referred to below,
payment in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (ii) the Company's obligations to replace
any temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes and maintain an office or agency
for payments in respect of the Notes, (iii) the rights, powers, trusts, duties
and immunities of the Trustee, and (iv) the legal defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect
to terminate the obligations of the Company with respect to certain covenants
that are set forth in the Indenture, some of which are described under "--
Certain Covenants" above, and any omission to comply with such obligations
shall not constitute a Default or an Event of Default with respect to the
Notes (such action being a "covenant defeasance"). In the event covenant
defeasance occurs, certain events (not including nonpayment, bankruptcy,
insolvency and reorganization events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either legal defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, premium, if any,
and interest and Liquidated Damages, if any, on the outstanding Notes to
redemption or maturity; (ii) the Company shall have delivered to the Trustee
an Opinion of Counsel to the effect that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such legal defeasance or covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such legal defeasance or covenant
defeasance had not occurred (in the case of legal defeasance, such Opinion
must refer to and be based upon a published ruling of the Internal Revenue
Service or a change in applicable federal income tax laws); (iii) no Default
or Event of Default shall have occurred and be continuing on the date of such
deposit or insofar as clause (viii) under the first paragraph of "Events of
Default" is concerned, at any time during the period ending on the 123rd day
after the date of deposit; (iv) such legal defeasance or covenant defeasance
shall not cause the Trustee to have a conflicting interest under the Indenture
or the Trust Indenture Act with respect to any securities of the Company; (v)
such legal defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under, any material agreement or
instrument to which the Company or any of its Restricted Subsidiaries is a
party or by which the Company or any of its Restricted Subsidiaries is bound;
(vi) the Company shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of the Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of
the Company or others; and (vii) the Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel satisfactory to the
Trustee, each stating that all conditions precedent under the Indenture
relating to either legal defeasance or covenant defeasance, as the case may
be, have been complied with.
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen, mutilated or destroyed Notes which have been replaced or
paid and Notes for whose payment money or certain U.S. Government Obligations
have theretofore been deposited in trust or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged from such
trust) have been delivered to the Trustee for cancellation or (b) all Notes
not theretofore delivered to the Trustee for cancellation have become due and
payable or will become due and payable at their stated final maturity within
one year, or are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the serving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company has irrevocably deposited or
caused to be deposited with the Trustee funds in an amount sufficient to pay
and discharge the entire Indebtedness on the Notes not theretofore delivered
to the Trustee for cancellation, for principal of, premium, if any, and
interest and Liquidated Damages, if any, on the Notes to the date of deposit
(in the case of Notes which have become due and payable) or to the stated
final maturity or Redemption Date, as the case may be, together with
instructions from the Company irrevocably directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be;
(ii) the Company has paid all other sums payable under the Indenture by the
Company; and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent under the Indenture relating to the satisfaction and discharge of
the Indenture have been complied with.
TRANSFER AND EXCHANGE
A Holder will be able to register the transfer of or exchange Notes only in
accordance with the provisions of the Indenture. 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. Without the prior consent of the Company, the Registrar is not
required (i) to register the transfer of or exchange any Note selected for
redemption, (ii) to register the transfer of or exchange any Note for a period
of 15 days before a selection of Notes to be redeemed or (iii) to register the
transfer or exchange of a Note between a record date and the next succeeding
interest payment date. The registered Holder of a Note will be treated as the
owner of such Note for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent (which may include consents obtained in
connection with a tender offer or exchange offer for Notes) of the Holders of
at least a majority in principal amount of the Notes then outstanding, and any
existing Default or Event of Default under, or compliance with any provision
of, the Indenture may be waived (other than any continuing Default or Event of
Default in the payment of the principal of, premium, if any, or interest on
the Notes) with the consent (which may include consents obtained in connection
with a tender offer or exchange offer for Notes) of the Holders of a majority
in principal amount of the Notes then outstanding. Without the consent of any
Holder, the Company and the Trustee may amend or supplement the Indenture or
the Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders in the case
of a merger or acquisition, to add a Guarantee or to make any change that does
not adversely affect the rights of any Holder.
Without the consent of each Holder affected, the Company and the Trustee may
not: (i) extend the maturity of any Note; (ii) affect the terms of any
scheduled payment of interest on or principal of the Notes (including without
limitation any redemption provisions (other than any provision described under
"--Change of Control" or "--Certain Covenants--Limitations on Asset Sales" or
the definitions related thereto)); (iii) take any action that would
subordinate the Notes or the Guarantees to any other Indebtedness of the
Company or any of the Guarantors, respectively, or otherwise change the
ranking of the Notes or the Guarantees in a manner adverse to
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the Holders; (iv) reduce the percentage of Holders necessary to consent to an
amendment, supplement or waiver to the Indenture; or (v) release a Guarantee
(except pursuant to its terms). In addition, without the consent of the
Holders of at least 75% of the aggregate principal amount of Notes affected
thereby, the Company and the Trustee may not make any change in the provisions
described above under the caption "Change of Control" or the definitions
related thereto.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become 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 will be 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 Indenture provides that, in the event that an Event of Default occurs
and is not cured, the Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent person in similar circumstances in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to the Trustee.
United States Trust Company of New York is the Trustee under the Indenture.
United States Trust Company of New York is also the Transfer Agent, Registrar
and Paying Agent for the Senior Preferred Stock and the Warrant Agent for the
Warrants.
GOVERNING LAW
The Indenture, the Notes and the Guarantees are governed by, and construed
in accordance with, the laws of the State of New York.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form without interest coupons (each, a "Global Note"). Upon
issuance, each Global Note will be deposited with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in the name of Cede
& Co., as nominee of the Depositary, and the Depository or its custodian will
credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by each Global Note to the
accounts of persons who have accounts with the Depositary. Ownership of
beneficial interests in a Global Note will be limited to persons who have
accounts with the Depositary ("participants") or persons who hold interests
through participants. Ownership of beneficial interests in a Global Note will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by the Depositary or its nominee (with respect to interests
of participants) and the records of participants (with respect to interests of
persons other than participants).
So long as the Depositary, or its nominee, is the registered holder of a
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Global
Note for all purposes under the Indenture and the Notes. No beneficial owner
of an interest in a Global Note will be able to transfer that interest except
in accordance with the Depositary's applicable procedures.
Payments of the principal of, and interest on, the Global Notes will be made
to the Depositary or its nominee, as the case may be, as the registered owner
thereof. None of the Company, the Trustee or any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
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The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of the Depositary or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in
such Global Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the name of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in the Depositary will be effected in the
ordinary way in accordance with the Depositary's rules and will be settled in
same-day funds.
The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Notes (including the presentation of
Notes for exchange as described below) only at the direction of one or more
participants to whose accounts an interest in the Global Notes is credited and
only in respect of such portion of the aggregate principal amount of Notes as
to which such participant or participants has or have given such direction.
The Depositary has advised the Company as follows: the Depositary is a
limited purpose trust company organized under the laws of the State of New
York, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing Agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depositary
was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the
Depositary system is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of
the Depositary, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Company nor the Trustee will have any responsibility for the performance
by the Depositary or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
If (i) the Depositary is at any time unwilling or unable to continue as a
depositary for the Global Notes and a successor depositary is not appointed by
the Company within 120 days or (ii) the Company in its sole discretion
determines that the Global Notes (in whole but not in part) should be
exchanged for certificated notes, the Company will issue certificated notes in
exchange for the Global Notes. In addition, any person having a beneficial
interest in a Global Note may, upon request to the Trustee following an Event
of Default under the Indenture, exchange such beneficial interest for
certificated notes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms.
"Acquired Indebtedness" means, with respect to any specified Person, (a)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a Restricted Subsidiary of
such specified Person or (b) assumed in connection with acquisitions of
properties or assets from such Person. Acquired Indebtedness shall be deemed
to be incurred on
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the date the acquired Person becomes a Restricted Subsidiary or the date of
the related acquisition of properties or assets from such Person.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any executive
officer or director of any such specified Person or other Person. For the
purposes of this definition, "control," when used with respect to any
specified Person, includes the power to vote 10% or more of any class of
voting securities of such Person or to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"amend" means amend, modify, supplement, restate or amend and restate, in
whole or in part, including successively; and "amending" and "amended" have
correlative meanings.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition to any Person other than the Company or any of
its Subsidiaries (including, without limitation, by means of a Sale and
Leaseback Transaction or a merger or consolidation) (collectively, for
purposes of this definition, a "transfer"), directly or indirectly, in one
transaction or a series of related transactions, of (a) any Capital Stock of
any Restricted Subsidiary or (b) any other properties or assets of the Company
or any of its Restricted Subsidiaries other than transfers of cash, Cash
Equivalents, accounts receivable, inventory or other properties or assets in
the ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include any of the following: (i) any transaction that
is governed by, and made in accordance with, the provisions described under
"Merger, Consolidation and Sales of Assets" or that constitutes a "Change of
Control"; (ii) any Restricted Payment or Restricted Investment permitted under
the "Limitations on Restricted Payments" covenant; (iii) sales of damaged,
worn-out or obsolete equipment or assets that, in the Company's reasonable
judgment, are either no longer used or useful in the business of the Company
or its Subsidiaries; (iv) any disposition of defaulted receivables for
collection; (v) the granting of any Lien, or any foreclosure thereon, granted
in compliance with the provisions described under "--Certain Covenants--
Limitations on Liens"; (vi) the conversion of any operating lease to which
attaching machinery of the Company or any of its Restricted Subsidiaries is
subject to, or the sale of any such attaching machinery pursuant to, a
Capitalized Lease Obligation; and (vii) any transfers that, but for this
clause (vii), would be Asset Sales, if after giving effect to such transfers,
the aggregate Fair Market Value of the properties or assets transferred in
such transaction or any such series of related transactions does not exceed
$100,000.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable, whether or not accounted for as
a Capitalized Lease Obligation, and at any date as of which the amount thereof
is to be determined, the present value of the total net amount of rent
required to be paid by such Person under the lease during the primary term
thereof, without giving effect to any renewals at the option of the lessee,
discounted from the respective due dates thereof to such date of determination
at a rate per annum equal to the discount rate which would be applicable to a
Capitalized Lease Obligation with a like term in accordance with GAAP. As used
in the preceding sentence, the "net amount of rent" under any such lease for
any such period shall mean the sum of rental and other payments required to be
made with respect to such period by the lease thereunder, excluding any
amounts required to be paid by such lessee on account of maintenance and
repairs, insurance, taxes, assessments or similar charges. In the case of any
lease that is terminable by the lessee upon payment of a penalty, such net
amount of rent shall also include the amount of such penalty, but no rent
shall be considered as required to be paid under such lease subsequent to the
first date upon which it may be so terminated.
"Board of Directors" of any Person means the Board of Directors of such
Person (or comparable governing body) or any authorized committee thereof.
"Board Resolution" means a duly adopted resolution of the Board of Directors
of the Company.
"Capital Stock" of any Person means any and all shares, rights to purchase,
warrants or options (whether
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or not currently exercisable), participations or other equivalents of or
interests in (however designated) the equity (including without limitation
common stock, preferred stock and partnership interests) of such Person.
"Capitalized Lease Obligations" means, with respect to any Person, any
obligation of that Person to pay lease payments, rent or other amounts under a
lease of (or other similar agreement conveying the right to use) any property
(whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP and, for purposes of
the Indenture, the amount of that obligation at any date will be the
capitalized amount thereof at that date, as determined in accordance with
GAAP.
"Cash Equivalents" means (i) marketable obligations with a maturity of 180
days or less issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500 million; (iii) commercial
paper maturing no more than 180 days from the date of creation thereof issued
by a corporation that is not an Affiliate of the Company and is organized
under the laws of any state of the United States or the District of Columbia
and rated at least A-1 by S&P or at least P-1 by Moody's; (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clause (i) above entered into with any commercial
bank meeting the specifications of clause (ii) above; and (v) investments in
money market or other mutual funds substantially all of whose assets comprise
securities of the types described in clauses (i) through (iv) above.
"Change of Control" means the occurrence of any of the following: (i) the
consummation of any transaction the result of which is (x) if such transaction
occurs prior to the first sale of Voting Stock of the Company pursuant to a
registration statement under the Securities Act that results in at least 20%
of the then outstanding Voting Stock of the Company having been sold to the
public, that Permitted Holders beneficially own Voting Stock representing less
than, directly or indirectly, 51% of the voting power of the Voting Stock of
the Company, and (y) if such transaction occurs thereafter, that any Person or
group (as such term is used in Section 13(d)(3) of the Exchange Act) (other
than Permitted Holders) is or becomes the beneficial owner (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of Voting Stock
representing more than 35% of the voting power of the Voting Stock of the
Company unless Permitted Holders beneficially own Voting Stock representing a
greater percentage of the voting power of the Voting Stock of the Company,
(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 the assets of the Company and its Restricted Subsidiaries
taken as a whole 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, as the case may be, is
converted into or exchanged for cash, securities or other property, other than
any such transaction where the outstanding Voting Stock of the Company, as the
case may be, is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation and the
beneficial owners of the Voting Stock of the Company immediately prior to such
transaction own, directly or indirectly, Voting Stock representing not less
than a majority of the voting power of the Voting Stock of the surviving or
transferee corporation immediately after such transaction, (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 either (i) a vote
of two-thirds of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election
was previously so approved or (ii) a Permitted Holder) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office,
or (iv) the approval by the Holders of Capital Stock of the Company of any
plan or proposal for liquidation or dissolution of the Company.
"Consolidated Amortization Expense" of any Person for any period means the
amortization expense of such Person and its Restricted Subsidiaries for such
period (to the extent included in the computation of Consolidated Net Income
of such Person), determined on a consolidated basis in accordance with GAAP.
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"Consolidated Depreciation Expense" of any Person for any period means the
depreciation expense of such Person and its Restricted Subsidiaries for such
period (to the extent included in the computation of Consolidated Net Income
of such Person), determined on a consolidated basis in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, with respect
to any determination date, the ratio of (x) EBITDA for such Person's four full
fiscal quarters immediately preceding the determination date for which
financial statements are available to (y) the aggregate Fixed Charges of such
Person for such four fiscal quarters. In making such computations, (i) EBITDA
and Fixed Charges shall be calculated on a pro forma basis assuming that (A)
the Indebtedness to be incurred or the Disqualified Stock to be issued (and
all other Indebtedness incurred or Disqualified Stock issued after the first
day of such period of four full fiscal quarters referred to in the
"Limitations on Additional Indebtedness" covenant through and including the
date of determination), and (if applicable) the application of the net
proceeds therefrom (and from any other such Indebtedness or Disqualified
Stock), including the refinancing of other Indebtedness, had been incurred on
the first day of such four quarter period and, in the case of Acquired
Indebtedness, on the assumption that the related transaction (whether by means
of purchase, merger or otherwise) also had occurred on such date with the
appropriate adjustments with respect to such acquisition being included in
such pro forma calculation and (B) any acquisition or disposition by the
Company or any Restricted Subsidiary of any properties or assets outside the
ordinary course of business or any repayment of any principal amount of any
Indebtedness of the Company or any Restricted Subsidiary, in either case since
the first day of such period of four full fiscal quarters through and
including the date of determination, had been consummated on such first day of
such four quarter period; (ii) the Fixed Charges attributable to interest on
any Indebtedness required to be computed on a pro forma basis in accordance
with the "Limitations on Additional Indebtedness" covenant and (A) bearing a
floating interest rate shall be computed as if the rate in effect on the date
of computation had been the applicable rate for the entire period and (B)
which was not outstanding during the period for which the computation is being
made but which bears, at the option of the Company, a fixed or floating rate
of interest, shall be computed by applying, at the option of the Company,
either the fixed or floating rate; (iii) the Fixed Charges attributable to
interest on any Indebtedness under a revolving credit facility required to be
computed on a pro forma basis in accordance with the "Limitations on
Additional Indebtedness" covenant shall be computed based upon the average
daily balance of such Indebtedness during the applicable period, provided that
such average daily balance shall be reduced by the amount of any repayment of
Indebtedness under a revolving credit facility during the applicable period,
which repayment permanently reduced the commitments or amounts available to be
reborrowed under such facility; (iv) notwithstanding the foregoing clauses
(ii) and (iii), interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by agreements relating to Hedging
Obligations, shall be deemed to have accrued at the rate per annum resulting
after giving effect to the operation of such agreements; and (v) if after the
first day of the applicable four-quarter period the Company has permanently
retired any Indebtedness out of the net proceeds of the issuance and sale of
shares of Capital Stock (other than Disqualified Stock) of the Company within
30 days of such issuance and sale, Fixed Charges shall be calculated on a pro
forma basis as if such Indebtedness had been retired on the first day of such
period.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes (including state franchise
taxes accounted for as income taxes in accordance with GAAP) of the Company
and the Restricted Subsidiaries for the period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" means, without duplication, with respect to
any Person for any period, the sum of the interest expense on all Indebtedness
of such Person and its Restricted Subsidiaries for such period, determined on
a consolidated basis in accordance with GAAP and including, without limitation
(i) imputed interest on Capitalized Lease Obligations, (ii) commissions,
discounts and other fees and charges owed with respect to letters of credit
securing financial obligations and bankers' acceptance financing, (iii) the
net costs associated with Hedging Obligations, (iv) amortization of financing
fees and expenses other than with respect to financing fees and expenses paid
on or prior to the Issue Date, (v) the interest portion of any deferred
payment obligations, (vi) amortization of debt discount or premium, if any,
(vii) all other non-cash interest expense, (viii)
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capitalized interest, (ix) all interest payable with respect to discontinued
operations, and (x) all interest on any Indebtedness of any other Person
guaranteed by such Person or any of its Restricted Subsidiaries.
"Consolidated Net Income" of any Person for any period means the net income
(or loss) of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP; provided that
there shall be excluded from such net income (to the extent otherwise included
therein), without duplication: (i) the net income (or loss) of any Person
(other than a Restricted Subsidiary of the referent Person) in which any
Person other than the referent Person has an ownership interest, except to the
extent that any such income has actually been received by the referent Person
or any of its Restricted Subsidiaries in the form of cash dividends during
such period (subject in the case of a dividend or distribution paid to a
Restricted Subsidiary, to the limitation in clause (iii) below); (ii) except
to the extent includible in the consolidated net income of the referent Person
pursuant to the foregoing clause (i), the net income (or loss) of any Person
that accrued prior to the date that (a) such Person becomes a Restricted
Subsidiary (other than a Guarantor) of the referent Person or is merged into
or consolidated with the referent Person or any of its Restricted Subsidiaries
or (b) the assets of such Person are acquired by the referent Person or any of
its Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary
(other than a Guarantor) of the referent Person during such period to the
extent that the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of that income is not permitted by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Restricted
Subsidiary during such period; (iv) any gain (or loss), together with any
related provisions for taxes on any such gain (or loss), realized during such
period by the referent Person or any of its Restricted Subsidiaries upon (a)
the acquisition of any securities, or the extinguishment of any Indebtedness,
of the referent Person or any of its Restricted Subsidiaries or (b) any Asset
Sale by the referent Person or any of its Restricted Subsidiaries; (v) any
extraordinary gain (or loss), together with any related provision for taxes on
any such extraordinary gain (or loss), realized by the referent Person or any
of its Restricted Subsidiaries; (vi) in the case of a successor to such Person
by consolidation, merger or transfer of its assets, any earnings of the
successor prior to such merger, consolidation or transfer of assets; and (vii)
non-cash gains and losses due solely to fluctuations in currency values; and
provided further that, subject to clause (iii) above, any gain referred to in
clauses (iv) and (v) above that relates to a Restricted Investment and that is
received in cash by the referent Person or one of its Restricted Subsidiaries
during such period shall be included in the consolidated net income of the
referent Person.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock),
less all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
within 12 months after the acquisition of such business) subsequent to the
Issue Date in the book value of any asset owned by such Person or a Restricted
Subsidiary of such Person.
"Credit Agreement" means that certain Credit Agreement dated November 26,
1997 by and among the Company, the guarantors party thereto, Swiss Bank
Corporation and the other lenders party thereto, and all guarantees, notes,
security agreements, pledge agreements and other instruments in connection
therewith, as amended or refinanced from time to time, and/or one or more
letters of credit issued by one or more lenders for the benefit of the Company
and/or one or more of Parent and its Subsidiaries and in each case as amended
or refinanced from time to time.
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business and designed to protect against or manage
exposure to fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition that after notice or the passage
of time or both would be an Event of Default.
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"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which a Board Resolution is required under the
Indenture, a member of the Board of Directors of the Company who does not have
any material direct or indirect financial interest (other than an interest
arising solely from the beneficial ownership of Capital Stock of the Company)
in or with respect to such transaction or series of transactions.
"Disqualified Stock" means any Capital Stock of such Person that, by its
terms, by the terms of any agreement related thereto or by the terms of any
security into which it is convertible, puttable or exchangeable, is, or upon
the happening of any event or the passage of time would be, required to be
redeemed or repurchased by such Person or any of its Restricted Subsidiaries,
whether or not at the option of the holder thereof, or matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, in
whole or in part, on or prior to the stated final maturity of the Notes;
provided, however, that (i) any class of Capital Stock of such Person that, by
its terms, authorizes such Person to satisfy in full its obligations with
respect to the payment of dividends or upon maturity, redemption (pursuant to
a sinking fund or otherwise) or repurchase thereof or otherwise by the
delivery of Qualified Stock, and that is not convertible, puttable or
exchangeable for Disqualified Stock or Indebtedness, shall not be deemed to be
Disqualified Stock so long as such Person satisfies its obligations with
respect thereto solely by the delivery of Qualified Stock and (ii) any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof (or of any security into which it is convertible or for which it is
exchangeable) have the right to require the issuer to repurchase such Capital
Stock (or such security into which it is exchangeable) upon the occurrence of
an Asset Sale or a Change of Control shall not constitute Disqualified Stock
if such Capital Stock (and all such securities into which it is convertible or
for which it is exchangeable) provides that the issuer thereof will not
repurchase or redeem any such Capital Stock (or any such security into which
it is convertible or for which it is exchangeable) pursuant to such provisions
prior to compliance by the Company with the provisions of the Indenture
described under the caption "--Change of Control" or "--Certain Covenants--
Limitations on Asset Sales," and purchase of any Notes properly tendered
pursuant to an offer to purchase required thereunder and not withdrawn.
"EBITDA" means, with respect to any Person for any period, without
duplication, the sum of the amounts for such period of (i) Consolidated Net
Income, (ii) Consolidated Income Tax Expense, (iii) Consolidated Amortization
Expense, (iv) Consolidated Depreciation Expense, (v) Fixed Charges, (vi)
prepayment or make-whole payments incurred in connection with the repayment of
Indebtedness on the Issue Date, and (vii) all other non-cash items reducing
Consolidated Net Income (excluding any such non-cash charge that results in an
accrual of a reserve for cash charges in any future period) of such Person and
its Restricted Subsidiaries, in each case determined on a consolidated basis
in accordance with GAAP (provided, however, that the amounts set forth in
clauses (ii) through (vii) shall be included without duplication and only to
the extent such amounts actually reduced Consolidated Net Income), less the
aggregate amount of all non-cash items, determined on a consolidated basis, to
the extent such items increase Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy; provided, however, that if such
value exceeds $1.0 million, such determination shall be made in good faith by
the Board of Directors of the Company, whose determination shall be
conclusive.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(a) the Consolidated Interest Expense of such Person and its Restricted
Subsidiaries for such period, and (b) the product of (i) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Restricted Subsidiary) on any series of preferred stock of such Person or a
Restricted Subsidiary of such Person, times (ii) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with
GAAP.
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"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in a
jurisdiction other than the United States or a state thereof or the District
of Columbia and that has no material operations or assets in the United
States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on the Issue Date.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down under letters of credit. When used as a verb,
"guarantee" has a corresponding meaning.
"Hedging Obligations" of any person means the obligations of such person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means a Person in whose name a Note is registered on the register
for the Notes.
"incur" means, with respect to any Indebtedness or obligation, incur,
create, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to such Indebtedness or
obligation. Neither the accrual of interest nor the accretion of accreted
value shall be deemed to be an incurrence.
"Indebtedness" of any Person at any date means, without duplication: (i) all
liabilities, contingent or otherwise, of such Person for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such Person or only to a portion thereof); (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto); (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, except trade payables and accrued expenses incurred by
such Person in the ordinary course of business in connection with obtaining
goods, materials or services; (v) the maximum fixed repurchase price of all
Disqualified Stock of such Person; (vi) all Capitalized Lease Obligations of
such Person; (vii) all Indebtedness of others secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
(viii) all Indebtedness of others guaranteed by such Person to the extent of
such guarantee; provided that Indebtedness of the Company or its Restricted
Subsidiaries that is guaranteed by the Company or the Company's Restricted
Subsidiaries shall only be counted once in the calculation of the amount of
Indebtedness of the Company and its Restricted Subsidiaries on a consolidated
basis; and (ix) to the extent not otherwise included in this definition,
obligations under Hedging Obligations not entered into solely for the purpose
of protecting the Company or its Restricted Subsidiaries against fluctuations
in foreign currency exchange rates or interest rates on or in connection with
indebtedness of the Company or any of its Restricted Subsidiaries then
outstanding. The amount of Indebtedness of any Person at any date shall be,
without duplication, the outstanding balance at such date of all unconditional
obligations as described above, the maximum liability of such Person for any
such contingent obligations at such date and, in the case of clause (vii), the
lesser of (A) the Fair Market Value of any asset subject to a Lien securing
the Indebtedness of others on the date that the Lien attaches and (B) the
amount of the Indebtedness secured. For purposes of the preceding sentence,
the "maximum fixed repurchase price" of any Disqualified Stock that does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Disqualified Stock as if such Disqualified Stock were purchased on any
date on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Stock (or any equity security for which it may be
exchanged or converted), such fair market value shall be determined in good
faith by the Board of Directors of such Person, which determination shall be
evidenced by a Board Resolution.
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"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is disinterested and
independent with respect to the Company and its Affiliates and, in the
reasonable judgment of the Company's Board of Directors, is qualified to
perform the task for which it has been engaged.
"Interest Rate Agreements" means any interest rate protection agreements and
other types of interest rate hedging agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements)
designed to protect against or manage exposure to fluctuations in interest
rates.
"Investments" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or
capital contribution to (by means of any transfer of cash or other property or
assets to others or any payment for property, assets or services for the
account or use of others), or any purchase or acquisition by such Person of
any Capital Stock, bonds, notes, debentures or other securities (including
derivatives) or evidences of Indebtedness issued by, any other Person. In
addition, the Fair Market Value of the net assets of any Restricted Subsidiary
at the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary shall be deemed to be an "Investment" made by the Company in such
Unrestricted Subsidiary at such time. "Investments" shall exclude (a)
extensions of trade credit or other advances to customers on commercially
reasonable terms in accordance with normal trade practices or otherwise in the
ordinary course of business, (b) Hedging Obligations, but only to the extent
that the same constitute Permitted Indebtedness and (c) endorsements of
negotiable instruments and documents in the ordinary course of business.
"Issue Date" means the date the Notes are initially issued.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or similar
type of encumbrance (including, without limitation, any agreement to give or
grant any lease, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing) upon or with
respect to any property of any kind. A Person will be deemed to own subject to
a Lien any property that the Person has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement.
"Management Services Agreement" means the Management Services Agreement to
be entered into between Saratoga and/or its Affiliate, on the one hand, and
Parent and/or one or more of its Subsidiaries, as such agreement may be
amended from time to time in any manner; provided that after giving effect to
such amendment the terms thereof are, in the aggregate, no less favorable to
the Holders.
"Net Available Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed by or
sold with recourse to the Company or any Subsidiary), net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel, accountants and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale (after taking
into account any available tax credits or deductions and any tax sharing
arrangements), (iii) amounts required to be paid to any Person (other than the
Company or any Subsidiary) owning a beneficial interest in the properties or
assets subject to the Asset Sale or having a Lien thereon and (iv) appropriate
amounts to be provided by the Company or any Subsidiary, as the case may be,
as a reserve required in accordance with GAAP against any liabilities
associated with such Asset Sale and retained by the Company or any Subsidiary,
as the case may be, after such Asset Sale, including, without limitation,
pensions and other postemployment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an Officers' Certificate
delivered to the Trustee; provided, however, that any amounts remaining after
adjustments, revaluations or liquidations of such reserves shall constitute
Net Available Proceeds.
"Non-Recourse Purchase Money Indebtedness" means Indebtedness of the Company
or any of its Restricted Subsidiaries incurred (a) to finance the purchase of
any assets of the Company or any of its Restricted
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Subsidiaries within 90 days of such purchase, (b) to the extent the amount of
Indebtedness thereunder does not exceed 100% of the purchase cost of such
assets, (c) to the extent the purchase cost of such assets is or should be
included in "additions to property, plant and equipment" in accordance with
GAAP, (d) to the extent that such Indebtedness is non-recourse to the Company
or any of its Restricted Subsidiaries or any of their respective assets other
than the assets so purchased, and (e) to the extent the purchase of such
assets is not part of an acquisition of any Person. Indebtedness will not be
deemed recourse because there is recourse to the borrower, any guarantor or
any other Person for (x) environmental warranties and indemnities, or (y)
indemnities for and liabilities arising from fraud, misrepresentation,
misapplication or non-payment of rents, profits, insurance and condemnation
proceeds and other sums actually received by the borrower from secured assets
to be paid to the lender, waste and mechanics' liens.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Payment Restriction", with respect to a Subsidiary of any Person, means any
encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation, on the ability of (i) such
Subsidiary to (a) pay dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability or Indebtedness owed to
such Person or any other Subsidiary of such Person, (b) make loans or advances
to such Person or any other Subsidiary of such Person or (c) transfer any of
its properties or assets to such Person or any other Subsidiary of such Person
or (ii) such Person or any other Subsidiary of such Person to receive or
retain any such dividends, distributions or payments, loans or advances or
transfer of properties or assets.
"Permitted Holders" means (i) Saratoga Partners III, L.P., (ii) David J.
Barrett, Martin A. Moore, Michael Baxley, John Champagne, Robert Feltz, and
Frank A. Wright, and (iii) Permitted Transferees of the foregoing.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness of the Company and any Guarantor under the Credit
Agreement in an aggregate principal amount at any time outstanding (with
letters of credit being deemed to have a principal amount equal to the
aggregate maximum then available to be drawn thereunder assuming compliance
with all conditions to such drawing) not to exceed the greater of (a) $25
million or (b) the sum of 80% of the book value of accounts receivable and
60% of the book value of inventory of the Company and its Restricted
Subsidiaries (as set forth on the latest available balance sheet),
calculated on a consolidated basis and in accordance with GAAP;
(ii) Indebtedness of the Company and any Guarantor under the Credit
Agreement in an aggregate principal amount at any time outstanding (with
letters of credit being deemed to have a principal amount equal to the
maximum then available to be drawn thereunder assuming compliance with all
conditions to such drawing) not to exceed $28.0 million, less the aggregate
amount of all Net Available Proceeds of Asset Sales applied to permanently
reduce the outstanding amount or the commitments with respect to such
Indebtedness pursuant to the "Limitations on Asset Sales" covenant;
(iii) Indebtedness under the Notes, the Guarantees and the Indenture;
(iv) all of the Indebtedness of the Company and its Restricted
Subsidiaries not otherwise referred to in this definition that is
outstanding on the Issue Date;
(v) Indebtedness under Interest Rate Agreements, provided that (1) such
Interest Rate Agreements are related to payment obligations on Permitted
Indebtedness or Indebtedness otherwise permitted by the Consolidated Fixed
Charge Coverage Ratio test set forth in the "Limitations on Additional
Indebtedness" covenant, and (2) the notional principal amount of such
Interest Rate Agreements does not exceed the principal amount of such
Indebtedness to which such Hedging Obligations relate;
(vi) Indebtedness under Currency Hedge Agreements, provided that (a) such
Currency Agreements are related to payment obligations on Permitted
Indebtedness or Indebtedness otherwise permitted by the
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Consolidated Fixed Charge Coverage Ratio test set forth in the "Limitations
on Additional Indebtedness" covenant or to the foreign currency cash flows
reasonably expected to be generated or required by the Company and the
Restricted Subsidiaries, (b) the notional principal amount of the Currency
Agreements does not exceed the principal amount of that Indebtedness and
the amount of those foreign currency cash flows to which such Currency
Agreements relate and (c) such Currency Agreements are entered into for the
purpose of limiting currency exchange rate risks in connection with
Indebtedness permitted to be incurred under the Indenture or transactions
entered into in the ordinary course of business;
(vii) Indebtedness of the Company to a Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or to a Restricted
Subsidiary; provided, however, that upon either (1) any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or (2) the transfer or
other disposition of any such Indebtedness (except to the Company or a
Restricted Subsidiary), the provisions of this clause (vii) shall no longer
be applicable to such Indebtedness and such Indebtedness shall be deemed,
in each case, to be incurred and shall be treated as an incurrence for
purposes of the Consolidated Fixed Charge Coverage Ratio test set forth in
the "Limitations on Additional Indebtedness" covenant at the time the
Restricted Subsidiary in question ceased to be a Restricted Subsidiary or
the time such transfer or other disposition occurred;
(viii) Indebtedness in respect of bid, performance or surety bonds issued
for the account of the Company in the ordinary course of business,
including guarantees or obligations of the Company with respect to letters
of credit supporting such bid, performance or surety obligations (in each
case other than for an obligation for money borrowed);
(ix) Indebtedness in respect of Non-Recourse Purchase Money Indebtedness
incurred by the Company or any Restricted Subsidiary;
(x) Refinancing Indebtedness;
(xi) Indebtedness of Restricted Subsidiaries in an aggregate principal
amount not to exceed $5 million at any time outstanding;
(xii) Indebtedness incurred to finance the acquisition of (1) any Person
principally engaged in the business of the Company and its Restricted
Subsidiaries as conducted on the Issue Date or any business reasonably
related thereto that becomes a Restricted Subsidiary or (2) any Related
Assets that constitute a line of business, company or other business
entity, in an aggregate principal amount not to exceed $21.0 million at any
time outstanding provided that such Person or Related Assets, after giving
pro forma effect to such Indebtedness as if it had been incurred by such
Person or Related Assets would have had a Fixed Charge Coverage Ratio of
2.0 to 1; provided that pro forma effect, to the extent permitted by
Regulation S-X pursuant to the Securities Act of 1933, may be given to cost
savings and expense reductions in connection with such acquisition; and
(xiii) other Indebtedness in an aggregate principal amount not to exceed
$2 million at any time outstanding.
"Permitted Investments" means any of the following:
(i) Investments in Cash Equivalents;
(ii) Investments in the Company or any of its Restricted Subsidiaries;
(iii) Investments by the Company or any of its Restricted Subsidiaries in
another Person, if as a result of such Investment (A) such other Person
becomes a Restricted Subsidiary or (B) such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all
of its properties and assets to, the Company or a Restricted Subsidiary;
(iv) Investments permitted under the "Limitation on Asset Sales"
covenant;
(v) Investments made in the ordinary course of business in prepaid
expenses, lease, utility, workers' compensation, performance and other
similar deposits;
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(vi) Investments received upon foreclosure, perfection or enforcement of
any Lien granted by, in the course of good faith settlement of claims
against, or by reason of a composition or readjustment of debt or a
reorganization of, any debtor of the Company or any of its Subsidiaries;
(vii) endorsements for collection or deposit in the ordinary course of
business of bank drafts and similar negotiable instruments received as
payment for ordinary course of business trade receivables;
(viii) Hedging Obligations permitted under clause (a) under the
"Limitations on Additional Indebtedness" covenant;
(ix) Loans or advances to employees or directors of the Company or any
Restricted Subsidiary in the ordinary course of business;
(x) guarantees of Indebtedness of the Company or any Restricted
Subsidiary, which guarantees are permitted to be incurred under the
Indenture;
(xi) any Investment (x) to the extent that the consideration therefor
consists of Qualified Stock or (y) out of the proceeds of a substantially
concurrent issuance and sale (other than to a Restricted Subsidiary of the
Company) of Qualified Stock (provided that such issuance and sale shall not
increase the Basket); and
(xii) Investments in an aggregate amount not to exceed $5.0 million at
any time outstanding.
"Permitted Liens" means:
(i) Liens for taxes, assessments or governmental charges or claims that
either (a) are not yet delinquent or (b) are being contested in good faith
by appropriate proceedings and as to which appropriate reserves or other
provisions have been made in accordance with GAAP;
(ii) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to
amounts that either (a) are not yet delinquent or (b) are being contested
in good faith by appropriate proceedings and as to which appropriate
reserves or other provisions have been made in accordance with GAAP;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
progress payments, government contracts, performance and return-of-money
bonds and other obligations of a similar nature (exclusive of obligations
for the payment of borrowed money), in each case, incurred in the ordinary
course of business;
(v) easements, rights-of-way, municipal and zoning ordinances,
restrictions and other similar charges or encumbrances that do not
materially interfere with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries;
(vi) leases or subleases granted to others that do not materially
interfere with the ordinary conduct of the business of the Company or any
of its Restricted Subsidiaries and do not materially affect the value of
the property thereto;
(vii) Liens securing Refinancing Indebtedness to the extent incurred to
refinance Indebtedness that is secured by Liens and outstanding as of the
Issue Date (after giving effect to the application of the proceeds of the
Notes Offering), provided that such Refinancing Indebtedness shall be
secured solely by the assets (including improvements thereon) securing the
outstanding Indebtedness being refinanced;
(viii) Liens securing Indebtedness between the Company and its Restricted
Subsidiaries or between or among such Restricted Subsidiaries;
(ix) Liens existing as of the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date (after giving effect to the
application of the proceeds of the Notes Offering);
(x) Liens securing the Credit Agreement up to the amount of Indebtedness
permitted to be incurred under clauses (i), (ii) and (xiii) of the
definition of "Permitted Indebtedness";
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(xi) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary that does not give rise to
an Event of Default;
(xii) Liens securing 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;
(xiii) Liens securing Indebtedness permitted to be incurred pursuant to
clauses (xi) and (xii) of the definition of "Permitted Indebtedness";
(xiv) Liens securing Hedging Obligations entered into with lenders under
the Credit Agreement;
(xv) Liens in favor of the Company or a Restricted Subsidiary;
(xvi) Liens securing Purchase Money Indebtedness, provided, that such
Liens extend only to the property being acquired and improvements thereon
and such Lien is created within 90 days of the purchase of such property;
(xvii) Liens securing Acquired Indebtedness permitted to be incurred
under the Indenture, provided that such Liens (x) are not incurred in
connection with, or in contemplation of, the acquisition of the property or
assets acquired and (y) do not extend to or cover any property or assets of
the Company or any of its Restricted Subsidiaries other than the property
or assets so acquired and any improvements on such property or assets;
(xviii) Liens securing obligations under the Indenture, the Notes or the
Guarantees;
(xix) Liens on property of a Person existing at the time such Person is
acquired or merged with or into or consolidated with the Company or any
Restricted Subsidiary (and not created in anticipation or contemplation
thereof); and
(xx) Liens to secure Indebtedness incurred to refinance, in whole or in
part, any Indebtedness secured by Liens referred to in the foregoing
clauses (xv) - (xix), provided that in each of clauses (xvi), (xvii) and
(xix) such Liens do not extend to any additional property or assets (other
than improvements thereon).
"Permitted Transferees" means, with respect to any Person, (x) in the case
of any Person that is a natural person, (i) such individual's spouse, estate,
lineal descendants, heirs, executors, legal representatives, administrators,
(ii) any trust for the benefit of any of the foregoing, and (y) in the case of
any Person that is not a natural person, any other Person controlled by such
Person.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Plan of Liquidation", with respect to any Person, means a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise): (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety
or substantially as an entirety; and (ii) the distribution of all or
substantially all of the proceeds of such sale, lease, conveyance or other
disposition and all or substantially all of the remaining assets of such
Person to holders of Capital Stock of such Person.
"Public Equity Offering" means an offer and sale of Qualified Stock of the
Company or Parent for cash pursuant to a registration statement that has been
declared effective by the Commission pursuant to the Securities Act (other
than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan); provided that any net
proceeds to Parent are contributed in cash to the common equity of the
Company.
"Purchase Money Indebtedness" means Indebtedness incurred for the purpose of
financing all or any part of the purchase price, or the cost of construction,
of any property, plant or equipment to be used in the business of the Company
and the Restricted Subsidiaries, provided that such Indebtedness shall not
exceed 100% of the lower of cost or Fair Market Value (at the time of
incurrence) of the property, plant or equipment so purchased or constructed.
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"Qualified Stock" of any Person means any and all Capital Stock of such
Person other than Disqualified Stock.
"redeem" means redeem, repurchase, defease or otherwise acquire or retire
for value; and "redemption" and "redeemed" have correlative meanings.
"refinance" means refinance, renew, extend, replace, defease or refund, in
whole or in part, including successively; and "refinancing" and "refinanced"
have correlative meanings.
"Refinancing Indebtedness" means Indebtedness of the Company or a Restricted
Subsidiary of the Company issued in exchange for, or the proceeds from the
issuance and sale or disbursement of which are used substantially concurrently
to refinance or constituting an amendment of, any Indebtedness pursuant to
clause (ii) and (iii) of the definition of Permitted Indebtedness of the
Company or any of its Restricted Subsidiaries or any Indebtedness incurred
pursuant to the Fixed Charge Coverage Ratio test set forth in the "Limitations
on Additional Indebtedness" covenant in a principal amount not in excess of
(a) the principal amount of the Indebtedness so refinanced plus (b) the lesser
of the amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Indebtedness refinanced and the
amount of any premium reasonably determined by the issuer of such Indebtedness
as necessary to accomplish such refinancing by means of a tender offer,
exchange offer or privately negotiated repurchase plus (c) the expenses of
such issuer reasonably incurred in connection therewith (or, if such
Refinancing Indebtedness refinances Indebtedness under a revolving credit
facility or other agreement providing a commitment for subsequent borrowings,
with a maximum commitment not to exceed the maximum commitment under such
revolving credit facility or other agreement); provided that: (i) the
Refinancing Indebtedness is the obligation of the same Person; (ii) in the
case of any refinancing of Indebtedness (including the Notes) that is pari
passu with or subordinated in right of payment to the Notes, then such
Refinancing Indebtedness is pari passu with or subordinated in right of
payment to the Notes at least to the same extent as the Indebtedness being
refinanced; (iii) the Refinancing Indebtedness is scheduled to mature either
(a) no earlier than the Indebtedness being refinanced or (b) after the
maturity date of the Notes; (iv) the portion, if any, of the Refinancing
Indebtedness that is scheduled to mature on or prior to the maturity date of
the Notes has a Weighted Average Life to Maturity at the time such Refinancing
Indebtedness is incurred that is equal to or greater than the Weighted Average
Life to Maturity of the portion of the Indebtedness being repaid that is
scheduled to mature on or prior to the maturity date of the Notes; and (v) the
Refinancing Indebtedness is secured only to the extent, if at all, and by the
assets, that the Indebtedness being repaid or amended is secured.
"Related Assets" means properties and assets that will be used in the
business of the Company and its Restricted Subsidiaries as conducted on the
Issue Date or in businesses reasonably related thereto.
"Restricted Investment", with respect to any Person, means (without
duplication) any Investment by such Person other than a Permitted Investment,
including, without limitation, the designation of a Restricted Subsidiary as
an Unrestricted Subsidiary.
"Restricted Payment", with respect to any Person, means: (i) the declaration
of any dividend (other than a dividend declared or paid by a Restricted
Subsidiary to the Company or a Restricted Subsidiary) or the making of any
other payment or distribution of cash, securities or other property or assets
in respect of such Person's Capital Stock (except that a dividend payable
solely in Qualified Stock of such Person shall not constitute a Restricted
Payment); (ii) any payment on account of the redemption of such Person's
Capital Stock or any other payment or distribution made in respect thereof,
either directly or indirectly (other than a payment solely in Qualified
Stock); (iii) any Restricted Investment; or (iv) any purchase, redemption,
defeasance (including without limitation in substance or legal defeasance) or
other acquisition or retirement for value, directly or indirectly, by the
Company or a Subsidiary, prior to the scheduled maturity or prior to any
scheduled repayment of principal or sinking fund payment, as the case may be,
in respect of Subordinated Indebtedness.
"Restricted Subsidiary" means any direct or indirect Subsidiary of the
Company other than an Unrestricted Subsidiary.
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"Sale and Leaseback Transaction" means with respect to any Person an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person or any of its Restricted Subsidiaries of any property or asset of such
Person or any of its Restricted Subsidiaries which has been or is being sold
or transferred by such Person or such Restricted Subsidiary to such lender or
investor or to any Person to whom funds have been or are to be advanced by
such lender or investor on the security of such property or asset.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the Issue
Date, except all references to "10 percent" in such definition shall be
changed to "2 percent".
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the date specified in the instrument
evidencing or governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or such installment of interest is due and
payable.
"Subordinated Indebtedness" means Indebtedness of the Company or any
Subsidiary that is subordinated in right of payment to the Notes or the
Subsidiary Guarantees, respectively.
"Subsidiary" of any Person means (i) any corporation of which at least a
majority of the aggregate voting power of whose Voting Stock is owned by such
Person directly or through one or more other Subsidiaries of such Person and
(ii) any entity other than a corporation in which such Person, directly or
indirectly, owns at least a majority of the voting power of the Voting Stock
of such entity, other than any such Person designated as an Unrestricted
Subsidiary in accordance with the definition of "Unrestricted Subsidiary".
"Subsidiary Guarantor" means each Person who is required to become a
Subsidiary Guarantor by the terms of the Indenture.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination will be designated an Unrestricted Subsidiary by the
Board of Directors of the Company as provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may
designate any Subsidiary of the Company as an Unrestricted Subsidiary so long
as (a) neither the Company nor any Restricted Subsidiary is directly or
indirectly liable pursuant to the terms of any Indebtedness of such Subsidiary
(other than in the form of an Investment therein in accordance with the
"Limitations on Restricted Payments" covenant); (b) no default with respect to
any Indebtedness of such Subsidiary would permit (upon notice, passage of time
or otherwise) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its Stated Maturity;
(c) such designation as an Unrestricted Subsidiary would be permitted under
the "Limitations on Restricted Payments" covenant; and (d) the Company could
incur $1.00 of additional Indebtedness (not including the incurrence of
Permitted Indebtedness) pursuant to the Consolidated Fixed Charge Coverage
Ratio test set forth in the "Limitations on Additional Indebtedness" covenant.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by the filing with the Trustee of a certified copy of the Board
Resolution giving effect to such designation and an Officer's Certificate
certifying that such designation complied with the foregoing conditions and
setting forth the underlying calculations of such certificate. The Board of
Directors of the Company may designate any Unrestricted Subsidiary as a
Restricted Subsidiary if (i) immediately after giving effect to such
designation on a pro forma basis, no Default or Event of Default shall have
occurred and be continuing and (ii) Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such redesignation would, if
incurred at such time, be permitted to be incurred under the Indenture.
"Voting Stock", with respect to any specified Person, means any class or
classes of Capital Stock of the specified Person pursuant to which the holders
thereof have the general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of the
specified Person
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(irrespective of whether or not, at the time, stock of any other class or
classes has, or might have, voting power by reason of the happening of any
contingency).
"Weighted Average Life to Maturity", when applied to any Indebtedness at any
date, means the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent (i) all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company or (ii) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required
by the applicable laws and regulations of such foreign jurisdiction to be
partially owned by the government of such foreign jurisdiction or individual
or corporate citizens of such foreign jurisdiction in order for such
Restricted Subsidiary to transact business in such foreign jurisdiction,
provided that the Company, directly or indirectly, owns the remaining Capital
Stock or ownership interest in such Restricted Subsidiary and, by contract or
otherwise, controls the management and business of such Restricted Subsidiary
and derives the economic benefits of ownership of such Restricted Subsidiary
to substantially the same extent as if such Restricted Subsidiary were a
wholly owned Subsidiary.
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DESCRIPTION OF UNITS
Each Unit offered and sold by Parent consisted of one share of $100
liquidation preference of Series A Cumulative Redeemable Exchangeable
Preferred Stock of Parent (the "Senior Preferred Stock") and one Warrant to
purchase shares of Common Stock. The Senior Preferred Stock and the Warrants
comprising each Unit will not be separately tradable until 90 days after the
date of issuance of the Senior Preferred Stock, with certain exceptions (the
"Separation Date"). The Units will be issued in a private transaction that is
not subject to the registration requirements of the Securities Act.
SENIOR PREFERRED STOCK
The Certificate of Incorporation of Parent (the "Certificate") authorizes
200,000 shares of Senior Preferred Stock, of which 100,000 shares will be
issued in the Units Offering. Additional shares of Senior Preferred Stock may
be issued to pay certain dividends on the Senior Preferred Stock issued in the
Units Offering at the election of Parent. Subject to certain conditions, the
Senior Preferred Stock will be exchangeable for Exchange Debentures at the
option of Parent on any dividend payment date.
RANK
The Senior Preferred Stock will, with respect to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of Parent, rank
(i) senior to all classes of Common Stock and the Series B Preferred Stock and
each other class of capital stock or series of Preferred Stock established by
the Board of Directors of Parent the terms of which do not expressly provide
that it ranks on a parity with the Senior Preferred Stock as to dividend
distributions and distributions upon the liquidation, winding-up and
dissolution of Parent (collectively referred to with the Common Stock and the
Series B Preferred Stock as "Junior Securities"). The Senior Preferred Stock
will be subject to the issuance of series of Junior Securities and securities
ranking on a parity with the Senior Preferred Stock ("Parity Securities"),
provided that Parent may not issue any new class of Parity Securities without
the approval of the holders of a majority of the shares of Senior Preferred
Stock then outstanding, except that Parent may issue and have outstanding
shares of Parity Securities issued from time to time in exchange for, or the
proceeds of which are used to redeem or repurchase, any or all of the shares
of Senior Preferred Stock or other Parity Securities.
DIVIDENDS
Holders of Senior Preferred Stock will be entitled to receive, when, as and
if declared by the Board of Directors of Parent, out of funds legally
available therefor, dividends on the Senior Preferred Stock at a rate per
annum applied to the liquidation preference per share of Senior Preferred
Stock. All dividends will be cumulative whether or not earned or declared on a
daily basis from the date of issuance of the Senior Preferred Stock and will
be payable quarterly in arrears commencing on February 28, 1998. On or before
November 30, 2002, Parent may, at its option, pay dividends in cash or in
additional fully paid and non-assessable shares of Senior Preferred Stock
having an aggregate liquidation preference equal to the amount of such
dividends. After November 30, 2002 dividends may be paid only in cash.
OPTIONAL REDEMPTION
The Senior Preferred Stock may be redeemed for cash (subject to contractual
and other restrictions with respect thereto and to the legal availability of
funds therefor) at any time on or after a date which is five years following
the issuance date, in whole or in part, at the option of Parent, at certain
redemption prices (expressed as percentages of the liquidation preference
thereof) beginning on November 30, 2002, declining ratably to 100% in 2005 or
thereafter, together with an amount in cash equal to all accumulated and
unpaid dividends.
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In addition, Parent may also redeem the Senior Preferred Stock, in whole or
in part at its option, at a redemption price equal to a percentage of the
liquidation preference thereof, plus an amount in cash equal to all
accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for the period from the dividend payment date immediately
prior to the redemption date to the redemption date), with the net proceeds of
one or more public equity offerings by Parent. The terms of certain debt
instruments of Parent and its subsidiaries, including the Credit Agreement and
the Indenture, will restrict, directly or indirectly, the ability of Parent to
redeem the Senior Preferred Stock, and future agreements to which Parent or
its subsidiaries are parties may contain similar restrictions. See
"Description of Other Indebtedness."
MANDATORY REDEMPTION
On November 30, 2009, Parent will be required to redeem (subject to the
legal availability of funds therefor) all outstanding shares of Senior
Preferred Stock at a price equal to the then effective liquidation preference
thereof, plus an amount in cash equal to all accumulated and unpaid dividends
to the redemption date. The terms of certain debt instruments of Parent and
its subsidiaries, including the Credit Agreement and the Indenture, will
restrict, directly or indirectly, the ability of Parent to redeem the Senior
Preferred Stock, and future agreements to which Parent or its subsidiaries are
parties may contain similar restrictions. See "Description of Other
Indebtedness."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, Parent shall be obligated to
make an offer to all holders of Senior Preferred Stock to purchase all
outstanding Senior Preferred Stock and will purchase, on a business day not
more than 60 days nor less than 30 days after the occurrence of the Change of
Control, all Senior Preferred Stock properly tendered pursuant to such offer
to purchase for a cash price equal to 101% of the aggregate liquidation
preference of the Senior Preferred Stock, plus an amount in cash equal to all
accumulated and unpaid dividends per share, if any, to the purchase date.
VOTING RIGHTS
Holders of the Senior Preferred Stock have no voting rights with respect to
general corporate matters except as provided by law or as set forth in the
Certificate. The Certificate provides that in certain circumstances holders of
Senior Preferred Stock will be entitled to vote for two members of Parent's
Board of Directors or to vote as a class for certain mergers, consolidations
or sales of all or substantially all of the assets of Parent.
CERTAIN COVENANTS
The Certificate contains certain covenants that limit the ability of the
Parent to redeem or repurchase Junior Securities or Parity Securities and pay
dividends thereon, to merge or consolidate with any other entity, to sell all
or substantially all of its assets or to enter into transactions with
affiliates. The Certificate also requires Parent to deliver certain reports
and information to the holders of the Senior Preferred Stock.
EXCHANGE
Parent may at its option exchange all, but not less than all, of the then
outstanding shares of Senior Preferred Stock into Exchange Debentures on any
dividend payment date, provided that on the date of such exchange (the
"Exchange Date") there are no contractual impediments to such exchange and
certain other conditions have been met. On the Exchange Date, holders of
outstanding shares of Senior Preferred Stock will be entitled to receive a
principal amount of Exchange Debentures equal to the liquidation preference
per share, plus an amount in cash equal to all accrued and unpaid dividends to
the Exchange Date.
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The New Credit Facility contains limitations with respect to Parent's
ability to issue the Exchange Debentures, and any future credit agreements or
other agreements relating to indebtedness to which Parent or any of its
subsidiaries become a party may contain similar limitations. See "Description
of Other Indebtedness."
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Parent and the Initial Purchasers entered into the Preferred Stock
Registration Rights Agreement on the date of issuance of the Senior Preferred
Stock. Pursuant to the Preferred Stock Registration Rights Agreement, Parent
has agreed to file with the Commission a registration statement on the
appropriate form under the Securities Act with respect to the offer to
exchange the Senior Preferred Stock for a new issue of Senior Preferred Stock
of Parent registered under the Securities Act, with terms identical to those
of the Senior Preferred Stock. In certain circumstances, Parent or an
affiliate of Parent will be required to file with the Commission a shelf
registration statement to cover resales of the shares of Senior Preferred
Stock by the holders thereof. If Parent fails to satisfy these registration
obligations, it will be required to pay liquidated damages to the holders of
the Senior Preferred Stock under certain circumstances.
EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued pursuant to an Exchange
Debenture indenture (the "Exchange Debenture Indenture") to be dated the
Exchange Date between Parent and a trustee (the "Trustee"). The Exchange
Debentures will represent general unsecured subordinated obligations of
Parent, subordinated in right of payment, subject to certain exceptions, to
all existing and future indebtedness of Parent, including its guarantee of the
Notes and the New Credit Facility, other than any indebtedness that expressly
provides that it ranks pasi passu with or junior to the Exchange Debentures.
As of September 30, 1997, after giving pro forma effect to the Transactions,
Parent would have had approximately $128.0 million of indebtedness that would
have ranked senior to the Exchange Debentures.
The Exchange Debentures will bear interest from the Exchange Date at a rate
per annum equal to the dividend rate for the Senior Preferred Stock, payable
semi-annually, commencing with the first such date to occur after the Exchange
Date. On or before November 30, 2002, Parent may, at its option, pay interest
in cash or in additional Exchange Debentures having an aggregate principal
amount equal to the amount of such interest. Thereafter, interest may be paid
in cash only. The Exchange Debentures will mature on November 30, 2009.
OPTIONAL REDEMPTION
The Exchange Debentures will be redeemable, at the option of Parent, in
whole or in part, at any time on or after November 30, 2002, at certain
redemption prices (expressed as percentages of principal amount), together
with accrued and unpaid interest, if any, thereon to the redemption date,
beginning on November 30, 2002, declining ratably to 100% in 2005 and
thereafter. In addition, on or before November 30, 2000, Parent may redeem the
Exchange Debentures in whole or in part, at a redemption price equal to a
percentage of the principal amount thereof, plus an amount in cash equal to
all accrued and unpaid interest thereon to the redemption date, with the
proceeds of one or more Public Equity Offerings.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Exchange
Debentures will have the right to require Parent to purchase all or any part
of such holder's Exchange Debentures at an offer price in cash equal to 101%
of the aggregate principal amount thereof, plus accrued and unpaid interest
thereon to the date of purchase. There can be no assurance that Parent will
have financial resources necessary to purchase the Exchange Debentures upon a
Change of Control.
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CERTAIN COVENANTS
The Exchange Debenture Indenture will contain covenants that, among other
things, limit the ability of Parent and its Restricted Subsidiaries (as
defined in the Exchange Debenture Indenture) to: (i) incur additional
indebtedness; (ii) pay dividends or make certain other distributions; (iii)
repurchase equity interests; (iv) consummate certain asset sales; (v) enter
into certain transactions with affiliates; (vi) incur indebtedness (other than
Indebtedness that ranks senior to the Exchange Debentures) secured by liens;
(vii) merge or consolidate with any other person; or (viii) sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
the assets of Parent or Parent and its Subsidiaries.
WARRANTS
GENERAL
The Warrants were issued pursuant to the Warrant Agreement between Parent
and United States Trust Company of New York, as warrant agent (the "Warrant
Agent"). Each Warrant will be evidenced by a Warrant Certificate which
entitles the holder thereof to purchase shares of Common Stock ("Warrants
Shares") from Parent at an exercise price (the "Exercise Price"), subject to
adjustment as provided in the Warrant Agreement. The Warrants may be exercised
at any time beginning one year after the issuance date of the Senior Preferred
Stock and prior to the close of business on the twelfth anniversary of the
Issue Date. Warrants that are not exercised by such date will expire.
CERTAIN TERMS
Exchange
If Parent conducts an initial public offering of equity securities (other
than Common Stock), Parent will give holders of Warrants and Warrant Shares
the opportunity to convert such Warrants into warrants to purchase such equity
securities and the opportunity to convert such Warrant Shares into such equity
securities. In addition, if the Company (or any entity owning a majority of
the Capital Stock or assets of the Company) conducts an initial public
offering of equity securities, Parent will give holders of Warrants and
Warrant Shares the opportunity to convert such Warrants into warrants to
purchase such equity securities and the opportunity to convert such Warrant
Shares into such equity securities.
Holders of Warrants will be able to exercise their Warrants only if a
registration statement relating to the Warrant Shares underlying the Warrants
is then effective and available, or the exercise of such Warrants is exempt
from the registration requirements of the Securities Act, and such securities
are qualified for sale or exempt from qualification under the applicable
securities laws of the states or other jurisdictions in which the various
holders of the Warrants reside.
Anti-dilution Provisions
The Warrant Agreement contains provisions adjusting the Exercise Price and
the number of shares of Common Stock or other securities issuable upon
exercise of a Warrant in certain circumstances.
No Rights as Stockholders
The holders of unexercised Warrants are not entitled, as such, to receive
dividends or other distributions, receive notice of any meeting of the
stockholders, consent to any action of the stockholders, receive notice of any
other stockholder proceedings, or to any other rights as stockholders of
Parent.
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Mergers or Consolidations
Subject to certain exceptions, in the event that Parent consolidates with,
merges with or into, or sells all or substantially all of its property and
assets to another person, each Warrant thereafter shall entitle the holder
thereof to receive upon exercise thereof the number of shares of capital stock
or other securities or property which the holder of Common Stock (or other
securities issuable upon exercise of the Warrants) is entitled to receive upon
completion of such consolidation, merger or sale of assets. If Parent merges
or consolidates with, or sells all or substantially all of the property and
assets of Parent to, another person and, in connection therewith,
consideration to the holders of Common Stock (or other securities issuable
upon exercise of the Warrants) in exchange for their shares is payable solely
in cash, or in the event of the dissolution, liquidation or winding-up of
Parent, then the holders of the Warrants will be entitled to receive
distributions on an equal basis with the holders of Common Stock or other
securities issuable upon exercise of the Warrants assuming the Warrants had
been exercised immediately prior to such event, less the Exercise Price.
Reservation of Shares
Parent has authorized and will reserve for issuance such number of shares of
Common Stock as will be issuable upon the exercise of all outstanding
Warrants.
REGISTRATION RIGHTS
Pursuant to the Warrant Agreement, in certain circumstances Parent is
required to file a registration statement under the Securities Act covering
the issuance of shares of Common Stock to the holders of the Warrants upon
exercise of the Warrants by the holders thereof, subject to certain
exceptions, until the earlier of (i) such time as all Warrants have been
exercised and (ii) the Expiration Date.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material United States federal income
tax consequences generally applicable to those persons exchanging Initial
Notes for the Exchange Notes offered hereby. The federal income tax
considerations set forth below are based upon currently existing provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), applicable
Treasury Regulations ("Treasury Regulations"), judicial authority, and current
administrative rulings and pronouncements of the Internal Revenue Service (the
"IRS"). There can be no assurance that the IRS will not take a contrary view,
and no ruling from the IRS has been, or will be, sought on the issues
discussed herein. Legislative, judicial, or administrative changes or
interpretations may be forthcoming that could alter or modify the statements
and conclusions set forth herein. Any such changes or interpretations may or
may not be retroactive and could affect the tax consequences discussed below.
This discussion applies only to a person who is an initial beneficial owner
and (i) an individual citizen or resident of the United States for U.S.
federal income tax purposes, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or any
political subdivision thereof, (iii) an estate the income of which is subject
to United States federal income tax regardless of source, (iv) a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States persons who have the authority to
control all substantial decisions of the trust, or (v) any other person whose
income or gain in respect of the Notes is effectively connected with the
conduct of a United States trade or business (or, if applicable, attributable
to a permanent establishment situated in the United States) (a "Holder").
The summary is not a complete analysis or description of all potential
federal tax considerations that may be relevant to, or of the actual tax
effect that any of the matters described herein will have on, particular
Holders, and does not address foreign, state, local or other tax consequences.
This summary does not address the federal income tax consequences to (a)
special classes of taxpayers (such as S corporations, mutual funds, insurance
companies, financial institutions, small business investment companies,
foreign companies, nonresident alien individuals, regulated investment
companies, real estate investment trusts, dealers in securities or currencies,
broker-dealers and tax-exempt organizations) who are subject to special
treatment under the federal income tax laws, (b) Holders that hold Notes as
part of a position in a "straddle," or as part of a "hedging," "conversion,"
or other integrated investment transaction for federal income tax purposes,
(c) Holders that do not hold the Notes as capital assets within the meaning of
section 1221 of the Code or (d) Holders whose functional currency is not the
U.S. dollar. Furthermore, estate and gift tax consequences are not discussed
herein.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH PERSON CONSIDERING
EXCHANGING INITIAL NOTES FOR EXCHANGE NOTES IS STRONGLY URGED TO CONSULT HIS
OR HER OWN TAX ADVISOR WITH RESPECT TO HIS OR HER PARTICULAR TAX SITUATION AND
AS TO ANY FEDERAL, FOREIGN, STATE, LOCAL OR OTHER TAX CONSIDERATIONS
(INCLUDING ANY POSSIBLE CHANGES IN TAX LAW) AFFECTING THE PURCHASE, HOLDING
AND DISPOSITION OF THE NOTES.
EXCHANGE OFFER
The exchange of Initial Notes for the Exchange Notes pursuant to the
Exchange Offer should not be a taxable event for U.S. federal income tax
purposes. As a result, there should be no U.S. federal income tax consequences
to Holders exchanging the Initial Notes for the Exchange Notes pursuant to the
Exchange Offer, and a Holder should have the same tax basis and holding period
in the Exchange Notes as the Initial Notes.
INTEREST
Generally, interest paid on the Notes will be taxable to a Holder as
ordinary income at the time it accrues or is received in accordance with such
Holder's method of accounting for U.S. federal income tax purposes.
MARKET DISCOUNT
If a Note is acquired at a "market discount," some or all of any gain
realized upon a subsequent sale, other disposition, or full or partial
principal payment, of such Note may be treated as ordinary income, as
described below. For this purpose, "market discount" is the excess (if any) of
the principal amount of a Note over the
103
<PAGE>
purchase price thereof, subject to a statutory de minimis exception. Unless a
Holder has elected to include the market discount in income as it accrues,
gain, if any, realized on any subsequent disposition (other than in connection
with certain nonrecognition transactions) or full or partial principal payment
of such Note will be treated as ordinary income to the extent of the market
discount that is treated as having accrued during the period such Holder held
such Note.
The amount of market discount treated as having accrued will be determined
either (i) on a straight-line basis by multiplying the market discount times a
fraction, the numerator of which is the number of days the Note was held by
the Holder and the denominator of which it is the total number of days after
the date such Holder acquired the Note up to and including the date of its
maturity or (ii) if the Holder so elects, on a constant interest rate method.
A Holder may make that election with respect to any Note but, once made, such
election is irrevocable.
A Holder of a Note acquired at a market discount may elect to include market
discount in income currently, through the use of either the straight-line
inclusion method or the elective constant interest method in lieu of
recharacterizing gain upon disposition as ordinary income to the extent of
accrued market discount at the time of disposition. Once made, this election
will apply to all notes and other obligations acquired by the electing Holder
at a market discount during the taxable year for which the election is made,
and all subsequent taxable years, unless the IRS consents to a revocation of
the election. If an election is made to include market discount in income
currently, the basis of the Note in the hands of the Holder will be increased
by the amount of the market discount that is included in income.
Unless a Holder who acquires a Note at a market discount elects to include
market discount in income currently, such Holder may be required to defer
deductions for a portion of the interest paid on indebtedness allocable to
such Note in an amount not exceeding the deferred income, until such income is
realized.
BOND PREMIUM
If a Holder purchases a Note and immediately after the purchase the adjusted
basis of the Note exceeds the sum of all amounts payable on the instrument
after the purchase date (other than payments of stated interest), the Note
will be treated as having been acquired with "bond premium." A Holder may
elect to amortize such bond premium over the remaining term of such Note (or,
if it results in a smaller amount of amortizable bond premium, until an
earlier call date).
If bond premium is amortized, the amount of interest that must be included
in the Holder's income for each period ending on an interest payment date or
at the stated maturity, as the case may be, will be reduced by the portion of
premium allocable to such period based on the Note's yield to maturity (or
earlier call date, if amortization is computed by reference to such date). If
such an election to amortize bond premium is not made, a Holder must include
the full amount of each interest payment in income in accordance with his or
her regular method of accounting and will receive a tax benefit from the
premium only in computing such Holder's gain or loss upon the sale or
disposition or payment of the principal amount of the Note.
An election to amortize premium will apply to amortizable bond premium on
all notes and other bonds, the interest on which is includible in the Holder's
gross income, held at the beginning of the Holder's first taxable year to
which the election applies or that are thereafter acquired, and may be revoked
only with the consent of the IRS.
DISPOSITION OF THE NOTES
Upon the sale, exchange or retirement of a Note, a Holder will recognize
taxable gain or loss equal to the difference between the amount realized on
the sale, exchange or retirement (except to the extent attributable to accrued
interest that has not been included in income) and such Holder's adjusted tax
basis in the Note. A Holder's adjusted tax basis in a Note will generally
equal the Holder's purchase price for such Note, increased
104
<PAGE>
by any market discount previously included in income by the Holder and
decreased by any amortizable bond premium, if any, deducted over the term of
the Note. Gain or loss realized on the sale, exchange or retirement of a Note
generally will be capital gain or loss. Recently enacted legislation includes
substantial changes to the federal taxation of capital gains recognized by
individuals, including a 20% maximum tax rate for certain gains from the sale
of capital assets held for more than 18 months. The deduction of capital
losses is subject to certain limitations. Prospective investors should consult
their tax advisors regarding the treatment of capital gains and losses.
The Company does not intend to treat the possibility of an optional
redemption or repurchase of the Notes as giving rise to any accrual of
original issue discount or recognition of ordinary income upon redemption,
sale or exchange of a Note. Holders may wish to consider that Treasury
Regulations regarding the treatment of certain contingencies were recently
issued and may wish to consult their tax advisers in this regard.
BACKUP WITHHOLDING
Under section 3406 of the Code and applicable Treasury Regulations, a
noncorporate Holder of the Notes may be subject to backup withholding at the
rate of 31 percent with respect to "reportable payments," which include
interest paid on or the proceeds of a sale, exchange or redemption of, the
Notes. The payor will be required to deduct and withhold the prescribed
amounts if (i) the payee fails to furnish a Taxpayer Identification Number
("TIN") to the payor in the manner required, (ii) the IRS notifies the payor
that the TIN furnished by the payee is incorrect, (iii) there has been a
"notified payee underreporting" described in section 3406(c) of the Code or
(iv) there has been a failure of the payee to certify under penalty of perjury
that the payee is not subject to withholding under section 3406(a)(1)(C) of
the Code. As a result, if any one of the events listed above occurs, the payor
will be required to withhold an amount equal to 31 percent from any interest
payment made with respect to the Notes or any payment of proceeds of a
redemption of the Notes to a noncorporate Holder. Amounts paid as backup
withholding do not constitute an additional tax and will be credited against
the Holder's federal income tax liability, so long as the required information
is provided to the IRS. The payor generally will report to the Holders of the
Notes and to the IRS the amount of any "reportable payments" for each calendar
year and the amount of tax withheld, if any, with respect to payment on those
securities.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY AND
DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL INCOME TAXATION THAT MAY
BE RELEVANT TO A PARTICULAR HOLDER OF NOTES IN LIGHT OF HIS OR HER PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO ANY TAX CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP, AND
DISPOSITION OF NOTES INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS.
105
<PAGE>
PLAN OF DISTRIBUTION
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "Affiliate" (as
defined in Rule 405 of the Securities Act) of the Company, (ii) 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 Exchange
Notes and (iii) it is acquiring the Exchange Notes in the ordinary course of
its business (a Holder unable to make the foregoing representations is
referred to as a "Restricted Holder"). A Restricted Holder will not be able to
participate in the Exchange Offer and may only sell its Initial Notes pursuant
to a registration statement containing the selling securityholder information
required by Item 507 of Regulation S-K under the Securities Act, or pursuant
to an exemption from the registration requirement of the Securities Act.
Each broker-dealer (other than a Restricted Holder) that receives Exchange
Notes for its own account pursuant to the Exchange Offer (a "Participating
Broker-Dealer") is required to acknowledge in the Letter of Transmittal that
it acquired the Initial Notes for its own account as a result of market-making
activities or other trading activities (other than Initial Notes acquired
directly from the Company or an affiliate of the Company) and that it will
deliver a prospectus in connection with the resale of such Exchange Notes.
Based upon interpretations by the staff of the Commission, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer to
Participating Broker-Dealers may be offered for resale, resold, and otherwise
transferred by a Participating Broker-Dealer upon compliance with the
prospectus delivery requirements, but without compliance with the registration
requirements, of the Securities Act. The Company has agreed that for a period
of nine months following consummation of the Exchange Offer it will make this
Prospectus available, for use in connection with any such resale, to any
Participating Broker-Dealer that notifies the Company in the Letter of
Transmittal that it may be subject to such prospectus delivery requirements.
Such Participating Broker-Dealer must also undertake in the Letter of
Transmittal to use its reasonable best efforts to notify the Company when,
prior to the expiration of such nine-month period, it is no longer subject to
such requirements. If the Company is not so notified by any Participating
Broker-Dealers that they may be subject to such requirements or if it is later
notified by all such Participating Broker-Dealers that they are no longer
subject to such requirements, the Company will not be required to maintain the
effectiveness of the Exchange Offer Registration Statement or to amend or
supplement this Prospectus following the consummation of the Exchange Offer or
following such date of notification, as the case may be. The Company believes
that during such period of time, delivery of this Prospectus, as it may be
amended or supplemented, will satisfy the prospectus delivery requirements of
a Participating Broker-Dealer engaged in market-making or other trading
activities.
Based upon interpretations by the staff of the Commission, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer may be
offered for resale, resold, and otherwise transferred by a Holder thereof
(other than a Restricted Holder or a Participating Broker-Dealer) without
compliance with the registration and prospectus delivery requirements of the
Securities Act.
The Company will not receive any proceeds from the sale of Exchange Notes by
broker-dealers. Exchange Notes received by Participating 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 Exchange 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 at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells Exchange
Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in
the Registration Rights Agreement.
106
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes and the
Guarantee being issued in the Exchange Offer will be passed upon for the
Company and Parent by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York.
EXPERTS
The consolidated financial statements and schedule of KSCO as of December
31, 1995 and 1996 and for the year ended December 31, 1996 and for the period
from Inception to December 31, 1995 and of the Predecessor for the period from
January 1, 1995 to October 17, 1995 included in this Prospectus have been
audited by Arthur Andersen llp, independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in giving said reports.
The consolidated financial statements of the Predecessor for the year ended
December 31, 1994 included in this Prospectus and the related financial
statement schedule included elsewhere in the Registration Statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere in the Registration Statement, and have
been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act for the
registration of the Exchange Notes offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain portions of which
are omitted from the Prospectus as permitted by the rules and regulations of
the Commission. For further information with respect to the Company and the
Initial Notes offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and financial statements and notes filed as a
part thereof. Statements made in this Prospectus concerning the contents of
any documents referred to herein are not necessarily complete. With respect to
each such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
Prior to the date of this Prospectus, the Company was not subject to the
periodic reporting and certain other informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
has agreed that, whether or not it is required to do so by the rules and
regulations of the Commission, for so long as any of the Initial Notes or the
Initial Notes as applicable, remain outstanding, it will furnish to the
holders of the Initial Notes or the Exchange Notes, as applicable, and file
with the Commission (unless the Commission will not accept such a filing) (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all reports that would be required
to be filed with the Commission on Form 8-K if the Company were required to
file such reports. In addition, for so long as any of the Initial Notes remain
outstanding, the Company has agreed to make available to any prospective
purchaser of the Initial Notes or beneficial owner of the Initial Notes, in
connection with any sale thereof, the information required by Rule 144A(d)(4)
under the Securities Act.
The Registration Statement and the exhibits and schedules thereto, as well as
such reports and other information filed by the Company with the Commission,
may be inspected and copied, at prescribed rates, at the public reference
facilities of the Commission, at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, or at the Commission's regional offices at 7
World Trade Center, 13th Floor, New York, New York 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material also can be obtained by mail from the public reference
facilities of the Commission, at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
107
<PAGE>
Commission maintains a Website that contains reports, proxy and information
statements and other information regarding registrants, such as the Company,
that file electronically with the Commission. The address of such site is
(http://www.sec.gov).
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to the Secretary, at the Company's principal
executive offices at 1802 Scovill Drive Clarkesville, Georgia 30523 or by
telephone at (706) 754-4181.
108
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................ F-2
Independent Auditors' Report............................................ F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995............ F-4
Consolidated Statements of Operations for the year ended December 31,
1996, the period from Inception through December 31, 1995, the period
from January 1, 1995 through October 17, 1995, and the year ended
December 31, 1994...................................................... F-5
Consolidated Statements of Cash Flows for the year ended December 31,
1996, the period from Inception through December 31, 1995, the period
from January 1, 1995 through October 17, 1995, and the year ended
December 31, 1994...................................................... F-6
Consolidated Statements of Stockholders' Equity (Deficiency) for the
year ended December 31, 1996, the period from Inception through
December 31, 1995, the period from January 1, 1995 through October 17,
1995, and the year ended December 31, 1994............................. F-7
Notes to Consolidated Financial Statements.............................. F-8
UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of September 30, 1997..................... F-23
Consolidated Statements of Operations for the nine months ended
September 30, 1997 and 1996............................................ F-24
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996............................................ F-25
Notes to Consolidated Financial Statements.............................. F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of KSCO Acquisition Corporation
We have audited the accompanying consolidated balance sheets of KSCO
ACQUISITION CORPORATION (a Delaware corporation) AND SUBSIDIARIES (the
"Company") as of December 31, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
ended December 31, 1996 and the period from inception, October 17, 1995,
through December 31, 1995. We have also audited the accompanying consolidated
statements of operations, stockholders' equity (deficiency), and cash flows of
the Predecessor (businesses identified in Note 1) from January 1, 1995 through
October 17, 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 test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of KSCO
Acquisition Corporation and subsidiaries as of December 31, 1996 and 1995 and
the results of their operations and their cash flows for the year ended
December 31, 1996 and the period from inception, October 17, 1995, through
December 31, 1995, and the results of the operations of the Predecessor and
its cash flows from January 1, 1995 through October 17, 1995, in conformity
with generally accepted accounting principles.
Arthur Andersen llp
Atlanta, Georgia
March 17, 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of KSCO Acquisition Corporation
We have audited the consolidated statements of operations, changes in
stockholders' equity (deficiency), and cash flows of Scovill Fasteners Inc.
and its subsidiaries (the "Predecessor") for the year ended December 31, 1994.
These financial statements are the responsibility of the Predecessor'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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of the
Predecessor's operations, changes in its stockholders' equity (deficiency) and
its cash flows for the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
Deloitte & Touche llp
Atlanta, Georgia
March 17, 1995
F-3
<PAGE>
KSCO ACQUISITION CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 603 $ 410
Accounts receivable, net of allowances of $640 and $326,
respectively............................................... 12,438 6,428
Inventories................................................. 21,594 10,127
Other....................................................... 1,175 68
-------- -------
TOTAL CURRENT ASSETS.................................... 35,810 17,033
-------- -------
Property, plant and equipment, net.......................... 40,389 51,849
Deferred income taxes....................................... 1,266 --
Intangible assets........................................... 26,401 19,695
-------- -------
$103,866 $88,577
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt........................ $ 830 $ 2,500
Accounts payable............................................ 10,588 4,613
Accrued liabilities......................................... 6,830 3,232
-------- -------
TOTAL CURRENT LIABILITIES............................... 18,248 10,345
-------- -------
LONG-TERM LIABILITIES
Revolving line of credit.................................... 9,424 7,100
Long-term debt.............................................. 27,464 31,938
Employee benefits........................................... 24,407 16,358
Deferred income taxes....................................... -- 1,573
Other....................................................... 2,902 3,000
-------- -------
TOTAL LONG-TERM LIABILITIES............................. 64,197 59,969
-------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 15,000,000 shares authorized,
8,880,102 and 7,270,000 shares issued and outstanding,
respectively............................................... 89 73
Additional paid-in capital.................................. 22,086 18,102
Retained earnings........................................... (736) 116
Foreign currency translation adjustment..................... (18) (28)
-------- -------
TOTAL STOCKHOLDERS' EQUITY.............................. 21,421 18,263
-------- -------
$103,866 $88,577
======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE>
KSCO ACQUISITION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE PREDECESSOR ARE
NOT COMPARABLE IN CERTAIN RESPECTS.
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
----------------------------------- ----------------------------------
PERIOD FROM JANUARY 1, 1995
YEAR ENDED INCEPTION THROUGH THROUGH YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 OCTOBER 17, 1995 DECEMBER 31, 1994
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net sales............................................. $91,632 $12,799 $53,589 $65,428
Cost of sales......................................... 64,600 9,353 40,260 47,045
------- ------- ------- -------
Gross profit........................................ 27,032 3,446 13,329 18,383
Selling expenses...................................... 10,220 1,369 5,656 7,113
General and administrative expenses................... 6,831 458 2,166 3,421
Amortization expense.................................. 2,557 239 320 411
------- ------- ------- -------
Operating income.................................... 7,424 1,380 5,187 7,438
Other expense (income)................................ 450 214 551 (629)
Interest expense--affiliate........................... -- -- 2,084 4,362
Interest expense--other............................... 5,953 892 1,388 730
------- ------- ------- -------
Income before income tax provision and extraordinary
loss................................................. 1,021 274 1,164 2,975
Income tax provision.................................. 923 158 -- 634
------- ------- ------- -------
Income before extraordinary loss...................... 98 116 1,164 2,341
Extraordinary loss, net of $613 tax benefit........... 950 -- -- --
------- ------- ------- -------
Net income (loss)..................................... $ (852) $ 116 $ 1,164 $ 2,341
- --------------------------------------------------
======= ======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
KSCO ACQUISITION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE PREDECESSOR ARE
NOT COMPARABLE IN CERTAIN RESPECTS.
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
----------------------------------- ----------------------------------
PERIOD FROM JANUARY 1, 1995
YEAR ENDED INCEPTION THROUGH THROUGH YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 OCTOBER 17, 1995 DECEMBER 31, 1994
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ (852) $ 116 $ 1,164 $ 2,341
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation......................................... 6,829 1,481 5,735 6,559
Amortization......................................... 2,557 239 320 411
Extraordinary loss................................... 950 -- -- --
Deferred income taxes................................ 265 8 -- --
Changes in operating assets and liabilities, net of
effect of acquired businesses:
Accounts receivable, net............................. (931) 1,105 360 (1,476)
Inventories.......................................... (6,231) 772 (1,371) (379)
Other current assets................................. (883) 119 (213) 224
Accounts payable..................................... 3,042 (2,075) 1,251 (684)
Accrued liabilities.................................. (4,031) (2,313) (465) 369
Other assets and liabilities......................... (2,131) (465) 246 662
-------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES... (1,416) (1,013) 7,027 8,027
-------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in business acquisitions, net of cash
acquired............................................. (23,110) (40,897) -- --
Acquisition costs..................................... (2,140) (3,246) -- --
Additions to property, plant and equipment............ (5,695) (1,168) (4,962) (7,363)
Proceeds from sales of property, plant and equipment.. 2,264 13 26 176
-------- -------- ------- --------
NET CASH USED IN INVESTING ACTIVITIES................. (28,681) (45,298) (4,936) (7,187)
-------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on credit line............ 2,324 3,830 (1,245) 4,516
Issuance of long-term debt............................ 23,967 35,000 -- 10,000
Repayments of long-term debt.......................... (31,268) (10,284) (278) --
Proceeds from sale/leaseback of attaching machines.... 31,267 -- -- --
Issuance of common stock.............................. 4,000 18,175 -- --
Repayments of affiliate debt.......................... -- -- (475) (15,000)
-------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES... 30,290 46,721 (1,998) (484)
-------- -------- ------- --------
NET INCREASE IN CASH.................................. 193 410 93 356
CASH AT BEGINNING OF PERIOD........................... 410 -- 510 154
-------- -------- ------- --------
CASH AT END OF PERIOD................................. $ 603 $ 410 $ 603 $ 510
======== ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid........................................ $ 5,062 $ 718 $ 3,238 $ 250
======== ======== ======= ========
Income taxes......................................... $ -- $ -- $ -- $ 38
- --------------------------------------------------
======== ======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
KSCO ACQUISITION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE PREDECESSOR ARE
NOT COMPARABLE IN CERTAIN RESPECTS.
<TABLE>
<CAPTION>
UNFUNDED ACCUMULATED
ADDITIONAL PENSION BENEFITS
REDEEMABLE PAID- RETAINED EARNINGS IN EXCESS OF UNRECOGNIZED FOREIGN CURRENCY
COMMON STOCK PREFERRED STOCK IN CAPITAL (ACCUMULATED DEFICIT) PRIOR SERVICE COST TRANSLATION ADJUSTMENT
------------ --------------- ---------- --------------------- ------------------------- ----------------------
THE PREDECESSOR
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, Decem-
ber 31, 1993.... $ -- $ -- $ 7,470 $(30,974) $(995) $(178)
Net income...... 2,341
Issuance of pre-
ferred stock.... 19,439
Contribution of
capital in
connection with
transfers of
Industrial and
Apparel
Fasteners South
Africa (Pty)
Ltd. ........... 724
Declaration of
preferred divi-
dend............ (405)
Change in un-
funded accumu-
lated pension
benefits in ex-
cess of unrecog-
nized prior
service cost.... 284
Foreign currency
translation ad-
justment........ 100
----- -------- ------- -------- ----- -----
Balance, Decem-
ber 31, 1994.... $ -- $ 19,439 $ 8,194 $(29,038) $(711) $ (78)
----- -------- ------- -------- ----- -----
Net income...... 1,164
----- -------- ------- -------- ----- -----
Balance, October
17, 1995........ $ -- $ 19,439 $ 8,194 $(27,874) $(711) $ (78)
----- -------- ------- -------- ----- -----
<CAPTION>
TOTAL
--------
--------
<S> <C>
Balance, Decem-
ber 31, 1993.... $(24,677)
Net income...... 2,341
Issuance of pre-
ferred stock.... 19,439
Contribution of
capital in
connection with
transfers of
Industrial and
Apparel
Fasteners South
Africa (Pty)
Ltd. ........... 724
Declaration of
preferred divi-
dend............ (405)
Change in un-
funded accumu-
lated pension
benefits in ex-
cess of unrecog-
nized prior
service cost.... 284
Foreign currency
translation ad-
justment........ 100
--------
Balance, Decem-
ber 31, 1994.... $ (2,194)
--------
Net income...... 1,164
--------
Balance, October
17, 1995........ $ (1,030)
--------
<CAPTION>
THE COMPANY
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Acquisition--
Elimination of
Predecessor Eq-
uity (Note 1)... $ -- $(19,439) $(8,194) $ 27,874 $ 711 $ 78
Issuance of Com-
mon Stock....... 73 $18,102
Foreign Currency
Translation..... (28)
Net income...... $ 116
----- -------- ------- -------- ----- -----
Balance, Decem-
ber 31, 1995.... $ 73 $ -- $18,102 $ 116 $ -- $ (28)
----- -------- ------- -------- ----- -----
Issuance of Com-
mon Stock....... 16 3,984
Foreign Currency
Translation..... 10
Net income
(loss).......... (852)
----- -------- ------- -------- ----- -----
Balance, Decem-
ber 31, 1996.... $ 89 $ -- $22,086 $ (736) $ -- $ (18)
===== ======== ======= ======== ===== =====
<CAPTION>
--------
<S> <C>
Acquisition--
Elimination of
Predecessor Eq-
uity (Note 1)... $ 1,030
Issuance of Com-
mon Stock....... 18,175
Foreign Currency
Translation..... (28)
Net income...... 116
--------
Balance, Decem-
ber 31, 1995.... $ 18,263
--------
Issuance of Com-
mon Stock....... 4,000
Foreign Currency
Translation..... 10
Net income
(loss).......... (852)
--------
Balance, Decem-
ber 31, 1996.... $ 21,421
========
</TABLE>
The accompanying notes in consolidated financial statements are an integral
part of these statements.
F-7
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1. BASIS OF PRESENTATION
The consolidated balance sheets as of December 31, 1996 and 1995 and the
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1996 and the period from inception, October 17,
1995 ("Inception Date"), through December 31, 1995, include the accounts of
KSCO Acquisition Corp. ("KSCO") and Scovill Fasteners Inc. ("Fasteners"), a
wholly owned subsidiary of KSCO (collectively referred to as the "Company"),
both of which are Delaware corporations. On October 17, 1995, Fasteners was
acquired by KSCO (the "Acquisition"), for approximately $41.5 million. KSCO
was organized by Kohlberg & Co. ("Kohlberg") for the purpose of acquiring the
outstanding stock of Fasteners. This transaction was accounted for using the
purchase method of accounting. The allocation of purchase price was based upon
preliminary estimates of fair value and was finalized during 1996.
During January 1996, Fasteners purchased the outstanding common stock of Rau
Fastener Company, LLC ("Rau") for $7,892 and PCI Group, Inc. ("PCI") for
$15,551, excluding certain costs related to financing and consummating the
acquisitions (Note 3). Rau manufactured primarily snap fasteners with
locations and subsidiaries operating in Providence, Rhode Island, Brussels,
Belgium ("Unifast") and Montreal, Canada. PCI manufactured industrial and shoe
eyelets and light metal stampings.
The consolidated statements of operations, stockholders' equity and cash
flows from January 1, 1995 through October 17, 1995 and the year ended
December 31, 1994, are the financial statements of Fasteners when it was a
wholly owned subsidiary of Alper Holdings USA, Inc. ("Alper") (referred to
herein as the "Predecessor"). The Acquisition and the related application of
purchase accounting (Note 3) resulted in changes to the capital structure of
the Predecessor and the historical basis of various assets and liabilities.
The effect of such changes significantly impairs comparability of the
financial position and results of operations of the Company and the
Predecessor.
The Company is a leading manufacturer of apparel fasteners, such as snaps,
tack buttons and rivets, primarily serving the jeanswear, infantswear,
childrenswear and outerwear industries. The Company produces non-apparel
fastener products for use in automotive, marine textile, luggage, leather
goods and aerospace industries, primarily marketed under the DOT(R) trademark.
Fasteners' other non-apparel products also include industrial and shoe eyelets
and light metal stampings marketed under the PCI trademark. The Company also
designs and manufactures fastener attaching equipment, leased to customers and
placed in customers' manufacturing facilities. The Company's customers include
many of the leading apparel design and manufacturing companies in North
America and Europe.
Certain reclassifications have been made to prior period amounts to conform
to current period presentation. All amounts are expressed in thousands except
for share amounts or as otherwise noted.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Significant transactions and balances between KSCO, Fasteners and its wholly
owned subsidiaries and entities which comprise the Predecessor have been
eliminated in consolidation.
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 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.
F-8
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Cash and cash equivalents
Cash includes cash and cash equivalents which consist of highly liquid
investments, having maturities of three months or less when acquired. Included
in accounts payable as of December 31, 1996 and 1995 were $1,898 and $1,571,
respectively, of cash overdrafts.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for approximately 55.6% and 95.6%
of all inventories as of December 31, 1996 and 1995, respectively. Cost for
the remaining inventories is determined using the first-in, first-out (FIFO)
method. Inventory costs include material, labor and manufacturing overhead.
Property, Plant and Equipment
Property, plant and equipment purchased in the Acquisition, as well as the
acquisitions of PCI and Rau, are stated at fair market value, as prescribed by
the purchase method of accounting. Subsequent purchases of property, plant and
equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets. The following useful lives are used for recognizing
depreciation expense for financial reporting purposes:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
----------- ---------------
<S> <C> <C>
Computer equipment............. 3-5 years 3-5 years
Leasehold improvements......... 1-6 years 1-5 years
Buildings and improvements..... 5-30 years 5-50 years
Attaching equipment............ 4-11 years 8 years
Machinery, equipment and tool-
ing........................... 3-12 years 3-12 years
</TABLE>
Major renewals and betterments which extend the useful life of an asset are
capitalized; routine maintenance and repairs are expensed as incurred. Total
maintenance and repairs expense charged to operations was approximately
$2,161, $317, $2,097 and $2,053 for the year ended December 31, 1996, the
period ended December 31, 1995, the period ended October 17, 1995, and the
year ended December 31, 1994, respectively. Upon sale or retirement of assets,
the Company's plant, property and equipment account is reduced by the asset
cost and related accumulated depreciation, and any related gain or loss is
reflected in operations.
Intangible Assets
Intangible assets consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996
----------------------------
ACCUMULATED 1995
GROSS AMORTIZATION NET NET
------- ------------ ------- -------
<S> <C> <C> <C> <C>
Goodwill................................... $15,983 $ (350) $15,633 $ 9,352
Trademarks and patents..................... 2,255 (129) 2,126 4,221
Organization and deferred financing fees... 7,436 (2,855) 4,581 3,111
Covenants not to compete................... 4,975 (1,311) 3,664 2,875
Other...................................... 397 -- 397 136
------- ------- ------- -------
$31,046 $(4,645) $26,401 $19,695
======= ======= ======= =======
</TABLE>
F-9
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Trademarks and patents are amortized on a straight-line basis over a period
of 40 years. Debt acquisition costs are amortized over the term of the related
outstanding debt. Organization costs are amortized on a straight-line basis
over 5 years. Covenants not to compete consist of agreements with Alper, the
former parent of Fasteners, and with the former owners of PCI (Note 3); such
agreements are amortized over 5 and 3 years, respectively. Goodwill is
amortized on a straight-line basis over 40 years.
Goodwill represents the excess of cost over the estimated fair value of the
net assets of acquired businesses. Should events or circumstances occur
subsequent to any business acquisition which bring into question the
realizable value or impairment of any component of goodwill, the Company will
evaluate the remaining useful life and balance of goodwill and make
appropriate adjustments. The Company's principal considerations in determining
impairment include the strategic benefit to the Company of the particular
business related to the questioned component of goodwill as measured by
undiscounted current and expected future operating income levels of that
particular business and expected undiscounted future cash flows.
Environmental Matters
Environmental expenditures are expensed or capitalized as appropriate,
depending on their future economic benefit. Environmental expenditures include
site investigation, physical remediation, operation and maintenance and legal
and administrative costs. Environmental accruals are established for sites
where it is probable that a loss has been incurred and the amount of the loss
can be reasonably estimated. Where the estimate is a range of relatively
likely outcomes, the lowest cost alternative has been accrued.
Recognition of Revenue
Revenue from the sale of fastener products is recorded on the date goods are
shipped to the customer. Sales returns and allowances are recorded as a charge
against revenue in the period in which the related sales are recognized.
Revenue from the lease of attaching machinery is recorded over the applicable
rental period.
Income Taxes
Income taxes are recorded in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 utilizes the asset and liability method, under which deferred income taxes
are recognized for the tax consequences of "temporary differences" by applying
currently enacted statutory rates to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities. Under SFAS 109, the effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.
Fasteners periodically evaluates the recognition of deferred tax assets and
provides a valuation allowance for any portion of such assets not considered
realizable. Through October 17, 1995, Fasteners was included in the
consolidated Federal return of Alper. For financial reporting purposes,
Fasteners provided income taxes as if it filed separately from Alper.
Accordingly, Federal income tax expense/(benefit) and liabilities constituted
a charge in lieu of income taxes and amounts due Alper. Since October 18,
1995, the Company has filed separate company income tax returns.
Foreign Currency Translation
The accounts of the Company's and the Predecessor's foreign subsidiaries are
translated in accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation," which requires that foreign currency
assets and liabilities be translated using the exchange rates in effect at the
balance sheet date.
F-10
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Results of operations are translated using the average exchange rates
prevailing throughout the period. The effects of unrealized exchange rate
fluctuations on translating foreign currency assets and liabilities into U.S.
dollars are accumulated as the cumulative foreign currency translation
adjustment in stockholders' equity. Realized gains and losses from foreign
currency transactions during the periods ended December 31, 1996, December 31,
1995, October 17, 1995 and December 31, 1994 were not material.
Research and Development Costs
Research, development, pre-production and start-up costs related to both
present and future products are expensed as incurred. Such costs amounted to
$377, $74, $271, and $381 for the periods ended December 31, 1996, December
31, 1995, October 17, 1995, and December 31, 1994, respectively, and are
classified as a component of "General and administrative expenses" in the
accompanying consolidated statements of operations.
Financial Instruments
The Company uses futures contracts to manage its inventory, both to set
pricing on purchases and to reduce the Company's exposure to price
fluctuations. Under existing accounting literature, these activities are
accounted for as hedging activities. To qualify as a hedge, the item must
expose the Company to inventory pricing risk, and the related contract must
reduce that exposure and be designated by the Company as a hedge.
Additionally, to hedge expected transactions, the significant characteristics
and expected terms of such transactions must be identified and it must be
probable that the transaction will occur.
Gains and losses on futures contracts, including gains and losses upon
termination of the contract, are matched to inventory purchases and are
included in the carrying value of inventory and charged or credited to cost of
sales as such inventory is sold or used in production. The fair market value
of commodity options held at December 31, 1996 and 1995, was $70 and $(29),
respectively.
If derivative transactions do not meet the criteria for hedges, the Company
recognizes unrealized gains or losses as they occur. If a hedged transaction
no longer exists or a hedged anticipated transaction is deemed no longer
probable to occur, cumulative gains and losses on the hedge are recognized
immediately in income and subsequent changes in fair market value of the
derivative transaction are recognized in the period the change occurs.
Concentration of Credit Risk
The Company's customers include many large and well-known apparel and
industrial manufacturing companies. In addition, the Company is a primary
supplier for Kmart's private-label infantswear and a leading supplier for
infantswear sold at Wal*Mart, Target and Sears. In 1996, no single customer
accounted for more than 8% of the Company's total net sales, and the Company's
ten largest customers accounted for approximately 26% of the Company's total
net sales. The Company's broad line of products for apparel and specialty
industrial use reduces its exposure to any one customer segment and to fashion
trends.
Asset Impairment
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires that
long-lived assets, certain identifiable intangible assets and goodwill be
reviewed for impairment when expected future undiscounted cash flows are less
than the carrying value of the assets. No charges were recorded pursuant to
this statement in fiscal 1996.
F-11
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Comprehensive Income and Segments
In 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 130 establishes standards to measure
all changes in equity that result from transactions and other economic events
other than transactions with owners. Comprehensive income is the total of net
income and all other nonowner changes in equity. SFAS 131 introduces a new
segment reporting model called the "management approach." The management
approach is based on the manner in which management organizes segments within
a company for making operating decisions and assessing performance. The
management approach replaces the notion of industry and geographic segments.
The Company will adopt SFAS 130 and SFAS 131 in fiscal year 1998. The Company
believes adoption of SFAS 130 and SFAS 131 will not significantly affect the
Company's financial position or results of operations.
NOTE 3. ACQUISITIONS
Rau/PCI
The acquisitions of Rau and PCI were accounted for as a purchase.
Accordingly, the consolidated financial statements of Fasteners include the
results of these operations subsequent to January 24, 1996. These acquisitions
were financed through equity contributions and cash borrowings under the New
Credit Agreement (Note 7).
The allocation of the purchase price to the underlying net assets acquired was
based upon estimates of the fair value of the net assets. The allocation of
the purchase price to the underlying net assets acquired based on the
estimated fair value assigned was as follows:
<TABLE>
<CAPTION>
RAU PCI
------ -------
<S> <C> <C>
Purchase price........................................... $7,892 $15,551
Organization and financing costs......................... 728 1,412
------ -------
Total purchase price................................. 8,620 16,963
------ -------
Less--value assigned to assets and liabilities
Cash................................................... 257 76
Accounts receivable.................................... 3,358 1,721
Inventories............................................ 3,333 1,903
Other current assets................................... 189 35
Property, plant and equipment.......................... 4,517 7,123
Organization and financing costs....................... 728 1,412
Other long-term assets................................. 47 5,243
Accounts payable and accrued liabilities............... (6,907) (4,035)
Long-term liabilities and debt assumed................. (777) (8,560)
------ -------
4,745 4,918
------ -------
Goodwill............................................... $3,875 $12,045
====== =======
</TABLE>
Fasteners
The Acquisition of Fasteners described in Note 1 was accounted for as a
purchase. Accordingly, the consolidated financial statements of Fasteners
reflect the purchase method of accounting effective October 17, 1995. The
purchase price was $41,500, excluding certain costs related to financing and
consummating the Acquisition. The purchase price was funded from the sale of
common stock and the proceeds from two term notes and a revolving line of
credit.
F-12
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The allocation of the purchase price to the underlying net assets acquired
was based upon preliminary estimates of the fair value of the net assets which
was revised during 1996. During 1996, the preliminary calculation of goodwill
was decreased by approximately $11,770 for the sale of attaching equipment at
fair value which exceeded the net book value (Note 9) and the settlement for
$2,487 received from an insurance company relating to environmental matters.
Trademarks were written down as a result of the preceding adjustments to
goodwill during 1996. The allocation of the purchase price to the underlying
net assets acquired was finalized as follows:
<TABLE>
<S> <C>
Purchase price.................................................. $ 41,500
Organization and financing costs................................ 3,246
--------
Total purchase price........................................ 44,746
--------
Less--value assigned to assets and liabilities
Cash.......................................................... 603
Accounts receivable........................................... 7,540
Inventories................................................... 10,697
Other current assets.......................................... 2,597
Property, plant and equipment................................. 63,832
Organization and financing costs.............................. 3,246
Other long-term assets........................................ 4,561
Accounts payable and accrued liabilities...................... (13,891)
Long-term liabilities and debt assumed........................ (34,439)
--------
44,746
--------
Goodwill........................................................ --
========
</TABLE>
NOTE 4. INVENTORIES
Inventories as of December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Raw materials................................................... $ 3,088 $ 1,486
Work in process................................................. 5,099 3,295
Finished goods.................................................. 13,407 5,346
------- -------
$21,594 $10,127
======= =======
</TABLE>
The value of inventories is reported net of allowances for obsolete, slow-
moving and discontinued product line inventory of $927 and $470 as of December
31, 1996 and 1995, respectively. If the FIFO method had been used to value all
inventories, inventories would have been increased by $49 and $0 at December
31, 1996 and 1995, respectively.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1996 and 1995 consisted of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Land and improvements......................................... $ 327 $ 312
Buildings and improvements.................................... 7,434 7,012
Attaching equipment........................................... 3,019 23,304
Machinery, equipment and tooling.............................. 33,807 22,702
------- -------
44,587 53,330
Accumulated depreciation...................................... (4,198) (1,481)
------- -------
$40,389 $51,849
======= =======
</TABLE>
F-13
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Depreciation expense was $6,829, $1,481, $5,735 and $6,559 for the periods
ended December 31, 1996, December 31, 1995, October 17, 1995 and December 31,
1994, respectively. Refer to Note 9 for a description of the sale/leaseback of
attaching machines in 1996.
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
------ ------
<S> <C> <C>
Salaries, wages and benefits............................... $1,454 $ 101
Deferred income taxes...................................... 1,317 752
Pension, current portion................................... 1,128 1,921
Operating lease obligations................................ 858 --
Interest................................................... 535 --
Other...................................................... 1,538 458
------ ------
$6,830 $3,232
====== ======
</TABLE>
NOTE 7. LONG-TERM DEBT
Long-term debt as of December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Revolving line of credit................................ $ 9,424 $ 7,100
Term note "A"........................................... -- 19,500
Term note "B"........................................... 26,281 14,938
Other................................................... 1,578 --
Capital lease obligations............................... 435 --
------- -------
37,718 41,538
Less--Current maturities................................ (830) (2,500)
------- -------
Total long-term debt.................................... $36,888 $39,038
======= =======
</TABLE>
To finance the Acquisition, Fasteners entered into a credit agreement (the
"Original Credit Agreement") with a group of lenders on October 17, 1995. The
Original Credit Agreement provided for term notes of $20,000 and $15,000, as
well as a revolving line of credit of up to $15,000. Borrowings under the
Original Credit Agreement were collateralized by substantially all of
Fasteners' assets. Borrowing availability under the revolving line of credit
was subject to limitations based on eligible accounts receivable and
inventory, as defined in the Original Credit Agreement. As of December 31,
1995, Fasteners had borrowings of $41,538 outstanding under the Original
Credit Agreement including $7,100 of borrowings under the revolving line of
credit and $7,600 of unused credit availability.
In connection with the acquisitions of Rau and PCI in January 1996,
Fasteners refinanced its outstanding obligations under the Original Credit
Agreement with a New Credit Agreement (the "New Credit Agreement"). The New
Credit Agreement provides for term notes of $29,496 and $28,000, as well as a
revolving line of credit of up to $15,000. Borrowings under the New Credit
Agreement are collateralized by substantially all of Fasteners' assets.
Borrowing availability under the revolving line of credit is subject to
limitations based on eligible accounts
F-14
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
receivable and inventory, as defined in the New Credit Agreement. As of
December 31, 1996, Fasteners had borrowings of $35,705 outstanding under the
New Credit Agreement including $9,424 of borrowings under the revolving line
of credit and $26,281 under a term note. There was $3,702 of unused credit
availability at such date. In November 1996, Fasteners repaid all outstanding
obligations under the Term "A" facility principally with proceeds from the
sale/leaseback transaction of attaching equipment (Note 9). In connection with
the refinancing discussed above, Fasteners recognized an extraordinary after-
tax charge of $950 from the write-off of related deferred financing costs. The
New Credit Agreement expires on December 31, 2003.
Both the New Credit Agreement and the Original Credit Agreement allowed
Fasteners to choose among interest rate options as follows:
<TABLE>
<CAPTION>
PRIME OPTION LIBOR OPTION
------------ ------------
<S> <C> <C>
Revolving line of credit........................ Prime + 1.5% LIBOR + 2.5%
Term note "A"................................... Prime + 1.5% LIBOR + 2.5%
Term note "B"................................... Prime + 2.0% LIBOR + 3.0%
</TABLE>
Interest rates for the term notes and the revolving line of credit ranged
from 7.92% to 10.5% and 8.25% to 10.25% during 1996 and from the Inception
Date to December 31, 1995, respectively. The weighted average interest rate
was 8.7% and 8.9% during 1996 and from the Inception Date to December 31,
1995, respectively. The interest rate was 8.6% and 8.5% at December 31, 1996
and 1995, respectively. Both the New and Original Credit Agreements required
an annual commitment fee of 0.5% of the total commitment, less letters of
credit and amounts borrowed, and required Fasteners to make quarterly payments
of accrued interest outstanding on the term notes and the revolving line of
credit.
Both the New and Original Credit Agreements required that Fasteners meet
certain covenants which, among other things, require the maintenance of ratios
related to leverage and cash flow, limit the level of capital expenditures and
payment of dividends to KSCO. The Original Credit Agreement also required
mandatory principal prepayments from the proceeds of sales of assets as well
as 50% of excess cash flow, as defined.
Other debt at December 31, 1996 includes outstanding obligations of Unifast.
Under the New Credit Agreement and the Unifast obligations, maturities of
long-term debt as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................ $ 753
1998................................................ 848
1999................................................ 848
2000................................................ 722
2001................................................ 9,942
Thereafter.......................................... 24,170
-------
$37,283
=======
</TABLE>
Intercompany interest expense in 1995 through the Inception Date resulted
from interest on intercompany debentures and a demand note which bore interest
at 9% and prime plus 0.5%, respectively. In connection with the Acquisition,
all intercompany notes and debentures were settled in full.
Also in 1995 through the Inception Date, Fasteners had a $22,000 credit
facility. This facility was comprised of a $12,000 revolving credit facility
and a $10,000 term loan. Outstanding borrowings under the revolving facility
bore interest at Fasteners' option of either 1.125% above the base lending
rate of the bank or 3.125% above LIBOR. Outstanding term loan borrowings bore
interest at Fasteners' option of either 1.5% above the base lending rate of
the bank or 3.5% above LIBOR. In conjunction with the Acquisition, this
facility was repaid in full.
F-15
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The carrying value of both short-term and long-term debt at December 31,
1996 and 1995 approximates its fair values.
NOTE 8. OTHER LIABILITIES
Other liabilities as of December 31, 1996 and 1995 consisted of liabilities
for environmental matters of $2,902 and $3,000 at December 31, 1996 and 1995,
respectively.
NOTE 9. LEASE COMMITMENTS
Operating leases
In November 1996, Fasteners refinanced its attaching equipment under a
sale/leaseback arrangement. The equipment was sold for $31,267. Fasteners has
a purchase option at fair market value at the expiration of the lease,
November 2002. The lease is an operating lease in accordance with Statement of
Financial Accounting Standards No. 13, "Accounting for Leases." The cost and
associated depreciation of the attaching equipment of approximately $22,533
and $3,050, respectively, have been removed from the accounts. The increase to
fair market value over the amount of the purchase price originally allocated
to the attaching equipment was recorded as a reduction of goodwill recorded in
the Acquisition. Fasteners leases office space, office equipment and vehicles
for various periods through the year 2002 and it is expected in the normal
course of operations that the leases may be extended or replaced. Certain
leases provide for contingent rentals based upon additional usage of equipment
and vehicles in excess of a specified minimum. Leases for real estate
generally include options to renew for periods ranging from one to ten years.
At December 31, 1996, future minimum annual rental commitments were as
follows:
<TABLE>
<S> <C>
1997................................................ $ 5,732
1998................................................ 5,522
1999................................................ 5,356
2000................................................ 5,219
2001................................................ 5,148
Thereafter.......................................... 17,666
-------
Total minimum lease payments.................... $44,643
=======
</TABLE>
Rental expense for operating leases was $1,756, $184, $674 and $747 for the
periods ended December 31, 1996, December 31, 1995, October 17, 1995 and
December 31, 1994, respectively.
Capital lease
In 1996, Fasteners entered into a lease agreement for computer equipment
which is classified as a capital lease. The net book value of the leased
equipment included in Property, Plant and Equipment at December 31, 1996 was
$450,000 which was included in machinery and equipment. Future minimum
payments, by year, under noncancelable capital leases consist of the following
at December 31, 1996:
<TABLE>
<S> <C>
1997.................................................. $131
1998.................................................. 131
1999.................................................. 131
2000.................................................. 131
2001.................................................. 22
----
Total minimum lease payments.......................... $546
Amounts representing interest......................... (111)
----
Present value of net minimum lease payments........... 435
Less current portion.................................. (87)
----
Long-term capital lease obligation.................... $348
====
</TABLE>
F-16
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
10. INCOME TAXES
The following is a summary of the components of net income (loss) before
income taxes and extraordinary loss:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------------------- ------------------------
PERIOD FROM PERIOD FROM
INCEPTION JANUARY 1
YEAR ENDED DATE TO TO YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 17, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Domestic.................. $1,317 $324 $1,354 $3,371
Foreign................... (296) (50) (190) (396)
------ ---- ------ ------
$1,021 $274 $1,164 $2,975
====== ==== ====== ======
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------------------- ------------------------
PERIOD FROM PERIOD FROM
INCEPTION JANUARY 1
YEAR ENDED DATE TO TO YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 17, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Current................... $ -- $150 $ -- $ 98
Deferred.................. 265 8 -- 514
Foreign................... 45 -- -- 22
----- ---- ----- ----
$ 310 $158 $ -- $634
===== ==== ===== ====
</TABLE>
The differences between the United States Federal statutory income tax rate
and the consolidated effective income tax rate are summarized as follows:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------------------- ------------------------
PERIOD FROM PERIOD FROM
INCEPTION JANUARY 1
YEAR ENDED DATE TO TO YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 17, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Federal income tax ex-
pense at statutory
rates................... $429 $ 93 $ 323 $1,041
State income tax
provision, net of
federal taxes........... 66 21 71 129
Benefit for net operating
losses.................. -- -- (528) (749)
Benefit for extraordinary
item.................... (613) -- -- --
Amortization of
goodwill/deferred
transaction fees........ 292 29 77 71
Foreign tax impact....... 45 -- -- --
Other.................... 91 15 57 142
---- ---- ----- ------
$310 $158 $ -- $ 634
==== ==== ===== ======
</TABLE>
F-17
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Deferred tax consequences of significant temporary differences are as
follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets....................................... $(12,132) $(11,261)
Trademarks......................................... (1,617) (1,646)
Inventories........................................ (1,924) (2,173)
Deferred acquisition fees.......................... (2,142) --
Other.............................................. (161) --
-------- --------
(17,976) (15,080)
-------- --------
Deferred tax assets:
Net operating loss carryforwards (expiring in
2010)............................................. 4,518 --
Postretirement health and life benefits............ 5,680 4,228
Pension............................................ 4,344 2,548
Environmental matters.............................. 1,138 1,058
Other.............................................. 1,795 3,250
Inventories........................................ 450 1,671
-------- --------
17,925 12,755
-------- --------
$ (51) $ (2,325)
======== ========
</TABLE>
In connection with the Acquisition and the acquisitions of PCI and Rau,
Alper and the former owners of PCI and Rau, respectively, indemnified the
Company from any potential future tax liabilities that may arise from periods
prior to the dates of acquisition.
NOTE 11. PENSION AND OTHER EMPLOYEE BENEFIT PLANS
Pension Plan
Fasteners sponsors noncontributory defined benefit pension plans. On
December 31, 1994, Fasteners curtailed future benefits attributable to
participants in Fasteners' pension plans. The effect of this curtailment
resulted in the elimination of defined pension benefits for all future
services of active employees participating in the plans. Additionally,
Fasteners assumed the obligations of two pension plans sponsored by PCI. The
PCI plans were merged with the Fasteners plans effective March 31, 1996.
The amounts funded by Fasteners for any plan year are not less than the
minimum required under the Employee Retirement Income Security Act.
The following items are the components of the net pension cost:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------------------------ -------------------------
PERIOD FROM
YEAR ENDED PERIOD FROM JANUARY 1 TO YEAR ENDED
DECEMBER 31, INCEPTION DATE TO OCTOBER 17, DECEMBER 31,
1996 DECEMBER 31, 1995 1995 1994
------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Interest cost on
projected benefit
obligation............. $ 2,110 $ 480 $ 1,525 $ 2,063
Service cost............ 97 -- -- 257
Actual return on plan
assets................. (2,962) (749) (2,570) (1,000)
Net amortization and
deferral............... 588 362 1,526 (487)
------- ----- ------- -------
Net periodic pension
cost................... $ (167) $ 93 $ 481 $ 833
======= ===== ======= =======
</TABLE>
F-18
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The following is a summary of the domestic plans' funded status as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Actuarial present value of benefits for service rendered to
date:
Accumulated benefits based on salaries to date, including
vested benefits of $29,767 and $27,377 at December 31,
1996 and 1995, respectively.............................. $29,867 $27,503
------- -------
Projected benefit obligation................................ 29,867 27,503
Less fair value of plan assets.............................. 21,938 17,606
------- -------
Projected benefit obligation in excess of plan assets....... 7,929 9,897
Unrecognized net gain....................................... 1,896 242
------- -------
Accrued pension cost........................................ 9,825 10,139
Less current portion........................................ 1,099 1,921
------- -------
Long-term pension liabilities............................... $ 8,726 $ 8,218
======= =======
</TABLE>
The following is a summary of assumptions used to reflect expectations of
future economic conditions as they relate to Fasteners' pension plans:
<TABLE>
<CAPTION>
1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
Discount rate.......................................... 7.50% 7.00% 8.50%
Expected long-term rate of return on plan assets....... 11.00% 9.00% 9.00%
</TABLE>
At December 31, 1996 and 1995, plan assets are invested approximately 24.9%
and 30.8%, respectively, in fixed income contracts with the balance in cash
and cash equivalents.
Fasteners has an additional defined benefit non-qualified pension plan
covering former employees and former employees of PCI. The pension liability
relating to this plan was $1,203 and $627 at December 31, 1996 and 1995,
respectively, of which $1,109 and $533 was classified as long-term at December
31, 1996 and 1995, respectively. Pension expense for this plan was $79, $9,
and $35 for the periods ended December 31, 1996, December 31, 1995 and October
17, 1995, respectively.
Postretirement Benefit Plans
Fasteners sponsors several defined benefit postretirement health and life
insurance benefit plans that cover both salaried and non-salaried former
employees. Fasteners assumed the obligations of a postretirement health and
life plan for former employees of PCI. All of the participants are retired
employees and beneficiaries, mostly from operations which were previously sold
or discontinued. Fasteners reserves the right to amend or discontinue all or
any part of those plans at any time. Fasteners' funding policy for its
postretirement plans is on a pay-as-you-go basis.
F-19
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The following table sets forth the status of Fasteners' postretirement
benefit plans as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
------- ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and beneficiaries................................ $13,644 $7,607
Fully eligible active participants........................ 816 --
------- ------
Total accumulated postretirement benefit obligation......... 14,460 7,607
Unrecognized net gain....................................... 112 --
------- ------
Accumulated postretirement benefit obligation ("APBO")...... $14,572 $7,607
======= ======
</TABLE>
Net periodic postretirement benefit cost consisted of the following:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------------------- ------------------------
PERIOD FROM PERIOD FROM
INCEPTION JANUARY 1
YEAR ENDED DATE TO TO YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 17, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Interest cost............ $ 990 $110 $619 $ 659
Service cost............. 101 -- -- --
Net amortization and de- -- -- -- (659)
ferral.................. ------ ---- ---- -----
Net postretirement bene- $1,091 $110 $619 $ --
fit cost................ ====== ==== ==== =====
</TABLE>
For measurement purposes, a 9.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1997; the rate was
assumed to decrease gradually to 6% for 2004 and remain at that level
thereafter. The health care cost trend rate has a significant effect on the
amounts reported. An increase in the health care cost trend rates of 1
percentage point would have the effect of increasing the APBO as of December
31, 1996 by a total of $1,035 and the interest cost component of net periodic
postretirement benefit cost for the year then ended by a total of $78.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%, 7.0% and 8.5% in 1996, 1995 and
1994, respectively.
401(k) Plan
Fasteners sponsors a 401(k) savings plan for salaried and non-salaried
employees. Participation in the plan is optional. Employer contributions are
equal to 50% of employee contributions, up to 5% of the participant's annual
salary, subject to certain limitations. Fasteners' contributions to this plan
were $248, $47, $197 and $124 for the periods ended December 31, 1996,
December 31, 1995, October 17, 1995 and December 31, 1994, respectively.
Stock Options
During October 1995, Fasteners granted certain executives options to
purchase a total of 727,000 shares of common stock at an option price of $2.50
per share. These options vest upon achievement of specified performance
targets over a three-year period or immediately upon a change in control. As
of December 31, 1996, 242,000 options were vested.
F-20
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Fasteners adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). Accordingly, no compensation cost has been recognized for the stock
options granted. Had compensation cost of Fasteners' stock options granted
been determined consistent with the provisions of SFAS 123, Fasteners'
compensation expense would have increased by approximately $105,000.
NOTE 12. RELATED-PARTY TRANSACTIONS
Fasteners paid a fee of $1,300 to Kohlberg in conjunction with the
Acquisition. This fee has been capitalized along with other acquisition costs
incurred in the transaction. On January 24, 1996, Fasteners paid a fee of
$1,000 to Kohlberg in conjunction with the acquisitions of PCI and Rau (Note
3).
Pursuant to a management agreement, Kohlberg provides Fasteners with general
corporate administrative services. Kohlberg receives a management fee to
recover its operating expenses based upon an allocation of time devoted to
Fasteners. The management fee was $425 and $63 for the year ended December 31,
1996 and the period from the Inception Date to December 31, 1995,
respectively.
During 1996, an affiliate of a lender received 800,000 shares of common
stock for a capital contribution of $2,000. The lender received fees of $1,246
in connection with the New Credit Agreement.
Pursuant to a Management Agreement dated January 1, 1993, Alper provided
Fasteners with general corporate administrative services. Alper received a
management fee to recover its operating expenses based upon an allocation of
time devoted to Fasteners. The management fee for 1994 and 1993 was $538 and
$780, respectively. This agreement was terminated in July 1994.
On July 18, 1994, Fasteners issued 19,440 shares of Series A redeemable,
cumulative preferred stock (par value $.01 per share) to its parent, First
City Diversified, Inc. ("FCDI"), in exchange for forgiveness of intercompany
advances totaling $19,440. The holders of the preferred stock were entitled to
receive, when, as and if declared by the Board of Directors cumulative cash
dividends on the shares of the preferred stock at an annual rate of 5% of the
liquidation preference, which was equal to $19,440 at December 31, 1994. The
dividends at December 31, 1994 were $405. The preferred dividends were paid to
FCDI on February 3, 1995.
NOTE 13. COMMITMENTS AND CONTINGENCIES
Fasteners is occasionally made a party to litigation, claims and assertions
from outside parties during the normal course of business. Management does not
believe that the unfavorable resolution of any such matters currently existing
would have a material unfavorable impact upon the Company's financial position
or results of operations.
As a result of Fasteners' almost 200 years of industrial operations,
Fasteners is involved in environmental protection matters relating to the
discharge of materials into the environment and new such matters arise from
time to time. Fasteners is involved in clean-ups of a current and a former
operating location. In general, Fasteners has established accruals for those
hazardous waste sites where it is probable that a loss has been incurred and
the amount of the loss can be reasonably estimated. At December 31, 1996,
Fasteners had established accruals on a discounted basis, using a rate of
7.5%, for environmental matters in the amount of $2,954 which are not
anticipated to be of a capital nature. The total reserve for environmental
liabilities includes approximately $2,600 representing a contractual payment
to a former parent. The undiscounted amounts of the expected payments totaled
$4,575 at December 31, 1996. The reliability and precision of the loss
estimates are affected by numerous factors, such as the complexity of
investigation and remediation, the stage of site evaluation, the allocation of
responsibility among potentially responsible parties and the assertion of
additional claims. Fasteners adjusts its
F-21
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accruals from time to time as a result of changes in performance standards,
remediation technology, available information and other relevant factors.
In December 1993, the Predecessor filed a lawsuit against certain insurance
carriers seeking indemnification for costs paid and to be paid relating to
environmental matters. During 1996, Fasteners received a settlement of $2,487
relating to this claim.
Fasteners has employment agreements with certain executives that contain
change in control and severance provisions.
NOTE 14. NORTH AMERICAN AND FOREIGN OPERATIONS
The Company's operations are located in the United States and Europe.
Financial information by geographic area for 1996 is as follows:
<TABLE>
<S> <C>
Net Sales by:
North America:
Domestic................................................... $ 78,348
Export..................................................... 3,275
Europe....................................................... 10,009
--------
$ 91,632
========
Operating Profit:
North America................................................ $ 9,763
Europe....................................................... 915
--------
$ 10,678
========
Identifiable assets (at end of period):
North America................................................ $ 98,168
Europe....................................................... 6,071
--------
$104,239
========
</TABLE>
Transfers of product from North America to Europe were not material during
the period presented above. Export sales from the United States include sales
to customers in Europe, Asia and Latin America. As the Company's European
operations were acquired in January 1996, export sales, operating profits and
identifiable assets were immaterial in 1995 and 1994.
F-22
<PAGE>
KSCO ACQUISITION CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................ $ 1,194
Accounts receivable, net of allowance of $754.................... 15,048
Inventories...................................................... 24,025
Other............................................................ 741
--------
TOTAL CURRENT ASSETS......................................... 41,008
--------
Property, plant and equipment, net............................... 41,473
--------
Deferred income taxes............................................ 1,298
Intangible Assets................................................ 24,963
--------
$108,742
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt............................. $ 1,013
Accounts payable................................................. 9,612
Accrued liabilities.............................................. 8,946
--------
TOTAL CURRENT LIABILITIES.................................... 19,571
--------
LONG-TERM LIABILITIES
Revolving line of credit......................................... 11,930
Long-term debt................................................... 27,187
Employee benefits................................................ 24,351
Deferred income taxes............................................ --
Other............................................................ 2,941
--------
TOTAL LONG-TERM LIABILITIES.................................. 66,409
--------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 15,000,000 shares authorized,
8,880,102 issued and outstanding................................ 89
Additional paid-in capital....................................... 22,086
Retained earnings................................................ 1,191
Foreign currency translation adjustment.......................... (604)
--------
TOTAL STOCKHOLDERS' EQUITY................................... 22,762
--------
$108,742
========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-23
<PAGE>
KSCO ACQUISITION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30,
---------------
1997 1996
------- -------
<S> <C> <C>
Net sales..................................................... $73,466 $69,796
Cost of sales................................................. 53,104 50,263
------- -------
Gross profit................................................ 20,362 19,533
Selling expenses.............................................. 7,192 7,687
General and administrative expenses........................... 4,505 5,046
Amortization expense.......................................... 2,025 2,046
------- -------
Operating income............................................ 6,640 4,754
Other expense (income)........................................ 430 102
Interest expense.............................................. 2,698 4,848
------- -------
Income (loss) before income tax provision and extraordinary
loss......................................................... 3,512 (196)
Income tax provision.......................................... 1,586 258
------- -------
Income (loss) before extraordinary loss....................... 1,926 (454)
Extraordinary loss, net of $613 tax benefit................... -- 950
------- -------
Net income (loss)............................................. $ 1,926 $(1,404)
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-24
<PAGE>
KSCO ACQUISITION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
( DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 1,926 $ (1,404)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation .......................................... 4,213 5,512
Amortization........................................... 2,025 2,046
Changes in operating assets and liabilities, net of
effect of acquired businesses:
Accounts receivable, net.............................. (2,610) (2,282)
Inventories........................................... (2,431) (4,292)
Other current assets.................................. 434 (1,714)
Accounts payable...................................... (976) 4,009
Accrued liabilities................................... 1,783 (2,039)
Other assets and liabilities.......................... (1,888) (1,615)
-------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES...... 2,476 (1,779)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in business acquisitions, net of cash acquired. -- (23,110)
Acquisition costs........................................ -- (2,140)
Additions to property, plant and equipment............... (4,114) (4,437)
Proceeds from sales of property, plant and equipment..... -- 2,264
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES.................... (4,114) (27,423)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on credit line............................ 2,506 4,900
Issuance of long-term debt............................... -- 20,992
Repayments of long-term debt............................. (277) --
Issuance of common stock................................. -- 4,000
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES................ 2,229 29,892
-------- ---------
NET INCREASE IN CASH..................................... 591 690
CASH AT BEGINNING OF PERIOD.............................. 603 410
-------- ---------
CASH AT END OF PERIOD.................................... $ 1,194 $ 1,100
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid.......................................... $ 4,389 $ 3,234
======== =========
Income taxes........................................... $ 14 $ --
======== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-25
<PAGE>
KSCO ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1. INTERIM FINANCIAL STATEMENTS
The interim financial statements presented herein include the accounts of
KSCO Acquisition Corporation and its wholly owned subsidiaries (the "Company")
as of and for the nine months ended September 30, 1997 and 1996.
In the opinion of management, the unaudited condensed consolidated financial
statements reflect all normal recurring adjustments necessary for a fair
statement of the results of the interim periods. The results for the nine
months ended September 30, 1997 are not indicative of the results that would
be obtained for the entire fiscal year or any other interim period. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been omitted from these condensed consolidated financial
statements pursuant to the applicable rules and regulations of the Securities
and Exchange Commission. These financial statements should be read in
conjunction with the audited Consolidated Financial Statements and the notes
thereto for the year ended December 31, 1996.
2. INVENTORIES
Inventories consist of the following at September 30, 1997:
<TABLE>
<S> <C>
Raw materials........................................................ $ 2,560
Work in process...................................................... 5,716
Finished goods....................................................... 15,749
-------
$24,025
=======
</TABLE>
3. SUBSEQUENT EVENT
On October 10, 1997, KSCO and its stockholders entered into a stock purchase
agreement with a third party for the sale of all of the capital stock of the
Company. In connection with the acquisition under the agreement, the Company
intends to issue senior notes and enter into a new credit facility. The
proceeds of the offering of such notes and initial borrowings under the new
credit facility will constitute a portion of the financing necessary for the
purchase price in the acquisition, to refinance certain existing indebtedness
of the Company and to repurchase certain equipment subject to a synthetic
lease.
F-26
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE GUARANTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OF-
FER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THE GUARANTOR SINCE THE DATE HEREOF OR THAT ANY INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary.................................................................... 4
Risk Factors............................................................... 17
The Exchange Offer......................................................... 23
The Transactions........................................................... 33
Capitalization............................................................. 34
Selected Historical Financial Data......................................... 36
Pro Forma Consolidated Financial Statements................................ 38
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 44
Business................................................................... 49
Management................................................................. 65
Certain Transactions....................................................... 68
Description of Other Indebtedness.......................................... 69
Description of Notes....................................................... 71
Description of Units....................................................... 98
Certain U.S. Federal Income Tax Considerations............................. 103
Plan of Distribution....................................................... 106
Legal Matters.............................................................. 107
Experts.................................................................... 107
Available Information...................................................... 107
Index to Financial Statements.............................................. F-1
</TABLE>
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN SELLING EX-
CHANGE NOTES RECEIVED IN EXCHANGE FOR INITIAL NOTES HELD FOR THEIR OWN AC-
COUNT. SEE "PLAN OF DISTRIBUTION."
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF SCOVILL APPEARS HERE]
SCOVILL FASTENERS INC.
OFFER TO EXCHANGE
11 1/4% SENIOR NOTES DUE 2007, SERIES A FOR 11 1/4% SENIOR NOTES DUE 2007,
SERIES B
PROSPECTUS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the fees and expenses payable by the
Company in connection with the issuance and distribution of the Exchange
Notes.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $29,500
Federal and state taxes............................................. *
Blue Sky fees and expenses.......................................... *
Printing expenses................................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Indenture Trustee fees.............................................. *
Miscellaneous....................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
- --------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL empowers a Delaware corporation 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 (other than an action by or in the
right of such corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as director, officer, employee or agent of
another corporation or enterprise. A corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
has no reasonable cause to believe his conduct was unlawful. A corporation
may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expense
(including attorneys' fees) included by any officer or director in defending
such action, provided that the director or officer undertake to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses (including attorneys' fees) which he
actually or reasonably incurred in connection therewith. The indemnification
provided is not deemed to be exclusive of any other rights to which an officer
or director may be entitled under any corporation's bylaw, agreement, vote or
otherwise.
The Company has adopted provisions in its Certificate of Incorporation and
Bylaws that provide that the Company shall indemnify its officers and
directors to the maximum extent permitted under the DGCL. Certain directors
are also entitled to indemnification from the organizations that employ them.
The Company has purchased insurance on behalf of its officers and directors
for liabilities arising out of their capacities as such.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the Transactions, in November 1997, the Company issued an
aggregate principal amount of $100,000,000 of Initial Notes to the Initial
Purchasers in consideration for $97,000,000. At the same time, Parent issued
an aggregate principal amount of $10,000,000 of Units, each consisting of one
share of Series B Preferred Stock and one warrant to purchase shares of common
stock of the Company, to the Initial Purchasers. Based on the private nature
of these transactions and the financial sophistication of the Initial
Purchasers, each of these transactions was exempt from the Securities Act
pursuant to Section 4(2) therein.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits:
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<C> <S>
3.1 --Articles of Incorporation of Scovill Holdings Inc.
3.2 --By-laws of Scovill Holdings Inc.
3.3 --Articles of Incorporation of Scovill Fasteners Inc.*
3.4 --By-laws of Scovill Fasteners Inc.*
4.1 --Indenture dated as of November 26, 1997 among Scovill Acquisition
Inc., Scovill Holdings Inc., as Guarantor, and United States Trust
Company of New as Trustee (including Form of Note).
4.2 --Registration Rights Agreement dated as of November 26, 1997 among
Scovill Acquisition Inc., Scovill Holdings Inc. and SBC Warburg
Dillon Read Inc. and BT Alex. Brown Incorporated.
4.3 --Amended and Restated Certificate of Designations, Preferences and
Relative, Participating, Option and Other Special Rights of Series
A Cumulative Redeemable Exchangeable Preferred Stock.*
4.4 --Exchange Debenture Indenture between Scovill Holdings Inc. and the
Trustee thereunder.*
4.5 --Certificate of Designation, Preferences, and Relative,
Participating, Option and Other Special Rights of Series B
Preferred Stock.*
5.1 --Opinion of Cahill Gordon & Reindel regarding legality of Exchange
Notes and Guarantee.*
10.1.1 --Management Services Agreement among Scovill Fasteners Inc. and
Saratoga Partners III, L.P.*
10.1.2 --Preferred Stock Registration Rights Agreement dated as of November
26, 1997 among Scovill Holdings Inc. and SBC Warburg Dillon Read
Inc. and BT Alex. Brown Incorporated.*
10.1.3 --Warrant Agreement dated as of November 26, 1997 between Scovill
Holdings Inc. and United States Trust Company of New York
(including Form of Warrant).
10.1.4 --Warrant Registration Rights Agreement dated as of November 26,
1997 between Scovill Holdings Inc. and Unites States Trust Company
of New York.
10.1.5 --Employment Agreement dated as of October 10, 1997 between David J.
Barrett and Scovill Acquisition Inc.
10.1.6 --Employment Agreement dated as of October 10, 1997 between Martin
A. Moore and Scovill Acquisition Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<C> <S>
10.1.7 --Employment Agreement dated as of October 10, 1997 between Robert
Feltz and Scovill Acquisition Inc.
10.1.8 --Purchase Agreement dated as of November 24, 1997 among Scovill
Acquisition Inc., Scovill Holdings Inc. and SBC Warburg Dillon Read
Inc. and BT Alex. Brown Incorporated.*
10.1.10 --Unit Agreement among Scovill Holdings Inc. and United States Trust
Company of New York.*
10.1.19 --Stock Option Plan(s).*
10.1.20 --Material Agreements.*
10.1.21 --Credit Agreement dated as of November 26, 1997.*
12.1 --Statements re: Computations of Ratios.
21.1 --List of Subsidiaries of Scovill Holdings Inc.*
21.2 --List of Subsidiaries of Scovill Fasteners Inc.
23.1 --Consent of Arthur Andersen LLP.
23.2 --Consent and Report on Schedule of Deloitte & Touche LLP.
23.3 --Consent of Cahill Gordon & Reindel (included in Exhibit 5.1).*
24.1 --Powers of Attorney (included in signature pages).
25.1 --Statement of Eligibility of Trustee on Form T-1, regarding Scovill
Fasteners Inc. and Scovill Holdings Inc.
27.1 --Financial Data Schedule.
99.1 --Form of Letter of Transmittal.*
99.2 --Form of Notice of Guaranteed Delivery.*
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedule.
(1) Financial Statements
The financial statements filed as part of this Registration Statement are
listed in the Index to Financial Statements on page F-1.
(2) Schedule
Schedule II--Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Registrants
pursuant to the provisions described under Item 20 above, or otherwise, the
Registrants have been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants 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 Registrants will, unless
in the opinion of their 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
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN NEW YORK, NEW YORK ON DECEMBER 23,
1997.
Scovill Fasteners Inc.
By: /s/ David J. Barrett
-----------------------------------
DAVID J. BARRETT CHIEF EXECUTIVE
OFFICER, PRESIDENT AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints each of David J. Barrett and Martin A. Moore, as
his true and lawful attorneys-in-fact and agents for the undersigned, with full
power of substitution, for and in the name, place and stead of the undersigned
to sign and file with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, (i) any and all pre-effective and post-
effective amendments to this registration statement, (ii) any exhibits to any
such registration statement or pre-effective or post-effective amendments or
(iii) any and all applications and other documents in connection with any such
registration statement or pre-effective or post-effective amendments, and
generally to do all things and perform any and all acts and things whatsoever
requisite and necessary or desirable to enable the Registrant to comply with
the provisions of the Securities Act of 1933, as amended, and all requirements
of the Securities and Exchange Commission.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David J. Barrett Chief Executive December 23,
- ------------------------------------ Officer, President 1997
DAVID J. BARRETT and Director
Executive Vice December 23,
- ------------------------------------ President, Chief 1997
MARTIN A. MOORE Financial Officer
and Principal
Accounting Officer
/s/ William F. Andrews Director December 23,
- ------------------------------------ 1997
WILLIAM F. ANDREWS
/s/ Christian L. Oberbeck Director December 23,
- ------------------------------------ 1997
CHRISTIAN L. OBERBECK
</TABLE>
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN NEW YORK, NEW YORK ON DECEMBER 23,
1997.
Scovill Holdings Inc.
By: /s/ David J. Barrett
----------------------------------
DAVID J. BARRETT
Chief Executive Officer,
President and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints each of David J. Barrett and Martin A. Moore, as
his true and lawful attorneys-in-fact agents for the undersigned, with full
power of substitution, for and in the name, place and stead of the undersigned
to sign and file with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, (i) any and all pre-effective and post-
effective amendments to this registration statement, (ii) any exhibits to any
such registration statement or pre-effective or post-effective amendments or
(iii) any and all applications and other documents in connection with any such
registration statement or pre-effective or post-effective amendments, and
generally to do all things and perform any and all acts and things whatsoever
requisite and necessary or desirable to enable the Registrant to comply with
the provisions of the Securities Act of 1933, as amended, and all requirements
of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David J. Barrett Chief Executive December 23,
- ------------------------------------ Officer, President 1997
DAVID J. BARRETT and Director
Executive Vice December 23,
- ------------------------------------ President, Chief 1997
MARTIN A. MOORE Financial Officer,
and Principal
Accounting Officer
/s/ William F. Andrews Director December 23,
- ------------------------------------ 1997
WILLIAM F. ANDREWS
/s/ Christian L. Oberbeck Director December 23,
- ------------------------------------ 1997
CHRISTIAN L. OBERBECK
</TABLE>
II-5
<PAGE>
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ ---------------- --------- ----------
BALANCE AT ADDITIONS DEDUCTION BALANCE AT
BEGINNING OF CHARGED TO COSTS FROM END OF
CLASSIFICATION PERIOD AND EXPENSES RESERVES PERIOD
-------------- ------------ ---------------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
VALUATION AND QUALIFYING
ACCOUNTS DEDUCTED FROM THE
ASSETS TO WHICH THEY
APPLY:
For the year ended
December 31, 1996,
Allowance for
uncollectible accounts.. $326 $376 $ 62 $640
==================================================
For the year ended
December 31, 1995,
Allowance for
uncollectible accounts.. $326 $455 $455 $326
==================================================
For the year ended
December 31, 1994,
Allowance for
uncollectible accounts.. $219 $395 $288 $326
==================================================
</TABLE>
S-1
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SCOVILL HOLDINGS INC.
__________________________
ARTICLE I
NAME
The name of the corporation is SCOVILL HOLDINGS INC. (the
"Corporation").
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of the Corporation in the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, Delaware 19801, County
of New Castle. The name of the Corporation's registered agent at such address
is The Corporation Trust Company.
ARTICLE III
CORPORATE PURPOSES AND POWERS
The purpose of the Corporation is to engage in any capacity, whether
by itself or by or through any other person, organization, association,
partnership, corporation or other entity in which the Corporation may have an
interest, in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware, and the Corporation
shall be authorized to exercise and enjoy all powers, rights and privileges
conferred upon corporations by the laws of the State of Delaware as in force
from time to time including, without limitation, all powers necessary or
appropriate to carry out all those acts and activities in which it may lawfully
engage.
<PAGE>
-2-
ARTICLE IV
CAPITAL STOCK
The total number of shares of capital stock which the Corporation
shall have authority to issue, from time to time, is (i) 6,000,000 shares of
Common Stock, par value $.0001 per share (the "Common Stock") and (ii) 6,200,000
shares of Preferred Stock, par value $.0001 per share.
Each share of Common Stock shall be entitled to one vote. So long as
any Common Stock is outstanding, and except as otherwise expressly provided
elsewhere herein, each share of Common Stock shall entitle the holder thereof to
one vote on all matters to be voted upon at any meeting of the stockholders of
the Corporation.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of the Corporation (the "Board") is expressly
authorized at any time, and from time to time, to provide for the issuance of
shares of Preferred Stock in one or more series, for such consideration (not
less than its par value) and with such designations, powers, preferences and
relative, participating, optional or special rights, and such qualifications,
limitations or restrictions, as shall be determined by the Board and fixed by
resolution or resolutions adopted by the Board providing for the number of
shares in each series.
The rights of holders of shares of capital stock to take any action as
provided in this Article IV may be exercised at any annual meeting of
stockholders or at a special meeting of stockholders held for such purpose as
provided in the By-laws or at any adjournment thereof, or by the written
consent, delivered to the Secretary of the Corporation, of the holders of the
minimum number of shares required to take such action.
<PAGE>
-3-
ARTICLE V
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Robert C. Scherer
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
The power of the incorporator as such shall terminate upon the filing
of this Certificate of Incorporation.
ARTICLE VI
CORPORATE EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VII
BOARD OF DIRECTORS
(a) Initial Directors. The names and mailing addresses of the
-----------------
persons who are to serve as directors until the first annual meeting of
stockholders or until their successors are elected and qualified are as follows:
Christian L. Oberbeck
Saratoga Partners III, L.P.
535 Madison Avenue
New York, NY 10022
David J. Barrett
Scovill Fasteners Inc.
1802 Scovill Drive
Clarkesville, GA 30523
William F. Andrews
c/o Scovill Fasteners Inc.
<PAGE>
-4-
1802 Scovill Drive
Clarkesville, GA 30523
(b) Appointment; Number; Removal. Subsequent to the initial
----------------------------
appointment of the directors herein, members of the board of directors (the
"Board") shall be designated by holders of a majority of the votes under all
outstanding shares of Common Stock. At any time and from time to time,
subsequent to the initial appointment of the directors herein, the number of
directors which shall constitute the whole Board may be increased to not more
than nine or decreased to not less than one. Any change in the number of
directorships must be authorized by a majority of the whole Board, as
constituted immediately prior to such change. Any director may be removed,
either with or without cause, by the holders of the majority of votes under all
outstanding shares of Common Stock.
(c) Power and Authorization of the Board. In furtherance and not in
------------------------------------
limitation of the powers conferred by statute, the Board is expressly
authorized:
(i) To make, alter, amend or repeal the By-laws, except as
otherwise expressly provided in any By-law made by the holders of the
capital stock of the Corporation entitled to vote thereon. Any By-laws
may be altered, amended or repealed by the holders of the capital stock of
the Corporation entitled to vote thereon at any annual meeting or at any
special meeting called for that purpose;
(ii) To determine the use and disposition of any surplus and net
profits of the Corporation, including the determination of the amount of
working capital required, to set apart out of any of the funds of the
Corporation, whether or not available for dividends, a reserve or reserves
for any proper purpose and to abolish any such reserve in the manner in
which it was created; and
(iii) To have the general management and control of all the
property of the Corporation and exercise all the powers of the Corporation,
except such as may be expressly by statute, by this Certificate of
Incorporation or by the By-laws conferred upon or reserved to the
stockholders. Without limiting the generality of the foregoing powers, the
Board, without consent or other action of the stockholders of the
Corporation, may authorize the Corporation to purchase, acquire, hold,
lease, mortgage, pledge, sell or convey such property, real and personal,
<PAGE>
-5-
as they may, from time to time, determine, and in payment for any property
or for money to issue or cause to be issued, in any manner permitted by
law, stock of the Corporation, or bonds, debentures, notes or other
obligations thereof, secured or unsecured.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS,
OFFICERS AND OTHERS
(a) Limitation of Liability. A director of the Corporation shall not
-----------------------
be personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stock
holders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, which provision, among other things, makes
directors personally liable for unlawful dividends or unlawful stock repurchases
or redemptions and expressly sets forth a negligence standard with respect to
such liability, or (iv) for any transaction from which the director derived an
improper personal benefit.
If the Delaware General Corporation Law is amended after approval by
the stockholders of this paragraph (a) of Article VIII to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited
to the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
(b) Indemnification. (1) Each person who was or is made a party or
---------------
is threatened to be made a party or is involved in any action, suit or
proceeding, whether civil, criminal, administrative, investigative or otherwise
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, 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, if the basis of any such
action, suit or proceeding is action in such capacity, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corpora-
<PAGE>
-6-
tion Law as the same exists, or may hereafter be amended (but in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to pro vide prior to such amendment), against all expense, liability
and loss (including penalties, fines, judgments, attorneys' fees, amounts paid
or to be paid in settlement and excise taxes or penalties) reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer or agent
and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that the Corporation shall indemnify any such
-------- -------
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person (other than pursuant to paragraph (b)(2) of this
Article VIII) only if such proceeding (or part thereof) was authorized by the
Board. The right to indemnification conferred in this paragraph (b)(1) of
Article VIII shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that if the Delaware
-------- -------
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer in advance
of the final disposition of a proceeding shall be made only upon delivery to the
Corporation of an undertaking by or on behalf of such director or officer to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this paragraph
(b)(1) of Article VIII or otherwise. Such expenses incurred by other agents may
be so paid upon such terms and conditions, if any, as the Board deems
appropriate.
(2) If a claim which the Corporation is obligated to pay under
paragraph (b)(1) of this Article VIII is not paid in full by the Corporation
within 60 days after a written claim has been received 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 the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards
of conduct which make it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed, but
<PAGE>
-7-
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board, independent 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
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board, independent 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.
(3) The provisions of this Section (b) of Article VIII shall cover
claims, actions, suits and proceedings, civil or criminal, whether now pending
or hereafter commenced and shall be retroactive to cover acts or omissions or
alleged acts or omissions which heretofore have taken place. If any part of
this Section (b) of Article VIII should be found to be invalid or ineffective in
any proceeding, the validity and effect of the remaining provisions shall not be
affected.
(4) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Section (b) of Article VIII 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, the By-laws of the Corporation, agreement, vote of
stockholders or disinterested directors or otherwise.
(c) The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
(d) Any repeal or modification of any provision of this Article VIII
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
<PAGE>
-8-
ARTICLE IX
RESERVATION OF RIGHT TO AMEND
CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal
any provisions contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by law, and all the provisions of this Certificate of
Incorporation and all rights and powers conferred in this Certificate of
Incorporation on stockholders, directors and officers are subject to this
reserved power.
THE UNDERSIGNED being the incorporator hereinbefore named, for the
purposes of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this Certificate hereby declaring and certifying
that the facts herein stated are true; and accordingly has hereunto set his hand
this 20th day of November, 1997.
/s/ Robert C. Scherer
--------------------------------
Robert C. Scherer
Sole Incorporator
<PAGE>
EXHIBIT 3.2
SCOVILL HOLDINGS INC.
* * * * * * * * *
BY-LAWS
* * * * * * * * *
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of Scovill
-----------------
Holdings Inc., a Delaware corporation (the "Corporation"), shall be in the City
of Wilmington, County of New Castle, State of Delaware.
SECTION 2. Other Offices. The Corporation may also have offices
-------------
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place and Date of Annual Meeting; Notice. The annual
----------------------------------------
meeting of the stockholders of the Corporation shall
<PAGE>
-2-
be held at such place, within or without the State of Delaware, at such time and
on such day as may be determined by the Board of Directors and as such shall be
designated in the notice of said meeting, for the purpose of electing directors
and for the transaction of such other business as may properly be brought before
the meeting. If for any reason the annual meeting shall not be held during the
period designated herein, the Board of Directors shall cause the annual meeting
to be held as soon thereafter as may be convenient. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
SECTION 2. Special Meetings; Notice. Special meetings of the
------------------------
stockholders for any purpose or purposes, unless otherwise prescribed by statute
or by the Certificate of Incorporation, may be held at any place, within or
without the State of Delaware, and may be called by resolution of the Board of
Directors, by the president or by the holders of not less than a majority of the
votes under all the shares entitled to vote at the meeting. Such request shall
state the purpose or purposes of the meeting. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not
<PAGE>
-3-
less than ten nor more than thirty days before the date of the meeting, to each
stockholder entitled to vote at such meeting. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
SECTION 3. Quorum. The holders of a majority of the votes under
------
all the shares of stock issued and outstanding and entitled to vote,
represented in person or by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation. If a quorum is present or
represented, the affirmative vote of a majority of the votes of all the shares
of stock present or represented at the meeting shall be the act of the
stockholders unless a greater number of votes is required by law or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders present in
person or represented by proxy shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting, at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally notified.
<PAGE>
-4-
SECTION 4. Action Without Meeting. Any action required to be
----------------------
taken at a meeting of the stockholders may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of
the taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
SECTION 5. Stockholders List. The officer who has charge of the
-----------------
stock ledger of the Corporation shall prepare and make, at least fifteen days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholders, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list
<PAGE>
-5-
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
SECTION 6. Voting. Unless otherwise provided in the Certificate
------
of Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
ARTICLE III
DIRECTORS
SECTION 1. Number, Election, Term. The Board of Directors shall
----------------------
consist of that number of directors as set forth in the Certificate of
Incorporation. The number of directors which shall constitute the whole Board
may be increased or decreased to the number of directors, and, in the manner
set forth in the Certificate of Incorporation. The directors shall be elected
annually, either at the annual meeting of the stockholders or by written
consent of the stockholders entitled to vote in lieu of the annual meeting as
provided in Article II, Section 4, except as provided in Section 2 of this
Article, and
<PAGE>
-6-
each director elected shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualified or until his
earlier death or resignation. Directors need not be stockholders.
SECTION 2. Vacancies. Any vacancies and newly created
---------
directorships may be filled by a majority of the directors then in office,
though less than a quorum, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify. A vacancy created by the removal of a director by the stockholders
may be filled by the stockholders.
SECTION 3. Powers. The business of the Corporation shall be
------
managed by or under the direction of its Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as
are not by statute or by the Certificate of Incorporation or by these by-laws
directed or required to be exercised or done by the stockholders or which are
not, by the Certificate of Incorporation, prohibited to be done by the Board of
Directors.
SECTION 4. First Meeting. The first meeting of each newly elected
-------------
Board of Directors shall be held at such time and place as shall be announced at
the annual meeting of stockholders and no other notice of such meeting to the
newly elected
<PAGE>
-7-
directors shall be necessary in order legally to constitute the meeting,
provided a quorum shall be present, or in the event such meeting is not held at
the time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
SECTION 5. Regular Meetings. Regular meetings of the Board of
----------------
Directors may be held upon such notice, or without notice, and at such time and
at such place as shall from time to time be determined by the Board.
SECTION 6. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the president or the secretary on not less than one
days' notice to each director, either personally, by telephone, by telecopy, by
mail, by telegram, or by any other similar method of communication. Special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of two directors.
SECTION 7. Waiver. Attendance of a director at any meeting shall
------
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting
<PAGE>
-8-
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting.
SECTION 8. Quorum. At all meetings of the Board of Directors a
------
majority of the total number of directors then constituting the whole Board
shall constitute a quorum for the transaction of business, and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation or by
these by-laws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 9. Action Without Meeting. Unless otherwise restricted by
----------------------
the Certificate of Incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if prior to such action a
written consent thereto is signed by a majority of members of the Board or of
such committee, as the case may be, and such writ-
<PAGE>
-9-
ten consent is filed with the minutes of proceedings of the Board or committee.
SECTION 10. Telephonic Communications. Any action required or
-------------------------
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken in a meeting of the Board or any committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at the meeting.
SECTION 11. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation, which,
to the extent provided in the resolution, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation and may authorize the seal of the Corporation to be affixed
to all papers which may require it. Each committee shall have such names,
powers and duties as may be determined from time to time by resolution adopted
by the Board of Directors.
SECTION 12. Removal of Directors. Unless otherwise restricted by
--------------------
the Certificate of Incorporation or these by-
<PAGE>
-10-
laws, any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the votes of all the shares
entitled to vote at an election of directors.
ARTICLE IV
OFFICERS
SECTION 1. Election and Office. The officers of the Corporation
-------------------
shall be chosen by the Board of Directors and shall be a president, a vice
president, a treasurer and a secretary. The Board of Directors may also elect
such additional officers as may, from time to time, be deemed desirable. Any
number of offices may be held by the same person.
SECTION 2. Term, Powers and Duties. The term of office, powers
-----------------------
and duties of each officer shall be as specified by the Board of Directors.
SECTION 3. Salaries. The salaries of all officers and agents of
--------
the Corporation shall be fixed by the Board of Directors.
SECTION 4. Removal and Vacancies. The officers of the Corporation
---------------------
shall hold office until their successors are chosen and qualify. Any officer
elected or appointed by the
<PAGE>
-11-
Board of Directors may be removed at any time, with or without cause, by the
affirmative vote of a majority of the Board of Directors. Any vacancy occurring
in any office of the Corporation shall be filled by the Board of Directors.
ARTICLE V
CAPITAL STOCK
SECTION 1. Certificates for Shares. Every owner of stock of the
-----------------------
Corporation shall be entitled to have a certificate or certificates in such
form as the Board of Directors shall prescribe certifying the number of shares
of stock owned by him, except as provided below. The certificates shall be
signed by hand or by facsimile in the name of the Corporation by such officer or
officers as the Board shall appoint. The Board of Directors may provide by
resolution that the stock of the Corporation shall be uncertificated shares.
Notwithstanding the adoption of such a resolution by the Board, every holder of
uncertificated shares shall, upon request, be entitled to receive a certificate,
signed by such officers designated by the Corporation and complying with the
statute, representing the number of shares in registered certificate form. A
record shall be kept of the names of the persons owning any such stock, whether
certificated or uncertificated, and the number of shares owned by each such
person.
<PAGE>
-12-
SECTION 2. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may prescribe such terms and conditions as it deems expedient, and may
require such indemnities as it deems adequate to protect the Corporation from
any claim that may be raised against it with respect to any such certificate
alleged to have been lost, stolen or destroyed.
SECTION 3. Transfer of Shares. Upon surrender to the secretary of
------------------
the Corporation, or, if a transfer agent for the Corporation has been named by
the Board of Directors, to the transfer agent, of a certificate representing
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, a new certificate shall be issued to the
person entitled thereto, and the old certificate cancelled and the transaction
recorded upon the books of the Corporation.
SECTION 4. Fixing Record Date. In order that the Corporation may
------------------
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders or any ad-
<PAGE>
-13-
journment thereof, or to express consent to corporate action in writing without
a meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of any stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty and not less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
-------- -------
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 5. Registered Stockholders. The Corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
<PAGE>
-14-
SECTION 6. Signing Authority. Except as provided below, all
-----------------
contracts, agreements, assignments, transfers, deeds, stock powers or other
instruments of the Corporation may be executed and delivered by the president or
any vice-president or by such other officer or officers, or agent or agents, of
the Corporation as shall be thereunto authorized from time to time either by the
Board of Directors or by power of attorney executed by any person pursuant to
authority granted by the Board of Directors, and the secretary or the treasurer
may affix the seal of the Corporation thereto and attest same. Certificates
issued upon request to holders of uncertificated stock shall be signed by (i)
the president or a vice-president and (ii) the secretary or the treasurer.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Dividends. Dividends upon the capital stock of the
---------
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock of the Corporation, subject to the provisions of
the Certificate of Incorporation.
<PAGE>
-15-
SECTION 2. Reserves. Before payment of any dividend, there may
--------
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the directors from time to time, in their absolute discretion,
deem proper as a reserve for such purposes as the directors shall deem to be in
furtherance of the interests of the Corporation. The directors may from time
to time, in their absolute discretion, modify or terminate any such reserve
previously established by the Corporation.
SECTION 3. Notices. Whenever, under the provisions of statute,
-------
the Certificate of Incorporation or of these by-laws, notice is required to be
given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Whenever any notice is required to be given under the provisions of
statute, the Certificate of Incorporation or of these by-laws, a waiver thereof
in writing signed by the person or persons entitled to such notice, whether
before or after the
<PAGE>
-16-
time stated therein, shall be deemed equivalent to the giving of such notice.
SECTION 4. Fiscal Year. The fiscal year of the Corporation shall
-----------
be fixed by resolution of the Board of Directors.
SECTION 5. Checks. All checks or demands for money and notes of
------
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board or Directors may from time to time designate.
SECTION 6. Seal. The corporate seal shall have inscribed thereon
----
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any manner reproduced.
SECTION 7. Indemnification. The Corporation shall indemnify its
---------------
officers, directors, employees and agents to the fullest extent permitted by the
General Corporation Law of Delaware.
SECTION 8. Amendments. These by-laws may be altered, amended or
----------
repealed or new by-laws may be adopted, subject to the provisions of the
Certificate of Incorporation, (a) at any regular or special meeting of
stockholders at which
<PAGE>
-17-
a quorum is present or represented, by the affirmative vote of a majority of the
votes under all the shares entitled to vote, provided notice of the proposed
alteration, amendment or repeal be contained in the notice of such meeting; or
(b) by the affirmative vote of a majority of the Board of Directors at any
regular or special meeting of the Board. The stockholders shall have authority
to change or repeal any by-laws adopted by the directors.
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
================================================================================
SCOVILL ACQUISITION INC.,
as Issuer
SCOVILL HOLDINGS INC.,
as Parent Guarantor
TO
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
____________________
INDENTURE
Dated as of November 26, 1997
_____________________
$100,000,000
11 1/4% Senior Notes
due 2007
================================================================================
<PAGE>
SCOVILL ACQUISITION INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF NOVEMBER 26, 1997
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
(S) 310(a)(1) .................................. 607(a)
(a)(2) .................................. 607(a)
(b) .................................. 608
(S) 313(c) .................................. 702
(S) 314(a) .................................. 703
(a)(4) .................................. 1008(a)
(c)(1) .................................. 102
(c)(2) .................................. 102
(e) .................................. 102
(S) 315(b) .................................. 601
(S) 316(a)(last
sentence) .................................. 101 ("Outstanding")
(a)(1)(A) .................................. 502, 512
(a)(1)(B) .................................. 513
(b) .................................. 508
(c) .................................. 104(d)
(S) 317(a)(1) .................................. 503
(a)(2) .................................. 504
(b) .................................. 1003
(S) 318(a) .................................. 111
(c) .................................. 111
</TABLE>
__________________
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PARTIES.................................................................. 1
RECITALS OF THE COMPANY.................................................. 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101.Definitions ....................................... 2
"Acquired Indebtedness"............................................. 2
"Act"............................................................... 3
"Affiliate"......................................................... 3
"amend"............................................................. 3
"Asset Sale"........................................................ 3
"Attributable Indebtedness"......................................... 4
"Banks"............................................................. 4
"Basket"............................................................ 4
"Board of Directors"................................................ 4
"Board Resolution".................................................. 4
"Business Day"...................................................... 4
"Capital Stock"..................................................... 4
"Capitalized Lease Obligations"..................................... 5
"Cash Equivalents".................................................. 5
"Change of Control"................................................. 5
"Commission"........................................................ 6
"Common Stock"...................................................... 6
"Company"........................................................... 6
"Company Request" or "Company Order"................................ 6
"Consolidated Amortization Expense"................................. 6
"Consolidated Depreciation Expense"................................. 6
"Consolidated Fixed Charge Coverage Ratio".......................... 7
"Consolidated Income Tax Expense"................................... 8
"Consolidated Interest Expense"..................................... 8
"Consolidated Net Income"........................................... 8
"Consolidated Net Worth"............................................ 9
"Corporation"....................................................... 9
"Credit Agreement".................................................. 9
"Currency Agreements"............................................... 10
"Default"........................................................... 10
"Defaulted Interest"................................................ 10
</TABLE>
____________________
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
ii
<TABLE>
PAGE
<S> <C>
"Depositary"........................................................ 10
"Disinterested Director"............................................ 10
"Disqualified Stock"................................................ 10
"EBITDA"............................................................ 11
"Event of Default".................................................. 11
"Exchange Act"...................................................... 11
"Exchange Notes".................................................... 11
"Exchange Offer".................................................... 11
"Exchange Offer Registration Statement"............................. 11
"Fair Market Value"................................................. 11
"Federal Bankruptcy Code"........................................... 12
"Fixed Charges"..................................................... 12
"Foreign Subsidiary"................................................ 12
"GAAP".............................................................. 12
"Global Notes"...................................................... 12
"guarantee"......................................................... 12
"Guarantee"......................................................... 12
"Guarantor"......................................................... 13
"Hedging Obligations"............................................... 13
"Holder"............................................................ 13
"incur"............................................................. 13
"Indebtedness"...................................................... 13
"Indenture"......................................................... 14
"Independent Financial Advisor"..................................... 14
"Initial Notes"..................................................... 14
"Initial Purchasers"................................................ 14
"Institutional Accredited Investor"................................. 14
"Interest Payment Date"............................................. 14
"Interest Rate Agreements".......................................... 14
"Investments"....................................................... 14
"Issue Date"........................................................ 15
"Lien".............................................................. 15
"Management Services Agreement"..................................... 15
"Maturity".......................................................... 15
"Moody's"........................................................... 15
"Net Available Proceeds"............................................ 15
"Non-Recourse Purchase Money Indebtedness".......................... 16
"Non-U.S. Person"................................................... 16
"Notes"............................................................. 16
"Note Register" and "Note Registrar"................................ 16
"Obligations"....................................................... 16
"Officers' Certificate"............................................. 17
"Offshore Global Notes"............................................. 17
"Offshore Physical Notes"........................................... 17
"Offshore Notes Exchange Date"...................................... 17
"Opinion of Counsel"................................................ 17
"Outstanding"....................................................... 17
</TABLE>
<PAGE>
iii
<TABLE>
PAGE
<S> <C>
"Parent" or "Parent Guarantor"...................................... 18
"Paying Agent"...................................................... 18
"Payment Event of Default".......................................... 18
"Payment Restriction"............................................... 18
"Permanent Offshore Global Notes"................................... 18
"Permitted Holders"................................................. 19
"Permitted Indebtedness"............................................ 19
"Permitted Investments"............................................. 21
"Permitted Liens" means:............................................ 22
"Permitted Transferees"............................................. 24
"Person"............................................................ 24
"Physical Notes".................................................... 24
"Plan of Liquidation"............................................... 24
"Predecessor Note".................................................. 24
"Private Placement Legend".......................................... 24
"Public Equity Offering"............................................ 25
"Purchase Money Indebtedness"....................................... 25
"QIB"............................................................... 25
"Qualified Stock"................................................... 25
"redeem"............................................................ 25
"Redemption Date"................................................... 25
"Redemption Price".................................................. 25
"refinance"......................................................... 25
"Refinancing Indebtedness".......................................... 25
"Registration Rights Agreement"..................................... 26
"Registration Statement"............................................ 26
"Regular Record Date"............................................... 26
"Related Assets".................................................... 26
"Responsible Officer"............................................... 26
"Restricted Investment"............................................. 27
"Restricted Payment"................................................ 27
"Restricted Subsidiary"............................................. 27
"S&P"............................................................... 27
"Sale and Leaseback Transaction".................................... 27
"Saratoga".......................................................... 27
"Securities Act".................................................... 27
"Shelf Registration Statement"...................................... 28
"Significant Subsidiary"............................................ 28
"Special Record Date"............................................... 28
"Stated Maturity"................................................... 28
"Subordinated Indebtedness"......................................... 28
"Subsidiary"........................................................ 28
"Subsidiary Guarantor".............................................. 28
"Successor"......................................................... 28
"Temporary Offshore Global Notes"................................... 28
"Trust Indenture Act" or "TIA"...................................... 28
"Trustee"........................................................... 28
</TABLE>
<PAGE>
iv
<TABLE>
<CAPTION>
PAGE
<S>................................................................... <C>
"Unrestricted Subsidiary"............................................. 29
"U.S. Global Notes"................................................... 29
"U.S. Physical Notes"................................................. 30
"Vice President"...................................................... 30
"Voting Stock"........................................................ 30
"Weighted Average Life to Maturity"................................... 30
"Wholly Owned Restricted Subsidiary".................................. 30
SECTION 102. Compliance Certificates and Opinions................ 30
SECTION 103. Form of Documents Delivered to Trustee.............. 31
SECTION 104. Acts of Holders..................................... 32
SECTION 105. Notices, etc., to Trustee, Company and Agent........ 33
SECTION 106. Notice to Holders; Waiver........................... 34
SECTION 107. Effect of Headings and Table of Contents............ 34
SECTION 108. Successors and Assigns.............................. 34
SECTION 109. Separability Clause................................. 34
SECTION 110. Benefits of Indenture............................... 35
SECTION 111. Governing Law....................................... 35
SECTION 112. Legal Holidays...................................... 35
SECTION 113. No Personal Liability of Directors, Officers,
Employees, Stockholders or Incorporators........... 35
SECTION 114. Counterparts........................................ 35
SECTION 115. Rules of Interpretation............................. 36
SECTION 116. Ancillary Agreements................................ 36
SECTION 117. Conflict with Trust Indenture Act................... 36
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally..................................... 36
SECTION 202. Restrictive Legends................................. 38
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms..................................... 39
SECTION 302. Denominations....................................... 40
SECTION 303. Execution, Authentication, Delivery and Dating...... 40
SECTION 304. Temporary Notes..................................... 42
SECTION 305. Registration, Registration of Transfer and Exchange. 42
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes......... 43
SECTION 307. Payment of Interest; Interest Rights Preserved...... 44
SECTION 308. Persons Deemed Owners............................... 46
SECTION 309. Cancellation........................................ 46
</TABLE>
<PAGE>
v
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 310. Computation of Interest............................ 46
SECTION 311. Book-Entry Provisions for Global Notes............. 46
SECTION 312. Transfer Provisions................................ 48
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture............ 51
SECTION 402. Application of Trust Money......................... 53
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.................................. 53
SECTION 502. Acceleration of Maturity; Rescission
and Annulment....................................... 55
SECTION 503. Collection of Indebtedness and Suits
for Enforcement by Trustee.......................... 57
SECTION 504. Trustee May File Proofs of Claim................... 57
SECTION 505. Trustee May Enforce Claims Without
Possession of Notes................................. 58
SECTION 506. Application of Money Collected..................... 59
SECTION 507. Limitation on Suits................................ 59
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Liquidated Damages, if any,
and Interest........................................ 60
SECTION 509. Restoration of Rights and Remedies................. 60
SECTION 510. Rights and Remedies Cumulative..................... 60
SECTION 511. Delay or Omission Not Waiver....................... 61
SECTION 512. Control by Holders................................. 61
SECTION 513. Waiver of Past Defaults............................ 61
SECTION 514. Waiver of Stay or Extension Laws................... 62
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults................................. 62
SECTION 602. Certain Rights of Trustee.......................... 62
SECTION 603. Trustee Not Responsible for Recitals or
Issuance of Notes................................... 64
SECTION 604. May Hold Notes..................................... 64
SECTION 605. Money Held in Trust................................ 64
SECTION 606. Compensation, Reimbursement........................ 64
SECTION 607. Corporate Trustee Required; Eligibility............ 66
SECTION 608. Resignation and Removal; Appointment of
</TABLE>
<PAGE>
vi
<TABLE>
<CAPTION>
PAGE
<S> <C>
Successor........................................ 66
SECTION 609. Acceptance of Appointment by Successor............ 67
SECTION 610. Merger, Conversion, Consolidation or Succession
to Business...................................... 68
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders...... 68
SECTION 702. Reports by Trustee................................ 68
SECTION 703. Reports by Company................................ 69
ARTICLE EIGHT
MERGER, CONSOLIDATION AND SALE OF ASSETS
SECTION 801. Company May Consolidate, etc., Only on Certain
Terms............................................ 69
SECTION 802. Successor Substituted............................. 71
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of
Holders.......................................... 71
SECTION 902. Supplemental Indentures with Consent of Holders... 72
SECTION 903. Execution of Supplemental Indentures.............. 73
SECTION 904. Effect of Supplemental Indentures................. 74
SECTION 905. Conformity with Trust Indenture Act............... 74
SECTION 906. Reference in Notes to Supplemental Indentures..... 74
SECTION 907. Notice of Supplemental Indentures................. 74
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Liquidated
Damages, if any, and Interest................... 74
SECTION 1002. Maintenance of Office or Agency.................. 75
SECTION 1003. Money for Note Payments to Be Held in Trust...... 75
SECTION 1004. Corporate Existence.............................. 77
SECTION 1005. Payment of Taxes and Other Claims................ 77
SECTION 1006. Maintenance of Properties........................ 77
SECTION 1007. Insurance........................................ 78
SECTION 1008. Statement by Officers As to Default.............. 78
</TABLE>
<PAGE>
vii
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1009. Limitations on Additional Indebtedness........... 78
SECTION 1010. [INTENTIONALLY OMITTED........................... 79
SECTION 1011. Limitations on Restricted Payments............... 79
SECTION 1012. Limitations on Restrictions on Distributions
from Restricted Subsidiaries.................... 80
SECTION 1013. Limitations on Transactions with Affiliates...... 81
SECTION 1014. Limitations on Liens............................. 82
SECTION 1015. Limitations on Asset Sales....................... 83
SECTION 1016. Restrictions on Sale and Leaseback Transactions.. 85
SECTION 1017. Restrictions on Sale of Capital Stock of
Restricted Subsidiaries......................... 85
SECTION 1018. Reports.......................................... 85
SECTION 1019. Purchase of Notes Upon Change of Control......... 85
SECTION 1020. Waiver of Certain Covenants...................... 87
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.............................. 88
SECTION 1102. Applicability of Article......................... 89
SECTION 1103. Election to Redeem; Notice to Trustee............ 89
SECTION 1104. Selection by Trustee of Notes to Be Redeemed..... 89
SECTION 1105. Notice of Redemption............................. 89
SECTION 1106. Deposit of Redemption Price...................... 90
SECTION 1107. Notes Payable on Redemption Date................. 90
SECTION 1108. Notes Redeemed in Part........................... 91
ARTICLE TWELVE
GUARANTEES
SECTION 1201. Unconditional Guarantee.......................... 91
SECTION 1202. Execution and Delivery of Guarantees............. 93
SECTION 1203. Limitation on Merger or Consolidation............ 94
SECTION 1204. Release of Parent Guarantor and Subsidiary
Guarantors...................................... 94
SECTION 1205. Additional Subsidiary Guarantors................. 95
SECTION 1206. Limitation on Parent Guarantor and Subsidiary
Guarantor's Liability........................... 96
SECTION 1207. Contribution..................................... 96
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or
</TABLE>
<PAGE>
viii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Covenant Defeasance............................. 97
SECTION 1302. Defeasance and Discharge......................... 97
SECTION 1303. Covenant Defeasance.............................. 97
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.. 98
SECTION 1305. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous
Provisions...................................... 99
SECTION 1306. Repayment to the Company or Subsidiary
Guarantors...................................... 100
SECTION 1307. Reinstatement.................................... 101
</TABLE>
<PAGE>
ix
PAGE
EXHIBITS
Exhibit A-1 Form of Note
Exhibit A-2 Form of Guarantee
Exhibit B Form of Certificate to Be Delivered upon Termination of Restricted
Period
Exhibit C-1 Form of Certificate to Be Delivered by Transferor in Connection
with Transfers to Institutional Accredited Investors
Exhibit C-2 Form of Certificate to Be Delivered By Transferees in Connection
with Transfers to Institutional Accredited Investors
Exhibit D Form of Regulation S Certificate
<PAGE>
INDENTURE, dated as of November 26, 1997 between SCOVILL ACQUISITION
INC., a corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal office at 1802
Scovill Drive, Clarkesville, Georgia 30523, SCOVILL HOLDINGS INC., a corporation
duly organized and existing under the laws of the State of Delaware (herein
called "Parent" or "Parent Guarantor" and, together with the Subsidiary
Guarantors, the "Guarantors"), having its principal offices at 1802 Scovill
Drive, Clarkesville, Georgia 30523, and the UNITED STATES TRUST COMPANY OF NEW
YORK, a bank and trust company duly organized and existing under the New York
banking law, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 11 1/4%
Senior Notes due 2007 (the "Initial Notes") and its 11 1/4% Series B Senior
Notes due 2007 (the "Exchange Notes", and together with the Initial Notes, the
"Notes"), of substantially the tenor and amount hereinafter set forth, and to
provide therefor the Company has duly authorized the execution and delivery of
this Indenture.
Upon the issuance of the Exchange Notes, if any, or the effectiveness
of the Exchange Offer Registration Statement (as defined herein) or, under
certain circumstances, the effectiveness of the Shelf Registration Statement (as
defined herein), this Indenture will be subject to the provisions of the Trust
Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
All things necessary have been done to make the Notes, when executed
by the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms.
RECITALS OF THE GUARANTOR
Parent Guarantor has duly authorized the execution and delivery of
this Indenture and of its Guarantee under the terms set forth herein.
RECITALS OF THE TRUSTEE
The Trustee has agreed to act as trustee under this Indenture on the
terms and conditions set forth herein.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of such computation; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Acquired Indebtedness" means, with respect to any specified
Person, (a) Indebtedness of any other Person existing at the time such
other Person merged with or into or became a Restricted Subsidiary of such
specified Person, including Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person or (b) assumed in connection
with acquisitions of properties or assets from such Person. Acquired
Indebtedness shall be deemed to be incurred on the date the acquired Person
becomes a Restricted Subsidiary or the date of the related acquisition of
properties or assets from such Person.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any executive officer
or director of any such specified Person or other Person. For the purposes of
this definition, "control," when used with respect to any specified Person,
includes the power to vote 10% or more of any class of voting securities of
<PAGE>
3
such Person or to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"amend" means amend, modify, supplement, restate or amend and restate,
in whole or in part, including successively; and "amending" and "amended" have
correlative meanings.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition to any Person other than the Company or any of
its Subsidiaries (including, without limitation, by means of a Sale and
Leaseback Transaction or a merger or consolidation) (collectively, for purposes
of this definition, a "transfer"), directly or indirectly, in one transaction or
a series of related transactions, of (a) any Capital Stock of any Restricted
Subsidiary or (b) any other properties or assets of the Company or any of its
Restricted Subsidiaries other than transfers of cash, Cash Equivalents, accounts
receivable, inventory or other properties or assets in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include any of the following: (i) any transaction that is governed by, and made
in accordance with, the provisions described in Article Eight hereof or that
constitutes a "Change of Control"; (ii) any Restricted Payment or Restricted
Investment permitted under Section 1011 hereof; (iii) sales of damaged, worn-out
or obsolete equipment or assets that, in the Company's reasonable judgment, are
either no longer used or useful in the business of the Company or its
Subsidiaries; (iv) any disposition of defaulted receivables for collection; (v)
the granting of any Lien, or any foreclosure thereon, granted in compliance with
the provisions described under Section 1014 hereof; (vi) the conversion of any
operating lease to which attaching machinery of the Company or any of its
Restricted Subsidiaries is subject to, or the sale of any such attaching
machinery pursuant to, a Capitalized Lease Obligation; and (vii) any transfers
that, but for this clause (vii), would be Asset Sales, if after giving effect to
such transfers, the aggregate Fair Market Value of the properties or assets
transferred in such transaction or any such series of related transactions does
not exceed $100,000.
"Attributable Indebtedness" means, with respect to any particular
lease under which any Person is at the time liable, whether or not accounted for
as a Capitalized Lease Obligation, and at any date as of which the amount
thereof is to be determined, the present value of the total net amount of rent
required to be paid by such Person under the lease during the primary term
thereof, without giving effect to any renewals at the option of the lessee,
discounted from the respective due dates thereof to such date of determination
at a rate per annum equal to the discount rate which would be applicable to a
Capitalized Lease Obligation with a like term in accordance with GAAP. As used
in the preceding sentence, the "net amount of rent" under any such lease for any
such period shall mean the sum of rental and other payments required to be made
with respect to such period by the lease thereunder, excluding any amounts
required to be paid by such lessee on account of maintenance and repairs,
insurance, taxes, assessments or similar charges. In the case of any lease that
is terminable by the lessee upon payment of a penalty, such net amount of rent
shall also include the amount of such penalty, but no rent shall be considered
as required to be paid under such lease subsequent to the first date upon which
it may be so terminated.
"Banks" means the lenders from time to time who are parties to the
Credit Agreement.
<PAGE>
4
"Basket" has the meaning set forth in Section 1011.
"Board of Directors" of any Person means the Board of Directors of
such Person (or comparable governing body) or any authorized committee thereof.
"Board Resolution" means a duly adopted resolution of the Board of
Directors of the Company.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
"Capital Stock" of any Person means any and all shares, rights to
purchase, warrants or options (whether or not currently exercisable),
participations or other equivalents of or interests in (however designated) the
equity (including without limitation common stock, preferred stock and
partnership interests) of such Person.
"Capitalized Lease Obligations" means, with respect to any Person, any
obligation of that Person to pay lease payments, rent or other amounts under a
lease of (or other similar agreement conveying the right to use) any property
(whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP and, for purposes of this
Indenture, the amount of that obligation at any date shall be the capitalized
amount thereof at that date, as determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable obligations with a maturity of
180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500 million; (iii) commercial
paper maturing no more than 180 days from the date of creation thereof issued by
a corporation that is not an Affiliate of the Company and is organized under the
laws of any state of the United States or the District of Columbia and rated at
least A-1 by S&P or at least P-1 by Moody's; (iv) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any commercial bank meeting the
specifications of clause (ii) above; and (v) investments in money market or
other mutual funds substantially all of whose assets comprise securities of the
types described in clauses (i) through (iv) above.
"Change of Control" means the occurrence of any of the following: (i)
the consummation of any transaction the result of which is (x) if such
transaction occurs prior to the first sale of Voting Stock of the Company
pursuant to a registration statement under the Securities Act that results in at
least 20% of the then outstanding Voting Stock of the Company having been sold
to the public, that Permitted Holders beneficially own Voting Stock representing
less than, directly or indirectly, 51% of the voting power of the Voting Stock
of the Company, and (y) if such transaction occurs thereafter, that any Person
or group (as such term is used in Section 13(d)(3) of the Exchange Act) (other
than Permitted Holders) is or
<PAGE>
5
becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of Voting Stock representing more than 35% of the voting
power of the Voting Stock of the Company unless Permitted Holders beneficially
own Voting Stock representing a greater percentage of the voting power of the
Voting Stock of the Company, (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 the assets of the Company and
its Restricted Subsidiaries taken as a whole 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,
as the case may be, is converted into or exchanged for cash, securities or other
property, other than any such transaction where the outstanding Voting Stock of
the Company, as the case may be, is converted into or exchanged for Voting Stock
(other than Disqualified Stock) of the surviving or transferee corporation and
the beneficial owners of the Voting Stock of the Company immediately prior to
such transaction own, directly or indirectly, Voting Stock representing not less
than a majority of the voting power of the Voting Stock of the surviving or
transferee corporation immediately after such transaction, (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 either (i) a vote of
two-thirds of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved or (ii) a Permitted Holder) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office,
or (iv) the approval by the holders of Capital Stock of the Company of any plan
or proposal for liquidation or dissolution of the Company.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the date of this Indenture, and includes, without limitation, all
series and classes of such common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Amortization Expense" of any Person for any period means
the amortization expense of such Person and its Restricted Subsidiaries for such
period (to the extent included in the computation of Consolidated Net Income of
such Person), determined on a consolidated basis in accordance with GAAP.
<PAGE>
6
"Consolidated Depreciation Expense" of any Person for any period means
the depreciation expense of such Person and its Restricted Subsidiaries for such
period (to the extent included in the computation of Consolidated Net Income of
such Person), determined on a consolidated basis in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, with
respect to any determination date, the ratio of (x) EBITDA for such Person's
four full fiscal quarters immediately preceding the determination date for which
financial statements are available to (y) the aggregate Fixed Charges of such
Person for such four fiscal quarters. In making such computations, (i) EBITDA
and Fixed Charges shall be calculated on a pro forma basis assuming that (A) the
Indebtedness to be incurred or the Disqualified Stock to be issued (and all
other Indebtedness incurred or Disqualified Stock issued after the first day of
such period of four full fiscal quarters referred to in Section 1009 hereof
through and including the date of determination), and (if applicable) the
application of the net proceeds therefrom (and from any other such Indebtedness
or Disqualified Stock), including the refinancing of other Indebtedness, had
been incurred on the first day of such four quarter period and, in the case of
Acquired Indebtedness, on the assumption that the related transaction (whether
by means of purchase, merger or otherwise) also had occurred on such date with
the appropriate adjustments with respect to such acquisition being included in
such pro forma calculation and (B) any acquisition or disposition by the Company
or any Restricted Subsidiary of any properties or assets outside the ordinary
course of business or any repayment of any principal amount of any Indebtedness
of the Company or any Restricted Subsidiary, in either case since the first day
of such period of four full fiscal quarters through and including the date of
determination, had been consummated on such first day of such four quarter
period; (ii) the Fixed Charges attributable to interest on any Indebtedness
required to be computed on a pro forma basis in accordance with Section 1009
hereof and (A) bearing a floating interest rate shall be computed as if the rate
in effect on the date of computation had been the applicable rate for the entire
period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of the Company, a fixed
or floating rate of interest, shall be computed by applying, at the option of
the Company, either the fixed or floating rate; (iii) the Fixed Charges
attributable to interest on any Indebtedness under a revolving credit facility
required to be computed on a pro forma basis in accordance with Section 1009
hereof shall be computed based upon the average daily balance of such
Indebtedness during the applicable period, provided that such average daily
balance shall be reduced by the amount of any repayment of Indebtedness under a
revolving credit facility during the applicable period, which repayment
permanently reduced the commitments or amounts available to be reborrowed under
such facility; (iv) notwithstanding the foregoing clauses (ii) and (iii),
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Hedging Obligations, shall be
deemed to have accrued at the rate per annum resulting after giving effect to
the operation of such agreements; and (v) if after the first day of the
applicable four-quarter period the Company has permanently retired any
Indebtedness out of the net proceeds of the issuance and sale of shares of
Capital Stock (other than Disqualified Stock) of the Company within 30 days of
such issuance and sale, Fixed Charges shall be calculated on a pro forma basis
as if such Indebtedness had been retired on the first day of such period.
"Consolidated Income Tax Expense" means, for any period, the provision
for
<PAGE>
7
federal, state, local and foreign income taxes (including state franchise taxes
accounted for as income taxes in accordance with GAAP) of the Company and the
Restricted Subsidiaries for the period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense" means, without duplication, with
respect to any Person for any period, the sum of the interest expense on all
Indebtedness of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP and including,
without limitation (i) imputed interest on Capitalized Lease Obligations, (ii)
commissions, discounts and other fees and charges owed with respect to letters
of credit securing financial obligations and bankers' acceptance financing,
(iii) the net costs associated with Hedging Obligations, (iv) amortization of
financing fees and expenses other than with respect to financing fees and
expenses paid on or prior to the Issue Date, (v) the interest portion of any
deferred payment obligations, (vi) amortization of debt discount or premium, if
any, (vii) all other non-cash interest expense, (viii) capitalized interest,
(ix) all interest payable with respect to discontinued operations, and (x) all
interest on any Indebtedness of any other Person guaranteed by such Person or
any of its Restricted Subsidiaries.
"Consolidated Net Income" of any Person for any period means the net
income (or loss) of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP; provided that there
shall be excluded from such net income (to the extent otherwise included
therein), without duplication: (i) the net income (or loss) of any Person
(other than a Restricted Subsidiary of the referent Person) in which any Person
other than the referent Person has an ownership interest, except to the extent
that any such income has actually been received by the referent Person or any of
its Restricted Subsidiaries in the form of cash dividends during such period
(subject in the case of a dividend or distribution paid to a Restricted
Subsidiary, to the limitation in clause (iii) below); (ii) except to the extent
includible in the consolidated net income of the referent Person pursuant to the
foregoing clause (i), the net income (or loss) of any Person that accrued prior
to the date that (a) such Person becomes a Restricted Subsidiary (other than a
Guarantor) of the referent Person or is merged into or consolidated with the
referent Person or any of its Restricted Subsidiaries or (b) the assets of such
Person are acquired by the referent Person or any of its Restricted
Subsidiaries; (iii) the net income of any Restricted Subsidiary (other than a
Guarantor) of the referent Person during such period to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of that income is not permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary during such
period; (iv) any gain (or loss), together with any related provisions for taxes
on any such gain (or loss), realized during such period by the referent Person
or any of its Restricted Subsidiaries upon (a) the acquisition of any
securities, or the extinguishment of any Indebtedness, of the referent Person or
any of its Restricted Subsidiaries or (b) any Asset Sale by the referent Person
or any of its Restricted Subsidiaries; (v) any extraordinary gain (or loss),
together with any related provision for taxes on any such extraordinary gain (or
loss), realized by the referent Person or any of its Restricted Subsidiaries;
(vi) in the case of a successor to such Person by consolidation, merger or
transfer of its assets, any earnings of the successor prior to such merger,
consolidation or transfer of assets; and (vii) non-cash gains and losses due
solely to fluctuations in currency values; and provided further that, subject to
clause (iii) above, any gain referred to in clauses (iv) and (v) above that
relates to a Restricted Investment and that is received in cash by the referent
Person or one of its Restricted
<PAGE>
8
Subsidiaries during such period shall be included in the consolidated net income
of the referent Person.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock),
less all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
within 12 months after the acquisition of such business) subsequent to the Issue
Date in the book value of any asset owned by such Person or a Restricted
Subsidiary of such Person.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 114 West 47th Street, New York, New York 10036, Attn: Corporate
Trust Administration, except that with respect to presentation of Notes for
payment or for registration of transfer or exchange, such term shall mean the
office or agency of the Trustee at 770 Broadway, 13th Floor, New York, New York
10003, Attn: Corporate Trust Services.
"Corporation" includes corporations, associations, companies and
business trusts.
"Credit Agreement" means that certain Credit Agreement dated as of
November 26, 1997 by and among the Company, the guarantors party thereto, Swiss
Bank Corporation and the other lenders party thereto, and all guarantees, notes,
security agreements, pledge agreements and other instruments in connection
therewith, as amended or refinanced from time to time, and/or one or more
letters of credit issued by one or more lenders for the benefit of the Company
and/or one or more of Parent and its Subsidiaries and in each case as amended or
refinanced from time to time.
"Currency Agreements" means any spot or forward foreign exchange
agreements and currency swap, currency option or other similar financial
agreements or arrangements entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and designed to protect against
or manage exposure to fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition that after notice or the
passage of time or both would be an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means The Depository Trust Company, its nominees and
successors or any replacement thereof.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which a Board Resolution is required under
the Indenture, a member of the Board of Directors of the Company who does not
have any material direct or indirect financial interest (other than an interest
arising solely from the beneficial ownership of Capital
<PAGE>
9
Stock of the Company) in or with respect to such transaction or series of
transactions.
"Disqualified Stock" means any Capital Stock of such Person that, by
its terms, by the terms of any agreement related thereto or by the terms of any
security into which it is convertible, puttable or exchangeable, is, or upon the
happening of any event or the passage of time would be, required to be redeemed
or repurchased by such Person or any of its Restricted Subsidiaries, whether or
not at the option of the holder thereof, or matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, in whole or in
part, on or prior to the stated final maturity of the Notes; provided, however,
that (i) any class of Capital Stock of such Person that, by its terms,
authorizes such Person to satisfy in full its obligations with respect to the
payment of dividends or upon maturity, redemption (pursuant to a sinking fund or
otherwise) or repurchase thereof or otherwise by the delivery of Qualified
Stock, and that is not convertible, puttable or exchangeable for Disqualified
Stock or Indebtedness, shall not be deemed to be Disqualified Stock so long as
such Person satisfies its obligations with respect thereto solely by the
delivery of Qualified Stock and (ii) any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof (or of any security into
which it is convertible or for which it is exchangeable) have the right to
require the issuer to repurchase such Capital Stock (or such security into which
it is exchangeable) upon the occurrence of an Asset Sale or a Change of Control
shall not constitute Disqualified Stock if such Capital Stock (and all such
securities into which it is convertible or for which it is exchangeable)
provides that the issuer thereof will not repurchase or redeem any such Capital
Stock (or any such security into which it is convertible or for which it is
exchangeable) pursuant to such provisions prior to compliance by the Company
with the provisions of Section 1015 hereof or Section 1019 hereof and purchase
of any Notes properly tendered pursuant to an offer to purchase required
thereunder and not withdrawn.
"EBITDA" means, with respect to any Person for any period, without
duplication, the sum of the amounts for such period of (i) Consolidated Net
Income, (ii) Consolidated Income Tax Expense, (iii) Consolidated Amortization
Expense, (iv) Consolidated Depreciation Expense, (v) Fixed Charges, (vi)
prepayment or make-whole payments incurred in connection with the repayment of
Indebtedness on the Issue Date, and (vii) all other non-cash items reducing
Consolidated Net Income (excluding any such non-cash charge that results in an
accrual of a reserve for cash charges in any future period) of such Person and
its Restricted Subsidiaries, in each case determined on a consolidated basis in
accordance with GAAP (provided, however, that the amounts set forth in clauses
(ii) through (vii) shall be included without duplication and only to the extent
such amounts actually reduced Consolidated Net Income), less the aggregate
amount of all non-cash items, determined on a consolidated basis, to the extent
such items increase Consolidated Net Income.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that such Exchange Notes shall not
contain terms with respect to transfer restrictions and shall be registered
under the Securities Act) that are issued and exchanged for the Initial Notes in
accordance with the Exchange Offer, as provided for in the Registration Rights
<PAGE>
10
Agreement and this Indenture.
"Exchange Offer" means the offer by the Company to the Holders of the
Initial Notes to exchange all of the Initial Notes for Exchange Notes, as
provided for in the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy; provided, however, that if such value
exceeds $1.0 million, such determination shall be made in good faith by the
Board of Directors of the Company, whose determination shall be conclusive.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
"Fixed Charges" means, with respect to any Person for any period, the
sum of (a) the Consolidated Interest Expense of such Person and its Restricted
Subsidiaries for such period, and (b) the product of (i) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Restricted Subsidiary) on any series of preferred stock of such Person or a
Restricted Subsidiary of such Person, times (ii) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Foreign Subsidiary" means a Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States or a state thereof
or the District of Columbia and that has no material operations or assets in the
United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on the Issue Date.
"Global Notes" has the meaning set forth in Section 201.
"guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down under letters of credit. When used as a verb,
"guarantee" has a corresponding meaning.
<PAGE>
11
"Guarantee" shall mean the guarantees of Parent Guarantor and
Subsidiary Guarantors pursuant to Article Twelve hereof. When used as a verb,
"Guarantee" shall have a corresponding meaning.
"Guarantor" means Parent Guarantor and any Subsidiary Guarantor
determined in accordance with Article Twelve hereof.
"Hedging Obligations" of any person means the obligations of such
person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means a Person in whose name a Note is registered in the Note
Register.
"incur" means, with respect to any Indebtedness or obligation, incur,
create, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to such Indebtedness or
obligation. Neither the accrual of interest nor the accretion of accreted value
shall be deemed to be an incurrence.
"Indebtedness" of any Person at any date means, without duplication:
(i) all liabilities, contingent or otherwise, of such Person for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof); (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto); (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, except trade payables and accrued expenses incurred by
such Person in the ordinary course of business in connection with obtaining
goods, materials or services; (v) the maximum fixed repurchase price of all
Disqualified Stock of such Person; (vi) all Capitalized Lease Obligations of
such Person; (vii) all Indebtedness of others secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person; (viii)
all Indebtedness of others guaranteed by such Person to the extent of such
guarantee; provided that Indebtedness of the Company or its Restricted
Subsidiaries that is guaranteed by the Company or the Company's Restricted
Subsidiaries shall only be counted once in the calculation of the amount of
Indebtedness of the Company and its Restricted Subsidiaries on a consolidated
basis; and (ix) to the extent not otherwise included in this definition,
obligations under Hedging Obligations not entered into solely for the purpose of
protecting the Company or its Restricted Subsidiaries against fluctuations in
foreign currency exchange rates or interest rates on or in connection with
indebtedness of the Company or any of its Restricted Subsidiaries then
outstanding. The amount of Indebtedness of any Person at any date shall be,
without duplication, the outstanding balance at such date of all unconditional
obligations as described above, the maximum liability of such Person for any
such contingent obligations at such date and, in the case of clause (vii), the
lesser of (A) the Fair Market Value of any asset subject to a Lien securing the
Indebtedness of others on the date that the Lien attaches and (B) the amount of
the Indebtedness secured. For purposes of the preceding sentence, the "maximum
fixed repurchase price" of any Disqualified Stock that does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were purchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture,
and if such price is based upon, or measured by, the fair market value of such
<PAGE>
12
Disqualified Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such Person, which determination shall be evidenced by a
Board Resolution.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is disinterested
and independent with respect to the Company and its Affiliates and, in the
reasonable judgment of the Company's Board of Directors, is qualified to perform
the task for which it has been engaged.
"Initial Notes" has the meaning specified in the recitals to this
Indenture.
"Initial Purchasers" means SBC Warburg Dillon Read Inc. and BT Alex.
Brown Incorporated.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
of Regulation D under the Securities Act.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Interest Rate Agreements" means any interest rate protection
agreements and other types of interest rate hedging agreements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements) designed to protect against or manage exposure to fluctuations in
interest rates.
"Investments" means, with respect to any Person, any direct or
indirect advance, loan, guarantee of Indebtedness or other extension of credit
or capital contribution to (by means of any transfer of cash or other property
or assets to others or any payment for property, assets or services for the
account or use of others), or any purchase or acquisition by such Person of any
Capital Stock, bonds, notes, debentures or other securities (including
derivatives) or evidences of Indebtedness issued by, any other Person. In
addition, the Fair Market Value of the net assets of any Restricted Subsidiary
at the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary shall be deemed to be an "Investment" made by the Company in such
Unrestricted Subsidiary at such time. "Investments" shall exclude (a)
extensions of trade credit or other advances to customers on commercially
reasonable terms in accordance with normal trade practices or otherwise in the
ordinary course of business, (b) Hedging Obligations, but only to the extent
that the same constitute Permitted Indebtedness and (c) endorsements of
negotiable instruments and documents in the ordinary course of business.
"Issue Date" means November 26, 1997, the date the Notes are initially
issued.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or similar type
of encumbrance
<PAGE>
13
(including, without limitation, any agreement to give or grant any lease,
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing) upon or with respect to any
property of any kind. A Person will be deemed to own subject to a Lien any
property that the Person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Management Services Agreement" means the Management Services
Agreement to be entered into between Saratoga and/or its Affiliate, on the one
hand, and Parent and/or one or more of its Subsidiaries, as such agreement may
be amended from time to time in any manner; provided that after giving effect to
such amendment the terms thereof are, in the aggregate, no less favorable to the
Holders.
"Maturity", when used with respect to any Note, means the date on
which the principal of such Note or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed by or
sold with recourse to the Company or any Subsidiary), net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel, accountants and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale (after taking
into account any available tax credits or deductions and any tax sharing
arrangements), (iii) amounts required to be paid to any Person (other than the
Company or any Subsidiary) owning a beneficial interest in the properties or
assets subject to the Asset Sale or having a Lien thereon and (iv) appropriate
amounts to be provided by the Company or any Subsidiary, as the case may be, as
a reserve required in accordance with GAAP against any liabilities associated
with such Asset Sale and retained by the Company or any Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pensions and other
postemployment benefit liabilities, liabilities related to environmental matters
and liabilities under any indemnification obligations associated with such Asset
Sale, all as reflected in an Officers' Certificate delivered to the Trustee;
provided, however, that any amounts remaining after adjustments, revaluations or
liquidations of such reserves shall constitute Net Available Proceeds.
"Non-Recourse Purchase Money Indebtedness" means Indebtedness of the
Company or any of its Restricted Subsidiaries incurred (a) to finance the
purchase of any assets of the Company or any of its Restricted Subsidiaries
within 90 days of such purchase, (b) to the extent the amount of Indebtedness
thereunder does not exceed 100% of the purchase cost of such assets, (c) to the
extent the purchase cost of such assets is or should be included in "additions
to property, plant and equipment" in accordance with GAAP, (d) to the extent
that such Indebtedness is non-recourse to the Company or any of its Restricted
Subsidiaries or any
<PAGE>
14
of their respective assets other than the assets so purchased, and (e) to the
extent the purchase of such assets is not part of an acquisition of any Person.
Indebtedness will not be deemed recourse because there is recourse to the
borrower, any guarantor or any other Person for (x) environmental warranties and
indemnities, or (y) indemnities for and liabilities arising from fraud,
misrepresentation, misapplication or non-payment of rents, profits, insurance
and condemnation proceeds and other sums actually received by the borrower from
secured assets to be paid to the lender, waste and mechanics' liens.
"Non-U.S. Person" means a person who is not a U.S. person as defined
in Regulation S.
"Notes" has the meaning stated in the first recital of this Indenture
and more particularly means any Notes authenticated and delivered under this
Indenture.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 305.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to the Company or any Guarantor, the
Chairman, the President, a Vice President, the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary.
"Officer's Certificate" means a certificate signed by the Chairman,
the President, a Vice President, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company or any Guarantor, and
delivered to the Trustee.
"Officers' Certificate" means a certificate signed by the Chairman,
the President or a Vice President, and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Company or any Guarantor, and
delivered to the Trustee.
"Offshore Global Notes" has the meaning set forth in Section 201.
"Offshore Physical Notes" has the meaning set forth in Section 201.
"Offshore Notes Exchange Date" has the meaning set forth in Section
201.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company or any Guarantor, including an employee of the Company,
and who shall be acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
<PAGE>
15
(ii) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Notes; provided that, if such Notes
are to be redeemed, notice of such redemption has been duly given pursuant
to this Indenture or provision therefor satisfactory to the Trustee has
been made;
(iii) Notes, except to the extent provided in Sections 1302 and 1303,
with respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article Thirteen; and
(iv) Notes which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in respect
of which there shall have been presented to the Trustee proof satisfactory
to it that such Notes are held by a bona fide purchaser in whose hands the
Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in making
such calculation or in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee knows to be
so owned shall be so disregarded. Notes so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or such other obligor.
"Parent" or "Parent Guarantor" means Scovill Holdings Inc. or any
Successor thereto.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium and
Liquidated Damages, if any) or interest on any Notes on behalf of the Company.
"Payment Restriction", with respect to a Subsidiary of any Person,
means any encumbrance, restriction or limitation, whether by operation of the
terms of its charter or by reason of any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation, on the ability of (i)
such Subsidiary to (a) pay dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability or Indebtedness owed to such
Person or any other Subsidiary of such Person, (b) make loans or advances to
such Person or any other Subsidiary of such Person or (c) transfer any of its
properties or assets to such Person or any other Subsidiary of such Person or
(ii) such Person or any other Subsidiary of such Person to receive or retain any
such dividends, distributions or payments, loans or
<PAGE>
16
advances or transfer of properties or assets.
"Permanent Offshore Global Notes" has the meaning set forth in Section
201.
"Permitted Holders" means (i) Saratoga (ii) David J. Barrett, Martin
A. Moore, Michael Baxley, John Champagne, Robert Feltz, and Frank A. Wright, and
(iii) Permitted Transferees of the foregoing.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness of the Company and any Guarantor under the Credit
Agreement in an aggregate principal amount at any time outstanding (with
letters of credit being deemed to have a principal amount equal to the
aggregate maximum then available to be drawn thereunder assuming compliance
with all conditions to such drawing) not to exceed the greater of (a) $25
million or (b) the sum of 80% of the book value of accounts receivable and
60% of the book value of inventory of the Company and its Restricted
Subsidiaries (as set forth on the latest available balance sheet),
calculated on a consolidated basis and in accordance with GAAP;
(ii) Indebtedness of the Company and any Guarantor under the Credit
Agreement in an aggregate principal amount at any time outstanding (with
letters of credit being deemed to have a principal amount equal to the
maximum then available to be drawn thereunder assuming compliance with all
conditions to such drawing) not to exceed $28.0 million, less the aggregate
amount of all Net Available Proceeds of Asset Sales applied to permanently
reduce the outstanding amount or the commitments with respect to such
Indebtedness pursuant to Section 1015 hereof;
(iii) Indebtedness under the Notes, the Guarantees and this
Indenture;
(iv) all of the Indebtedness of the Company and its Restricted
Subsidiaries not otherwise referred to in this definition that is
outstanding on the Issue Date;
(v) Indebtedness under Interest Rate Agreements, provided that (1)
such Interest Rate Agreements are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by the
Consolidated Fixed Charge Coverage Ratio test set forth in Section 1009
hereof, and (2) the notional principal amount of such Interest Rate
Agreements does not exceed the principal amount of such Indebtedness to
which such Hedging Obligations relate;
(vi) Indebtedness under Currency Hedge Agreements, provided that
(a) such Currency Agreements are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by the
Consolidated Fixed Charge Coverage Ratio test set forth in Section 1009
hereof or to the foreign currency cash flows reasonably expected to be
generated or required by the Company and the Restricted Subsidiaries, (b)
the notional principal amount of the Currency Agreements does not exceed
the principal amount of that Indebtedness and the amount of those foreign
currency cash flows to which such Currency Agreements relate and (c) such
Currency Agreements are entered into for the purpose of limiting currency
exchange rate risks in connection
<PAGE>
17
with Indebtedness permitted to be incurred under this Indenture or
transactions entered into in the ordinary course of business;
(vii) Indebtedness of the Company to a Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or to a Restricted
Subsidiary; provided, however, that upon either (1) any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or (2) the transfer or
other disposition of any such Indebtedness (except to the Company or a
Restricted Subsidiary), the provisions of this clause (vii) shall no longer
be applicable to such Indebtedness and such Indebtedness shall be deemed,
in each case, to be incurred and shall be treated as an incurrence for
purposes of the Consolidated Fixed Charge Coverage Ratio test set forth in
Section 1009 at the time the Restricted Subsidiary in question ceased to be
a Restricted Subsidiary or the time such transfer or other disposition
occurred;
(viii) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company in the ordinary course of business,
including guarantees or obligations of the Company with respect to letters
of credit supporting such bid, performance or surety obligations (in each
case other than for an obligation for money borrowed);
(ix) Indebtedness in respect of Non-Recourse Purchase Money
Indebtedness incurred by the Company or any Restricted Subsidiary;
(x) Refinancing Indebtedness;
(xi) Indebtedness of Restricted Subsidiaries in an aggregate
principal amount not to exceed $5 million at any time outstanding;
(xii) Indebtedness incurred to finance the acquisition of (1) any
Person principally engaged in the business of the Company and its
Restricted Subsidiaries as conducted on the Issue Date or any business
reasonably related thereto that becomes a Restricted Subsidiary or (2) any
Related Assets that constitute a line of business, company or other
business entity, in an aggregate principal amount not to exceed $21.0
million at any time outstanding provided that such Person or Related
Assets, after giving pro forma effect to such Indebtedness as if it had
been incurred by such Person or Related Assets would have had a Fixed
Charge Coverage Ratio of 2.0 to 1; provided that pro forma effect, to the
extent permitted by Regulation S-X, pursuant to the Securities Act, may be
given to cost savings and expense reductions in connection with such
acquisition; and
(xiii) other Indebtedness in an aggregate principal amount not to
exceed $2 million at any time outstanding.
"Permitted Investments" means any of the following:
(i) Investments in Cash Equivalents;
(ii) Investments in the Company or any of its Restricted
Subsidiaries;
<PAGE>
18
(iii) Investments by the Company or any of its Restricted
Subsidiaries in another Person, if as a result of such Investment (A) such
other Person becomes a Restricted Subsidiary or (B) such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all of its properties and assets to, the Company or a
Restricted Subsidiary;
(iv) Investments permitted under Section 1015 hereof;
(v) Investments made in the ordinary course of business in prepaid
expenses, lease, utility, workers' compensation, performance and other
similar deposits;
(vi) Investments received upon foreclosure, perfection or
enforcement of any Lien granted by, in the course of good faith settlement
of claims against, or by reason of a composition or readjustment of debt or
a reorganization of, any debtor of the Company or any of its Subsidiaries;
(vii) endorsements for collection or deposit in the ordinary course
of business of bank drafts and similar negotiable instruments received as
payment for ordinary course of business trade receivables;
(viii) Hedging Obligations permitted under clause (a) under Section
1009 hereof;
(ix) loans or advances to employees or directors of the Company or
any Restricted Subsidiary in the ordinary course of business;
(x) guarantees of Indebtedness of the Company or any Restricted
Subsidiary, which guarantees are permitted to be incurred under this
Indenture;
(xi) any Investment (x) to the extent that the consideration
therefor consists of Qualified Stock or (y) out of the proceeds of a
substantially concurrent issuance and sale (other than to a Restricted
Subsidiary of the Company) of Qualified Stock (provided that such issuance
and sale shall not increase the Basket); and
(xii) Investments in an aggregate amount not to exceed $5.0 million
at any time outstanding.
"Permitted Liens" means:
(i) Liens for taxes, assessments or governmental charges or
claims that either (a) are not yet delinquent or (b) are being contested in
good faith by appropriate proceedings and as to which appropriate reserves
or other provisions have been made in accordance with GAAP;
(ii) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to
amounts that either (a) are
<PAGE>
not yet delinquent or (b) are being contested in good faith by appropriate
proceedings and as to which appropriate reserves or other provisions have
been made in accordance with GAAP;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
progress payments, government contracts, performance and return-of-money
bonds and other obligations of a similar nature (exclusive of obligations
for the payment of borrowed money), in each case, incurred in the ordinary
course of business;
(v) easements, rights-of-way, municipal and zoning ordinances,
restrictions and other similar charges or encumbrances that do not
materially interfere with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries;
(vi) leases or subleases granted to others that do not materially
interfere with the ordinary conduct of the business of the Company or any
of its Restricted Subsidiaries and do not materially affect the value of
the property thereto;
(vii) Liens securing Refinancing Indebtedness to the extent
incurred to refinance Indebtedness that is secured by Liens and outstanding
as of the Issue Date (after giving effect to the application of the
proceeds of the offering of the Notes), provided that such Refinancing
Indebtedness shall be secured solely by the assets (including improvements
thereon) securing the outstanding Indebtedness being refinanced;
(viii) Liens securing Indebtedness between the Company and its
Restricted Subsidiaries or between or among such Restricted Subsidiaries;
(ix) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date (after giving effect to
the application of the proceeds of the offering of the Notes);
(x) Liens securing the Credit Agreement up to the amount of
Indebtedness permitted to be incurred under clauses (i), (ii) and (xiii) of
the definition of Permitted Indebtedness;
(xi) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary that does not give rise to
an Event of Default;
(xii) Liens securing 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;
(xiii) Liens securing Indebtedness permitted to be incurred pursuant
to clauses (xi) and (xii) of the definition of Permitted Indebtedness;
<PAGE>
20
(xiv) Liens securing Hedging Obligations entered into with lenders
under the Credit Agreement;
(xv) Liens in favor of the Company or a Restricted Subsidiary;
(xvi) Liens securing Purchase Money Indebtedness, provided, that
such Liens extend only to the property being acquired and improvements
thereon and such Lien is created within 90 days of the purchase of such
property;
(xvii) Liens securing Acquired Indebtedness permitted to be incurred
under the Indenture, provided that such Liens (x) are not incurred in
connection with, or in contemplation of, the acquisition of the property or
assets acquired and (y) do not extend to or cover any property or assets of
the Company or any of its Restricted Subsidiaries other than the property
or assets so acquired and any improvements on such property or assets;
(xviii) Liens securing obligations under the Indenture, the Notes or
the Guarantees;
(xix) Liens on property of a Person existing at the time such
Person is acquired or merged with or into or consolidated with the Company
or any Restricted Subsidiary (and not created in anticipation or
contemplation thereof); and
(xx) Liens to secure Indebtedness incurred to refinance, in whole
or in part, any Indebtedness secured by Liens referred to in the foregoing
clauses (xv) - (xix), provided that in each of clauses (xvi), (xvii) and
(xix) such Liens do not extend to any additional property or assets (other
than improvements thereon).
"Permitted Transferees" means, with respect to any Person, (x) in the
case of any Person that is a natural person, (i) such individual's spouse,
estate, lineal descendants, heirs, executors, legal representatives,
administrators, (ii) any trust for the benefit of any of the foregoing, and (y)
in the case of any Person that is not a natural person, any other Person
controlled by such Person.
"Person" means any individual, corporation, partnership, joint
venture, incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Physical Notes" has the meaning set forth in Section 201.
"Plan of Liquidation", with respect to any Person, means a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise): (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety or
substantially as an entirety; and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
<PAGE>
21
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Private Placement Legend" has the meaning set forth in Section 202.
"Public Equity Offering" means an offer and sale of Qualified Stock of
the Company or Parent for cash pursuant to a registration statement that has
been declared effective by the Commission pursuant to the Securities Act (other
than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan); provided that any net
proceeds to Parent are contributed in cash to the common equity of the Company.
"Purchase Money Indebtedness" means Indebtedness incurred for the
purpose of financing all or any part of the purchase price, or the cost of
construction, of any property, plant or equipment to be used in the business of
the Company and the Restricted Subsidiaries, provided that such Indebtedness
shall not exceed 100% of the lower of cost or Fair Market Value (at the time of
incurrence) of the property, plant or equipment so purchased or constructed.
"QIB" means a "Qualified Institutional Buyer" within the meaning of
Rule 144A under the Securities Act.
"Qualified Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Stock.
"redeem" means redeem, repurchase, defease or otherwise acquire or
retire for value; and "redemption" and "redeemed" have correlative meanings.
"Redemption Date", when used with respect to any Note to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"refinance" means refinance, renew, extend, replace, defease or
refund, in whole or in part, including successively; and "refinancing" and
"refinanced" have correlative meanings.
"Refinancing Indebtedness" means Indebtedness of the Company or a
Restricted Subsidiary of the Company issued in exchange for, or the proceeds
from the issuance and sale or disbursement of which are used substantially
concurrently to refinance or constituting an amendment of, any Indebtedness
pursuant to clause (ii) and (iii) of the definition of Permitted Indebtedness of
the Company or any of its Restricted Subsidiaries or any Indebtedness incurred
pursuant to the Fixed Charge Coverage Ratio test set forth in Section 1009
hereof in a principal amount not in excess of (a) the principal amount of the
Indebtedness so refinanced
<PAGE>
22
plus (b) the lesser of the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Indebtedness
refinanced and the amount of any premium reasonably determined by the issuer of
such Indebtedness as necessary to accomplish such refinancing by means of a
tender offer, exchange offer or privately negotiated repurchase plus (c) the
expenses of such issuer reasonably incurred in connection therewith (or, if such
Refinancing Indebtedness refinances Indebtedness under a revolving credit
facility or other agreement providing a commitment for subsequent borrowings,
with a maximum commitment not to exceed the maximum commitment under such
revolving credit facility or other agreement); provided that: (i) the
Refinancing Indebtedness is the obligation of the same Person; (ii) in the case
of any refinancing of Indebtedness (including the Notes) that is pari passu with
or subordinated in right of payment to the Notes, then such Refinancing
Indebtedness is pari passu with or subordinated in right of payment to the Notes
at least to the same extent as the Indebtedness being refinanced; (iii) the
Refinancing Indebtedness is scheduled to mature either (a) no earlier than the
Indebtedness being refinanced or (b) after the maturity date of the Notes; (iv)
the portion, if any, of the Refinancing Indebtedness that is scheduled to mature
on or prior to the maturity date of the Notes has a Weighted Average Life to
Maturity at the time such Refinancing Indebtedness is incurred that is equal to
or greater than the Weighted Average Life to Maturity of the portion of the
Indebtedness being repaid that is scheduled to mature on or prior to the
maturity date of the Notes; and (v) the Refinancing Indebtedness is secured only
to the extent, if at all, and by the assets, that the Indebtedness being repaid
or amended is secured.
"Registration Rights Agreement" means the Registration Rights
Agreement relating to the Initial Notes dated as of the date hereof, among the
Company, the Parent and the Initial Purchasers.
"Registration Statement" means the Registration Statement as defined
in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the May 15 or November 15 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Related Assets" means properties and assets that will be used in the
business of the Company and its Restricted Subsidiaries as conducted on the
Issue Date or in businesses reasonably related thereto.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers, and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment", with respect to any Person, means (without
<PAGE>
23
duplication) any Investment by such Person other than a Permitted Investment,
including, without limitation, the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary.
"Restricted Payment", with respect to any Person, means: (i) the
declaration of any dividend (other than a dividend declared or paid by a
Restricted Subsidiary to the Company or a Restricted Subsidiary) or the making
of any other payment or distribution of cash, securities or other property or
assets in respect of such Person's Capital Stock (except that a dividend payable
solely in Qualified Stock of such Person shall not constitute a Restricted
Payment); (ii) any payment on account of the redemption of such Person's Capital
Stock or any other payment or distribution made in respect thereof, either
directly or indirectly (other than a payment solely in Qualified Stock); (iii)
any Restricted Investment; or (iv) any purchase, redemption, defeasance
(including without limitation in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, by the Company or a
Subsidiary, prior to the scheduled maturity or prior to any scheduled repayment
of principal or sinking fund payment, as the case may be, in respect of
Subordinated Indebtedness.
"Restricted Subsidiary" means any direct or indirect Subsidiary of the
Company other than an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale and Leaseback Transaction" means with respect to any Person an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person or any of its Restricted Subsidiaries of any property or asset of such
Person or any of its Restricted Subsidiaries which has been or is being sold or
transferred by such Person or such Restricted Subsidiary to such lender or
investor or to any Person to whom funds have been or are to be advanced by such
lender or investor on the security of such property or asset.
"Saratoga" means Saratoga Partners III, L.P.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issue Date, except all references to "10 percent" in such definition shall
be changed to "2 percent".
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means, when used with respect to any Indebtedness or
any installment of interest thereon, the date specified in the instrument
evidencing or governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or such
<PAGE>
24
installment of interest is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or any
Subsidiary that is subordinated in right of payment to the Notes or the
Subsidiary Guarantees, respectively.
"Subsidiary" of any Person means (i) any corporation of which at least
a majority of the aggregate voting power of whose Voting Stock is owned by such
Person directly or through one or more other Subsidiaries of such Person and
(ii) any entity other than a corporation in which such Person, directly or
indirectly, owns at least a majority of the voting power of the Voting Stock of
such entity, other than any such Person designated as an Unrestricted Subsidiary
in accordance with the definition of Unrestricted Subsidiary.
"Subsidiary Guarantor" means each Person who is required to become a
Subsidiary Guarantor by the terms of this Indenture.
"Successor" has the meaning set forth in Section 801.
"Temporary Offshore Global Notes" has the meaning set forth in Section
201.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination will be designated an Unrestricted Subsidiary by
the Board of Directors of the Company as provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors of the Company may
designate any Subsidiary of the Company as an Unrestricted Subsidiary so long as
(a) neither the Company nor any Restricted Subsidiary is directly or indirectly
liable pursuant to the terms of any Indebtedness of such Subsidiary (other than
in the form of an Investment therein in accordance with Section 1011 hereof; (b)
no default with respect to any Indebtedness of such Subsidiary would permit
(upon notice, passage of time or otherwise) any holder of any other Indebtedness
of the Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity; (c) such designation as an Unrestricted Subsidiary would be
permitted under Section 1011 hereof; and (d) the Company could incur $1.00 of
additional Indebtedness (not including the incurrence of Permitted Indebtedness)
pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in
Section 1009 hereof. Any such designation by the Board of Directors shall be
evidenced to the Trustee by the filing with the Trustee of a certified copy of
the Board Resolution giving effect to such designation and an Officer's
Certificate certifying that such designation complied with the foregoing
conditions and setting forth the underlying calculations of such certificate.
The Board of Directors of the Company may designate any Unrestricted Subsidiary
as a Restricted Subsidiary if (i) immediately after giving effect to such
designation on a pro forma basis, no Default or Event of Default shall have
occurred and be continuing and (ii) Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such
<PAGE>
25
redesignation would, if incurred at such time, be permitted to be incurred under
the Indenture.
"U.S. Global Notes" has the meaning set forth in Section 201.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt.
"U.S. Physical Notes" has the meaning set forth in Section 201.
"Vice President", when used with respect to the Company, any Guarantor
or the Trustee, means any vice president, whether or not designated by a number
or a word or words added before or after the title "vice president".
"Voting Stock", with respect to any specified Person, means any class
or classes of Capital Stock of the specified Person pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of the
specified Person (irrespective of whether or not, at the time, stock of any
other class or classes has, or might have, voting power by reason of the
happening of any contingency).
"Weighted Average Life to Maturity", when applied to any Indebtedness
at any date, means the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
to the extent (i) all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company or (ii) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Restricted Subsidiary to
transact business in such foreign jurisdiction, provided that the Company,
directly or indirectly, owns the
<PAGE>
26
remaining Capital Stock or ownership interest in such Restricted Subsidiary and,
by contract or otherwise, controls the management and business of such
Restricted Subsidiary and derives the economic benefits of ownership of such
Restricted Subsidiary to substantially the same extent as if such Restricted
Subsidiary were a wholly owned Subsidiary.
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company or the Guarantors to
the Trustee to take any action under any provision of this Indenture, the
Company or the Guarantors shall furnish to the Trustee an Officers' Certificate
stating that all conditions precedent, if any, provided for in this Indenture
(including any covenant compliance with which constitutes a condition precedent)
relating to the proposed action have been complied with and an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(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 each such individual, 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 the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company or any
Guarantor may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon
<PAGE>
27
which his certificate or opinion is based are erroneous. Any such certificate or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Company or any Guarantor stating that the information with respect to such
factual matters is in the possession of the Company or any Guarantor, unless
such counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company or any
Guarantor. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Trustee, the Company or
any Guarantor, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Note Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only the
Holders of record at the close of business on such record date shall be deemed
to be Holders for the purposes of determining whether Holders of the
<PAGE>
28
requisite proportion of Outstanding Notes have authorized or agreed or consented
to such request, demand, authorization, direction, notice, consent, waiver or
other Act, and for that purpose the Outstanding Notes shall be computed as of
such record date; provided that no such authorization, agreement or consent by
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
SECTION 105. Notices, etc., to Trustee, Company and Agent.
--------------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder, by the Company or by any Guarantor
shall be sufficient for every purpose hereunder if made, given, furnished
or filed in writing to or with the Trustee and received at its Corporate
Trust Office, Attention: Corporate Trust Administration,
(2) the Company by any Guarantor, by the Trustee or by any Holder
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid,
to the Company addressed to it at the address of its principal office
specified in the first paragraph of this Indenture, or at any other address
previously furnished in writing to the Trustee by the Company, or
(3) any Guarantor by the Company, by the Trustee or by any Holder
shall be sufficient for any purpose hereunder if made, given, furnished or
delivered, in writing and mailed, first-class postage prepaid, to Parent
addressed to it at its principal office specified in the first paragraph of
this Indenture, or at any other address previously furnished in writing to
the Company and the Trustee by such Guarantor.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not
<PAGE>
29
such Holder actually receives such notice. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company and the
Guarantors shall bind their respective successors and assigns, whether so
expressed or not.
SECTION 109. Separability Clause.
-------------------
In case any provision in this Indenture or in the Notes or any
Guarantee 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 110. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Notes or any Guarantee, express or
implied, shall give to any Person, other than the parties hereto, any Paying
Agent, any Note Registrar and their successors hereunder and the Holders, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
-------------
This Indenture, the Notes and any Guarantee shall be governed by and
construed in accordance with the law of the State of New York. Upon the
issuance of the Exchange Notes, if any, or the effectiveness of the Exchange
Offer Registration Statement (as defined herein) or, under certain
circumstances, the effectiveness of the Shelf Registration Statement (as defined
herein), this Indenture shall be subject to the provisions of the Trust
Indenture Act that are required to be part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
SECTION 112. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, or
Stated
<PAGE>
30
Maturity or Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of principal (or premium and Liquidated Damages, if any) or interest need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date or Redemption Date
or at the Stated Maturity or Maturity; provided that no interest shall accrue
for the period from and after such Interest Payment Date, Redemption Date,
Stated Maturity or Maturity, as the case may be.
SECTION 113. No Personal Liability of Directors, Officers, Employees,
--------------------------------------------------------
Stockholders or Incorporators.
- -----------------------------
No director, officer, employee, incorporator or stockholder, as such,
of the Company or any Guarantor shall have any liability for any obligations of
the Company or such Guarantor under the Notes, this Indenture or any Guarantee
or for any claim based on, in respect of, or by reason of, such obligations or
their creations. Each Holder by accepting a Note waives and releases all such
liability. Such waiver and release are part of the consideration for the
issuance of the Notes.
SECTION 114. Counterparts.
------------
This Indenture may be executed in any number of counterparts, each of
which shall be an original; but such counterparts shall together constitute but
one and the same instrument.
SECTION 115. Rules of Interpretation.
-----------------------
Use of words "herein", "hereby", "hereunder", "hereof",
"hereinbefore", "hereinafter" and other equivalent words refer to this Indenture
and not solely to the particular portion in which such word is used.
SECTION 116. Ancillary Agreements.
--------------------
The Trustee is hereby authorized and directed to execute and deliver
such agreements, notices, certificates and assignments as are necessary to
implement the terms hereof, including but not limited to the letter of
representations with the Depositary.
SECTION 117. Conflict with Trust Indenture Act.
---------------------------------
If this Indenture is qualified under the TIA and any provision hereof
limits, qualifies or conflicts with any provision thereof which is required to
be included in this Indenture by any of the provisions of the TIA, such required
provision of the TIA shall control.
ARTICLE TWO
NOTE FORMS
<PAGE>
31
SECTION 201. Forms Generally.
---------------
The Notes and the Trustee's certificate of authentication shall be
substantially in the form annexed hereto as Exhibit A-1 with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture. The Notes may have notations, legends or
endorsements required by law, stock exchange agreements to which the Company is
subject or usage. The Company shall approve the form of the Notes and any
notation, legend or endorsement on the Notes. Each Note shall be dated the date
of its authentication.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A-1 shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Company, the Guarantors and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Notes in registered form,
substantially in the form set forth in Exhibit A-1 (the "U.S. Global Notes"),
-----------------
registered in the name of the nominee of the Depositary, deposited with the
Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the U.S. Global Notes may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the
Depositary or its nominee, in accordance with the instructions given by the
Holder thereof, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more temporary
global Notes in registered form substantially in the form set forth in Exhibit
A-1 (the "Temporary Offshore Global Notes"), registered in the name of the
-------------------------------
nominee of the Depositary, deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. At any time following January 5, 1998 (the "Offshore Notes
--------------
Exchange Date"), upon receipt by the Trustee and the Company of a certificate
- -------------
substantially in the form of Exhibit B hereto, one or more permanent global
Notes in registered form substantially in the form set forth in Exhibit A-1 (the
"Permanent Offshore Global Notes"; and together with the Temporary Offshore
-------------------------------
Global Notes, the "Offshore Global Notes") duly executed by the Company and
---------------------
authenticated by the Trustee as hereinafter provided shall be deposited with the
Trustee, as custodian for the Depositary, and the Note Registrar shall reflect
on its books and records the date and a decrease in the principal amount of the
Temporary Offshore Global Notes in an amount equal to the principal amount of
the beneficial interest in the Temporary Offshore Global Notes transferred.
Notes transferred in reliance on Regulation D under the Securities Act
shall be issued in the form of permanent certificated Notes in registered form
in substantially the form set forth in Exhibit A-1 (the "U.S. Physical Notes").
-------------------
Notes issued pursuant to Section 312 in exchange for interests in the Offshore
Global Notes shall be in the form of permanent certificated Notes in registered
form substantially in the form set forth in Exhibit A-1 (the "Offshore Physical
-----------------
Notes").
- -----
<PAGE>
32
The Offshore Physical Notes and U.S. Physical Notes are sometimes
collectively herein referred to as the "Physical Notes." The U.S. Global Notes
--------------
and the Offshore Global Notes are sometimes referred to herein as the "Global
------
Notes."
- -----
The definitive Notes shall be typed, printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the Officers executing such Notes, as evidenced
by their execution of such Notes.
SECTION 202. Restrictive Legends.
-------------------
Unless and until a Note is exchanged for an Exchange Note in
connection with an effective Registration Statement pursuant to the Registration
Rights Agreement, the U.S. Global Notes, Temporary Offshore Global Notes and
each U.S. Physical Note shall bear the following legend (the "Private Placement
Legend") on the face thereof:
THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT,
AND THE NOTE 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 NOTE 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 OR ANOTHER
EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) (a) 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 BUT ONLY IN THE CASE OF A TRANSFER THAT
IS EFFECTED BY THE DELIVERY TO THE TRANSFEREE OF DEFINITIVE SECURITIES
REGISTERED IN ITS NAME (OR ITS NOMINEE'S NAME) IN THE BOOKS MAINTAINED BY
THE NOTE REGISTRAR, AND SUBJECT TO THE RECEIPT BY THE NOTE REGISTRAR OF A
CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (2) TO THE
COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
<PAGE>
33
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 NOTE EVIDENCED HEREBY OF
THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
Each Global Note, whether or not an Exchange Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 311 AND 312 OF THE INDENTURE.
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $100,000,000, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 304, 305, 306, 311, 312,
906, 1015, 1019 or 1108.
The Initial Notes shall be known and designated as the "11 1/4% Senior
Notes due 2007" of the Company and the Exchange Notes shall be known and
designated as the "11 1/4% Series B Senior Notes due 2007" of the Company. The
Stated Maturity of the principal of the Notes shall be November 30, 2007 and
they shall bear interest at the rate of 11 1/4% per annum, payable on May 30
and November 30 of each year, commencing on May
<PAGE>
34
30, 1998, until the principal thereof is paid or duly provided for. Interest on
the Notes will accrue from the most recent Interest Payment Date or, if no
interest has been paid, from the Issue Date.
The principal of (and premium and Liquidated Damages, if any) and
interest on the Notes shall be payable at the office or agency of the Company
maintained for such purpose in The City of New York, or at such other office or
agency of the Company as may be maintained for such purpose; provided, however,
that, at the option of the Company, interest may be paid by wire transfer of
immediately available funds or, in the case of Physical Notes only, by check
mailed to addresses of the Persons entitled thereto as such addresses shall
appear on the Note Register.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
-------------
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Notes shall be executed on behalf of the Company by its Chairman,
its President, a Vice President, its Secretary or an Assistant Secretary. The
signature of any of these officers on the Notes may be manual or facsimile
signatures of the present or any future such authorized officer and may be
imprinted or otherwise reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Initial Notes executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Initial Notes directing the Trustee to
authenticate the Notes and certifying that all conditions precedent to the
issuance of Notes contained herein have been fully complied with, and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Initial Notes. On Company Order, the Trustee shall authenticate for
original issue Exchange Notes in an aggregate principal amount not to exceed
$100,000,000; provided that such Exchange Notes shall be issuable only upon the
valid surrender for cancellation of Initial Notes of a like aggregate principal
amount in accordance with an Exchange Offer pursuant to the Registration Rights
Agreement and a Company Order for the authentication of such securities
certifying that all conditions precedent to the issuance have been complied with
(including the effectiveness of a registration statement related thereto). In
each case, the Trustee shall be entitled to receive an Officer's Certificate and
an Opinion of Counsel of the Company that it may reasonably request in
connection with such authentication of Notes. Such order shall specify the
amount of Notes to be authenticated and the date on which the original issue of
<PAGE>
35
Initial Notes or Exchange Notes is to be authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for in Exhibit
A-1 duly executed by the Trustee by manual signature of an authorized officer,
and such certificate upon any Note shall be conclusive evidence, and the only
evidence, that such Note has been duly authenticated and delivered hereunder and
is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Notes authenticated or
delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Notes executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Notes surrendered for such exchange
and of like principal amount; and the Trustee, upon Company Request of the
successor Person, shall authenticate and deliver Notes as specified in such
request for the purpose of such exchange. If Notes shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Notes, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Notes at the time
Outstanding for Notes authenticated and delivered in such new name.
SECTION 304. Temporary Notes.
---------------
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as conclusively evidenced by their execution
of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
<PAGE>
36
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Note Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Notes and of transfers of Notes. The Note Register shall be in written form
or any other form capable of being converted into written form within a
reasonable time. At all reasonable times, the Note Register shall be open to
inspection by the Trustee. The Trustee is hereby initially appointed as
security registrar (the "Note Registrar") for the purpose of registering Notes
and transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the office
or agency of the Company designated pursuant to Section 1002, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Notes of any authorized
denomination or denominations of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive; provided that no exchange of Initial Notes for
Exchange Notes shall occur until an Exchange Offer Registration Statement shall
have been declared effective by the Commission, the Trustee shall have received
an Officers' Certificate confirming that the Exchange Offer Registration
Statement has been declared effective by the Commission and the Initial Notes to
be exchanged for the Exchange Notes shall be cancelled by the Trustee.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Note Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 304, 906, 1015, 1019 or 1108 not involving any
transfer.
The Note Registrar shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the
<PAGE>
37
selection of Notes to be redeemed under Section 1104 and ending at the close of
business on the day of such mailing of the relevant notice of redemption, or
(ii) to register the transfer of or exchange any Note so selected for redemption
in whole or in part, except the unredeemed portion of any Note being redeemed in
part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.
-------------------------------------------
If (i) any mutilated Note is surrendered to the Trustee, or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company
and the Trustee such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Note has been acquired by a bona fide purchaser, the Company
shall execute and upon Company Order the Trustee shall authenticate and deliver,
in exchange for any such mutilated Note or in lieu of any such destroyed, lost
or stolen Note, a new Note of like tenor and principal amount, bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, at any time on or after November 30, 2002
the Company in its discretion may, instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section 306, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section 306 in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest at the office or agency of
the Company maintained for such purpose pursuant to Section 1002; provided,
however, that each installment of interest may at the Company's option be paid
by (i) in the case of Physical Notes only, mailing a check for such interest,
payable to or upon the written order of the Person entitled thereto pursuant to
Section 308, to the address of such Person as it appears in the Note Register or
(ii) by wire transfer in immediately available funds to an account located in
the United States maintained by the payee.
<PAGE>
38
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of having been such
Holder, and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Notes (such defaulted interest and
interest thereon herein collectively called "Defaulted Interest") may be paid by
the Company, at its election in each case, as provided in clause (1) or (2)
below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date
of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 10 days
and not less than 5 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date, and in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be given in the manner provided for in
Section 106, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so given, such Defaulted Interest shall be
paid to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following clause
(2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company
to the Trustee of the proposed payment pursuant to this clause, such manner
of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
<PAGE>
39
SECTION 308. Persons Deemed Owners.
---------------------
Prior to the due presentment of a Note for registration of transfer,
the Company, the Guarantors, the Trustee and any agent of the Company, the
Guarantors or the Trustee may treat the Person in whose name such Note is
registered as the owner of such Note for the purpose of receiving payment of
principal of (and premium and Liquidated Damages, if any) and (subject to
Sections 305 and 307) interest on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and none of the Company, the
Guarantors, the Trustee or any agent of the Company, the Guarantors or the
Trustee shall be affected by notice to the contrary.
SECTION 309. Cancellation.
------------
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold, and all Notes so delivered
shall be promptly cancelled by the Trustee. If the Company shall so acquire any
of the Notes, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Notes unless and until the
same are surrendered to the Trustee for cancellation. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee shall be disposed of by the Trustee in accordance with
its customary procedures and certification of their disposal delivered to the
Company unless by Company Order the Company shall direct that cancelled Notes be
returned to it.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months.
SECTION 311. Book-Entry Provisions for Global Notes.
--------------------------------------
(a) Each Global Note initially shall (i) be registered in the name of
the Depositary for such Global Notes or the nominee of such Depositary, (ii) be
delivered to the Trustee as custodian for such Depositary and (iii) bear legends
as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note, and the
Depositary may be treated by the Company, the Guarantors, the Trustee and any
agent of the Company, the Guarantors or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Guarantors, the Trustee or any
agent of the Company, the Guarantors or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Agent Members, the operation of
<PAGE>
40
customary practices governing the exercise of the rights of a beneficial owner
of any Note. The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
(b) Interests of beneficial owners in a Global Note may be transferred
in accordance with the applicable rules and procedures of the Depositary and the
provisions of Section 312. Transfers of a Global Note shall be limited to
transfers of such Global Note in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in the
Global Notes may be transferred in accordance with the rules and procedures of
the Depositary and the provisions of Section 312 hereof. U.S. Physical Notes
and Offshore Physical Notes shall be transferred to beneficial owners in
exchange for their beneficial interests in the U.S. Global Notes or the Offshore
Global Notes, as the case may be, if (i) the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary for any such Global
Note and a successor depositary is not appointed by the Company within 90 days
of such notice, (ii) upon the request of the beneficial owner in accordance with
the rules and procedures of the Depositary and the provisions of Section 312
hereof or (iii) upon notice from the Company to the Trustee in writing
requesting the issuance of Physical Notes in exchange for Global Notes. In
connection with a transfer of an entire Global Note to beneficial owners
pursuant to clause (i) or (iii) of this paragraph (b), the applicable Global
Note shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the applicable Global Note, an equal aggregate principal amount of
U.S. Physical Notes (in the case of the U.S. Global Note) or Offshore Physical
Notes (in the case of the Offshore Global Note), as the case may be, of
authorized denominations.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) Any U.S. Physical Note delivered in exchange for an interest in
the U.S. Global Note pursuant to paragraph (b) of this Section shall, unless
such exchange is made on or after the date which is two years following the date
hereof, or such shorter period of time as permitted under Rule 144(k) under the
Securities Act and except as otherwise provided in Section 312, bear the Private
Placement Legend.
SECTION 312. Transfer Provisions.
-------------------
Unless and until a Note is exchanged for an Exchange Note in
connection with an effective Registration Statement pursuant to the Registration
Rights Agreement, the following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The following
-------------------------------------------------------
provisions shall apply with respect to the registration of any proposed transfer
of a Note to any
<PAGE>
41
Institutional Accredited Investor which is not a QIB (excluding Non-U.S.
Persons):
(i) The Note Registrar shall register the transfer of any Note,
whether or not such Note bears the Private Placement Legend, if (x) the
requested transfer is after the time period referred to in Rule 144(k)
under the Securities Act or (y) (A) the proposed transferor has delivered
to the Note Registrar a certificate substantially in the form of Exhibit C-
1 hereto; and if required by paragraph (d) thereof an Opinion of Counsel to
the effect set forth therein and (B) the proposed transferee has delivered
to the Note Registrar a certificate substantially in the form of Exhibit C-
2 hereto.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note or Offshore Global Note, upon
receipt by the Note Registrar of the documents, if any, required by
paragraph (i)(y) and instructions given in accordance with the Depositary's
and the Note Registrar's procedures, the Note Registrar shall reflect on
its books and records the date and a decrease in the principal amount of
the U.S. Global Note or Offshore Global Note in an amount equal to the
principal amount of the beneficial interest in the U.S. Global Note or
Offshore Global Note to be transferred, and the Company shall execute, and
the Trustee shall authenticate and deliver, one or more U.S. Physical Notes
or Offshore Physical Notes, as the case may be.
(b) Transfers to QIBs. The following provisions shall apply with respect
-----------------
to the registration of any proposed transfer of a U.S. Physical Note or an
interest in the U.S. Global Note to a QIB (excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) U.S. Physical
Notes, the Note Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for on
the form of Note stating, or has otherwise advised the Company and the Note
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Note stating, or has otherwise advised the
Company and the Note Registrar in writing, that it is purchasing the Note
for its own account (or an account with respect to which it exercises sole
investment discretion) and that it and any such account is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A or (y) an
interest in the U.S. Global Note, the transfer of such interest may be
effected only through the book entry system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the Note to
be transferred consists of U.S. Physical Notes, upon receipt by the Note
Registrar of the documents referred to in clause (i)(x) and instructions
given in accordance with the Depositary's and the Note Registrar's
procedures, the Note Registrar shall reflect on its books and records the
date and an increase in the principal amount of the U.S. Global Note in an
amount equal to the principal amount of the U.S. Physical Notes to be
transferred, and the Trustee shall cancel the U.S. Physical Note so
transferred.
<PAGE>
42
(c) Transfers of Interests in the Temporary Offshore Global Note. The
------------------------------------------------------------
following provisions shall apply with respect to registration of any proposed
transfer of interests in the Temporary Offshore Global Note:
(i) The Note Registrar shall register the transfer of any Note (x)
if the proposed transferee is a Non-U.S. Person and the proposed transferor
has delivered to the Note Registrar a certificate substantially in the form
of Exhibit D hereto or (y) if the proposed transferee is a QIB and the
proposed transferor has checked the box provided for on the form of Note
stating, or has otherwise advised the Company and the Note Registrar in
writing, that the sale has been made in compliance with the provisions of
Rule 144A to a transferee who has signed the certification provided for on
the form of Note stating, or has otherwise advised the Company and the Note
Registrar in writing, that it is purchasing the Note for its own account or
an account with respect to which it exercises sole investment discretion
and that it and any such account is a QIB within the meaning of Rule 144A,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as
it has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, upon receipt by
the Note Registrar of the documents referred to in clause (i)(x) above and
instructions given in accordance with the Depositary's and the Note
Registrar's procedures, the Note Registrar shall reflect on its books and
records the date and an increase in the principal amount of the U.S. Global
Note in an amount equal to the principal amount of the Temporary Offshore
Global Note to be transferred, and the Trustee shall decrease the amount of
the Temporary Offshore Global Note.
(d) Transfers of Interests in the Permanent Offshore Global Note or
---------------------------------------------------------------
Offshore Physical Notes to U.S. Persons. The following provisions shall apply
- ---------------------------------------
with respect to any transfer of interests in the Permanent Offshore Global Note
or Offshore Physical Notes to U.S. Persons: The Note Registrar shall register
the transfer of any such Note without requiring any additional certification.
(e) Transfers to Non-U.S. Persons at Any Time. The following provisions
-----------------------------------------
shall apply with respect to any transfer of a Note to a Non-U.S. Person:
(i) Prior to January 5, 1998, the Note Registrar shall register any
proposed transfer of a Note to a Non-U.S. Person upon receipt of a
certificate substantially in the form of Exhibit D hereto from the proposed
transferor.
(ii) On and after January 5, 1998, the Note Registrar shall register
any proposed transfer to any Non-U.S. Person if the Note to be transferred
is a U.S. Physical Note or an interest in the U.S. Global Note, upon
receipt of a certificate substantially in the form of Exhibit D hereto from
the proposed transferor.
<PAGE>
43
(iii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the Note
Registrar of the documents, if any, required by paragraph (ii) and
instructions in accordance with the Depositary's and the Note Registrar's
procedures, the Note Registrar shall reflect on its books and records the
date and a decrease in the principal amount of the U.S. Global Note in an
amount equal to the principal amount of the beneficial interest in the U.S.
Global Note to be transferred, and (b) if the proposed transferee is an
Agent Member, upon receipt by the Note Registrar of instructions given in
accordance with the Depositary's and the Note Registrar's procedures, the
Note Registrar shall reflect on its books and records the date and an
increase in the principal amount of the Offshore Global Note in an amount
equal to the principal amount of the U.S. Physical Notes or the U.S. Global
Note, as the case may be, to be transferred, and the Trustee shall cancel
the Physical Note, if any, so transferred or decrease the amount of the
U.S. Global Note.
(f) Private Placement Legend. Upon the transfer, exchange or replacement
------------------------
of Notes not bearing the Private Placement Legend, the Note Registrar shall
deliver Notes that do not bear the Private Placement Legend. Upon the transfer,
exchange or replacement of Notes bearing the Private Placement Legend, the Note
Registrar shall deliver only Notes that bear the Private Placement Legend unless
either (i) the circumstances contemplated by the fourth paragraph of Section 201
or paragraph (a)(i)(x) or (e)(ii) of this Section 312 exist or (ii) there is
delivered to the Note Registrar an Opinion of Counsel reasonably satisfactory to
the Company and the Trustee to the effect that neither such legend nor the
related restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act.
(g) General. By its acceptance of any Note bearing the Private Placement
-------
Legend, each Holder of such a Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture. The
Note Registrar shall not register a transfer of any Note unless such transfer
complies with the restrictions on transfer of such Note set forth in this
Indenture. In connection with any transfer of Notes, each Holder agrees by its
acceptance of the Notes to furnish the Note Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Note Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other information.
The Note Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 311 or this Section 312. The
Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Note Registrar.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
<PAGE>
44
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Notes expressly provided for herein or pursuant hereto) and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Notes theretofore authenticated and delivered (other than
(i) Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 306 and (ii) Notes for
whose payment money or U.S. Government Obligations have theretofore
been deposited in trust with the Trustee or any Paying Agent or
segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section
1003) have been delivered to the Trustee for cancellation; or
(b) all such Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Maturity within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation, for principal (and premium
and Liquidated Damages, if any), interest to the date of such deposit
(in the case of Notes which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be, together with
instructions from the Company irrevocably directing the Trustee to
apply such funds to the payment thereof at the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
<PAGE>
45
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium and
Liquidated Damages, if any) and interest for whose payment such money has been
deposited with the Trustee; but such money need not be segregated from other
funds except to the extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events:
(1) failure by the Company to pay interest on any of the Notes when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(2) failure by the Company to pay principal of (or premium, if any,)
any of the Notes when it becomes due and payable, whether at Stated
Maturity, upon redemption, upon acceleration or otherwise; or
(3) any default in the performance or breach by the Company or any
Restricted Subsidiary of the provisions of Article Eight hereof or any
failure of the Company to make or consummate either a Change of Control
Offer or a Net Proceeds Offer in accordance with the provisions of Sections
1019 and 1015, respectively; or
(4) default in the performance, or breach, of any covenant or
agreement of the Company in this Indenture (other than a default in the
performance, or breach, of a covenant or agreement that is specifically
dealt with elsewhere in this Section 501) and continuance of such default
or breach for a period of 30 days after notice of such default has been
given, by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 25% in principal
amount of the Notes then Outstanding; or
(5) there shall have occurred a default by the Company or any of its
Subsidiaries to make any payment of principal on Indebtedness of the
Company or any
<PAGE>
46
such Subsidiary at its stated final maturity after the expiration of any
applicable grace period in an aggregate outstanding principal amount of
$5.0 million or more;
(6) there shall have occurred a default under any Indebtedness of the
Company or any Subsidiary, whether such Indebtedness now exists or
hereafter shall be created, if (A) such default results in the holder or
holders of such Indebtedness causing the Indebtedness to become due prior
to its stated final maturity and (B) the outstanding principal amount of
such Indebtedness, together with the outstanding principal amount of any
other such Indebtedness the maturity of which has been so accelerated,
aggregate $5.0 million or more at any one time;
(7) one or more final judgments or orders that exceed $5.0 million in
the aggregate for the payment of money have been entered by a court or
courts of competent jurisdiction against the Company or any Subsidiary of
the Company and such judgment or judgments have not been satisfied, stayed,
annulled or rescinded within 60 days of being entered;
(8) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Significant Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under the Federal Bankruptcy Code
or any other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the Company or any Significant Subsidiary or of any substantial part of the
property of the Company and its Subsidiaries, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days;
(9) the institution by the Company or any Significant Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings against it, or
the filing by it of a petition or answer or consent seeking reorganization
or relief under the Federal Bankruptcy Code or any other applicable federal
or state law, or the consent by it to the filing of any such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or any Significant Subsidiary or
of any substantial part of the property of the Company and its
Subsidiaries, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due; or
(10) except as permitted hereunder or by the Guarantees, the cessation
of the effectiveness of any Guarantee or the repudiation by any Guarantor
(or by any Person acting on behalf of any Guarantor) of its obligations
under its Guarantee.
<PAGE>
47
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Sections 501(8) or 501(9) involving the Company) occurs and is continuing, then
and in every such case the Trustee or the Holders of not less than 25% in
principal amount of the Notes Outstanding may declare the principal amount of
all the Notes to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders) and upon any such declaration
such principal amounts, premium and accrued interest thereon shall become
immediately due and payable. If an Event of Default specified in Section 501(8)
or 501(9) occurs, then the principal amount of all the 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 Holder.
The Holders may not enforce the provisions of the Indenture or the
Notes except as provided in this Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the Notes then Outstanding may
direct the Trustee in its exercise of any trust or power; provided, however,
that such direction does not conflict with the terms of this Indenture. The
Trustee may withhold from the Holders notice of any continuing Default or Event
of Default (except any Default or Event of Default in payment of principal of,
premium or interest on the Notes) if the Trustee determines that withholding
such notice is in the Holders' interest.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article, the Holders of a majority
in principal amount of the Notes Outstanding, by written notice to the Company
and the Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding Notes,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Notes which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal at
the rate borne by the Notes,
(C) to the extent that payment of such interest is lawful,
interest on overdue interest at the rate borne by the Notes, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
(2) the rescission would not conflict with any judgment or decree of
a court of competent jurisdiction as certified to the Trustee by the
Company in an Officers' Certificate and Opinion of Counsel; and
<PAGE>
48
(3) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on Notes which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration
of acceleration in respect of the Notes because of an Event of Default specified
in Section 501(5) shall have occurred and be continuing, such declaration of
acceleration shall be automatically annulled if the Indebtedness that is the
subject of such Event of Default has been discharged or the holders thereof have
rescinded their declaration of acceleration in respect of such Indebtedness, and
written notice of such discharge or rescission, as the case may be, shall have
been given to the Trustee by the Company and countersigned by the holders of
such Indebtedness or a trustee, fiduciary or agent for such holders, within 30
days after such declaration of acceleration in respect of the Notes, and no
other Event of Default has occurred during such 30-day period which has not been
cured or waived during such period.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- -------
If an Event of Default specified in Section 501(1) or (2) occurs and
is continuing, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Notes,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the payment
of overdue principal, premium and Liquidated Damages, if any, or interest) shall
be entitled and empowered, by intervention in such proceeding or otherwise,
<PAGE>
49
(i) to file and prove a claim for the whole amount of principal (and
premium and Liquidated Damages, if any) and interest owing and unpaid in
respect of the Notes and to take such other actions, including
participation as a member, voting or otherwise, of any official committee
of creditors appointed in such matter, and to file such other papers or
documents as may be necessary or advisable in order to have the claims of
the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of
the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other securities or other
property payable or deliverable upon the conversion or exchange of the
Notes or upon any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
------------------------------------------------------
All rights of action and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Notes in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium
and Liquidated Damages, if any) or interest, upon presentation of the Notes and
the notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium and Liquidated Damages, if any) and interest on
the Notes in respect of
<PAGE>
50
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due
and payable on such Notes for principal (and premium and Liquidated
Damages, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
or more in principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Liquidated Damages, if any, and Interest.
- ----------------------------------------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article Thirteen) and in
such Note of the principal of (and premium and Liquidated Damages, if any) and
(subject to Section 307) interest on such Note on the respective Stated
Maturities expressed in such Note (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder.
<PAGE>
51
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article Five or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. Control by Holders.
------------------
The Holders of not less than a majority in principal amount of the
Outstanding Notes shall have the right to 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 the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. Waiver of Defaults.
------------------
<PAGE>
52
The Holders of not less than a majority in aggregate principal amount
of the Notes may waive any existing Default or Event of Default hereunder and
its consequences, except a default
(1) in respect of the payment of the principal of (or premium, if
any) or interest on any Note, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Note 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; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
------------------
Within 90 days after the occurrence of any Default hereunder and if
such Default is known to a Responsible Officer of the Trustee, the Trustee shall
transmit in the manner and to the extent provided in TIA Section 313(c), notice
of such Default hereunder known to the Trustee, unless such Default shall have
been cured or waived; provided, however, that, except in the case of a Default
in the payment of the principal of (or premium and Liquidated Damages, if any)
or interest on any Note, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders; and provided further that in the case of any Default of the character
specified in Section 501(4) no such notice to Holders shall be given until such
Default has been continuing for at least 30 days.
SECTION 602. Certain Rights of Trustee.
-------------------------
<PAGE>
53
Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written 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;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(6) 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, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture; and
(9) except during the continuance of an Event of Default, the Trustee
need perform only those duties as are specifically set forth in this
Indenture.
<PAGE>
54
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
In the event that an Event of Default has occurred and is continuing,
the Trustee shall, in the exercise of its power, use the degree of care of a
prudent person in similar circumstances in the conduct of his own affairs.
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
Notes.
- -----
The recitals contained herein and in the Notes, except for the
Trustees certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for the correctness of such
statements or of any other document used in connection with the sale of the
Notes. The Trustee makes no representations as to the validity or sufficiency
of this Indenture or of the Notes, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the Notes
and perform its obligations hereunder and that the statements made by it in any
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall
not be accountable for the use or application by the Company of Notes or the
proceeds thereof.
SECTION 604. May Hold Notes.
--------------
The Trustee, any Paying Agent, any Note Registrar or any other agent
of the Company or of the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and
311, may otherwise deal with the Company and the Guarantors with the same rights
it would have if it were not Trustee, Paying Agent, Note Registrar or such other
agent.
SECTION 605. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 606. Compensation, Reimbursement and Indemnification.
-----------------------------------------------
The Company and the Guarantors, jointly and severally, agree:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder as may be separately agreed in
writing (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee
<PAGE>
55
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of enforcing
this Indenture against the Company (including Section 606) and of defending
itself against any claim (whether asserted by any Holder , the Company or
any Guarantor) or liability in connection with the exercise or performance
of any of its powers or duties hereunder. The Trustee agrees to notify the
Company promptly of any claim asserted against the Trustee for which it may
seek indemnity. The failure by the Trustee to so notify the Company may
relieve the Company of its obligations hereunder to the extent such failure
results in the loss or compromise of any rights or defenses of the Company.
The Company may, at its option, defend the claim, in which case the Trustee
agrees to cooperate in the defense. The Company will not pay for any
settlement made without its written consent, which consent shall not be
unreasonably withheld.
The obligations of the Company and the Guarantors under this Section
606 to compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. As security for the performance of such
obligations of the Company and the Guarantors, the Trustee shall have a claim
prior to the Notes upon all property and funds held or collected by the Trustee
as such, except funds held in trust for the payment of principal of (and premium
and Liquidated Damages, if any) or interest on particular Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(8) or (9), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
The provisions of this Section 606 shall survive the termination of
this Indenture.
SECTION 607. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $25,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section 607, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the
<PAGE>
56
manner and with the effect hereinafter specified in this Article Six.
SECTION 608. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article Six shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 609 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the Outstanding Notes, delivered
to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(2) the Trustee shall cease to be eligible under Section 607(a) and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the
<PAGE>
57
manner hereinafter provided, any Holder who has been a bona fide Holder of a
Note for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Notes in the manner provided for in Section 106. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
SECTION 609. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article Six.
SECTION 610. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- --------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article Six, without the execution or filing of any paper or any further act on
the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
for the certificate of authentication of the Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
<PAGE>
58
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Notes, by receiving and holding the same, agrees with
the Company and the Trustee that none of the Company or the Trustee or any agent
of either of them shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Holders in accordance with
TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
------------------
Within 60 days after May 15 of each year commencing with the first May
15 after the first issuance of Notes, the Trustee shall transmit to the Holders,
in the manner and to the extent provided in TIA Section 313(c), a brief report
dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
MERGER, CONSOLIDATION AND SALE OF ASSETS
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.
----------------------------------------------------
The Company shall not, in a single transaction or a series of related
transactions, (i) consolidate with or merge with or into any other corporation
(other than a merger with a Wholly Owned Restricted Subsidiary solely for the
purpose of changing the Company's jurisdiction of incorporation to another State
of the United States) or sell, lease, transfer, convey or otherwise dispose of
or assign all or substantially all of the assets of the Company and the
Restricted Subsidiaries (taken as a whole), or assign any of its obligations
under the Notes and this Indenture, to any Person or (ii) adopt a Plan of
Liquidation unless, in either case:
(a) the Person formed by or surviving such consolidation or merger
(if other than the Company) or to which such sale, lease, conveyance or
other disposition or assignment shall be made (or, in the case of a Plan of
Liquidation, any Person to which assets are transferred) (collectively, the
"Successor"), is a corporation organized and existing under the laws of the
United States or any State thereof or the District of Columbia, and the
Successor assumes by supplemental indenture in a form satisfactory to the
Trustee all of the obligations of the Company under the Notes and this
Indenture;
(b) immediately prior to and immediately after giving effect to such
transaction and the assumption of the obligations as set forth in clause
(a) above and the incurrence
<PAGE>
59
of any Indebtedness to be incurred in connection therewith, no Default or
Event of Default shall have occurred and be continuing;
(c) immediately after and giving effect to such transaction and the
assumption of the obligations set forth in clause (a) above and the
incurrence of any Indebtedness to be incurred in connection therewith, and
the use of any net proceeds therefrom on a pro forma basis, (1) the
Consolidated Net Worth of the Company or the Successor, as the case may be,
would be at least equal to the Consolidated Net Worth of the Company
immediately prior to such transaction and (2) the Company or the
Successor, as the case may be, could incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio test
set forth in Section 1009 hereof;
(d) each Subsidiary Guarantor, unless it is the other party to the
transactions described above, shall have by amendment to its Guarantee
confirmed that its Guarantee of the Notes shall apply to the obligations of
the Company or the Successor under the Notes and the Indenture. For
purposes of this covenant, any Indebtedness of the Successor which was not
Indebtedness of the Company immediately prior to the transaction shall be
deemed to have been incurred in connection with such transaction; and
(e) the Company or such Person shall have delivered to the Trustee
(i) an Officers' Certificate stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture, comply
with this Article Eight and that all conditions precedent herein provided
for relating to such transaction have been complied with and (ii) if a
supplemental indenture is required in connection with such transaction, an
Opinion of Counsel to the effect that such supplemental indenture has been
duly authorized and executed by the Company or such Person and constitutes
the legal, valid, binding and enforceable obligation of the the Company or
such Person (subject to such customary exceptions concerning creditors'
rights and equitable principles).
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with Section 801,
the surviving Person formed by such consolidation or into which the Company is
merged or to which such transfer is made 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 Person had been named as the Company
herein; provided, however, that solely for purposes of computing the Basket
described in subclause (iii) of the first paragraph of Section 1011 hereof, the
Basket shall not be affected by the Consolidated Net Income or other attributes
of the surviving Person prior to the effective time of the merger and any such
surviving Person shall be deemed to have succeeded to and be substituted for the
Company only with respect to periods subsequent to the effective time of such
merger, consolidation or transfer of assets.
<PAGE>
60
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such Successor of the covenants of the Company
contained herein and in the Notes;
(2) to reflect the release of any Subsidiary Guarantor from its
Subsidiary Guarantee pursuant to Section 1204 or to add as a Subsidiary
Guarantor any Subsidiary of the Company pursuant to Section 1205 in the
manner provided by this Indenture;
(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(4) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(5) to add any additional Events of Default;
(6) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
609; or
(7) to cure any ambiguity, defect or inconsistency or to make any
other change that does not adversely affect the interests of any Holders.
After an amendment under this Section becomes effective, the Company
shall mail to Holders of Notes a notice briefly describing such amendment. The
failure to give such notice to all Holders of Notes, or any defect therein,
shall not impair or affect the validity of an amendment under this Section.
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Notes, by Act of said Holders delivered to
the Company, the Guarantors and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of 75% of the aggregate principal amount of Notes affected thereby,
amend, change or modify Section 1019
<PAGE>
61
or the definitions related thereto; and that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Note affected
thereby (which may include consent obtained in connection with a tender offer or
exchange offer):
(1) extend the maturity of any Note;
(2) affect the terms of any scheduled payment of interest on or
principal of the Notes (including without limitation any redemption
provisions (other than Sections 1015 or 1019 or the definitions related
thereto));
(3) reduce the percentage in principal amount of the Outstanding
Notes, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences provided for in this Indenture;
(4) modify any of the provisions of this Section or Sections 513 and
1019, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected thereby or the
rights of any Holder to receive payments of principal of or premium, if any
or interest or Liquidated Damages, if any, on the Securities;
(5) modify Article Twelve or any related definition in a manner
adverse to the Holders; or
(6) release a Guarantee except pursuant to its terms.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article Nine or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustees own
rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
<PAGE>
62
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect if this
Indenture shall then be qualified under the TIA.
SECTION 906. Reference in Notes to Supplemental Indentures.
---------------------------------------------
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes of like tenor and in like principal amount.
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Note affected, in
the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture. The failure to give such notice to all
Holders of Notes, or any defect therein, shall not impair or affect the validity
of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Liquidated Damages,
-----------------------------------------------------
if any, and Interest.
- --------------------
The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any) and
interest on the Notes in accordance with the terms of the Notes and this
Indenture. A payment will be considered to be paid on the date it is due if the
Trustee or Paying Agent holds on that date legal tender of the United States
designated for and sufficient to pay the installment.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in The City of New York, an office or agency
where Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Corporate Trust Office of the Trustee shall be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The
<PAGE>
63
Company will give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all such purposes and may from time to
time rescind any such designation; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in The City of New York for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and any change in the location of any such other office or agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
-------------------------------------------
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (or premium and Liquidated
Damages, if any) or interest on any of the Notes, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal of (or premium and Liquidated Damages, if any) or interest so becoming
due until such sums shall be paid to such Persons or otherwise disposed of as
herein provided and will promptly notify the Trustee of its action or failure so
to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal of (or premium and
Liquidated Damages, if any) or interest on any Notes, deposit with a Paying
Agent a sum sufficient to pay the principal (and premium and Liquidated Damages,
if any) or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal, premium and Liquidated
Damages or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of such action or any failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium and Liquidated Damages, if any) or interest on Notes in trust for
the benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal
(and premium and Liquidated Damages, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such
<PAGE>
64
Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (or premium and
Liquidated Damages, if any) or interest on any Note and remaining unclaimed for
two years after such principal, premium, Liquidated Damages or interest has
become due and payable shall be paid to the Company on Company Request, or (if
then held by the Company) shall be discharged from such trust; and the Holder of
such Note shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Restricted Subsidiary; provided, however, that the Company shall not be required
to preserve the existence of any Subsidiary or any such right or franchise 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
Subsidiaries as a whole and that the loss thereof is not disadvantageous in any
material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all material lawful claims for labor, materials and supplies, which, if unpaid,
might by law become a lien upon the property of the Company or any Subsidiary;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.
<PAGE>
65
SECTION 1006. Maintenance of Properties.
-------------------------
The Company will cause all properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company from discontinuing the maintenance of any of such properties
if such discontinuance is either (i) in the ordinary course of business or (ii)
in the judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Holders.
<PAGE>
66
SECTION 1007. Insurance.
---------
The Company will at all times keep all of its and its Subsidiaries
properties which are of an insurable nature insured with insurers, believed by
the Company to be responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties, unless, the failure to provide such
insurance (together with all other such failures) would not have a material
adverse effect on the financial condition or results of operations of the
Company and the Restricted Subsidiaries taken as a whole.
SECTION 1008. Statement by Officers As to Default.
-----------------------------------
(a) Each of the Company and any Guarantor will deliver to the
Trustee, within 120 days after the end of each fiscal year a brief certificate
from the principal executive officer, principal financial officer or principal
accounting officer as to his or her knowledge of the Company's or such
Guarantor's compliance with all conditions and covenants under this Indenture.
For purposes of this Section 1008(a), such compliance shall be determined
without regard to any period of grace or requirement of notice under this
Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, the Company or such Guarantor shall deliver to the Trustee by
registered or certified mail or by telegram, telex or facsimile transmission an
officers certificate specifying such Default and what action the Company is
taking or proposes to take with respect thereto within five Business Days of its
occurrence.
SECTION 1009. Limitations on Additional Indebtedness.
--------------------------------------
(A) (i) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, incur any Indebtedness
(including without limitation Acquired Indebtedness) and (ii) the Company shall
not permit any of its Restricted Subsidiaries (other than any Guarantor) to
issue (except if issued to or owned beneficially and of record by the Company or
any of its Restricted Subsidiaries) any Capital Stock having a preference in
liquidation or with respect to the payment of dividends; provided that (a) the
Company and its Restricted Subsidiaries may incur Permitted Indebtedness and (b)
the Company or Scovill Fasteners may incur Indebtedness if, after giving effect
thereto, the Company's Consolidated Fixed Charge Coverage Ratio on the date
thereof would be at least 2.0 to 1.
For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness may be incurred through clause (b) of this
covenant or by meeting the criteria of one or more of the types of Permitted
Indebtedness pursuant to clause (a), the Company, in its sole discretion, (i)
may classify such item of Indebtedness under and comply with either of such
clauses (or any of such definitions), as applicable, (ii) may classify and
divide such item of Indebtedness into more than one of such clauses (or
definitions), as applicable, and (iii) may elect to comply with such clauses (or
definitions), as applicable, in any order.
(B) The Company will not, and will not permit any of its Subsidiaries
that are Guarantors to, incur any Indebtedness that is expressly subordinated to
any other
<PAGE>
67
Indebtedness of the Company or such Subsidiary unless such Indebtedness by its
terms is also expressly made subordinated to the Notes, in the case of the
Company, or the Subsidiary Guarantees, in the case of a Subsidiary.
SECTION 1010. [INTENTIONALLY OMITTED]
SECTION 1011. Limitations on Restricted Payments.
----------------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment (except as
permitted below) if at the time of such Restricted Payment:
(i) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(ii) the Company would be unable to incur an additional $1.00 of
Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio test
set forth in Section 1009 hereof; or
(iii) the amount of such Restricted Payment, when added to the
aggregate amount of all Restricted Payments made after the Issue Date
(other than any Restricted Payment permitted under clause (3)(a), (4) or
(5) of the next paragraph), exceeds the sum (the "Basket") of (A) 50% of
the Company's Consolidated Net Income (taken as one accounting period) from
the beginning of the first fiscal quarter commencing after the Issue Date
to the end of the Company's most recently ended fiscal quarter for which
financial statements are available at the time of such Restricted Payment
(or, if such aggregate Consolidated Net Income shall be a deficit, minus
100% of such aggregate deficit), plus (B) the net cash proceeds from the
issuance and sale (other than to a Restricted Subsidiary of the Company)
after the Issue Date of Qualified Stock, plus (C) the net cash proceeds
from the issuance or sale (other than to a Restricted Subsidiary of the
Company) of Indebtedness or shares of Disqualified Stock after the Issue
Date that have been converted into or exchanged for Qualified Stock of the
Company, together with the aggregate net cash proceeds received by the
Company at the time of such conversion or exchange, plus (D) to the extent
that any Restricted Investment that was made after the Issue Date is sold
for cash or otherwise liquidated or repaid for cash, in whole or in part,
the lesser of (x) the cash return of capital (including repayment in cash
of Indebtedness, if applicable) with respect to such Restricted Investment
(less the cost of disposition, if any) and (y) the initial amount of such
Restricted Investment, plus (E) the amount of Restricted Investment
outstanding in an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary of the Company in
accordance with the definition of Unrestricted Subsidiary.
The foregoing provisions will not prohibit, so long as (with respect
to clauses (2) and (3) below) no Default or Event of Default shall have occurred
and be continuing, (1) the payment of any dividend within 60 days after the date
of declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture; (2) the redemption of any Capital
Stock of the Company in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Restricted Subsidiary of the
<PAGE>
68
Company) of any Qualified Stock of the Company; (3) the redemption of
Subordinated Indebtedness (a) with the net proceeds from or incurrence of
Permitted Refinancing Indebtedness or (b) in exchange for, or out of the
proceeds of, the substantially concurrent issue and sale of Qualified Stock of
the Company (other than (x) Capital Stock sold to a Restricted Subsidiary of the
Company and (y) Capital Stock purchased with the proceeds of loans from the
Company or any of its Restricted Subsidiaries), (4) the redemption of any
Capital Stock of the Company or of Parent, or dividends to Parent in any amount
sufficient to and for the purpose of redeeming Capital Stock of Parent, held by
any present or former employee or director of the Company or any of its
Restricted Subsidiaries (or the estate or a trust for the benefit of any such
Person) in an aggregate amount not to exceed $1.5 million in any fiscal year
(provided that any unused amounts may be carried over to the immediately
subsequent fiscal year but not beyond such fiscal year), (5) dividends to Parent
in an amount sufficient for Parent to pay its legal, accounting and other
operating expenses incurred in the ordinary course of business, but not to
exceed $200,000 in the aggregate in any fiscal year and (6) the payment in an
amount not to exceed $600,000 per year of dividends to Parent in an amount
sufficient to and for the purpose of paying fees to Saratoga or its Affiliates
pursuant to the Management Services Agreement.
The amounts referred to in clauses (1), (2), (3)(b) and (6) shall be
included as Restricted Payments in any computation made pursuant to clause (iii)
above.
SECTION 1012. Limitations on Restrictions on Distributions from
-------------------------------------------------
Restricted Subsidiaries.
- -----------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create or otherwise cause or suffer to exist or become
effective any consensual Payment Restriction with respect to any of its
Restricted Subsidiaries, except for any such Payment Restriction existing under
or by reason of (a) applicable law, (b) customary non-assignment or net worth
provisions in leases or other contracts entered into in the ordinary course of
business and consistent with past practices, (c) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions on
the property so acquired, (d) customary restrictions imposed on the transfer of
copyrighted or patented materials, (e) the entering into of a contract for the
sale or other disposition of assets, directly or indirectly, so long as such
restrictions do not extend to assets that are not subject to such sale or other
disposition, (f) the terms of any agreement evidencing any Indebtedness of
Restricted Subsidiaries that was permitted by the Indenture to be incurred that
only restricts the transfer of the assets purchased with the proceeds of such
Indebtedness, (g) the terms of the Credit Agreement in effect on the Issue Date
or any similar Payment Restriction under the Credit Agreement or any similar
bank credit facility, provided that such similar Payment Restriction, taken as a
whole, is not materially more restrictive than the Payment Restriction in effect
on the Issue Date under the Credit Agreement, (h) the terms of any agreement
evidencing any Acquired Indebtedness that was permitted to be incurred pursuant
to the Indenture, provided that such Payment Restriction only applies to assets
that were subject to such restriction and encumbrances prior to the acquisition
of such assets by the Company or its Restricted Subsidiaries, (i) contracts of a
Restricted Subsidiary in effect prior to such Person becoming a Restricted
Subsidiary and not entered into in contemplation thereof, so long as such
restriction applies only to such Restricted Subsidiary or its assets, (j)
restrictions on transfer of property or assets pursuant to any Lien permitted
under the Indenture, (k) the terms of any agreement in effect on the Issue
<PAGE>
69
Date as such Payment Restriction is in effect on the Issue Date or as thereafter
amended; provided that such Payment Restriction is no more restrictive, (1) the
Indenture, the Notes or the Guarantees, and (m) Refinancing Indebtedness;
provided that any such Payment Restrictions that arise under such Refinancing
Indebtedness are not, taken as a whole, more restrictive than those under the
agreement creating or evidencing the Indebtedness being refinanced.
SECTION 1013. Limitations on Transactions with Affiliates.
-------------------------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, in one transaction or a series of
related transactions, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from or enter into
any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any of their respective Affiliates (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that
are no less favorable to the Company or the relevant Restricted Subsidiary than
those that could have been obtained in a comparable transaction by the Company
or such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction (or series
of related transactions) involving aggregate payments in excess of $1.0 million,
an Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and a Secretary's Certificate which sets forth and
authenticates a resolution that has been adopted by a vote of a majority of the
Disinterested Directors approving such Affiliate Transaction or states that
there are no Disinterested Directors, in which case an opinion, as described in
clause (b), shall be required and (b) with respect to any Affiliate Transaction
(or series of related transactions) involving aggregate payments in excess of
$5.0 million, the certificates described in the preceding clause (a) and an
opinion as to the fairness to the Company or such Restricted Subsidiary from a
financial point of view issued by an Independent Financial Advisor; provided,
however, that the following shall not be deemed to be Affiliate Transactions:
(i) transactions exclusively between or among (1) the Company and one or more
Restricted Subsidiaries or (2) Restricted Subsidiaries, provided, in each case,
that no Affiliate of the Company (other than any Person that is such an
Affiliate solely because of the control of such Person by the Company) owns
Capital Stock of any such Restricted Subsidiary; (ii) transactions between the
Company or any Restricted Subsidiary and any qualified employee stock ownership
plan established for the benefit of the Company's employees, or the
establishment or maintenance of any such plan; (iii) reasonable director,
officer and employee compensation and other benefit, and indemnification,
arrangements approved by the Board of Directors; (iv) transactions permitted by
Section 1011 hereof; (v) the existence of, or the performance by the Company or
any Restricted Subsidiary under, the Management Services Agreement with respect
to fees of up to $600,000 per year and any other agreement in effect on the
Issue Date, as such agreement is in effect on the Issue Date or as amended
thereafter in any manner no less favorable to the Holders; (vi) prepaid expenses
and loans or advances to employees or directors of the Company or any of its
Subsidiaries in the ordinary course of business; (vii) the pledge of Capital
Stock of Unrestricted Subsidiaries to support the Indebtedness thereof; (viii)
the entering into of a tax sharing agreement, or payments pursuant thereto,
between the Company and/or one or more Subsidiaries, on the one hand, and any
other Person with which the Company or such Subsidiaries are required or
permitted to file a consolidated tax return or with which the Company or such
Subsidiaries are or could be part of a consolidated group for tax purposes, on
the other hand, which payments
<PAGE>
70
by the Company and its Restricted Subsidiaries are not in excess of the tax
liabilities that would have been payable by them on a stand-alone basis; and
(ix) the issuance and sale by the Company to its Affiliates of Qualified Stock.
SECTION 1014. Limitations on Liens.
--------------------
The Company will not incur, and will not permit any Restricted
Subsidiary to, directly or indirectly create, incur, assume or suffer to exist
any Lien on any property or asset now owned or hereafter acquired, or on any
income, profits or proceeds therefrom, or assign or convey any right to receive
income therefrom, except Permitted Liens, unless prior thereto or simultaneously
therewith the Notes are equally and ratably secured; provided that if such
Indebtedness is Subordinated Indebtedness the Lien securing such Indebtedness
shall be expressly subordinated and junior to the Lien securing the Notes.
SECTION 1015. Limitations on Asset Sales.
--------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in any Asset Sale unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the assets sold, (ii) at least 80% of
the consideration received by the Company or the relevant Restricted Subsidiary
in respect of such Asset Sale consists of (A) cash or Cash Equivalents, (B) the
assumption of Indebtedness (other than Subordinated Indebtedness) of the Company
or any Guarantor or Indebtedness of any non-Guarantor Restricted Subsidiary, (C)
Related Assets or (D) any combination of the foregoing clauses (A), (B) and (C).
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company or any Restricted Subsidiary may either, no later than 270
days after such Asset Sale, (i) apply all or any of the Net Available Proceeds
therefrom to repay amounts outstanding under the Credit Agreement (including by
providing cash collateral) or any other Indebtedness (other than Subordinated
Indebtedness) of the Company or any Restricted Subsidiary; provided, in each
case, that the related loan commitment (if any) is thereby permanently reduced
by the amount of such Indebtedness so repaid or (ii) invest all or any part of
the Net Available Proceeds thereof in Related Assets. Pending final disposition
of Net Available Proceeds, amounts may be used to repay any amounts outstanding
under the Credit Agreement. The amount of such Net Available Proceeds not
applied or invested as provided in this paragraph will constitute "Excess
Proceeds".
(c) When the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall, within 15 business days, make an offer to purchase
(a "Net Proceeds Offer") from all Holders of Notes the maximum principal amount
(expressed as a multiple of $1,000) of Notes that may be purchased (the "Payment
Amount") out of the amount of such Excess Proceeds. The offer price for the
Notes will be payable in cash in an amount equal to 100% of the principal amount
of the Notes tendered pursuant to a Net Proceeds Offer, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date such Net Proceeds Offer is
consummated (the "Offered Price").
(d) The Company shall, within the time period provided in paragraph
(c) above, notify the Trustee in writing of any Net Proceeds Offer and shall
give written notice of
<PAGE>
71
such Net Proceeds Offer to each Holder of Notes in the manner provided in
Section 106 stating:
(1) that the Holder has the right to require the Company to
repurchase such Holder's Notes at the Offered Price, subject to proration
in the event the Excess Proceeds are less than the aggregate Offered Price
of all Notes tendered;
(2) the date of purchase of Notes pursuant to the Net Proceeds Offer
(the "Asset Sale Purchase Date"), which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed, or such later
date as is necessary to comply with requirements under the Exchange Act or
any applicable securities laws or regulations;
(3) that any Note not tendered will continue to accrue interest
pursuant to its terms;
(4) that, unless the Company defaults in the payment of the Offered
Price, any Note accepted for payment pursuant to the Net Proceeds Offer
shall cease to accrue interest after the Asset Sale Purchase Date; and
(5) the instructions a Holder must follow to accept an Net Proceeds
Offer or to withdraw such acceptance in accordance with paragraph (e) of
this Section.
(e) Holders electing to have Notes purchased will be required to
surrender such Notes to the Company at the address specified in the notice at
least five Business Days prior to the Asset Sale Purchase Date. Holders will be
entitled to withdraw their election if the Company receives, not later than
three Business Days prior to the Asset Sale Purchase Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Notes delivered for purchase by the Holder as to which
his election is to be withdrawn and a statement that such Holder is withdrawing
his election to have such Notes purchased. Holders whose Notes are purchased
only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Note surrendered.
To the extent that the aggregate Offered Price of Notes tendered
pursuant to a Net Proceeds Offer is less than the Payment Amount relating
thereto (such shortfall constituting a "Net Proceeds Deficiency"), the Company
may use such Net Proceeds Deficiency, or a portion thereof, for general
corporate purposes, subject to the limitations of Section 1011 hereof. If the
aggregate Offered Price of Notes validly tendered and not withdrawn by Holders
thereof exceeds the Payment Amount, Notes to be purchased will be selected on a
pro rata basis. Upon completion of such Net Proceeds Offer, the amount of
Excess Proceeds remaining shall be zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder, if
applicable, in the event that an Asset Sale occurs and the Company is required
to purchase Notes as described above.
<PAGE>
72
SECTION 1016. Restrictions on Sale and Leaseback Transactions.
------------------------------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into, renew or extend any Sale
and Leaseback Transaction unless: (i) the Company or such Subsidiary would be
entitled, under Section 1009 hereof, to incur Indebtedness in an amount equal to
the Attributable Indebtedness with respect to such Sale and Leaseback; (ii) such
Sale and Leaseback Transaction would not result in a violation of Section 1014
hereof; and (iii) the Net Available Proceeds from any such Sale and Leaseback
Transaction are applied in a manner consistent with the provisions of Section
1015 hereof.
SECTION 1017. Restrictions on Sale of Capital Stock of Restricted
---------------------------------------------------
Subsidiaries.
- ------------
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly sell or otherwise dispose of any of the Capital Stock
of any Restricted Subsidiary unless: (i) (a) the Restricted Subsidiary shall
remain a Restricted Subsidiary, or (b) all of the Capital Stock of such
Restricted Subsidiary shall be sold or otherwise disposed of or any Capital
Stock of such Restricted Subsidiary retained by the Company or its Restricted
Subsidiaries is treated as an Investment and complies with the provisions
described under Section 1011 hereof, and (ii) the Net Available Proceeds from
any such sale or disposition are applied in a manner consistent with the
provisions described under Section 1015 hereof.
SECTION 1018. Reports.
-------
Whether or not required by the rules and regulations of the Securities
and Exchange Commission (the "Commission"), so long as any Notes are
outstanding, the Company and the Guarantors will file with the Commission, to
the extent such filings are accepted by the Commission, and will furnish to the
Holders of Notes all quarterly and annual reports and other information,
documents and reports that would be required to be filed with the Commission
pursuant to Section 13 of the Exchange Act if the Company were required to file
under such section. The Company and the Guarantors have agreed that, for so long
as any Notes remain outstanding, they will furnish to the Holders and beneficial
holders of Notes and to prospective purchasers of Notes designated by the
Holders of Transfer Restricted Notes and to broker-dealers, upon their request,
the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
SECTION 1019. Purchase of Notes Upon Change of Control.
----------------------------------------
(a) Upon the occurrence of a Change of Control, the Company shall be
obligated to make an offer to purchase (a "Change of Control Offer") all of the
then Outstanding Notes, in whole or in part, from the Holders of such Notes in
integral multiples of $1,000, at a purchase price (the "Change of Control
Purchase Price") equal to 101% of the principal amount of such Notes, plus
accrued and unpaid interest, if any, to the Change of Control Purchase Date (as
defined below), in accordance with the procedures set forth in paragraphs (b),
(c) and (d) of this Section. The Company shall, subject to the provisions
described below, be required to purchase all Notes properly tendered into the
Change of Control Offer and not withdrawn.
<PAGE>
73
(b) The Change of Control Offer is required to remain open for at
least 20 Business Days and until the close of business on the fifth Business Day
prior to the Change of Control Purchase Date (as defined below) or for such
longer period as required by law.
(c) Not later than the 30th day following any Change of Control, the
Company shall give to the Trustee in the manner provided in Section 105 hereof,
who shall mail at the Company's expense to each Holders of Notes, a copy of the
Change of Control Offer, which shall state, among other things, the procedures
that Holders must follow to accept the Change of Control Offer and stating:
(1) that a Change in Control has occurred and that such Holder has
the right to require the Company to repurchase such Holder's Notes, or
portion thereof, at the Change of Control Purchase Price;
(2) any information regarding such Change of Control required to be
furnished pursuant to Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder;
(3) a purchase date (the "Change of Control Purchase Date") which
shall be on a Business Day and no earlier than 30 days nor later than 60
days from the date of such notice is mailed;
(4) that any Note, or portion thereof, not tendered or accepted for
payment will continue to accrue interest;
(5) that unless the Company defaults in depositing money with the
Paying Agent in accordance with the last paragraph of clause (d) of this
Section 1019, or payment is otherwise prevented, any Note, or portion
thereof, accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Purchase Date; and
(6) the instructions a Holder must follow in order to have his Notes
repurchased in accordance with paragraph (d) of this Section.
(d) Holders electing to have Notes purchased will be required to
surrender such Notes to the Paying Agent at the address specified in the Change
of Control Notice at least five Business Days prior to the Change of Control
Purchase Date. Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than three Business Days prior to the Change of
Control Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the certificate number(s) (in the case of
Physical Notes) and principal amount of the Notes delivered for purchase by the
Holder as to which his election is to be withdrawn and a statement that such
Holder is withdrawing his election to have such Notes purchased. Holders whose
Notes are purchased only in part will be issued new Notes of like tenor and
equal in principal amount to the unpurchased portion for the Notes surrendered.
On or prior to 10:00 A.M., New York City time, on the Change of
Control Purchase Date, the Company shall (i) accept for payment Notes or portion
thereof validly tendered (and not withdrawn) pursuant to the Change of Control
Offer, (ii) irrevocably deposit
<PAGE>
74
with the Paying Agent money sufficient to pay the purchase price of all Notes or
portions thereof so tendered, and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted. The Paying Agent shall promptly mail or deliver
to Holders of the Notes so tendered payment in an amount equal to the Change of
Control Purchase Price for the Notes, and the Company shall execute and, upon
Company Order, the Trustee shall authenticate and mail or make available for
delivery to such Holders a new Note of like tenor and equal in principal amount
to any unpurchased portion of the Note which any such Holder did not surrender
for purchase. The Company shall announce the results of a Change of Control
Offer on or as soon as practicable after the Change of Control Purchase Date.
For purposes of this Section 1019, the Trustee will act as the Paying Agent.
(e) The Company's obligation to make a Change of Control Offer will
be satisfied if a third party makes the Change of Control Offer in the manner
and at the times and otherwise in compliance with the requirements applicable to
a Change of Control Offer made by the Company and purchases all Notes properly
tendered and not withdrawn under such Change of Control Offer.
(f) The Company shall comply with Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable, in the event that a Change of Control occurs and
the Company is required to purchase Notes as described in this Section 1019.
SECTION 1020. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Section 803 or Sections 1007 through
1018, inclusive, if before or after the time for such compliance (including
after the occurrence and during the existence of a Default or an Event of
Default) the Holders of at least a majority in principal amount of the
Outstanding Notes, by Act of such Holders, waive such compliance (including in
connection with a tender offer or exchange offer) in such instance with such
term, provision or condition, but no such waiver shall extend to or affect such
term, provision or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
-------------------
The Notes may be redeemed at the option of the Company, as a whole or
from time to time in part, at any time on or after November 30, 2002, at the
Redemption Prices (expressed as percentages of principal amount) set forth
below, if redeemed during the twelve-month period beginning on November 30 of
the year indicated below:
Optional
<PAGE>
75
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002...................................... 105.625%
2003...................................... 103.750%
2004...................................... 101.875%
2005 and thereafter....................... 100.000%
</TABLE>
together in the case of any such redemption with accrued and unpaid interest
thereon and Liquidated Damages, if any, to the applicable Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to such
Redemption Date), all as provided herein.
Notwithstanding the foregoing, at any time on or prior to November 30,
2000, the Company may redeem up to 35% of the aggregate principal amount of
Notes originally issued from the net cash proceeds of one or more Public Equity
Offerings, at a redemption price equal to 111.25% of the principal amount
thereof, together with accrued and unpaid interest thereon and Liquidated
Damages, if any, to the Redemption Date, provided that notice of such redemption
is given to the Holders of Notes pursuant to Section 106 hereof within 60 days
after any such Public Equity Offering closes.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
--------------------------------------------
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for redemption
on a pro rata basis, by lot or by any other method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of
portions of the principal of Notes; provided, however, that no such partial
redemption shall reduce the portion of the principal amount of a Note not
redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal
<PAGE>
76
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest and
Liquidated Damages, if any, to the Redemption Date payable as provided in
Section 1107, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the notice which
relates to such Note shall state that on and after the Redemption Date,
upon surrender of such Note, the holder will receive, without charge, a new
Note or Notes of authorized denominations for the principal amount thereof
remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Note, or the portion
thereof, to be redeemed, and that interest thereon will cease to accrue on
and after said date, and
(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the Notes which are to be redeemed on that date.
<PAGE>
77
SECTION 1107. Notes Payable on Redemption Date.
--------------------------------
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at the close of
business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium and Liquidated Damages, if
any) shall, until paid, bear interest from the Redemption Date at the rate borne
by the Notes.
SECTION 1108. Notes Redeemed in Part.
----------------------
Any Note which is to be redeemed only in part shall be surrendered at
the office or agency of the Company maintained for such purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Note without service charge, a
new Note or Notes, of any authorized denomination as requested by such Holder,
in aggregate principal amount equal to and in exchange for the unredeemed
portion of the principal of the Note so surrendered.
ARTICLE TWELVE
GUARANTEES
SECTION 1201. Unconditional Guarantee.
-----------------------
Each of Parent Guarantor and any Subsidiary Guarantor hereby jointly
and severally unconditionally Guarantees to each Holder of a Note authenticated
and delivered by the Trustee, and to the Trustee on behalf of such Holder, the
full and punctual payment of the principal of (and premium and Liquidated
Damages, if any) and interest on such Note when and as the same shall become due
and payable, whether at the Stated Maturity, by acceleration, call for
redemption, purchase or otherwise, in accordance with the terms of such Note and
of this Indenture. In case of the failure of the Company punctually to make any
such payment, each of Parent Guarantor and any Subsidiary Guarantor hereby
jointly and severally agrees to pay or cause such payment to be made punctually
when and as the same shall become due and payable, whether at the Stated
Maturity, by acceleration, call for redemption,
<PAGE>
78
purchase or otherwise, and as if such payment were made by the Company.
Each of Parent Guarantor and any Subsidiary Guarantor hereby jointly
and severally agrees that its obligations hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of such Note or this
Indenture, the absence of any action to enforce the same, any exchange, or any
release or amendment or waiver of any term of any Guarantee of all or any of the
Notes, or any consent to departure from any requirement of any Guarantee of all
or any of the Notes, the election by the Trustee or any of the Holders in any
proceeding under Chapter 11 of the Federal Bankruptcy Code, or the application
of Section 1111(b)(2) of the Federal Bankruptcy Code, any borrowing or grant of
a security interest by the Company, as debtor-in-possession, under Section 364
of the Federal Bankruptcy Code, the disallowance, under Section 502 of the
Federal Bankruptcy Code, of all or any portion of the claims of the Trustee or
any of the Holders for payment of any of the Notes (including, without
limitation, any interest, Liquidated Damages or premium thereon), any waiver or
consent by the Holder of such Note or by the Trustee with respect to any
provisions thereof or of this Indenture or with respect to the provisions of
this Article Twelve as they apply to Parent Guarantor or any Subsidiary
Guarantor, the obtaining of any judgment against the Company or any action to
enforce the same or any other circumstances which might otherwise constitute a
legal or equitable discharge or defense of the guarantor. Each of Parent
Guarantor and any Subsidiary Guarantor hereby waives the benefits of diligence,
presentment, demand of payment, any requirement that the Trustee or any of the
Holders protect, secure, perfect or insure any security interest in or other
Lien on any property subject thereto or exhaust any right or take any action
against the Company or any other Person, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest or notice with respect to such
Note or the Indebtedness evidenced thereby and all demands whatsoever, and
covenants that its Guarantee will not be discharged in respect of such Note
except by complete performance of the obligations contained in such Note and in
such Guarantee. Each of Parent Guarantor and any Subsidiary Guarantor hereby
agrees that, in the event of a default in payment of principal (or premium or
Liquidated Damages, if any) or interest on such Note, whether at their Stated
Maturity, by acceleration, call for redemption, purchase or otherwise, legal
proceedings may be instituted by the Trustee on behalf of, or by, the Holder of
such Note, subject to the terms and conditions set forth in this Indenture,
directly against Parent Guarantor or any Subsidiary Guarantor to enforce its
Guarantee without first proceeding against the Company. Each of Parent
Guarantor and any Subsidiary Guarantor agrees if, after the occurrence and
during the continuance of an Event of Default, the Trustee or any of the Holders
are prevented by applicable law from exercising their respective rights to
accelerate the maturity of the Notes, to collect interest on the Notes, or to
enforce or exercise any other right or remedy with respect to the Notes, to pay
to the Trustee for the account of the Holders, upon demand thereof, the amount
that would otherwise have been due and payable had such rights and remedies been
permitted to be exercised by the Trustee or any of the Holders.
Each of Parent Guarantor and any Subsidiary Guarantor shall be
subrogated to all rights of the Holders of the Notes against the Company in
respect of any amounts paid by Parent Guarantor or any Subsidiary Guarantor on
account of such Notes pursuant to the provisions of its Guarantee of this
Indenture; provided, however, that neither Parent Guarantor nor any Subsidiary
Guarantor shall be entitled to enforce or to receive any payments arising out
of, or based upon, such right of subrogation until the principal of (and premium
and Liquidated Damages, if any) and interest on all Notes issued hereunder shall
have been paid in
<PAGE>
79
full.
Each Guarantee shall remain in full force and effect and continue to
be effective should any petition be filed by or against the Company for
liquidation or reorganization, should the Company become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Company's assets, and shall, to
the fullest extent permitted by law, continue to be effective or be reinstated,
as the case may be, if at any time payment and performance of the Notes is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by an obligee on the Notes whether as a "voidable
preference", "fraudulent transfer", or otherwise, all as though such payment or
performance has not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Notes shall, to the
fullest extent permitted by law, be reinstated and deemed reduced only by such
amount paid and not so rescinded, restored or returned.
Parent Guarantor and the Subsidiary Guarantors shall have the right to
seek contribution from any non-paying Subsidiary Guarantor (including Parent
Guarantor, as the case may be) so long as the exercise of such right does not
impair the rights of the Holders under Guarantees or under this Article Twelve
in accordance with Section 1207.
Rights of Holders to payment in full under the Notes pursuant to such
Guarantees shall pari passu in right of payment with all other existing and
future unsecured and unsubordinated obligations of such Guarantor and senior to
all existing and future Subordinated Indebtedness of such Guarantor.
SECTION 1202. Execution and Delivery of Guarantees.
------------------------------------
The Guarantee to be endorsed on the Notes is set forth in Exhibit A-2.
Each Guarantor hereby agrees to execute its Guarantee, in a form established
pursuant to Exhibit A-2, to be endorsed on each Note authenticated and delivered
by the Trustee.
The Guarantee shall be executed on behalf of each respective Guarantor
by any Officer of such Guarantor. The signature of any Officer on the Guarantee
may be manual or facsimile.
A Guarantee bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of a Guarantor shall bind such
Guarantor, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of the Note on which
such Guarantee is endorsed or did not hold such offices at the date of such
Guarantee.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee endorsed
thereon on behalf of the Guarantors. Each of the Guarantors hereby jointly and
severally agrees that its Guarantee set forth in Section 1201 shall remain in
full force and effect notwithstanding any failure to endorse a Guarantee on any
Note.
SECTION 1203. Limitation on Merger or Consolidation.
-------------------------------------
<PAGE>
80
No Guarantor shall consolidate or merge with or into (whether or not
such Guarantor is the surviving Person) another Person whether or not affiliated
with such Guarantor unless (i) the Person formed by or surviving any such
consolidation or merger (if other than such Guarantor) assumes all of the
obligations of such Guarantor pursuant to a supplemental indenture, in form and
substance satisfactory to the Trustee, under the Notes and this Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists; and (iii) immediately after giving effect to such transaction,
the Company could incur at least $1.00 of additional Indebtedness pursuant to
the Consolidated Fixed Charge Coverage Ratio set forth in Section 1009.
The foregoing provisions shall not prohibit any consolidation or
merger of one or more Guarantors with or into the Company or into another
Guarantor.
SECTION 1204. Release of Parent Guarantor and Subsidiary Guarantors.
-----------------------------------------------------
(a) Concurrently with any consolidation or merger of a Guarantor as
permitted by Section 1203 hereof, and upon delivery by the Company to the
Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that
such consolidation, merger, sale or conveyance was made in accordance with
Section 1203 hereof, the Trustee shall execute any documents reasonably required
in order to evidence the release of such Guarantor from its obligations under
its Guarantees endorsed on the Notes and under this Article Twelve. Any
Guarantor not released from its obligations under its Guarantees endorsed on the
Notes and under this Article Twelve shall remain liable for the full amount of
principal of (and premium and Liquidated Damages, if any) and interest on the
Notes and for the other obligations of any Guarantor under its Guarantees
endorsed on the Notes and under this Article Twelve.
(b) Concurrently with the legal defeasance of the Notes under
Section 1302 hereof or the covenant defeasance of the Notes under Section 1303
hereof, the Guarantors shall be released from all of their obligations under
their Guarantees endorsed on the Notes and under this Article Twelve.
(c) Upon the sale or disposition (by merger or otherwise) of any
Subsidiary Guarantor by the Company or any Restricted Subsidiary of the Company
to any entity that is not a Restricted Subsidiary of the Company and which sale
or disposition is otherwise in compliance with the terms of this Indenture,
including, without limitation, Section 1015 and Section 1019 of this Indenture,
such Subsidiary Guarantor shall automatically be released from all obligations
under its Subsidiary Guarantees endorsed on the Notes and under this Article
Twelve.
(d) Upon the designation by the Company of a Subsidiary Guarantor
from Restricted Subsidiary to an Unrestricted Subsidiary in compliance with the
provisions of this Indenture, such Subsidiary may, at its option, cease to be a
Subsidiary Guarantor by notice to the Trustee. Upon such notice, such
Subsidiary shall be released from all of the obligations of a Subsidiary
Guarantor under its Subsidiary Guarantees endorsed on the Notes and under this
Article Twelve, which release shall be evidenced by a supplemental indenture
executed by the Company, the Subsidiary Guarantors and the Trustee.
<PAGE>
81
SECTION 1205. Additional Subsidiary Guarantors.
--------------------------------
The Company may cause any Subsidiary to become a Subsidiary Guarantor
with respect to the Notes. If the Company or any of its Restricted Subsidiaries
shall acquire or create another Subsidiary (other than any Foreign Subsidiary)
or contribute property or assets to any existing Subsidiary, then such
Subsidiary shall be required to execute a Subsidiary Guarantee, in accordance
with the terms of this Indenture, unless it has been designated as an
Unrestricted Subsidiary; provided that no such Guarantee by such Subsidiary
shall be required so long as (x) the Consolidated Net Income for the four fiscal
quarter periods immediately preceding the date of acquisition or creation of, or
contribution to, such Subsidiary for which financial statements are available
and net assets at the end of such period of such Subsidiary do not exceed 3% of
the Consolidated Net Income for such period and net assets at such date,
respectively, of the Company and its Restricted Subsidiaries and (y) the
combined Consolidated Net Income for such period and the net assets at such date
of all Restricted Subsidiaries (other than Guarantors and Foreign Subsidiaries)
does not exceed 5% of the Consolidated Net Income for such period and the net
assets at such date, respectively, of the Company and its Restricted
Subsidiaries. Any such Subsidiary shall become a Subsidiary Guarantor by
executing and delivering to the Trustee (a) a supplemental indenture, in form
and substance satisfactory to, and executed by, the Trustee and executed by the
Company, which subjects such Subsidiary to the provisions of this Indenture as a
Subsidiary Guarantor and (b) an Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such Subsidiary
and constitutes the legal, valid, binding and enforceable obligation of such
Subsidiary (subject to such customary exceptions concerning creditors' rights
and equitable principles).
SECTION 1206. Limitation on Parent Guarantor and Subsidiary
---------------------------------------------
Guarantor's Liability.
- ---------------------
Each of Parent Guarantor and any Subsidiary Guarantor, and by its
acceptance hereof each Holder, hereby confirms that it is the intention of all
such parties that the Guarantee by each of Parent Guarantor and such Subsidiary
Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or
conveyance for purposes of the Federal Bankruptcy Code, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or
state law. To effectuate the foregoing intention, the Holders and such
Guarantors hereby irrevocably agree that the obligations of such Guarantors
under their Guarantees shall be limited to the maximum amount as will, after
giving effect to all other contingent and fixed liabilities of each Guarantor
and after giving effect to any collection from or payments made by or on behalf
of any Guarantor in respect of the obligations of such Guarantor under its
Guarantee or pursuant to Section 1207, result in the obligations of such
Guarantor under its Guarantee not constituting such a fraudulent transfer or
conveyance.
SECTION 1207. Contribution.
------------
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under its
Guarantee, and so long as the exercise of such right does not impair the rights
of the Holders under the Guarantees or under this Article Twelve, such Funding
Guarantor shall be entitled to a contribution from all other Guarantors
<PAGE>
82
in a pro rata amount, based on the net assets of each Guarantor (including the
Funding Guarantor), determined in accordance with GAAP, subject to Section 1206,
for all payments, damages and expenses incurred by that Funding Guarantor in
discharging the Company's obligations with respect to the Notes or any other
Guarantor's obligations with respect to its Guarantee.
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
- ----------
The Company may, at its option by Board Resolution and at any time,
with respect to the Notes, elect to have either Section 1302 or Section 1303 be
applied to all Outstanding Notes upon compliance with the conditions set forth
below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
------------------------
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company and the Guarantors shall be deemed
to have been discharged from its obligations with respect to all Outstanding
Notes on the date the conditions set forth in Section 1304 are satisfied
(hereinafter, "defeasance"). For this purpose, such defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Notes, which shall thereafter be deemed to be
"Outstanding" only for the purposes of Section 1305 and the other Sections of
this Indenture referred to in (A) and (B) below, and to have satisfied all its
other obligations under such Notes and this Indenture insofar as such Notes are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), and the Guarantors to have been discharged
from their guarantees, except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of
Outstanding Notes to receive, solely from the trust fund described in Section
1304 and as more fully set forth in such Section, payments in respect of the
principal of (and premium, if any, on) and interest on such Notes when such
payments are due, (B) the Company's obligations with respect to such Notes under
Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and (D) the provisions under this
Article Thirteen. Subject to compliance with this Article Thirteen, the Company
may exercise its option under this Section 1302 notwithstanding the prior
exercise of its option under Section 1303 with respect to the Notes.
SECTION 1303. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Section 801(c) and in Sections 1004
through 1007 and 1009 through 1019 shall not apply with respect to the
Outstanding Notes on and after the date the conditions set forth
<PAGE>
83
below are satisfied (hereinafter, "covenant defeasance"), and the Notes shall
thereafter be deemed not to be "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to the Outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Sections 501(3) and (4), but, except as specified
above, the remainder of this Indenture and such Notes shall be unaffected
thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of either Section
1302 or Section 1303 to the Outstanding Notes:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (A) cash in
United States dollars, or (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, the principal
of (and premium and Liquidated Damages, if any) and interest on the
Outstanding Notes on the Stated Maturity (or Redemption Date, if
applicable) of such principal (and premium and Liquidated Damages, if any)
or installment of interest; provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Notes. Before
such a deposit, the Company may give to the Trustee, in accordance with
Section 1103 hereof, a notice of its election to redeem all of the
Outstanding Notes at a future date in accordance with Article Eleven
hereof, which notice shall be irrevocable. Such irrevocable redemption
notice, if given, shall be given effect in applying the foregoing.
(2) No Default or Event of Default with respect to the Notes shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraphs (8) and (9) of Section 501 hereof are concerned, at any time
during the period ending on the 123rd day after the date of such deposit
(it being understood that this condition shall not be deemed satisfied
until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in a
breach or
<PAGE>
84
violation of, or constitute a default under, this Indenture or any other
material agreement or instrument to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound.
(4) The Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the Outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such defeasance had not occurred (in the case of legal defeasance,
such Opinion of Counsel must refer to and be based upon a published ruling
of the Internal Revenue Service or a change in applicable federal income
tax laws).
(5) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1302
or the covenant defeasance under Section 1303 (as the case may be) have
been complied with.
(6) Such legal defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest under this Indenture or the Trust
Indenture Act.
(7) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of the Outstanding Notes over other
creditors of the Company with the intent of defeating, hindering, delaying
or defrauding creditors of the Company or others.
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
-----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
- ---------------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such Notes of
all sums due and to become due thereon in respect of principal (and premium and
Liquidated Damages, if any) and interest, but such money need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Notes.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or
<PAGE>
85
U.S. Government Obligations held by it as provided in Section 1304 which, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof which would then be required to be deposited to
effect an equivalent defeasance or covenant defeasance, as applicable, in
accordance with this Article.
SECTION 1306. Repayment to the Company or Subsidiary Guarantors.
-------------------------------------------------
Subject to Sections 401, 606, 1301, 1302 and 1303, the Trustee shall
promptly pay to the Company, or if deposited with the Trustee by any Guarantor,
to each Guarantor, upon receipt by the Trustee of the Company's request
accompanied by an Officers' Certificate, any excess money, determined in
accordance with the provisions of Sections 1302 and 1303, held by it at any
time. The Trustee and the Paying Agent shall pay to the Company or any
Guarantor, as the case may be, upon receipt by the Trustee or the Paying Agent,
as the case may be, of an Officers' Certificate, any money held by it for the
payment of principal, interest, premium (if any), and Liquidated Damages (if
any) that remains unclaimed for two years after payment to the Holders is
required; provided however, that the Trustee and the Paying Agent, before being
-------- -------
required to make any payment, may, but need not, cause to be published at the
Company's expense once in a newspaper of general circulation in The City of New
York, or mail to each Holder entitled to such money, notice that such money
remains unclaimed and that after a date specified therein, which shall be at
least 30 days from the date of the publication or mailing, any unclaimed balance
of such money then remaining will be repaid to the Company or the Guarantor.
After payment to the Company or the Guarantor, Holders entitled to money must
look solely to the Company for payment, as general creditors, unless an
applicable abandoned property law designates another person, and all liability
of the Trustee or Paying Agent with respect to the money shall cease thereon.
SECTION 1307. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and any Guarantor's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 1302 or 1303, as the case may be, until such time
as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 1305; provided, however, that if the Company makes any
payment of principal of (or premium and Liquidated Damages, if any) or interest
on any Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
<PAGE>
86
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
SCOVILL ACQUISITION INC.
By_________________________________
Title:
SCOVILL HOLDINGS INC.
By_________________________________
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK
By_________________________________
Title:
<PAGE>
Exhibit A-1
-----------
FACE OF NOTE
SCOVILL ACQUISITION INC.
11 1/4% Senior Note due 2007
[CUSIP] [CINS] ________ __________________
No. _______ $_______ __________________
SCOVILL ACQUISITION INC., a Delaware corporation (the "Company", which
term includes any successor under the Indenture hereinafter referred to), for
value received, promises to pay to ___________, or its registered assigns, the
principal sum of ____________________________________ Dollars ($___________), on
November 30, 2007.
Interest Payment Dates: May 30 and November 30 of each year,
commencing May 30, 1998.
Regular Record Dates: May 15 and November 15 of each year.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
A1-2
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by a duly authorized officer.
SCOVILL ACQUISITION INC.
By: ____________________________
Title:
(Form of Trustee's Certificate of Authentication)
This is one of the 11 1/4% Senior Notes due 2007 described in the within-
mentioned Indenture.
Date: ______________ UNITED STATES TRUST COMPANY
OF NEW YORK,
as Trustee
By: ________________________________
Authorized Signatory
<PAGE>
A1-3
REVERSE SIDE OF NOTE
SCOVILL ACQUISITION INC.
11 1/4% Senior Note due 2007
1. Principal and Interest.
----------------------
The Company will pay the principal of this Note on November 30, 2007.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate of 11 1/4%
per annum.
Interest will be payable semiannually (to the Holders of record of the
Notes (or any predecessor Notes) at the close of business on the May 15 and
November 15 immediately preceding the Interest Payment Date, on each Interest
Payment Date, commencing May 30, 1998.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated November 26, 1997, between the Company and
the Initial Purchasers named therein (the "Registration Rights Agreement").
Interest on this Note will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from November 26, 1997;
provided that, if there is no existing default in the payment of interest and if
this Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
The Company shall pay interest on overdue principal, premium, if any,
and interest on overdue installments of interest, to the extent lawful, at a
rate per annum equal to the rate of interest applicable to the Notes.
2. Method of Payment.
-----------------
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes on each May 30 and November 30 (each, an "Interest
Payment Date") to the persons who are Holders (as reflected in the Note Register
at the close of business on the May 15 and November 15 immediately preceding the
Interest Payment Date).
The Company will pay principal, premium and Liquidated Damages, 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. Payment of the principal
of (and premium and Liquidated Damages, if any) and interest on the Notes will
be made at the office or agency of the
<PAGE>
A1-4
Company maintained for that purpose in The City of New York (which shall be the
Corporate Trust Office of the Trustee, unless the Company shall designate and
maintain some other office or agency for such purpose), or at such other office
or agency of the Company as may be maintained for such purpose, in lawful money
of the United States of America, or payment of interest may be made at the
option of the Company by wire transfer in immediately available funds or, in the
case of Physical Notes only, by check mailed to the address of the Person
entitled thereto as such address shall appear on the Note Register. If a payment
date is a date other than a Business Day at a place of payment, payment may be
made at that place on the next succeeding day that is a Business Day and no
interest shall accrue for the intervening period.
3. Paying Agent and Note Registrar.
-------------------------------
Initially, the Trustee will act as Paying Agent and Note Registrar.
The Company may change any Paying Agent or Note Registrar upon written notice
thereto. The Company, any Subsidiary or any Affiliate of any of them may act as
Paying Agent, Note Registrar or co-registrar.
4. Indenture; Limitations.
----------------------
The Company issued the Notes under an Indenture dated as of November
26, 1997 (the "Indenture"), among the Company, Scovill Holdings Inc. and United
States Trust Company of New York, as trustee (the "Trustee"). Capitalized terms
herein are used as defined in the Indenture unless otherwise indicated. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act. The Notes are subject to
all such terms, and Holders are referred to the Indenture and the Trust
Indenture Act for a statement of all such terms. To the extent permitted by
applicable law, in the event of any inconsistency between the terms of this Note
and the terms of the Indenture, the terms of the Indenture shall control.
The Notes are general unsecured obligations of the Company. The
Indenture limits the aggregate principal amount of the Notes to $100,000,000.
5. Redemption.
----------
<PAGE>
A1-5
Optional Redemption. The Notes may be redeemed at the option of
-------------------
the Company, in whole or in part, at any time and from time to time on or after
November 30, 2002 at the following Redemption Prices (expressed in percentages
of principal amount), plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date to receive interest due on an Interest Payment Date that is
on or prior to the Redemption Date), if redeemed during the 12-month period
beginning November 30 of each of the years set forth below:
Redemption
Year Price
---- -------------
2002................................. 105.625%
2003................................. 103.750%
2004................................. 101.875%
2005 and thereafter.................. 100.000%
In addition to the optional redemption of the Notes in accordance with
the provisions of the preceding paragraph, at any time or from time to time on
or prior to November 30, 2000, the Company may redeem up to 35% of the aggregate
principal amount of the Notes with the net cash proceeds of one or more Public
Equity Offerings, at 111.25% of the principal amount thereof, together with
accrued and unpaid interest and Liquidated Damages, if any, to the Redemption
Date; provided, however, that notice of such redemption is given to the Holders
within 60 days after such Public Equity Offerings.
Notice of a redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder to be redeemed at such
Holder's last address as it appears in the Note Register. Notes in original
denominations larger than $1,000 may be redeemed in part in integral multiples
of $1,000. On and after the Redemption Date, interest ceases to accrue on Notes
or portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.
6. Repurchase upon a Change in Control and Asset Sales.
---------------------------------------------------
(a) Upon the occurrence of a Change of Control, the Company is
obligated to make an offer to purchase all outstanding Notes at a redemption
price of 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of purchase and (b) upon Asset Sales, the Company may be
obligated to make offers to purchase Notes with a portion of the net available
proceeds of such Asset Sales at a redemption price of 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase.
<PAGE>
A1-6
7. Denominations; Transfer; Exchange.
---------------------------------
The Notes are in registered form without coupons, in denominations of
$1,000 and multiples of $1,000 in excess thereof. A Holder may register the
transfer or exchange of Notes in accordance with the Indenture. The Note
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. The Note Registrar need not register the
transfer or exchange of any Notes selected for redemption (except the unredeemed
portion of any Note being redeemed in part). Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before a selection of
Notes to be redeemed is made.
8. Persons Deemed Owners.
---------------------
A Holder may be treated as the owner of a Note for all purposes.
9. Unclaimed Money.
---------------
If money for the payment of principal, premium and Liquidated Damages,
if any, or interest remains unclaimed for two years, the Trustee and the Paying
Agent will pay the money back to the Company at its request. After that,
Holders entitled to the money must look to the Company for payment, unless an
abandoned property law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
-----------------------------------------
If the Company irrevocably deposits, or causes to be deposited, with
the Trustee money or U.S. Government Obligations sufficient to pay the then
outstanding principal of, premium, if any, and accrued interest on the Notes (a)
to redemption or maturity, the Company will be discharged from the Indenture and
the Notes, except in certain circumstances for certain sections thereof, and (b)
to the Stated Maturity, the Company will be discharged from certain covenants
set forth in the Indenture.
11. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in aggregate principal amount of the Notes then outstanding, and any existing
default or compliance with any provision may be waived with the consent of the
Holders of a majority in aggregate principal amount of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, defect or inconsistency and make any change that
does not materially adversely affect the rights of any Holder.
<PAGE>
A1-7
12. Restrictive Covenants.
---------------------
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) sales of Capital Stock of Restricted
Subsidiaries; (iv) transactions with Affiliates; (v) Liens; (vi), disposition of
proceeds of Asset Sales; (vii), dividends and other payment restrictions
affecting Restricted Subsidiaries; and (viii) merger and certain transfers of
assets. Within 120 days after the end of each fiscal year, the Company must
report to the Trustee on compliance with such limitations.
13. Successor Persons.
-----------------
When a successor person or other entity assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor person will
be released from those obligations.
14. Remedies for Events of Default.
------------------------------
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of not less than 25% in principal amount
of the Notes then outstanding may declare all the Notes to be immediately due
and payable. If a bankruptcy or insolvency default with respect to the Company
or any of its Significant Subsidiaries occurs and is continuing, the Notes
automatically become immediately due and payable. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Notes. Subject to certain limitations, Holders of at least a majority in
principal amount of the Notes then outstanding may direct the Trustee in its
exercise of any trust or power.
15. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Notes and may make loans to, accept
deposits from, perform services for, and otherwise deal with, the Company, and
its Affiliates as if it were not the Trustee.
16. Authentication.
--------------
This Note shall not be valid until the Trustee signs the certificate
of authentication on the other side of this Note.
17. No Personal Liability of Directors, Officers, Employees, Stockholders or
------------------------------------------------------------------------
Incorporators.
- -------------
<PAGE>
A1-8
No director, officer, employee, incorporator or stockholder, as such,
of the Company or any Guarantor shall have any liability for any obligations of
the Company or such Guarantor under the Notes or for any claim based on, in
respect of, or by reason of, such obligations or their creations. Each Holder
by accepting a Note waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Notes.
18. 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).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Scovill
Acquisition Inc., Attention: Chief Financial Officer.
<PAGE>
A1-9
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ----------------------------------
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
_________________________________________________________ attorney to transfer
such Note on the books of the Company with full power of substitution in the
premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
PERMANENT OFFSHORE GLOBAL NOTES AND
PERMANENT OFFSHORE PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of the date of an effective Registration Statement or
the end of the period referred to in Rule 144(k) under the Securities Act, the
undersigned confirms that without utilizing any general solicitation or general
advertising that:
[Check One]
---------
[_] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by
Rule 144A thereunder.
or
--
[_] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Note Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 312 of the Indenture shall have
been satisfied.
Date: ____________________ _________________________
<PAGE>
A1-10
NOTICE: The signature to this
assignment must correspond with the name
as written upon the face of the within-
mentioned instrument in every particular,
without alteration or any change
whatsoever.
Signature Guarantee/1/ _______________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:________________________ ________________________________________
NOTICE: To be executed by an executive
officer
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1015 or Section 1019 of the Indenture, check the Box: [_]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1015 or Section 1019 of the Indenture, state the amount (in
original principal amount) below:
$_____________________.
____________________
/1/ The Holder's signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar which
requirements include membership or participation in the Security Transfer
Agent Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Note Registrar in addition to or in
substitution for, STAMP, all in accordance with the Securities Exchange Act
of 1934, as amended.
<PAGE>
A1-11
Date:______________
Your Signature:__________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee/2/ _______________________
_______________________
/1/ The Holder's signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar which
requirements include membership or participation in the Security Transfer
Agent Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Note Registrar in addition to or in
substitution for, STAMP, all in accordance with the Securities Exchange Act
of 1934, as amended.
<PAGE>
Exhibit A-2
-----------
GUARANTEE
_________________ (a "Guarantor," as defined in the Indenture referred
to in the Note upon which this notation is endorsed, which term includes any
successor Person under the Indenture) has unconditionally guaranteed on a senior
basis (such guarantee by the Guarantor being referred to herein as the
"Guarantee") (i) the due and punctual payment of the principal amount of,
premium and Liquidated Damages, if any, and interest on the Notes, whether at
maturity, by acceleration or otherwise, the due and punctual payment of interest
on the overdue principal amount and interest, if any, on the Notes, to the
extent lawful, and the due and punctual performance of all other obligations of
the Company to the Holders or the Trustee all in accordance with the terms set
forth in Article Twelve of the Indenture and (ii) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise.
No director, officer, employee, direct or indirect stockholder or
incorporator, as such, of the Guarantor, including but not limited to
stockholders of the Guarantor, shall have any liability for any obligations of
the Guarantor under the Guarantee or for any claim based on, in respect of or by
reason of such obligations or its creation.
The Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Notes upon which the Guarantee is noted
shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
[Guarantor]
By:_______________________________
Name:
Title:
<PAGE>
Exhibit B
---------
Form of Certificate
to Be Delivered upon
Termination of Restricted Period
--------------------------------
__________, ____
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
Re: Scovill Acquisition Inc. (the "Company")
11 1/4% Senior Notes due 2007 (the "Notes")
-------------------------------------------
Ladies and Gentlemen:
This letter relates to $__________ principal amount of Notes
represented by the offshore global note certificate (the "Offshore Global
Note"). Pursuant to Section 312 of the Indenture dated as of November 26, 1997
relating to the Notes (the "Indenture"), we hereby certify that (1) we are the
beneficial owner of such principal amount of Notes represented by the Offshore
Global Note and (2) we are a Non-U.S. Person to whom the Notes could be
transferred in accordance with Rule 904 of Regulation S promulgated under the
Securities Act of 1933, as amended ("Regulation S"). Accordingly, you are
hereby requested to issue a Permanent Offshore Global Note representing the
undersigned's interest in the principal amount of Notes represented by the
Global Note, all in the manner provided by the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
Authorized Signature
<PAGE>
Exhibit C-1
-----------
Form of Certificate to be
Delivered by Transferor in Connection with
Transfers to Institutional Accredited Investors
-----------------------------------------------
[Date]
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
Re: Scovill Acquisition Inc. (the "Company")
11 1/4% Senior Notes due 2007 (the "Notes")
-------------------------------------------
Ladies and Gentlemen:
We hereby certify that such transfer is being effected in compliance
with the transfer restrictions applicable to the Notes or interests therein
transferred pursuant to and in accordance with the Securities Act of 1933, as
amended (the "Securities Act"), and accordingly we hereby further certify that
(check one):
(a) [_] such transfer is being effected pursuant to and in accordance with
Rule 144 under the Securities Act;
or
--
(b) [_] such transfer is being effected to the Company or a subsidiary
thereof;
or
--
(c) [_] such transfer is being effected pursuant to an effective
registration statement under the Securities Act;
or
--
(d) [_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A, Rule 144
or Rule 904, and we hereby further certify that such transfer complies with the
transfer restrictions applicable to the Notes or interests therein transferred
to Institutional Accredited Investors and in accordance with the requirements of
the exemption claimed, which certification is supported by an Opinion of Counsel
provided by us or the transferee (a copy of which we have attached to this
certification), to the effect that (a) such transfer is in compliance with the
Securities Act
<PAGE>
C1-2
and (b) such transfer complies with any applicable blue sky securities laws of
any state of the United States. Upon consummation of the proposed transfer in
accordance with the terms of the Indenture, the transferred Notes or interests
therein will be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the U.S. Physical Notes and in the Indenture
and the Securities Act.
Capitalized terms not defined herein have the meaning given to them in
the Indenture dated as of November 26, 1997 ("Identure") among Scovill
Acquisition Inc., Scovill Holdings Inc. and United States Trust Company of New
York.
Very truly yours,
[Name of Transferor]
By:___________________________________
Authorized Signatory
<PAGE>
Exhibit C-2
-----------
Form of Certificate to be
Delivered By Transferees in Connection with
Transfers to Institutional Accredited Investors
-----------------------------------------------
[Date]
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
Re: Scovill Acquisition Inc. (the "Company")
11 1/4% Senior Notes due 2007 (the "Notes")
-------------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of $___________ aggregate
principal amount of Notes, we confirm that:
(i) we understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth
in the Indenture dated as of November 26, 1997 relating to the Notes (the
"Indenture") and the Registration Rights Agreement dated November 26, 1997
---------
relating to the Notes (the "Registration Rights Agreement") and the
-----------------------------
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with such restrictions and
conditions and the U.S. Securities Act of 1933, as amended (the "Securities
----------
Act").
---
(ii) we are an institutional "accredited investor" within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act or an
entity in which all of the equity owners are institutional accredited
investors within the meaning of Rule 501(a) under the Securities Act (an
"Institutional Accredited Investor");
(iii) any purchase of Notes by us will be for our own account or for
the account of one or more other Institutional Accredited Investors;
(iv) in the event that we purchase any Notes, we will acquire Notes
having a minimum principal amount of at least $100,000 for our own account
and for each separate account for which we are acting;
(v) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of purchasing
Notes;
(vi) we are not acquiring the Notes for or on behalf of, and will
not transfer the Notes to, any pension or welfare plan (as defined in
Section 3 of the Employee Retirement Income Security Act of 1974, as
amended) or plan (as defined in Section 4975 of the Internal Revenue Code,
as amended), except as permitted by the Indenture
<PAGE>
C2-2
or the Notes.
We understand that the 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 Notes, that, within the time period referred to under
Rule 144(k) under the Securities Act as in effect on the date of the transfer of
such Notes, such Notes may be offered, resold, pledged or otherwise transferred
only (i) (a) 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, (b) to an Institutional
Accredited Investor that, prior to such transfer, furnishes to the Trustee (as
defined in the Indenture) a signed letter containing certain representations and
agreements relating to the restrictions on transfer of the Notes (the form of
which letter can be obtained from the Trustee) and, if such transfer is in
respect of Notes having a principal amount at the time of transfer of less than
$100,000, an opinion of counsel acceptable to the Company that such transfer is
in compliance with the Securities Act, (c) in a transaction meeting the
requirements of Rule 144 under the Securities Act, (d) outside the United States
to a foreign person in a transaction meeting the requirements of Rule 904 under
the Securities Act, or (e) 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), but only in the case of a transfer that is
effected by the delivery to the transferee of definitive securities registered
in its name (or its nominee's name) in the books maintained by the Note
Registrar, and subject to the receipt by such Note Registrar of a certification
of the transferor and an opinion of counsel to the effect that such transfer is
in compliance with the Securities Act, (ii) to the Company or (iii) pursuant to
an effective registration statement under the Securities Act, and, in each case,
in accordance with any applicable securities laws of any State of the United
States or any other applicable jurisdiction. We will notify any purchaser from
us that the Notes are subject to the resale restrictions set forth in the above
sentence. We understand that the Trustee will not be required to accept for
registration or transfer any 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 Notes purchased by us will
be initially issued in the form of one or more Global Notes deposited on the
date of the closing with, or on behalf of, The Depository Trust Company (the
"Depository") and registered in the name of Cede & Co., as nominee of the
Depository, and subsequently may be issued in the form of definitive physical
Notes upon request and subject to the terms and conditions of the Indenture and
that such certificates will bear a legend reflecting the substance of this
paragraph.
We acknowledge that you 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.
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Very truly yours,
[Name of Transferee]
<PAGE>
C2-3
By: ____________________
Authorized Signature
<PAGE>
Exhibit D
---------
Form of Regulation S Certificate
--------------------------------
[DATE]
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
Re: Scovill Acquisition Inc. (the "Company")
11 1/4% Senior Notes due 2007 (the "Notes")
-------------------------------------------
Ladies and Gentlemen:
This Certificate relates to our proposed transfer of $____ principal
amount of Notes issued under the Indenture dated as of November 26, 1997
relating to the Notes. Terms are used in this Certificate as defined in
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"). We hereby certify as follows:
1. The offer of the Notes was not made to a person in the United
States (unless such person or the account held by it for which it is acting
is excluded from the definition of "U.S. person" pursuant to Rule 902(o) of
Regulation S under the circumstances described in Rule 902(i)(3) of
Regulation S) or specifically targeted at an identifiable group of U.S.
citizens abroad.
2. Either (a) at the time the buy order was originated, the buyer was
outside the United States or we and any person acting on our behalf
reasonably believed that the buyer was outside the United States or (b) the
transaction was executed in, on or through the facilities of a designated
offshore securities market, and neither we nor any person acting on our
behalf knows that the transaction was pre-arranged with a buyer in the
United States.
3. Neither we, any of our affiliates, nor any person acting on our or
their behalf has made any directed selling efforts in the United States.
4. The proposed transfer of Notes is not part of a plan or scheme to
evade the registration requirements of the Securities Act.
5. If we are a dealer or a person receiving a selling concession or
other fee or remuneration in respect of the Notes, and the proposed transfer
takes place before the Offshore Note Exchange Date referred to in the
Indenture, or we are an officer or director of the Company or a distributor,
we certify that the proposed transfer is being made in accordance with the
provisions of Rule 904(c) of Regulation S.
You and the Company are entitled to rely upon this Certificate and are
<PAGE>
D-2
irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[NAME OF SELLER]
By:__________________________
Authorized Signature
<PAGE>
EXHIBIT 4.2
-----------
REGISTRATION RIGHTS AGREEMENT
Dated as of November 26, 1997
by and among
SCOVILL ACQUISITION INC.
SCOVILL HOLDINGS INC.
and
SBC WARBURG DILLON READ INC.
and
BT ALEX. BROWN INCORPORATED
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of November 26, 1997 by and among SCOVILL ACQUISITION INC., a
Delaware corporation (the "Company"), SCOVILL HOLDINGS INC., a Delaware
-------
corporation (the "Guarantor") and SBC WARBURG DILLON READ INC. and BT ALEX.
---------
BROWN INCORPORATED (the "Initial Purchasers"). The execution and delivery of
------------------
this Agreement is a condition to the obligations of the Initial Purchasers to
purchase $100,000,000 aggregate principal amount of the Company's 11 1/4% Senior
Notes due 2007 (the "Notes") under the Purchase Agreement, dated November 24,
-----
1997 (the "Purchase Agreement"), by and among the Company, the Guarantor and the
------------------
Initial Purchasers. The Notes will be guaranteed on a senior unsecured basis by
the Guarantor and will be issued pursuant to the Indenture (as defined herein).
The Company, the Guarantor and the Initial Purchasers hereby agree
as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
Act: The Securities Act of 1933, as amended, and the rules and
---
regulations promulgated by the Commission pursuant thereto.
Action: As defined in Section 8(c) of this Agreement.
------
Broker-Dealer: Any broker or dealer registered under the Exchange
-------------
Act.
Closing Date: The date that the Notes are purchased by the Initial
------------
Purchasers pursuant to the Purchase Agreement.
Commission: The Securities and Exchange Commission.
----------
Consummate: An Offer shall be deemed "Consummated" for purposes of
----------
this Agreement upon the occurrence of (i) the filing and effectiveness under the
Act of the Exchange Offer Registration Statement relating to the New Notes to be
issued in the Exchange Offer, (ii) 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) of
this Agreement and (iii) the delivery by the Company to the Registrar under the
Indenture of New Notes in the same aggregate principal amount as the aggregate
principal amount of Old Notes tendered by the Holders thereof pursuant to the
Exchange Offer and not withdrawn.
Damages Payment Date: With respect to the Old Notes, each Interest
--------------------
Payment Date.
Effectiveness Target Date: As defined in Section 5 of this
-------------------------
Agreement.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated by the Commission pursuant thereto.
<PAGE>
2
Exchange Offer: The registration under the Act by the Company and the
--------------
Guarantor of the New Notes pursuant to a Registration Statement pursuant to
which the Company and the Guarantor offer the Holders of all outstanding
Transfer Restricted Securities the opportunity to exchange all such outstanding
Old Notes that are Transfer Restricted Securities held by such Holders for New
Notes in an aggregate principal amount equal to the aggregate principal amount
of the Old Notes that are Transfer Restricted Securities tendered in such
exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
-------------------------------------
relating to the Exchange Offer, including the related Prospectus.
Holders: As defined in Section 2(b) of this Agreement.
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Indenture: The Indenture, dated as of November 26, 1997, by and among
---------
the Company, the Guarantor and the United States Trust Company of New York, as
trustee (the "Trustee"), pursuant to which the Notes are to be issued, as such
-------
Indenture is amended or supplemented from time to time in accordance with its
terms.
Initial Purchasers: SBC Warburg Dillon Read Inc. and BT Alex. Brown
------------------
Incorporated.
Interest Payment Date: As defined in the Indenture and the Notes.
---------------------
NASD: National Association of Securities Dealers, Inc.
----
New Notes: The Company's 11 1/4% Senior Notes due 2007 to be issued
---------
pursuant to the Indenture or an indenture substantially identical to the
Indenture (i) in connection with the Exchange Offer or (ii) upon the request of
any Holder of Old Notes covered by the Shelf Registration Statement, in exchange
for such Old Notes and evidencing the same debt as the Old Notes, including the
guarantee by the Guarantor.
Notes: Old Notes and New Notes.
-----
Old Notes: The Company's 11 1/4% Senior Notes due 2007 to be issued
---------
pursuant to the Indenture on the Closing Date, including the guarantee by the
Guarantor.
Participating Broker-Dealer: As defined in Section 6(a) of this
---------------------------
Agreement.
Person: An individual, corporation, partnership, joint venture,
------
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or a government or other agency or political
subdivision thereof or other entity of any kind.
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 and
supplements thereto, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference, if any, in
such Prospectus.
<PAGE>
3
Registration Default: As defined in Section 5 of this Agreement.
--------------------
Registration Statement: Any registration statement of the Company and
----------------------
the Guarantor relating to (a) an offering of New Notes pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement that is filed pursuant to the
provisions of this Agreement, in each case, including the Prospectus included
therein, all amendments and supplements thereto (including pre- and post-
effective amendments) and all exhibits and material incorporated by reference or
deemed to be incorporated by reference, if any, therein.
Shelf Filing Deadline: As defined in Section 4(a) of this Agreement.
---------------------
Shelf Registration Statement: As defined in Section 4(a) of this
----------------------------
Agreement.
Subsidiary: With respect to any Person, any other Person of which a
----------
majority of the equity ownership or the voting securities is at the time owned,
directly or indirectly, by such Person or by one or more other subsidiaries of
such Person or a combination thereof.
TIA: The Trust Indenture Act of 1939, as amended (15 U.S.C. Section
---
77aaa-77bbbb), as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note until the earliest to occur
------------------------------
of (i) the date on which each such Old Note has been exchanged by a person other
than a Broker-Dealer for a New Note in the Exchange Offer, (ii) following the
exchange by a Broker-Dealer in the Exchange Offer of an Old Note 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 sale a copy of the Prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which such
Note could be resold 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 pursuant to an effective Registration Statement.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
------------------------------
benefits of this Agreement are the Transfer Restricted Securities.
<PAGE>
4
(b) Holders of Transfer Restricted Securities. A Person is deemed
-----------------------------------------
to be a holder of Transfer Restricted Securities (each, a "Holder") whenever
------
such Person beneficially owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless, due to a change in federal law or Commission policy
after the date hereof, the Exchange Offer shall not be permitted by applicable
federal law or Commission policy, the Company and the Guarantor shall (i) cause
to be filed with the Commission on or prior to 90 days after the Closing Date,
an Exchange Offer Registration Statement under the Act relating to the New Notes
and the Exchange Offer and (ii) use their best efforts to cause such Exchange
Offer Registration Statement to be declared effective by the Commission on or
prior to 120 days after the Closing Date. In connection with the foregoing, the
Company and the Guarantor shall (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary to cause such Exchange
Offer Registration Statement to become effective, (B) if applicable, file a
post-effective amendment to such Exchange Offer Registration Statement pursuant
to Rule 430A under the Act, (C) cause all necessary filings in connection with
the registration and qualification of the New Notes to be made under the Blue
Sky laws of such jurisdictions as are necessary to permit Consummation of the
Exchange Offer and (D) upon the effectiveness of such Registration Statement,
commence the Exchange Offer and use their best efforts to issue on or prior to
30 days after the date on which such Exchange Offer Registration Statement is
declared effective by the Commission, New Notes in exchange for all Old Notes
tendered prior thereto in the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the New Notes to be offered in
exchange for the Old Notes that are Transfer Restricted Securities and to permit
resales of New Notes held by Broker-Dealers as contemplated by Section 3(c)
below. If, after such Exchange Offer Registration Statement initially is
declared effective by the Commission, the Exchange Offer or the issuance of New
Notes under the Exchange Offer or the resale of New Notes received by Broker-
Dealers in the Exchange Offer as contemplated by Section 3(c) below is
interfered with by any stop order, injunction or other order or requirement of
the Commission or any other governmental agency or court, such Exchange Offer
Registration Statement shall be deemed not to have become effective for purposes
of this Agreement during the period that such stop order, injunction or other
similar order or requirement shall remain in effect.
(b) The Company and the Guarantor shall 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 and the Guarantor shall cause the Exchange Offer to comply
with all applicable federal and state securities laws. The Company and the
Guarantor shall only offer to exchange New Notes for Old Notes in the Exchange
Offer. The Company and the Guarantor shall use their respective 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 days after such effective date.
(c) The Company shall indicate in a "Plan of Distribution" section
contained
<PAGE>
5
in the Prospectus included in the Exchange Offer Registration Statement that any
Broker-Dealer that holds Old Notes that are Transfer Restricted Securities and
that were acquired for its own account as a result of market-making activities
or other trading activities (other than Transfer Restricted Securities acquired
directly from the Company or any affiliate of the Company), may exchange such
Old Notes pursuant to the Exchange Offer; provided, however, that 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 any resales of the New Notes received by such Broker-Dealer in
the Exchange Offer. Such "Plan of Distribution" section shall allow the use of
such Prospectus by all Persons subject to the prospectus delivery requirements
of the Act, including Participating Broker-Dealers, and shall also contain all
other information with respect to such resales by Broker-Dealers that the
Commission may require to permit such resales pursuant thereto, but such "Plan
of Distribution" shall not name any such Broker-Dealer or disclose the amount of
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 and the Guarantor shall use their best efforts to keep the
Exchange Offer 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 resales of Notes acquired by
Broker-Dealers for their own accounts as a result of market-making activities or
other trading activities, 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 nine months from the
date the Exchange Offer is Consummated (as may be extended pursuant to Section
3(e)); provided, however, that, if requested by the Company in the letter of
-------- -------
transmittal for the Exchange Offer, such persons shall have expressed that they
may be subject to such requirements and have agreed to notify the Company when
they are no longer subject to such requirements (if they are no longer subject
to such requirements at any time prior to the expiration of such nine-month
period (as may be extended pursuant to Section 3(e)). The Company and the
Guarantor shall provide sufficient copies of the latest version of such
Prospectus to Broker-Dealers promptly upon request, and in no event later than
one day after such request, at any time during such period in order to
facilitate such resales.
(d) The Company and the Guarantor shall not consummate the Exchange
Offer later than 150 days following the Closing Date.
(e) The Company may postpone or suspend the filing or effectiveness
of an Exchange Offer Registration Statement (or any amendments or supplements
thereto) for up to an aggregate of 60 days during any consecutive 365-day period
if such action is approved by the Board of Directors of the Company and is taken
by the Company in good faith and for valid business reasons (not including the
avoidance of the Company's obligations hereunder), including the acquisition or
divestiture of assets, any financing, acquisition, corporate reorganization or
other similar transaction, or the premature disclosure of material nonpublic
information which, if disclosed at such time, would be materially harmful to the
interests of the Company and its shareholders, so long as the Company promptly
thereafter complies with the requirements of Section 3(a) hereof. This Section
3(e) shall not affect the Company's obligations to pay liquidated damages
pursuant to Section 5 hereof.
<PAGE>
6
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company and the Guarantor are
------------------
not required to file an Exchange Offer Registration Statement or 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 shall
notify the Company within 20 business days of the Consummation of the Exchange
Offer that such Holder (A) is prohibited by applicable law or Commission policy
from participating in the Exchange Offer, or (B) 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 Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or (C)
is a Broker-Dealer and holds Old Notes (including the Initial Purchasers that
hold Old Notes as part of an unsold allotment from the original offering of the
Notes) acquired directly from the Company or one of its affiliates or (iii) the
Company and the Guarantor do not consummate the Exchange Offer within 60 days
following the effectiveness date of the Exchange Offer Registration Statement,
then the Company and the Guarantor shall (x) cause to be filed 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"), on or prior to the earliest to occur of (1) the
----------------------------
60th day after the date on which the Company determines that it is not required
to file the Exchange Offer Registration Statement or (2) the 60th day after the
date on which the Company receives notice from a Holder of Transfer Restricted
Securities as contemplated by clause (ii) above (such earliest date being the
"Shelf Filing Deadline"), which Shelf Registration Statement shall provide for
---------------------
resales of all Transfer Restricted Securities the Holders of which shall have
provided the information required pursuant to Section 4(b) of this Agreement,
and (y) use their best efforts to cause such Shelf Registration Statement to be
declared effective by the Commission on or before the 90th day after the Shelf
Filing Deadline. The Company and the Guarantor shall each use its best efforts
to keep such Shelf Registration Statement continuously effective, supplemented
and amended as required by the provisions of Sections 6(b) and (c) of this
Agreement to the extent necessary to ensure that it is available for resales of
Notes by the Holders of Transfer Restricted Securities entitled to the benefit
of this Section 4(a) and to ensure that it conforms to the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, until the Maturity (as defined in the Indenture) of
the Notes or such shorter period that will terminate when all the Notes covered
by the Shelf Registration Statement have been sold pursuant to such Shelf
Registration Statement.
(b) The Company may postpone or suspend the filing or effectiveness
of a Shelf Registration Statement (or any amendments or supplements thereto) (i)
if such action is required by applicable law or (ii) for up to an aggregate of
60 days during any consecutive 365-day period, if such action is approved by the
Board of Directors of the Company and is taken by the Company in good faith and
for valid business reasons (not including the avoidance of the Company's
obligations hereunder), including the acquisition or divestiture of assets, any
financing, acquisition, corporate reorganization or other similar transaction or
the premature disclosure of material nonpublic information which, if disclosed
at such time, would be materially harmful to the interests of the Company and
its shareholders, so long as the Company promptly thereafter complies with the
requirements of Section 4(a) hereof. This Section 4(b) shall not affect the
Company's obligations to pay liquidated damages pursuant to
<PAGE>
7
Section 5 hereof.
(c) Provision by Holders of Certain Information in Connection with
--------------------------------------------------------------
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
- --------------------------------
may include any of its Transfer Restricted Securities 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 or such other
similar information as required under the Act regarding such Holder as the
Company may reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary prospectus included in such Shelf
Registration Statement. No Holder of Transfer Restricted Securities shall be
entitled to liquidated damages pursuant to Section 5 of this Agreement 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 to make the information previously furnished to the Company by such
Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) the Exchange Offer Registration Statement or the Shelf
Registration Statement is not filed with the Commission on or prior to the date
specified for such filing in Section 3(a) or Section 4(a), respectively, of this
Agreement, (ii) the Exchange Offer Registration Statement or the Shelf
Registration Statement has not been declared effective by the Commission on or
prior to the date specified for such effectiveness in Section 3(a) or Section
4(a), respectively, of this Agreement (the "Effectiveness Target Date"), (iii)
-------------------------
the Exchange Offer has not been Consummated within 30 days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
required by this Agreement (each such event referred to in clauses (i) through
(iv), a "Registration Default"), the Company and the Guarantor hereby jointly
--------------------
and severally agree to pay liquidated damages to each Holder of Transfer
Restricted Securities with respect to the first 90-day period immediately
following the occurrence of such Registration Default, in an amount equal to
$.05 per week per $1,000 principal amount of Notes constituting Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues. The amount of the liquidated damages shall
increase by an additional $.05 per week per $1,000 in principal amount of Notes
constituting Transfer Restricted Securities with respect to each subsequent 90-
day period until all Registration Defaults have been cured, up to a maximum
amount of liquidated damages of $.30 per week per $1,000 in principal amount of
Notes constituting Transfer Restricted Securities. All accrued liquidated
damages shall be paid by the Company on each Damages Payment Date to the Holders
by wire transfer of immediately available funds or by federal funds check and to
the Holders of certificated securities by mailing a check to such Holders'
registered addresses. Following the cure of all Registration Defaults relating
to any particular Transfer Restricted Securities, the accrual of liquidated
damages with respect to such Transfer Restricted Securities will cease.
<PAGE>
8
All obligations of the Company and the Guarantor set forth in the
preceding paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
Transfer Restricted Security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Company and the Guarantor shall comply with all of the
provisions of Section 6(c) below, shall use their best efforts to effect such
exchange to permit the sale of Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If, due to a change in law or Commission policy after the date
hereof, in the reasonable opinion of special counsel to the Company there
is a question as to whether the Exchange Offer is permitted by applicable
federal law or Commission policy, the Company and the Guarantor hereby
agree to seek a no-action letter or other favorable decision from the
Commission allowing the Company and the Guarantor to consummate an Exchange
Offer for such Old Notes. The Company and the Guarantor hereby agree to
pursue the issuance of such a no-action letter or favorable decision to the
Commission staff level. In connection with the foregoing, the Company and
the Guarantor hereby agree to take all such other reasonable actions as are
requested by the Commission or otherwise required in connection with the
issuance of such no-action letter or decision, including without limitation
(A) participating in telephonic conferences with the Commission, (B)
delivering to the Commission an analysis prepared by special 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 of such submission. The Initial Purchasers shall be given prior
notice of any action taken by the Company under this clause (i).
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Company, prior to the
Consummation of the Exchange Offer, a written representation to the Company
and the Guarantor (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 or the Guarantor within the
meaning of the Act, (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 New Notes to be issued in the Exchange Offer and
(C) it is acquiring the New Notes in its ordinary course of business.
Holders of Transfer Restricted Securities shall use their best efforts to
cooperate in the Company's and the Guarantor's preparations for the
Exchange Offer.
(iii) The Company and the Initial Purchasers acknowledge that the
staff of the Commission has taken the position that any broker-dealer that
owns New Notes that were received by such broker-dealer for its own account
in the Exchange Offer (a "Participating Broker-Dealer") may be deemed to be
---------------------------
an "underwriter" within the meaning of the Act and must deliver a
prospectus meeting the requirements of the Act
<PAGE>
9
in connection with any resale of such New Notes. Further, the Company and
the Initial Purchasers acknowledge that the Initial Purchasers may not
exchange in the Exchange Offer Old Notes representing unsold allotments
resulting from the original offering of the Old Notes.
The Company and the Initial Purchasers also acknowledge that it is the
Commission staff's current position that if the Prospectus contained in the
Exchange Offer Registration Statement includes a plan of distribution
containing a statement to the above effect and the means by which
Participating Broker-Dealers may resell the New Notes, without naming the
Participating Broker-Dealers or specifying the amount of New Notes owned by
them, such Prospectus may be delivered by Participating Broker-Dealers to
satisfy their prospectus delivery obligations under the Act in connection
with resales of New Notes for their own accounts (other than a resale of an
unsold allotment resulting from the original offering of the Notes), so
long as the Prospectus otherwise meets the requirements of the Act.
(b) Shelf Registration Statement. In the event that a Shelf
----------------------------
Registration Statement is required by this Agreement, the Company and the
Guarantor shall comply with all the provisions of Section 6(c) of this Agreement
and shall use their best efforts to effect such registration to permit the sale
of the Transfer Restricted Securities being sold in accordance with the intended
method or methods of distribution of such Transfer Restricted Securities and, in
connection therewith, the Company and the Guarantor will, as expeditiously as
possible, prepare and file with the Commission a Shelf 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 Securities in
accordance with the intended method or methods of distribution of such Transfer
Restricted Securities within the time periods and otherwise in accordance with
the provisions of this Agreement.
(c) General Provisions. In connection with any Registration
------------------
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus, to the extent that the same
are required to be available to permit resales of Notes by Broker-Dealers), the
Company and the Guarantor shall:
(i) use their best efforts to keep such Registration Statement
continuously effective for the applicable time period required hereunder
and provide all requisite financial statements (including, if required by
the Act or any regulation thereunder, financial statements of the
Guarantor) 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 Securities during the period required by this
Agreement, the Company and the Guarantor shall promptly notify the Holders
to suspend use of the Prospectus, and the Holders shall suspend use of the
Prospectus until the Company and the Guarantor have made an appropriate
amendment to such Registration Statement, in the case of clause (A),
correcting any such misstatement or omission, and, in the case of either
clause (A) or (B), the Company and the Guarantor shall use their best
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
<PAGE>
10
thereafter;
(ii) prepare and file with the Commission such pre-effective and
post-effective amendments to such Registration Statement as may be
necessary to keep the Registration Statement effective for the applicable
period set forth in Section 3 or 4 of this Agreement, or such shorter
period as will terminate when all Transfer Restricted Securities 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 during the applicable time
period required hereunder and to comply fully with the applicable
provisions of Rules 424 and 430A under the Act in a timely manner; and
comply with the provisions of the Act and the Exchange Act applicable to
the Company and the Guarantor with respect to the disposition of all
Transfer Restricted Securities covered by such Registration Statement
during such period in accordance with the intended method or methods of
distribution by the sellers of such securities set forth in such
Registration Statement as so amended or in such Prospectus as so
supplemented;
(iii) advise the underwriter(s), if any, the Initial Purchasers, and,
in the case of a Shelf Registration Statement, each of the 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 to such Registration Statement or Prospectus, (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 Securities 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 to such Registration Statement or
Prospectus, as the case may be, or any document incorporated by reference
in such Registration Statement or Prospectus untrue, or that requires the
making of any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements in such Registration Statement
or Prospectus not misleading and that, in the case of the Prospectus, it
will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in 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 Securities under state securities or Blue Sky laws, the
Company and the Guarantor shall use their best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(iv) furnish to each of the underwriter(s), if any, the Initial
Purchasers and, in the case of a Shelf Registration Statement, each of the
selling Holders, before filing with the Commission, copies of any
Registration Statement or any Prospectus included
<PAGE>
11
in such Registration Statement or Prospectus 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), which documents will be subject to the review and
comment of such underwriter(s), if any, the Initial Purchasers, and such
Holders for a period of at least five business days, and the Company and
the Guarantor will not file any such Registration Statement or Prospectus
or any amendment or supplement to any such Registration Statement or
Prospectus, as the case may be (including all such documents incorporated
by reference), to which any underwriter, Initial Purchaser or selling
Holder shall reasonably object within five business days after the receipt
of such Registration Statement or Prospectus;
(v) in connection with any Shelf Registration Statement and, in the
case of Participating Broker-Dealers, any Exchange Offer Registration
Statement, promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus, (A)
provide copies of such document to the selling Holders (including
Participating Broker-Dealers, if any) and to the underwriter(s), if any,
(B) make the Company's and the Guarantor's representatives reasonably
available for discussion of such document and other customary due diligence
matters; provided that such discussion and due diligence shall be
--------
coordinated on behalf of the selling Holders by one counsel designated by
and on behalf of such selling Holders and (C) include such information in
such document prior to the filing of such document as such selling Holders
or underwriter(s), if any, may reasonably request;
(vi) make available at reasonable times for inspection by the selling
Holders, any underwriter participating in any disposition pursuant to such
Registration Statement and any attorney or accountant retained by such
selling Holders or any of the underwriter(s), if any, at the offices where
normally kept, during reasonable business hours, all relevant financial and
other records, pertinent corporate documents and properties of the Company
and the Guarantor and cause the Company's and the Guarantor'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 subsequent to the filing thereof and prior to
its effectiveness; provided, however, that any information that is
-------- -------
designated in writing by the Company, in good faith, as confidential at the
time of delivery of such information shall be kept confidential by such
selling Holders, underwriters, attorney or accountant, unless such
disclosure is made in connection with a court proceeding or required by
law, or such information becomes available to the public generally or
through a third party without an accompanying, obligation of
confidentiality. Each selling Holder, underwriter, attorney or accountant
requesting disclosure will agree that it will, upon learning that
disclosure of such information is sought in connection with a court
proceeding, give notice to the Company and the Guarantor and allow them at
their own expense to undertake appropriate action to prevent disclosure of
the information deemed confidential;
(vii) if requested by any selling Holders or the underwriter(s), 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,
<PAGE>
12
without limitation, information relating to the "Plan of Distribution" of
the Transfer Restricted Securities, information with respect to the
principal amount of Transfer Restricted Securities being sold to such
underwriter(s), the purchase price being paid for Transfer Restricted
Securities and any other terms of the offering of the Transfer Restricted
Securities 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 and the Guarantor are notified of the matters
to be included in such Prospectus supplement or post-effective amendment;
provided, however, that the Company and the Guarantor shall not be required
-------- -------
to take any action pursuant to this Section 6(c)(vii) that would, in the
opinion of counsel for the Company, violate applicable law;
(viii) furnish to each underwriter, if any, the Initial Purchasers
and selling Holders, without charge, at least one conformed 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 that are expressly requested by such persons);
(ix) deliver to each selling Holder, each of the underwriter(s), if
any, and the Initial Purchasers, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons may reasonably request; the Company and
the Guarantor hereby consent to the use of the Prospectus and any amendment
or supplement to the Prospectus by 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 Securities in accordance with the terms thereof and
with U.S. federal securities laws and Blue Sky laws covered by the
Prospectus or any amendment or supplement thereto;
(x) enter into such agreements (including an underwriting agreement
in form, scope and substance as is customary in underwritten offerings of
securities of this type) and take all such other reasonable actions in
connection therewith in order to expedite or facilitate the disposition of
the Transfer Restricted Securities pursuant to any Registration Statement
contemplated by this Agreement, all as may be reasonably requested by any
Holder of Transfer Restricted Securities or the underwriter(s), if any, in
connection with any sale or resale of Transfer Restricted Securities
pursuant to any Registration Statement contemplated by this Agreement; and
whether or not an underwriting agreement is entered into and whether or not
the registration is an Underwritten Registration, the Company and the
Guarantor shall
(A) make such representations and warranties to the Holders of
such Transfer Restricted Securities and the underwriters, if any, with
respect to the business of the Company and its Subsidiaries (including
with respect to businesses or assets acquired or to be acquired by any
of them), and the Shelf Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, in form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings,
and confirm the same if and when customarily requested;
<PAGE>
13
(B) use its best efforts to obtain opinions of counsel to the
Company and the Guarantor and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably
satisfactory to the underwriters, if any, and special counsel to the
Holders of the Transfer Restricted Securities being sold), addressed
to each selling Holder of Transfer Restricted Securities and each of
the underwriters, if any, covering the matters customarily covered in
opinions requested in underwritten offerings and such other matters as
may be reasonably requested by such underwriters, if any, and special
counsel to Holders of Transfer Restricted Securities;
(C) use their best efforts to obtain customary "cold comfort"
letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of
any business acquired by the Company or any such subsidiary for which
financial statements and financial data is, or is required to be,
included in the Registration Statement), addressed to each selling
Holder of Transfer Restricted Securities and each of the underwriters,
if any, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection
with underwritten offerings;
(D) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to
the selling Holders and the underwriters, if any, than those set forth
in Section 8 hereof (or such other provisions and procedures
acceptable to Holders of a majority in aggregate principal amount of
Transfer Restricted Securities covered by such Shelf Registration
Statement and the underwriters, if any); and
(E) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority in aggregate principal amount
of the Transfer Restricted Securities being sold and the underwriters,
if any, to evidence the continued validity of the representations and
warranties made pursuant to clause (A) above and to evidence
compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company and the
Guarantor.
If at any time the representations and warranties of the Company and
the Guarantor contemplated in clause (x)(A) above cease to be true and
correct, the Company or the Guarantor shall so advise the Initial
Purchasers and the underwriter(s), if any, and each selling Holder promptly
and, if requested by any of them, shall confirm such advice in writing;
(xi) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification
(or exemption from such registration or qualification) of the Transfer
Restricted Securities for offer and sale under the securities or Blue Sky
laws of such jurisdictions as the selling Holders and underwriter(s), if
any, may reasonably request and do any and all other reasonable acts or
things necessary or advisable to enable the disposition in such
jurisdictions of the
<PAGE>
14
Transfer Restricted Securities covered by the Registration Statement;
provided, however, that neither the Company nor the Guarantor shall 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 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;
(xii) in connection with any sale or transfer of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and delivery
of certificates representing Transfer Restricted Securities to be sold and
not bearing any restrictive legends; and enable such Transfer Restricted
Securities to be in such denominations and registered in such names as the
Holders or the underwriter(s), if any, may request at least two business
days prior to any sale of Transfer Restricted Securities made by such
underwriter(s);
(xiii) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers of such Transfer Restricted
Securities or the underwriter(s), if any, to consummate the disposition of
such Transfer Restricted Securities, subject to the proviso contained in
clause (xi) above;
(xiv) if any fact or event contemplated by Section 6(c)(iii)(D) of
this Agreement shall exist or have occurred, prepare a supplement or post-
effective amendment to the Registration Statement or related Prospectus or
any document incorporated in such Registration Statement or Prospectus by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Registration Statement will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein not misleading and the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements contained therein, in
the light of the circumstances under which they were made, not misleading;
(xv) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of the Registration Statement and provide
the Trustee under the Indenture with certificates for the Transfer
Restricted Securities that 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
"qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD;
(xvii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission in regards to any Registration
Statement, and make generally available to its securityholders, as soon as
practicable, a consolidated earning statement of the Company and the
Guarantor meeting the requirements of Rule 158
<PAGE>
15
(which need not be audited) for the twelve-month period (A) commencing at
the end of any fiscal quarter in which Transfer Restricted Securities are
sold to underwriters in a firm commitment or reasonable best efforts
Underwritten Offering or (B) if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the Registration Statement;
and
(xviii) cause the Indenture or such other indenture for the New Notes
to be qualified under the TIA not later than the effective date of the
first Registration Statement required by this Agreement, and, if
applicable, in connection therewith, cooperate with the Trustee and the
Holders to effect such changes to the Indenture, if any, as may be required
for such Indenture to be so qualified in accordance with the terms of the
TIA; and execute, and use its best efforts to cause the Trustee to execute,
all customary 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.
<PAGE>
16
The Company may require each Holder to furnish to the Company such
information specified in Item 507 of Regulation S-K under the Act or such other
similar information as required under the Act regarding such Holder as the
Company may reasonably request, and the Company may exclude from such
registration the New Notes of any Holder who fails to furnish such information
within a reasonable period of time after receiving such request. Each Holder as
to which any Shelf Registration is being effected shall furnish promptly to the
Company, upon its request, all information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading. Each Holder agrees by acquisition of a Transfer
Restricted Security that, upon receipt of any notice from the Company of the
existence of any fact of the kind described in Section 6(c)(iii)(D) of this
Agreement, such Holder will forthwith discontinue disposition of Transfer
Restricted Securities 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) of this Agreement, or until it is advised in
writing (the "Advice") 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. 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 Securities that was current at the
time of receipt of such notice. In the event that the Company shall give any
such notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 of this Agreement, 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)(iii)(D) of this Agreement 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) of this Agreement or, if no such
supplemented or amended Prospectus is required, when it shall have received the
Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All fees and expenses incident to the Company's and the
Guarantor'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 required filings made by any Initial Purchaser or Holder
with the NASD (and, if applicable, the reasonable fees and expenses of any
"qualified independent underwriter" and its counsel that may be required by the
rules and regulations of the NASD)); (ii) all fees and expenses of compliance
with federal securities and state Blue Sky or securities laws; (iii) all
expenses of printing (including printing certificates for the New Notes to be
issued in the Exchange Offer and printing of Prospectuses); (iv) all fees and
disbursements of counsel for the Company, the Guarantor and, subject to Section
7(b) below, all reasonable fees and disbursements of counsel for the Holders of
Transfer Restricted Securities; (v) all fees and disbursements of independent
certified public accountants of the Company and the Guarantor (including the
expenses of any comfort letters required by or incident to such performance);
and (vi) all fees and expenses of the Trustee and any exchange agent and the
fees and disbursements of its counsel.
The Company will, in any event, bear its and the Guarantor's
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
<PAGE>
17
expenses of any Person, including special experts, retained by the Company or
the Guarantor.
Notwithstanding the foregoing or anything in this Agreement to the
contrary, each Holder of Transfer Restricted Securities shall pay all
underwriting discounts and commissions of any underwriters with respect to any
Notes sold by or on behalf of it.
<PAGE>
18
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantor
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities being tendered in the Exchange Offer and/or resold pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
Shearman & Sterling or such other counsel as may be chosen by the Holders of a
majority in principal amount of the Transfer Restricted Securities for whose
benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantor, jointly and severally, agree to
indemnify and hold harmless (i) the Initial Purchasers (in their capacity as
such), each Holder of Transfer Restricted Securities and each Participating
Broker-Dealer, (ii) each person, if any, who controls any of the foregoing
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
(any of the persons referred to in this clause (ii) being hereinafter referred
to as a "controlling person") and (iii) the respective agents, employees,
------------------
officers and directors of the Initial Purchasers (in their capacity as such) and
the agents, employees, officers and directors 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 Person") from and against any and all losses,
------------------
liabilities, claims, damages and expenses whatsoever (including but not limited
to reasonable attorneys' fees and any and all reasonable expenses whatsoever
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all reasonable
amounts paid in settlement of any claim or litigation) (collectively, "Losses")
to which they or any of them may become subject under the Act, the Exchange Act
or otherwise, insofar as such Losses (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, preliminary prospectus or
Prospectus, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that the Company and the Guarantor will not be liable in any
- -------- -------
such case to the extent, but only to the extent, that any such Loss arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of any
Indemnified Person relating to such Indemnified Person expressly for use
therein. Notwithstanding the foregoing, the indemnification contained in this
paragraph with respect to any preliminary prospectus will not inure to the
benefit of any Indemnified Person for any such Loss if any Holder fails to
deliver a copy of the prospectus, as amended or supplemented, at or prior to the
written confirmation of such sale, provided the Company shall have previously
furnished copies thereof to the Holders in accordance with this Agreement, and
the untrue statement or omission or alleged untrue statement or omission giving
rise to such Loss was corrected in the prospectus, as amended or supplemented.
This indemnity agreement will be in addition to any liability that the Company
or the Guarantor may otherwise have, including, but not limited to, under this
Agreement.
<PAGE>
19
(b) In connection with any Registration Statement pursuant to which a
Holder of Transfer Restricted Securities offers or sells Transfer Restricted
Securities, such Holder agrees, severally and not jointly, to indemnify and hold
harmless the Company and the Guarantor, their respective agents, employees,
officers and directors and any person controlling the Company or the Guarantor
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, and the agents, employees, officers and directors of such controlling
person to the same extent as the foregoing indemnity from the Company and the
Guarantor to each Indemnified Person but only with respect to information
relating to such Holder furnished in writing by or on behalf of such Holder
expressly for use in such Registration Statement. In any such case in which any
action or proceeding shall be brought against the Company or the Guarantor, any
agent, employee, officer or director of the Company or the Guarantor or any
person controlling the Company or the Guarantor based on such Registration
Statement and in respect of which indemnity may be sought against a Holder of
Transfer Restricted Securities, such Holder shall have the rights and duties
given to the Company and the Guarantor (except that if the Company or the
Guarantor shall have assumed the defense thereof, such Holder 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 Holder), and the Company and the Guarantor, their respective
directors and officers and any person controlling the Company or the Guarantor
shall have the rights and duties given to the Indemnified Persons by Section
8(a) hereof. This indemnity agreement will be in addition to any liability which
such Holder may otherwise have to the Company or any of its controlling persons.
(c) Promptly after receipt by an Indemnified Person under this
Section 8 of notice of the commencement of any action, suit or proceeding
(collectively, an "Action"), such Indemnified Person shall, if a claim in
------
respect thereof is to be made against the indemnifying party under such
subsection, promptly notify each party against whom indemnification is to be
sought in writing of the commencement of such Action (but the failure so to
notify an indemnifying party shall not relieve such indemnifying party from any
liability that it may have under this Section 8 except to the extent that it has
been prejudiced in any material respect by such failure or from any liability
which it may otherwise have). In case any such Action is brought against any
Indemnified Person, and it notifies an Indemnifying Person of the commencement
of such Action, the indemnifying party will be entitled to participate in such
Action, and to the extent it may elect by written notice delivered to the
Indemnified Person promptly after receiving the aforesaid notice from such
Indemnified Person, to assume the defense of such Action with counsel reasonably
satisfactory to such Indemnified Person. Notwithstanding the foregoing, the
Indemnified Person or Persons shall have the right to employ its or their own
counsel in any such Action, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Person or parties unless (i) the employment
of such counsel shall have been authorized in writing by the Indemnifying
Persons in connection with the defense of such Action, (ii) the indemnifying
parties shall not have employed counsel to take charge of the defense of such
Action within a reasonable time after notice of commencement of the Action, or
(iii) such Indemnified Person or Persons shall have reasonably concluded that
there may be defenses available to it or them that are different from or
additional to those available to one or all of the Indemnifying Persons (in
which case the Indemnifying Persons shall not have the right to direct the
defense of such Action on behalf of the Indemnified Person or Persons), in any
of which events such fees and expenses of counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying party be liable for the
fees and expenses of more than one counsel (together with appropriate local
counsel) at
<PAGE>
20
any time for all indemnified parties in connection with any one Action or
separate but substantially similar or related Actions arising out of the same
general allegations or circumstances. Anything in this subsection to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or Action effected without its written consent;
provided, however, that such consent was not unreasonably withheld.
- -------- -------
(d) In order to provide for contribution in circumstances in which
the indemnification provided for in paragraphs (a) and (b) of this Section 8 is
for any reason held to be unavailable from the indemnifying party, or is
insufficient to hold harmless a party indemnified under this Section 8, the
Company, the Guarantor and the Indemnified Persons shall contribute to the
aggregate Losses of the nature contemplated by such indemnification provision,
but after deducting in the case of Losses suffered by the indemnifying party,
any contribution received by the indemnifying party, from persons other than the
Indemnified Person who may also be liable for contribution, including persons
who control the Indemnified Person within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act) to which the Company, the Guarantor and
the Indemnified Persons may be subject, in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Guarantor, on the
one hand, and the Indemnified Persons, on the other hand, from the offering of
the Notes or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in paragraph (c) of this Section 8, in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company and the Guarantor, on the
one hand, and the Indemnified Persons, on the other hand, in connection with the
statements or omissions that resulted in such Losses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Guarantor shall be deemed to be in the same proportion as the total
proceeds from the offering of Old Notes (net of discounts but before deducting
expenses) received by the Company as set forth in the table on the cover page of
the Prospectus. The relative fault of the Company and the Guarantor, on the one
hand, and the Indemnified Persons, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Guarantor or the
Indemnified Persons and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
<PAGE>
21
(e) The Company, the Guarantor and the Initial Purchasers agree
that it would not be just and equitable if contribution pursuant to paragraph
(d) of this Section 8 were determined by pro rata allocation or by any other
method of allocation that does not take into account the equitable
considerations referred to above. Notwithstanding the provisions of paragraph
(d) of this Section 8, (i) in no case shall an Indemnified Person be required to
contribute any amount in excess of the amount by which the total received by
such Indemnified Person with respect to its sale of its Transfer Restricted
Securities or New Notes, as the case may be, exceeds the amount of any damages
that such Indemnified Person has otherwise been required to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission and (ii) 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. For purposes of paragraphs (d) and
(e) of this Section 8, each person, if any, who controls an Indemnified Person
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
shall have the same rights to contribution as such Indemnified Person, and each
person, if any, who controls the Company or the Guarantor within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act shall have the same
rights to contribution as the Company or the Guarantor, subject in each case to
clauses (i) and (ii) of this Section 8(e). Any party entitled to contribution
will, promptly after receipt of notice of commencement of any Action against
such party in respect of which a claim for contribution may be made against
another party or parties under paragraph 8(d) or (e) of this Section 8, notify
such party or parties from whom contribution may be sought, but the omission to
so notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have under
paragraph (d) or (e) of this Section 8 or otherwise. No party shall be liable
for contribution with respect to any Action or claim settled without its written
consent; provided, however, that such written consent shall not be unreasonably
-------- -------
withheld.
SECTION 9. RULE 144A
The Company and the Guarantor agree with each Holder, for so long as
any Transfer Restricted Securities remain outstanding, to make available to any
Holder or beneficial owner of Transfer Restricted Securities and any prospective
purchaser of such Transfer Restricted Securities designated by such Holder or
beneficial owner and to Broker-Dealers, upon their request, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration under
this Agreement unless such Holder (a) agrees to sell such Holder's Transfer
Restricted Securities on the basis provided in customary underwriting
arrangements approved by the Persons entitled under this Agreement to approve
such arrangements and (b) completes and executes all reasonable questionnaires,
powers of attorneys, indemnities, underwriting agreements, lock-up letters and
other documents required under the terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
<PAGE>
22
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided that such investment bankers and managers must be
--------
reasonably satisfactory to the Company.
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to
--------
exercise all rights provided in this Agreement, 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 and the Guarantor agree that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by them of the
provisions of this Agreement and hereby agree to waive the defense in any Action
for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor the
--------------------------
Guarantor will 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 of this
Agreement. Neither the Company nor the Guarantor has previously entered into any
agreement granting any registration rights with respect to its respective
securities to any Person, except as disclosed in the Offering Memorandum dated
November 24, 1997 relating to the Old Notes and in the Offering Memorandum dated
November 24, 1997 relating to the offering of units by the Guarantor. The rights
granted to the Holders under this Agreement 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 of this Agreement.
(c) Adjustments Affecting the Notes. Without the written consent
-------------------------------
of the Holders of a majority in aggregate principal amount of outstanding
Transfer Restricted Securities, the Company and the Guarantor will not take any
action, or permit any change to occur, with respect to the 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 of this Agreement may not be given unless (i) in
the case of Section 5 hereof and this Section 12(d)(i), the Company has obtained
the written consent of each affected Holder of outstanding Transfer Restricted
Securities and (ii) in the case of all other provisions hereof, the Company and
the Guarantor have obtained the written consent of Holders of a majority of the
outstanding principal amount of Transfer Restricted Securities. Notwithstanding
the foregoing, a waiver or consent to departure from the provisions of this
Agreement that relates exclusively to the rights of Holders whose securities are
being sold or tendered pursuant to the Exchange Offer and that does not affect
directly or indirectly the rights of other Holders whose securities are not
being sold or tendered pursuant to such Exchange Offer may be given by the
Holders of a majority of the outstanding principal amount of Transfer Restricted
<PAGE>
23
Securities subject to such Exchange Offer.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivering, 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; and
(ii) if to the Company or the Guarantor, at:
Scovill Acquisition Inc.
c/o Saratoga Partners III, L.P.
535 Madison Avenue
New York, New York 10022
Facsimile: (212) 750-3343
Attention: Christian L. Oberbeck
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile: (212) 269-5420
Attention: Robert Usadi
All such notices and communications shall be deemed to have been duly
given: (i) at the time delivered by hand, if personally delivered; (ii) five
business days after being deposited in the mail, postage prepaid, if mailed;
(iii) when answered back, if telexed; (iv) when receipt acknowledged, if
telecopied; and (v) 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 permitted assigns of each of
the parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties to this Agreement 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
--------
<PAGE>
24
reference only and shall not limit or otherwise affect the meaning of this
Agreement.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the
------------
provisions contained in this Agreement, or the application of any such provision
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 in this Agreement 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 to
this Agreement in respect of the subject matter contained in this Agreement.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to in this Agreement with respect to the
registration rights granted by the Company and the Guarantor with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
[Signatures on Next Page]
<PAGE>
25
[Registration Rights Agreement - Signature Page]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SCOVILL ACQUISITION INC.
By:___________________________________
Name:
Title:
SCOVILL HOLDINGS INC.
By:___________________________________
Name:
Title:
<PAGE>
[Registration Rights Agreement -
Initial Purchasers' Signature Page]
Accepted and agreed as of the date first
above written:
SBC WARBURG DILLON READ INC.
BT ALEX. BROWN INCORPORATED
By: SBC WARBURG DILLON READ
INC.
By:______________________________________
Name:
Title:
By:______________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.1.3
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
between
SCOVILL HOLDINGS INC.
and
UNITED STATES TRUST COMPANY OF NEW YORK,
as Warrant Agent
-----------------------
Dated as of November 26, 1997
-----------------------
Warrants to Purchase Common Stock
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CERTAIN DEFINITIONS................................................................................ 2
ORIGINAL ISSUE OF WARRANTS......................................................................... 5
Section 2.1. Form of Warrant Certificates..................................................... 5
Section 2.2. Restrictive Legends.............................................................. 6
Section 2.3. Execution and Delivery of Warrant Certificates................................... 10
Section 2.4. Certificated Warrants............................................................ 10
EXERCISE PRICE CONVERSION OF WARRANTS AND
EXERCISE OF WARRANTS............................................................................... 11
Section 3.1. Exercise Price................................................................... 11
Section 3.2. Exercise; Restrictions on Exercise............................................... 11
Section 3.3. Method of Exercise; Payment of Exercise Price.................................... 11
ADJUSTMENTS........................................................................................ 12
Section 4.1. Adjustments...................................................................... 12
Section 4.2. Notice of Adjustment............................................................. 20
Section 4.3. Statement on Warrants............................................................ 20
Section 4.4. Notice of Consolidation, Merger, Etc............................................. 20
Section 4.5. Fractional Interests............................................................. 21
Section 4.6. When Issuance or Payment May Be Deferred......................................... 21
Section 4.7. Initial Public Offering.......................................................... 21
DECREASE IN EXERCISE PRICE......................................................................... 22
LOSS OR MUTILATION................................................................................. 22
RESERVATION AND AUTHORIZATION
OF COMMON SHARES................................................................................... 23
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER................................................... 23
Section 8.1. Transfer and Exchange............................................................ 23
Section 8.2. Book-Entry Provisions for Global Warrants........................................ 24
Section 8.3. Special Transfer Provisions...................................................... 25
Section 8.4. Surrender of Warrant Certificates................................................ 27
WARRANT HOLDERS.................................................................................... 28
Section 9.1. Warrant Holder Deemed Not a Shareholder.......................................... 28
Section 9.2. Right of Action.................................................................. 28
THE WARRANT AGENT.................................................................................. 28
Section 10.1. Duties and Liabilities.......................................................... 28
Section 10.2. Right to Consult Counsel........................................................ 30
Section 10.3. Compensation; Indemnification................................................... 30
Section 10.4. No Restrictions on Actions...................................................... 30
Section 10.5. Discharge or Removal; Replacement Warrant Agent................................. 31
Section 10.6. Successor Warrant Agent......................................................... 32
</TABLE>
<PAGE>
ii
<TABLE>
<S> <C>
MISCELLANEOUS...................................................................................... 32
Section 11.1. Monies Deposited with the Warrant Agent......................................... 32
Section 11.2. Payment of Taxes................................................................ 32
Section 11.3. No Merger, Consolidation or Sale of Assets of the Company....................... 33
Section 11.4. Reports to Holders.............................................................. 33
Section 11.5. Notices; Payment................................................................ 33
Section 11.6. Binding Effect.................................................................. 35
Section 11.7. Counterparts.................................................................... 35
Section 11.8. Amendments...................................................................... 35
Section 11.9. Headings........................................................................ 35
Section 11.10. Common Shares Legend........................................................... 35
Section 11.11. Third Party Beneficiaries...................................................... 37
Section 11.12. Termination.................................................................... 38
Section 11.13. Governing Law.................................................................. 38
</TABLE>
EXHIBIT A FORM OF WARRANT CERTIFICATE
EXHIBIT B-1 FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEROR IN CONNECTION
WITH TRANSFERS TO INSTITUTIONAL ACCREDITED INVESTORS
EXHIBIT B-2 FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEREES IN CONNECTION
WITH TRANSFERS TO INSTITUTIONAL ACCREDITED INVESTORS
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of November 26, 1997 (this "Agreement"),
---------
between SCOVILL HOLDINGS INC., a Delaware corporation (the "Company"), and
-------
UNITED STATES TRUST COMPANY OF NEW YORK, as warrant agent (the "Warrant Agent").
-------------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the terms of a Purchase Agreement dated November
25, 1997 (the "Purchase Agreement"), among the Company and SBC Warburg Dillon
------------------
Read Inc. ("SBCWDR"), and BT Alex. Brown Incorporated (the "Initial
------ -------
Purchasers"), the Company has agreed to issue and sell to the Initial Purchasers
- ----------
an aggregate of 100,000 warrants (each, a "Warrant" and collectively, the
-------
"Warrants"), each Warrant initially entitling the holder thereof to purchase 4
--------
shares (the "Warrant Shares") of Common Stock (as defined below) of the Company
at an exercise price of $0.10 per Common Share (as defined below) as part of
100,000 units (the "Units"), each Unit consisting of one 13 3/4% Series A
-----
Cumulative Redeemable Exchangeable Preferred Stock of the Company (each a
"Share" and collectively, the "Shares") issued pursuant to a Certificate of
----- ------
Designations, and one Warrant;
WHEREAS, the Shares and the Warrants included in each Unit will become
separately transferable at the close of business (such date, the "Separation
----------
Date") upon the earliest to occur of (i) the date that is 90 days after the
- ----
Closing Date (as defined below), (ii) such earlier date as may be determined by
the Initial Purchasers, upon written notice thereof to the Company, the Warrant
Agent and the Transfer Agent and Registrar (as defined below) for the Shares,
(iii) in the event of a Change of Control, the date on which the Company mails
notice thereof to holders of Shares, and (iv) the date on which an Exchange
Offer Registration Statement (as defined below) with respect to the Shares is
declared effective; and
WHEREAS, the Company desires to engage the Warrant Agent to act on the
Company's behalf, and the Warrant Agent desires to act on behalf of the Company,
in connection with the issuance of the Warrant Certificates (as defined below)
and the other matters as provided herein; and the Company desires to enter into
this Agreement for the purpose of, among other things, defining the terms and
provisions of the Warrants and the respective rights and obligations thereunder
of the Company and the record holders thereof (together with the holders of
shares of Common Stock (or other securities) received upon exercise thereof, the
"Holders").
-------
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements contained herein and in the Purchase Agreement, the Company and the
Warrant Agent hereby agree as follows:
<PAGE>
2
ARTICLE I
CERTAIN DEFINITIONS
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any executive officer
or director of any such specified Person or other Person. For the purposes of
this definition, "control," when used with respect to any specified Person,
includes the power to vote 10% or more of any class of voting securities of such
Person or to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent Members" has the meaning specified in Section 8.2 hereof.
"Auditors" means, at any time, the independent auditors of the Company
at such time.
"Board" means the board of directors of the Company from time to time.
"Business Day" means a day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the corporate
trust office of the Warrant Agent, are authorized by law to be closed.
"Certificated Warrants" has the meaning specified in Section 2.1
hereof.
"Closing Date" means the date hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the common stock, par value $0.0001 per share, of
the Company.
"Common Shares" means shares of Common Stock.
"Company" has the meaning specified in the preamble to this Agreement.
"Current Market Value" has the meaning specified in Section 4.1(f)
hereof.
"Depositary" means The Depository Trust Company, its nominees and
their respective successors.
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
"Exchange Offer Registration Statement" has the meaning specified in
the Preferred Stock Registration Rights Agreement.
"Exercise Price" has the meaning specified in Section 3.1 hereof.
<PAGE>
3
"Expiration Date" means 5:00 p.m. (New York City time) on November 30,
2009.
"Global Warrants" has the meaning specified in Section 2.1 hereof.
"Holders" has the meaning specified in the recitals to this Agreement.
"IAI Certificated Warrants" has the meaning specified in Section 2.1
hereof.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is disinterested
and independent with respect to the Company and its Affiliates and, in the
reasonable judgment of the Company's Board, is qualified to perform the task for
which it has been engaged.
"Institutional Accredited Investor" shall mean an institution that is
an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) of Regulation D under the Securities Act.
"Non-Global Purchasers" has the meaning specified in Section 2.1
hereof.
"Officer" means, with respect to the Company, the Chairman of the
Board, the Vice-Chairman of the Board, the Chief Executive Officer or any other
executive officer of the Company, the Treasurer or any Assistant Treasurer, or
the Secretary or any Assistant Secretary of the Company.
"Officer's Certificate" means a certificate signed by an Officer.
"Opinion of Counsel" means a written opinion signed by legal counsel
who may be an employee of or counsel to the Company.
"Person" means any individual, corporation, partnership, joint
venture, incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock Registration Rights Agreement" means the Registration
Rights Agreement with respect to the Shares dated as of the date hereof among
the Company and the Initial Purchasers.
"Private Placement Legend" means the legend set forth on the Warrant
Certificates in the form set forth in Section 2.2(a) hereof.
"Purchase Agreement" has the meaning specified in the recitals to this
Agreement.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Restricted Certificated Warrants" has the meaning specified in
Section 2.1
<PAGE>
4
hereof.
"Right" has the meaning specified in Section 4.1(c) hereof.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Separation Date" has the meaning specified in the recitals to this
Agreement.
"Shares" has the meaning specified in the recitals to this Agreement.
"Spread" means, with respect to any Warrant, the Current Market Value
of the Common Shares (or other securities) subject to such Warrant, less the
Exercise Price of such Warrant, in each case as adjusted as provided herein.
"Subscription Form" means the form on the reverse side of the Warrant
Certificate substantially in the form of Exhibit A hereto.
"Transfer Agent and Registrar" means the United States Trust Company
of New York, as transfer agent and registrar for the Shares, or any successor
thereto.
"Underlying Securities" shall mean the Common Shares (or other
securities) issuable upon exercise of the Warrants.
"Units" has the meaning specified in the recitals to this Agreement.
"Value Report" has the meaning specified in Section 4.1(k) hereof.
"Valuation Date" means a date which is no more than three days prior
to the date of any Value Report.
"Warrant" has the meaning specified in the recitals to this Agreement.
"Warrant Agent" has the meaning specified in the preamble to this
Agreement.
"Warrant Certificates" has the meaning specified in Section 2.1
hereof.
"Warrant Registration Rights Agreement" means the Warrant Registration
Rights Agreement dated the date hereof between the Company and the Warrant
Agent.
"Warrant Registration Statement" has the meaning specified in the
Warrant Registration Rights Agreement.
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
<PAGE>
5
Section 2.1. Form of Warrant Certificates. Certificates representing
----------- ----------------------------
the Warrants (the "Warrant Certificates") shall be substantially in the form
--------------------
attached hereto as Exhibit A, shall be dated the date on which such Warrant
Certificates are countersigned by the Warrant Agent and shall have such
insertions as are appropriate or required or permitted by this Agreement and may
have such letters, numbers or other marks of identification and such legends and
endorsements stamped, printed, lithographed or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law or with any rule or
regulation pursuant thereto or with any rule or regulation of any securities
exchange on which the Warrants may be listed, or to conform to usage.
Warrants offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more global Warrant Certificates in definitive,
fully registered form, substantially in the form set forth in Exhibit A (a
"Global Warrant"), deposited with the Warrant Agent, as custodian for, and
--------------
registered in the name of the nominee for, the Depositary, duly executed by the
Company and countersigned by the Warrant Agent as hereinafter provided. The
aggregate number of Warrants represented by a Global Warrant may from time to
time be increased or decreased by adjustments made on the records of the Warrant
Agent, as custodian for the Depositary, or its nominee, as provided in Section
2.4 and Section 8.3 hereof.
Warrants offered and sold to Institutional Accredited Investors who
are not QIBs ("Non-Global Purchasers") shall be issued initially in registered,
---------------------
certificated form substantially in the form set forth in Exhibit A ("IAI
---
Certificated Warrants").
- ---------------------
Warrants issued pursuant to Sections 2.4 and 8.2(b) in exchange for
interests in a Global Warrant shall be issued in the form of permanent Warrant
Certificates in registered form, substantially in the form set forth in Exhibit
A (the "Restricted Certificated Warrants" and, together with IAI Certificated
--------------------------------
Warrants, the " Certificated Warrants").
---------------------
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Warrants may be listed, all as determined by the Officer
executing such Warrant Certificates, as evidenced by the execution of such
Warrant Certificates.
Section 2.2. Restrictive Legends. (a) The Warrant Certificates shall
----------- -------------------
bear the following legend on the face thereof:
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (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
<PAGE>
6
SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION
5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER
EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT, WITHIN
THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT
AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS SECURITY, (A) SUCH
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) (a)
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) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO THE WARRANT AGENT A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM THE WARRANT AGENT) AND IF SUCH TRANSFER IS IN
RESPECT OF SECURITIES HAVING A PURCHASE PRICE OF LESS THAN $100,000,
AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS
IN COMPLIANCE WITH THE SECURITIES ACT, (c) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 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) BUT ONLY IN THE CASE OF A TRANSFER THAT IS
EFFECTED BY THE DELIVERY TO THE TRANSFEREE OF DEFINITIVE SECURITIES
REGISTERED IN ITS NAME (OR ITS NOMINEE'S NAME) IN THE BOOKS MAINTAINED
BY THE REGISTRAR, AND SUBJECT TO THE RECEIPT BY THE REGISTRAR OF A
CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE
EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT,
(2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT 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. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THE
TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS CERTIFICATE TO THE WARRANT AGENT. IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
<PAGE>
7
WARRANT AGENT AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. IN ADDITION, THE HOLDER OF THIS SECURITY UNDERSTANDS
THAT THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED TO, AND SUCH HOLDER
SHALL BE DEEMED TO HAVE REPRESENTED AND COVENANTED THAT IT IS NOT
ACQUIRING THIS SECURITY FOR OR ON BEHALF OF, AND WILL NOT TRANSFER
THIS SECURITY TO, ANY PERSON OTHER THAN (I) AN INDIVIDUAL CITIZEN OR
RESIDENT OF THE UNITED STATES FOR U.S. FEDERAL INCOME TAX PURPOSES,
(II) A CORPORATION, PARTNERSHIP OR OTHER ENTITY CREATED OR ORGANIZED
IN OR UNDER THE LAWS OF THE UNITED STATES OR ANY POLITICAL SUBDIVISION
THEREOF, (III) AN ESTATE THE INCOME OF WHICH IS SUBJECT TO UNITED
STATES FEDERAL INCOME TAX REGARDLESS OF THE SOURCE, (IV) A TRUST WHOSE
ADMINISTRATION IS SUBJECT TO THE PRIMARY SUPERVISION OF A UNITED
STATES COURT AND WHICH HAS ONE OR MORE UNITED STATES PERSONS WHO HAVE
THE AUTHORITY TO CONTROL ALL SUBSTANTIAL DECISIONS OF THE TRUST, OR
(V) ANY OTHER PERSON WHOSE INCOME OR GAIN IN RESPECT OF THIS SECURITY
IS EFFECTIVELY CONNECTED WITH THE CONDUCT OF A UNITED STATES TRADE OR
BUSINESS (OR, IF APPLICABLE, ATTRIBUTABLE TO A PERMANENT ESTABLISHMENT
SITUATED IN THE UNITED STATES) WHO DELIVERS APPROPRIATE DOCUMENTATION
TO THE ISSUER OF THIS SECURITY.
(b) Each Global Warrant shall also bear the following legend on the
face thereof:
UNLESS THIS WARRANT CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR THE
WARRANT AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF THE
<PAGE>
8
DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN ARTICLE VIII OF THE WARRANT AGREEMENT.
(c) Each Warrant Certificate issued prior to the Separation Date
shall bear the following legend on the face thereof and, on the Separation Date,
a new Warrant Certificate without the following legend shall be executed by the
Company, countersigned by the Warrant Agent and issued by the Company in
exchange for such Warrant Certificate:
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS
PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF ONE SHARE OF
13 3/4% SERIES A CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK OF
THE COMPANY (THE "SHARES") AND ONE WARRANT INITIALLY ENTITLING THE
HOLDER THEREOF TO PURCHASE [__________] SHARES OF COMMON STOCK, PAR
VALUE $0.0001 PER SHARE, OF THE COMPANY. PRIOR TO THE CLOSE OF
BUSINESS UPON THE EARLIEST TO OCCUR OF (i) 90 DAYS AFTER NOVEMBER 26,
1997, (ii) SUCH EARLIER DATE AS MAY BE DETERMINED BY THE INITIAL
PURCHASERS (AS DEFINED IN THE WARRANT AGREEMENT), UPON WRITTEN NOTICE
THEREOF TO THE COMPANY, THE WARRANT AGENT AND TRANSFER AGENT AND
REGISTRAR FOR THE SHARES, (iii) IN THE EVENT OF A CHANGE OF CONTROL,
THE DATE ON WHICH THE COMPANY MAILS NOTICE OF THEREOF TO THE HOLDERS
OF SHARES, AND (iv) THE DATE ON WHICH THE EXCHANGE OFFER REGISTRATION
STATEMENT (AS DEFINED IN THE WARRANT AGREEMENT) WITH RESPECT TO THE
SHARES IS DECLARED EFFECTIVE, THE WARRANTS EVIDENCED BY THIS
CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT
MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE SHARES.
UNIT CUSIP NO. ________________________________
Section 2.3. Execution and Delivery of Warrant Certificates. Warrant
----------- ----------------------------------------------
Certificates evidencing 100,000 Warrants may be executed, on or after the date
of this Agreement, by the Company and delivered to the Warrant Agent for
countersignature, and the Warrant Agent shall thereupon countersign and deliver
such Warrant Certificates upon the order and at the written direction of the
Company signed by its Chief Executive Officer or other duly authorized executive
officer to the purchasers thereof on the date of issuance. The Warrant Agent is
hereby authorized to countersign and deliver Warrant Certificates as required by
this Section 2.3 or by Section 3.3, Article VI or Article VIII hereof.
The Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, Vice-Chairman of the Board, Chief Executive Officer
or other duly authorized executive officer of the Company either manually or by
facsimile signature printed thereon. The Warrant Certificates shall be
countersigned by manual or facsimile signature of
<PAGE>
9
the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In case any officer or director of the Company whose signature
shall have been placed upon any of the Warrant Certificates shall cease to be
such officer or director of the Company before countersignature by the Warrant
Agent and the issuance and delivery thereof, such Warrant Certificates may
nevertheless be countersigned by the Warrant Agent and issued and delivered with
the same force and effect as though such person had not ceased to be such
officer or director of the Company.
Section 2.4. Certificated Warrants. Beneficial owners of interests
----------- ---------------------
in a Global Warrant may receive Certificated Warrants (which, except as set
forth in Section 8.3(c), shall bear the Private Placement Legend) in accordance
with the procedures of the Warrant Agent and the Depositary. In connection with
the execution and delivery of such Certificated Warrants, the Warrant Agent
shall reflect on its books and records a decrease in the number of Warrants
represented by the relevant Global Warrant equal to the number of such
Certificated Warrants and the Company shall execute, and the Warrant Agent shall
countersign and deliver to said beneficial owners, one or more Certificated
Warrants in an equal aggregate number.
ARTICLE III
EXERCISE PRICE CONVERSION OF WARRANTS AND
EXERCISE OF WARRANTS
Section 3.1. Exercise Price. Each Warrant Certificate shall, when
----------- --------------
countersigned by the Warrant Agent, initially entitle the Holder thereof,
subject to the provisions of this Agreement, to purchase the number of Common
Shares indicated thereon at a purchase price (the "Exercise Price") of $___ per
--------------
Common Share, subject to adjustment as provided in Section 4.1 and Article V
hereof.
Section 3.2. Exercise; Restrictions on Exercise. At any time on or
----------- ----------------------------------
after the first anniversary the Closing Date and on or before the Expiration
Date, outstanding Warrants may be exercised on any Business Day by the Holders
thereof; provided, that the Warrant Registration Statement is, at the time of
exercise, effective and available for the exercise of the Warrants or the
exercise of such Warrants is exempt from the registration requirements of the
Securities Act, and the Warrant Shares are qualified for sale or exempt from
qualification under the applicable securities laws of the states or other
jurisdictions in which the various Holders reside. Any Warrants not exercised
by the Expiration Date shall expire and all rights of the Holders of such
Warrants shall terminate.
Section 3.3. Method of Exercise; Payment of Exercise Price. (a) In
----------- ---------------------------------------------
order to exercise all or any of the Warrants represented by a Warrant
Certificate, the Holder thereof must surrender for exercise the Warrant
Certificate to the Warrant Agent at its corporate trust office address set forth
in Section 11.5 hereof, with the Subscription Form set forth on the reverse of
the Warrant Certificate duly executed, together with payment in full of the
Exercise Price then in effect for each Common Share or other securities (or a
fraction thereof) issuable upon exercise of the Warrants as to which a Warrant
is exercised; such payment may be made by wire transfer in immediately available
funds or by certified or official bank or bank cashier's check payable to the
order of the Company and shall be made to the Warrant Agent
<PAGE>
10
at its corporate trust office address set forth in Section 11.5 hereof prior to
the close of business on the date the Warrant Certificate is surrendered to the
Warrant Agent for exercise. Notwithstanding the foregoing, the Exercise Price
may be paid by surrendering additional Warrants to the Warrant Agent having an
aggregate Spread equal to the aggregate Exercise Price of the Warrants being
exercised. All payments received upon exercise of Warrants shall be delivered to
the Company by the Warrant Agent as instructed in writing by the Company. If
less than all the Warrants represented by a Warrant Certificate are exercised,
such Warrant Certificate shall be surrendered and a new Warrant Certificate of
the same tenor and for the number of Warrants which were not exercised shall be
executed by the Company and delivered to the Warrant Agent and the Warrant Agent
shall countersign the new Warrant Certificate, registered in such name or names
as may be directed in writing by the Holder, and shall deliver the new Warrant
Certificate to the Person or Persons entitled to receive the same. Upon the
exercise of any Warrants following the surrender of a Warrant Certificate in
conformity with the foregoing provisions, the Warrant Agent shall instruct the
Company to transfer promptly to the Holder or, upon the written order of the
Holder of such Warrant Certificate, appropriate evidence of ownership of any
Common Shares, dated the date of such exercise, or other security or property to
which it is entitled as a result of such exercise, registered or otherwise
placed in such name or names as may be directed in writing by the Holder, and to
deliver such evidence of ownership to the Person or Persons entitled to receive
the same and fractional shares, if any, or an amount in cash, in lieu of any
fractional shares, as provided in Section 4.5 hereof; provided that the Holder
of such Warrant shall be responsible for the payment of any transfer taxes
required as the result of any change in ownership of such Warrants or the
issuance of such Common Shares other than to the Holder of such Warrants. Upon
the exercise of a Warrant or Warrants, the Warrant Agent is hereby authorized
and directed to requisition from any transfer agent of the Common Shares (and
all such transfer agents are hereby irrevocably authorized to comply with all
such requests) certificates (bearing the legend set forth in Section 11.10
hereof, if applicable, unless the Warrant Registration Statement relating to
such Common Shares shall then be in effect or the Company and the Holder
exercising such Warrant or Warrants otherwise agree) for the necessary number of
Common Shares to which said Holder may be entitled. The Company shall enter, or
shall cause any transfer agent of the Common Shares to enter, the name of the
Person entitled to receive the Common Shares upon exercise of the Warrants into
the Company's register of stockholders within 14 days of such exercise. A
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of the surrender for exercise, as provided above, of the
Warrant Certificate representing such Warrant and, for all purposes under this
Agreement, the Person entitled to receive any Common Shares deliverable upon
such exercise shall, as between such Person and the Company, be deemed to be the
Holder of such Common Shares of record as of the close of business on such date
and shall be entitled to receive, and the Warrant Agent shall deliver to such
Person, any Common Shares to which such Person is entitled.
<PAGE>
11
ARTICLE IV
ADJUSTMENTS
Section 4.1. Adjustments. The Exercise Price and the number of
----------- -----------
Common Shares issuable upon exercise of each Warrant shall be subject to
adjustment from time to time as follows:
(a) Divisions; Consolidations; Reclassifications. In case the Company
--------------------------------------------
shall, on or before the Expiration Date, (i) issue any Common Shares in payment
of a dividend or other distribution with respect to its Common Shares, (ii)
subdivide its issued and outstanding Common Shares, (iii) consolidate its issued
and outstanding Common Shares into a smaller number of shares, or (iv)
reclassify or convert the Common Shares (other than a reclassification in
connection with a merger, consolidation or other business combination which will
be governed by Section 4.1(j)), then the number of Common Shares purchasable
upon exercise of each Warrant immediately prior to the record date for such
issue or distribution or the effective date of such subdivision, consolidation,
reclassification or conversion shall be adjusted so that the Holder of each
Warrant shall thereafter be entitled to receive the kind and number of Common
Shares which such Holder would have been entitled to receive after the happening
of any of the events described above had such Warrant been exercised immediately
prior to the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this Section 4.1(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) Rights; Options; Warrants. In case the Company shall issue
-------------------------
rights, options, warrants or convertible or exchangeable securities (other than
an issuance of convertible or exchangeable securities subject to Section 4.1(a))
to all holders of its Common Shares, entitling them to subscribe for or purchase
Common Shares at a price per share which is lower (at the record date for such
issuance) than the then Current Market Value per Common Share, then the Company
shall ensure that at the time of such issuance, the same or a like offer or
invitation is made to the Holders of the Warrants as if their Warrants had been
exercised on the day immediately preceding the record date of such offer or
invitation on the terms (subject to any adjustment pursuant to Section 4.1(a)
for a prior event) on which such Warrants could have been exercised on such
date; provided that if the Board so resolves, the Company shall not be required
to ensure that the same offer or invitation is made to the Holders of the
Warrants, but the number of Common Shares thereafter purchasable upon the
exercise of each Warrant shall instead be adjusted and shall be determined by
multiplying the number of Common Shares theretofore purchasable upon exercise of
each Warrant by a fraction, the numerator of which shall be the sum of (i) the
number of Common Shares outstanding immediately prior to the issuance of such
rights, options, warrants or convertible or exchangeable securities plus (ii)
the number of additional Common Shares which may be purchased or subscribed for
upon exercise, exchange or conversion of such rights, options, warrants or
convertible or exchangeable securities, and the denominator of which shall be
the sum of (x) the number of Common Shares outstanding immediately prior to the
issuance of such rights, options, warrants or convertible or exchangeable
securities plus (y) the number of shares which the total consideration received
by the Company for such rights, options, warrants or convertible or exchangeable
securities so offered would purchase at the then Current Market Value per Common
Share. Except as otherwise provided above, such
<PAGE>
12
adjustment shall be made whenever such rights, options, warrants or convertible
or exchangeable securities are issued, and shall become effective retroactively
immediately after the record date for the determination of shareholders entitled
to receive such rights, options, warrants or convertible or exchangeable
securities.
(c) Issuance of Common Shares at Lower Values. In case the Company
-----------------------------------------
shall issue and sell any Common Share or Right (as defined below) (excluding (i)
any Right issued in any of the transactions described in Section 4.1(a) or (b)
above, (ii) Common Shares issued pursuant to (x) any Rights outstanding on the
date of this Agreement and (y) a Right, if on the date such Right was issued,
the exercise, conversion or exchange price per Common Share with respect thereto
was at least equal to the then Current Market Value per Common Share and (iii)
any Common Shares or Right issued as consideration when any corporation or
business is acquired, merged into or becomes part of the Company or a subsidiary
of the Company in an arm's-length transaction between the Company and a Person
other than an Affiliate of the Company) at a price per Common Share (determined
in the case of any such Right, by dividing (x) the total consideration
receivable by the Company in consideration of the sale and issuance of such
Right, plus the total consideration payable to the Company upon exercise,
conversion or exchange thereof, by (y) the total number of Common Shares covered
by such Right) that is lower than the Current Market Value per Common Share in
effect immediately prior to such sale or issuance, then the number of Common
Shares thereafter purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Common Shares theretofore purchasable
upon exercise of such Warrant by a fraction, the numerator of which shall be the
number of Common Shares outstanding immediately after such sale or issuance and
the denominator of which shall be the number of Common Shares outstanding
immediately prior to such sale or issuance plus the number of Common Shares
which the aggregate consideration received (determined as provided below) for
such sale or issuance would purchase at such Current Market Value per Common
Share. For purposes of this Section 4.1(c), the Common Shares which the holder
of any such Right shall be entitled to subscribe for or purchase shall be deemed
to be issued and outstanding as of the date of such sale and issuance and the
consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such Right, plus the consideration or
premiums stated in such Right to be paid for the Common Shares covered thereby.
In case the Company shall sell and issue any Right together with one or more
other securities as part of a unit at a price per unit, then in determining the
"price per Common Share" and the "consideration received by the Company" for
purposes of the first sentence of this Section 4.1(c), the Board shall
determine, in good faith, the fair value of the Right then being sold as part of
such unit. For purposes of this paragraph, a "Right" shall mean any right,
-----
option, warrant or convertible or exchangeable security containing the Right to
subscribe for or acquire one or more Common Shares, excluding the Warrants.
This Section 4.1(c) shall not apply to: (i) the exercise of Warrants, or the
conversion or exchange of other securities convertible or exchangeable for
Common Shares; or (ii) issuance of Rights issued to all holders of Common Shares
or Common Shares issued upon exercise of such Rights;
(d) Distributions of Debt, Assets, Subscription Rights or Convertible
-----------------------------------------------------------------
Securities. In case the Company shall make a distribution to all holders of its
- ----------
Common Shares of evidences of its indebtedness, or assets, or other
distributions (excluding any issuance of Common Shares referred to in Section
4.1(a) above and excluding distributions in connection with the dissolution,
liquidation or winding-up of the Company which shall be governed by Section
4.1(j) and distributions of securities referred to in Section 4.1(a), Section
4.1(b) or
<PAGE>
13
Section 4.1(c)), then, in each case, the number of Common Shares purchasable
after such record date upon the exercise of each Warrant shall be determined by
multiplying the number of Common Shares purchasable upon the exercise of such
Warrant immediately prior to such record date by a fraction, the numerator of
which shall be the Current Market Value per Common Share immediately prior to
the record date for such distribution and the denominator of which shall be the
Current Market Value per Common Share immediately prior to the record date for
such distribution less the then fair value (as determined in good faith by the
Board) of the evidences of its indebtedness, assets or other distributions so
distributed attributable to one Common Share. Such adjustment shall be made
whenever any such distribution is made, and shall become effective on the date
of distribution retroactive to the record date for the determination of
shareholders entitled to receive such distribution.
(e) Expiration of Rights, Options and Conversion Privileges. Upon the
-------------------------------------------------------
expiration of any rights, options, warrants or conversion or exchange privileges
that have previously resulted in an adjustment hereunder, if any thereof shall
not have been exercised, exchanged or converted, the Exercise Price and the
number of Common Shares issuable upon the exercise of each Warrant shall, upon
such expiration, be readjusted and shall thereafter, upon any future exercise,
be such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) as if (i) the only
Common Shares so issued were the Common Shares, if any, actually issued or sold
upon the exercise, exchange or conversion of such rights, options, warrants or
conversion or exchange rights and (ii) such Common Shares, if any, were issued
or sold for the consideration actually received by the Company upon such
exercise, exchange or conversion, plus the consideration, if any, actually
received by the Company for issuance, sale or grant of all such rights, options,
warrants or conversion or exchange rights whether or not exercised.
(f) Current Market Value. For the purposes of any computation under
--------------------
this Article IV, the "Current Market Value" per Common Share or of any other
--------------------
security (herein collectively referred to as a "security") at any date herein
specified shall be:
(i) if the security is not registered under the Exchange Act, the
value of the security (1) most recently determined as of a date within the
six months preceding such date by an Independent Financial Advisor selected
by the Company in accordance with the criteria for such valuation set out
in Section 4.1(k), or (2) if no such determination shall have been made
within such six-month period or if the Company so chooses, determined as of
such a date by an Independent Financial Advisor selected by the Company in
accordance with the criteria for such valuation set out in Section 4.1(k),
or
(ii) if the security is registered under the Exchange Act, the average
of the daily market prices of the security for the 20 consecutive trading
days immediately preceding such date or, if the security has been
registered under the Exchange Act for less than 20 consecutive trading days
before such date, then the average of the daily market prices for all of
the trading days before such date for which daily market prices are
available. The market price for each such trading day shall be: (A) in
the case of a security listed or admitted to trading on any national
securities exchange, the closing sales price, regular way, on such day, or
if no sale takes place on such day, the average of the closing bid and
asked price on such day on the principal national securities exchange on
which such security is listed or admitted, as determined by the Board, in
good faith, (B) in the case of a security not then listed or admitted to
trading
<PAGE>
14
on any national securities exchange, the last reported sale price on such
day, or if no sale takes place on such day, the average of the closing bid
and asked prices on such day, as reported by a reputable quotation source
designated by the Company, (C) in the case of a security not then listed or
admitted to trading on any national securities exchange and as to which no
such reported sale price or bid and asked prices are available, the average
of the reported high bid and low asked prices on such day, as reported by a
reputable quotation service, or a newspaper of general circulation in the
Borough of Manhattan, City and State of New York customarily published on
each Business Day, designated by the Company, or, if there shall be no bid
and asked prices on such day, the average of the high bid and low asked
prices, as so reported, on the most recent day (not more than 30 days prior
to the date in question) for which prices have been so reported and (D) if
there are no bid and asked prices reported during the 30 days prior to the
date in question, the Current Market Value of the security shall be
determined as if the security were not registered under the Exchange Act.
(g) Consideration Received. For purposes of any computation
----------------------
respecting consideration received pursuant to this Section 4.1, the following
shall apply:
(i) in the case of the issuance of Common Shares for cash, the
consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of Common Shares for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board (irrespective of the accounting treatment
thereof), whose determination shall be conclusive and described in
reasonable detail in a board resolution which shall be provided as soon as
practicable thereafter to the Holders; and
(iii) in the case of the issuance of rights, options, warrants or
securities convertible into or exchangeable for Common Shares, the
aggregate consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such rights,
options, warrants or securities convertible into or exchangeable for Common
Shares plus the additional minimum consideration, if any, to be received by
the Company upon the exercise, conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided
in clauses (i) and (ii) of this Section 4.1(g)).
(h) De Minimis Adjustments. No adjustment in the number of Common
----------------------
Shares purchasable hereunder shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the number of
Common Shares purchasable upon the exercise of each Warrant; provided, however,
that any adjustments which by reason of this Section 4.1(h) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest one-thousandth of a
share.
(i) Adjustment of Exercise Price. Whenever the number of Common
----------------------------
<PAGE>
15
Shares purchasable upon the exercise of each Warrant is adjusted, as herein
provided, the Exercise Price per Common Share payable upon exercise of such
Warrant shall be adjusted (calculated to the nearest $.01) so that it shall
equal the price determined by multiplying such Exercise Price immediately prior
to such adjustment by a fraction the numerator of which shall be the number of
Common Shares purchasable upon the exercise of each Warrant immediately prior to
such adjustment and the denominator of which shall be the number of Common
Shares so purchasable immediately thereafter. Following any adjustment to the
Exercise Price pursuant to this Article IV, the amount payable, when adjusted,
shall never be less than the par value per Common Share at the time of such
adjustment.
If after an adjustment, a Holder of a Warrant upon exercise of it may
receive shares of two or more classes in the capital of the Company, the Company
shall determine the allocation of the adjusted Exercise Price between such
classes of shares in a manner that the Board deems fair and equitable to the
Holders. After such allocation, the exercise privilege and the Exercise Price
of each class of shares shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Shares in this Article IV.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(j) Consolidation, Merger, Etc. (i) Subject to the provisions of
--------------------------
Subsection (ii) below of this Section 4.1(j), in case of the consolidation of
the Company with, or merger of the Company with or into, or of the sale of all
or substantially all of the properties and assets of the Company to, any Person,
and in connection therewith consideration is payable to holders of Common Shares
in exchange therefor, the Warrants shall remain subject to the terms and
conditions set forth in this Agreement and each Warrant shall, after such
consolidation, merger or sale, entitle the Holder to receive upon exercise
thereof the number of shares in the capital stock or other securities or
property (including cash) of or from the Person resulting from such
consolidation or surviving such merger or to which such sale shall be made or of
the parent of such Person, as the case may be, that would have been
distributable or payable on account of the Common Shares if such Holder's
Warrants had been exercised immediately prior to such merger, consolidation or
sale (or, if applicable, the record date therefor); and in any such case the
provisions of this Agreement with respect to the rights and interests thereafter
of the Holders of Warrants shall be appropriately adjusted by the Board in good
faith so as to be applicable, as nearly as may reasonably be, to any shares,
other securities or any property thereafter deliverable on the exercise of the
Warrants.
(ii) Notwithstanding the foregoing, (x) if the Company merges or
consolidates with, or sells all or substantially all of its property and
assets to, another Person (other than an Affiliate of the Company) and
consideration is payable to holders of Common Shares in exchange for their
Common Shares in connection with such merger, consolidation or sale which
consists solely of cash, or (y) in the event of the dissolution,
liquidation or winding up of the Company, then the Holders of Warrants
shall be entitled to receive distributions on the date of such event on an
equal basis with holders of Common Shares (or other securities issuable
upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event, less the Exercise Price. Upon receipt of
such payment, if any, the rights of a Holder shall terminate and cease and
such Holder's Warrants shall expire. In case of any such merger,
consolidation or sale of assets, the surviving or acquiring Person and, in
the
<PAGE>
16
event of any dissolution, liquidation or winding up of the Company, the
Company shall deposit promptly with the Warrant Agent the funds, if any,
necessary to pay the Holders of the Warrants. After receipt of such
deposit from such Person or the Company and after receipt of surrendered
Warrant Certificates, the Warrant Agent shall make payment by delivering a
check in such amount as is appropriate (or, in the case of consideration
other than cash, such other consideration as is appropriate) to such Person
or Persons as it may be directed in writing by the Holder surrendering such
Warrants.
(k) If required pursuant to Section 4.1(f)(i), the Current Market
Value shall be deemed to be equal to the value set forth in the Value Report (as
defined below) as determined by an Independent Financial Advisor, which shall be
selected by the Board in its sole discretion, and retained on customary terms
and conditions, using one or more valuation methods that the Independent
Financial Advisor, in its best professional judgment, determines to be most
appropriate. The Company shall cause the Independent Financial Advisor to
deliver to the Company, with a copy to the Warrant Agent, within 45 days of the
appointment of the Independent Financial Advisor, a value report (the "Value
-----
Report") stating the value of the Common Shares (or other securities issuable
- ------
upon exercise of the Warrants) and other securities or property of the Company,
if any, being valued as of the Valuation Date and containing a brief statement
as to the nature and scope of the examination or investigation upon which the
determination of value was made. The Warrant Agent shall have no duty with
respect to the Value Report of any Independent Financial Advisor, except to keep
it on file and available for inspection by the Holders. The determination as to
Current Market Value in accordance with the provisions of this Section 4.1(k)
shall be conclusive on all Persons. The Independent Financial Advisor shall
consult with management of the Company in order to allow management to comment
on the proposed value prior to delivery to the Company of any Value Report.
(l) When No Adjustment Required. No adjustment need be made for:
---------------------------
(i) issuance of Common Shares upon exercise of Rights existing on
the Closing Date;
(ii) issuance to employees, officers, directors or consultants of
the Company or any of its subsidiaries of options to purchase
Common Shares at an exercise price of $________________ per
share (such exercise price to increase from the Closing Date to
the date of issuance at a rate of 9.0% per annum), up to an
aggregate of 12.5% of the Common Shares calculated on a fully
diluted basis;
(iii) rights to purchase Common Shares pursuant to a Company plan for
reinvestment of dividends or interest; and
(iv) a change in the par value of the Common Shares (including a
change from par value to no par value or vice versa).
To the extent the Warrants become convertible into cash, no adjustment
need be made thereafter as to the cash. Interest will not accrue on the cash.
<PAGE>
17
(m) Adjustment for Tax Purposes. The Company may make such changes
---------------------------
to increase the number of Common Shares purchaseable upon the exercise of each
Warrant, in addition to those otherwise required by this Section 4.1, as it
considers to be advisable in order that any event treated for federal income tax
purposes as a dividend of stock or stock rights shall not be taxable to the
recipients.
Section 4.2. Notice of Adjustment. Whenever the number of Common
----------- --------------------
Shares purchasable upon the exercise of each Warrant or the Exercise Price is
adjusted, as herein provided, the Company shall cause, so far as it is able, the
Warrant Agent promptly to mail, at the expense of the Company, to each Holder
notice of such adjustment or adjustments and shall deliver to the Warrant Agent
a certificate of the Auditors setting forth the number of Common Shares
purchasable upon the exercise of each Warrant and the Exercise Price after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
Such certificate shall be conclusive evidence of the correctness of such
adjustment except in the case of manifest error. The Warrant Agent shall be
entitled to rely on such certificate and shall be under no duty or
responsibility with respect to any such certificate, except to exhibit the same,
from time to time, to any Holder desiring an inspection thereof during
reasonable business hours upon reasonable notice. The Warrant Agent shall not
at any time be under any duty or responsibility to any Holders to determine
whether any facts exist which may require any adjustment of the Exercise Price
or the number of Common Shares purchasable on exercise of the Warrants or any of
the other adjustments set forth in Section 4.1, or with respect to the nature or
extent of any such adjustment when made, or with respect to the method employed
in making such adjustment, or the validity or value (or the kind or amount) of
any Common Shares which may be purchasable on exercise of the Warrants. The
Warrant Agent shall not be responsible for any failure of the Company to make
any cash payment or to issue, transfer or deliver any Common Shares or share
certificates upon the exercise of any Warrant.
Section 4.3. Statement on Warrants. Irrespective of any adjustment
----------- ---------------------
in the Exercise Price or the number or kind of shares purchasable upon the
exercise of the Warrants, Warrants theretofore or thereafter issued may continue
to express the same price and number and kind of shares as are stated in the
Warrants initially issuable pursuant to this Agreement.
Section 4.4. Notice of Consolidation, Merger, Etc. In case at any
----------- -------------------------------------
time after the date hereof and prior to the Expiration Date, there shall be any
(i) consolidation or merger involving the Company or sale, transfer or other
disposition of all or substantially all of the Company's property, assets or
business (except a merger or other reorganization in which the Company shall be
the surviving corporation and holders of Common Shares receive no consideration
in respect of their shares) or (ii) any other transaction contemplated by
Section 4.1(j)(ii) above then, in any one or more of such cases, the Company
shall cause to be mailed to the Warrant Agent and shall cause the Warrant Agent
to mail, at the Company's expense, to each Holder of a Warrant, at the earliest
practicable time (and, in any event, not less than 20 days before any date set
for definitive action (so long as the Company is aware of such action at such
time)), notice of the date on which such reorganization, sale, consolidation,
merger, dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Exercise Price and the kind and amount of the Common Shares and other
securities, money and other property deliverable upon exercise of the Warrants.
Such notice shall also specify the date as of which the holders of record of the
<PAGE>
18
Common Shares or other securities or property issuable upon exercise of the
Warrants shall be entitled to exchange their shares for securities, money or
other property deliverable upon such reorganization, sale, consolidation,
merger, dissolution, liquidation or winding up, as the case may be.
Section 4.5. Fractional Interests. If more than one Warrant shall be
----------- --------------------
presented for exercise in full at the same time by the same Holder, the number
of full Common Shares which shall be issuable upon such exercise thereof shall
be computed on the basis of the aggregate number of Common Shares purchasable on
exercise of the Warrants so presented. The Company shall not be required to
issue fractional Common Shares upon the exercise of Warrants. If any fraction
of a Common Share would, except for the provisions of this Section 4.5, be
issuable on the exercise of any Warrant (or specified portion thereof), the
Company may pay an amount in cash calculated by it to be equal to the then
Current Market Value per Common Share multiplied by such fraction computed to
the nearest whole cent.
Section 4.6. When Issuance or Payment May Be Deferred. In any case
----------- ----------------------------------------
in which this Article IV shall require that an adjustment in the Exercise Price
be made effective as of a record date for a specified event, the Company may
elect to defer until the occurrence of such event (i) issuing to the holder of
any Warrant exercised after such record date the Common Shares and other shares
in the capital of the Company, if any, issuable upon such exercise over and
above the Common Shares and other shares in the capital of the Company, if any,
issuable upon such exercise on the basis of the Exercise Price and (ii) paying
such holder any amount in cash in lieu of a fractional share; provided, however,
that the Company shall deliver to such Holder a due bill or other appropriate
instrument evidencing such Holder's right to receive such additional Common
Shares, other shares and cash upon the occurrence of the event requiring such
adjustment.
Section 4.7. Initial Public Offering. Notwithstanding anything to
----------- -----------------------
the contrary herein contained, if the Company, Scovill Fasteners Inc.
(subsequent to the merger of Scovill Acquisition Inc. with and into Scovill
Fasteners Inc.) or any entity which owns, directly or indirectly, a majority of
the capital stock of Scovill Fasteners Inc. conducts, in the case of the
Company, any initial public offering of equity securities (other than Common
Shares) and, in the case of Scovill Fasteners Inc. or any entity which owns,
directly or indirectly, a majority of the capital stock of Scovill Fasteners
Inc., any initial public offering of equity securities, in each case regardless
of whether such offering consists of the issuance of new shares or the sale of
outstanding shares, the Company will give the Holders the opportunity to convert
such Warrants into warrants to purchase such equity securities and such Warrant
Shares or such other securities that have been received by the Holders upon the
exercise of Warrants into such equity securities. Such conversion opportunity
will be on terms and conditions determined to be fair and reasonable by the
Company's Board of Directors.
ARTICLE V
DECREASE IN EXERCISE PRICE
The Board, in its sole discretion, shall have the right at any time,
or from time to time, to decrease the Exercise Price of the Warrants and/or
increase the number of shares issuable upon the exercise of the Warrants.
<PAGE>
19
ARTICLE VI
LOSS OR MUTILATION
Upon receipt by the Company and the Warrant Agent of evidence
satisfactory to them of the ownership and the loss, theft, destruction or
mutilation of any Warrant Certificate and of indemnity or bond satisfactory to
them and (in the case of mutilation) upon surrender and cancellation thereof,
then, in the absence of notice to the Company or the Warrant Agent that the
Warrants represented thereby have been acquired by a bona fide purchaser, the
Company shall execute and the Warrant Agent shall countersign and deliver to the
registered Holder of the lost, stolen, destroyed or mutilated Warrant
Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of
the same tenor and for a like aggregate number of Warrants. Upon the issuance
of any new Warrant Certificate under this Article VI, the Company may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and other expenses (including the fees
and expenses of the Warrant Agent) in connection therewith. Every new Warrant
Certificate executed and delivered pursuant to this Article VI in lieu of any
lost, stolen or destroyed Warrant Certificate shall constitute a contractual
obligation of the Company whether or not the allegedly lost, stolen or destroyed
Warrant Certificates shall be at any time enforceable by anyone and shall be
entitled to the benefits of this Agreement equally and proportionately with any
and all other Warrant Certificates duly executed and delivered hereunder. The
provisions of this Article VI are exclusive and shall preclude (to the extent
lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen, or destroyed Warrant Certificates.
ARTICLE VII
RESERVATION AND AUTHORIZATION
OF COMMON SHARES
The Company shall at all times reserve and keep available such number
of its authorized but unissued Common Shares deliverable upon exercise of
Warrants as will be sufficient to permit the exercise in full of all outstanding
Warrants and will cause appropriate evidence of ownership of such Common Shares
to be delivered to the Warrant Agent upon its request for delivery thereof upon
the exercise of Warrants. The Company covenants that all Common Shares of the
Company that may be issued upon the exercise of the Warrants will, upon
issuance, be duly authorized, validly issued, fully paid and not subject to any
calls for funds and free from pre-emptive rights and all taxes, liens, charges
and security interests with respect to the issue thereof.
<PAGE>
20
ARTICLE VIII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER
Section 8.1. Transfer and Exchange. The Warrant Certificates shall
----------- ---------------------
be issued in registered form only. The Warrant Agent shall keep at its office a
register for the registration of Warrant Certificates and transfers or exchanges
of Warrant Certificates as herein provided and other appropriate data as
determined by the Warrant Agent. The Company shall, upon reasonable notice to
the Warrant Agent, have access to such register during the Warrant Agent's
regular business hours. All Warrant Certificates issued upon any registration
of transfer or exchange of Warrant Certificates shall be the valid obligations
of the Company, evidencing the same obligations, and entitled to the same
benefits under this Agreement, as the Warrant Certificates surrendered for such
registration of transfer or exchange.
The Warrants shall initially be issued as part of the issuance of the
Units. Prior to the Separation Date, the Warrants may not be transferred or
exchanged separately from, but may be transferred or exchanged only together
with, the Shares issued as part of such Units.
A Holder may transfer its Warrants only by written application to the
Warrant Agent stating the name of the proposed transferee and otherwise
complying with the terms of this Agreement. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Warrant Agent in the
register. Prior to the registration of any transfer of Warrants by a Holder as
provided herein, the Company, the Warrant Agent, and any agent of the Company
may treat the person in whose name the Warrants are registered as the owner
thereof for all purposes and as the person entitled to exercise the rights
represented thereby, any notice to the contrary notwithstanding. Furthermore,
any holder of a Global Warrant shall, by acceptance of such Global Warrant,
agree that transfers of beneficial interests in such Global Warrant may be
effected only through a book-entry system maintained by the holder of such
Global Warrant (or its agent), and that ownership of a beneficial interest in
the Warrants represented thereby shall be required to be reflected in a book-
entry. When Warrant Certificates are presented to the Warrant Agent with a
request to register the transfer or to exchange them for an equal amount of
Warrants of other authorized denominations, the Warrant Agent shall register
such transfer or make such exchange as requested if its requirements for such
transactions are met. To permit registrations of transfers and exchanges, the
Company shall execute Warrant Certificates at the Warrant Agent's request. No
service charge shall be made for any registration of transfer or exchange of
Warrants, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
registration of transfer of Warrants.
Section 8.2. Book-Entry Provisions for Global Warrants. (a) Global
----------- -----------------------------------------
Warrants initially shall (i) be registered in the name of the Depositary for
such Global Warrant or the nominee of such Depositary, (ii) be delivered to the
Warrant Agent as custodian for such Depositary and (iii) bear legends as set
forth in Section 2.2 hereof.
Members of, or participants in, the Depositary ("Agent Members") shall
-------------
have no rights under this Agreement with respect to a Global Warrant held on
their behalf by the
<PAGE>
21
Depositary or the Warrant Agent as its custodian, and the Depositary may be
treated by the Company, the Warrant Agent and any agent of the Company or the
Warrant Agent as the absolute owner of such Global Warrant for all purposes
whatsoever. Nothing herein shall prevent the Company, the Warrant Agent or any
agent of the Company or the Warrant Agent, from giving effect to any written
certification, proxy or other authorization furnished by the Depositary or
impair, as between the Depositary and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Warrants.
(b) Transfers of a Global Warrant shall be limited to transfers of
such Global Warrant in whole, but not in part, to the Depositary, its successors
or their respective nominees. Interests of beneficial owners in a Global
Warrant may be transferred in accordance with the rules and procedures of the
Depositary and the provisions of Section 8.3 hereof. Certificated Warrants
shall be transferred to beneficial owners in exchange for their beneficial
interests in a Global Warrant if the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for any such Global Warrant and a
successor depositary is not appointed by the Company within 90 days of such
notice, (ii) upon the request of the beneficial owner in accordance with the
rules and procedures of the Depositary and the provisions of Section 8.3 hereof
or (iii) upon notice from the Company to the Transfer Agent and Registrar in
writing requesting the issuance of Certificated Warrants in exchange for a
Global Warrant.
In connection with the transfer of an entire Global Warrant to
beneficial owners pursuant to clauses (b)(i) and (b) (iii) of this Section 8.2,
such Global Warrant shall be surrendered to the Warrant Agent for cancellation,
and the Company shall execute, and the Warrant Agent shall countersign and
deliver, to each beneficial owner identified by the Depositary in exchange for
its beneficial interest in such Global Warrant, Certified Warrants of authorized
denominations representing, in the aggregate, the number of Warrants theretofore
represented by such Global Warrant.
(d) In connection with the transfer of a portion of the beneficial
interests in a Global Warrant to beneficial owners pursuant to clause (b)(ii) of
this Section 8.2, the Warrant Agent shall reflect on its books and records the
date and a decrease in the amount of Warrants represented by the Global Warrant
in an amount equal to the amount of Warrants represented by the beneficial
interest in the Global Warrant to be transferred, and the Company shall execute,
and the Warrant Agent shall countersign and deliver, to each beneficial owner
identified by the Depositary in exchange for its beneficial interest in the
Global Warrant, Certificated Warrants of like tenor and amount.
(e) Any Certificated Warrant delivered in exchange for an interest
in a Global Warrant pursuant to paragraph (b) of this Section shall, except as
otherwise provided by paragraph (c) of Section 8.3 hereof, bear the legend
regarding transfer restrictions set forth in Section 2.2 hereof.
(g) The registered holder of a Global Warrant may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Agreement or the Warrants.
<PAGE>
22
Section 8.3. Special Transfer Provisions. The following provisions
----------- ---------------------------
shall apply:
(a) Transfers to QIBs. The following provisions shall apply with
-----------------
respect to the registration of any proposed transfer of Warrants to a QIB:
(i) If the Warrants to be transferred are represented by
Certificated Warrants, the Warrant Agent shall register the transfer if
such transfer is being made by a proposed transferor who has checked the
box provided for on the form of Warrant Certificate stating, or has
otherwise advised the Company and the Warrant Agent in writing, that the
sale has been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form of
Warrant Certificate stating, or has otherwise advised the Company and the
Warrant Agent in writing, that it is purchasing the Warrants for its own
account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a QIB within the meaning of
Rule 144A, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding
the Company as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member that is a QIB,
and the Warrants to be transferred are represented by Certificated
Warrants, upon receipt by the Warrant Agent of the documents referred to in
clause (i) above and instructions given in accordance with the Depositary's
and the Warrant Agent's procedures, the Warrant Agent shall reflect on its
books and records the date and an increase in the amount of Warrants
represented by the Global Warrant in an amount equal to the amount of
Warrants represented by the Certificated Warrants to be transferred, and
the Warrant Agent shall cancel the Certificated Warrants so transferred.
(b) Transfers to Any Other Person. The following provisions shall
-----------------------------
apply with respect to the registration of any proposed transfer of Warrants to
any Person not specified in paragraph (a) above (including any Non-Global
Purchaser).
(i) The Warrant Agent shall register any proposed transfer of
Warrants to any such Person if (x) the transferor has delivered to the
Warrant Agent and the Company a certificate substantially in the form of
Exhibit B-1 hereto and, if required by paragraph (d) thereof, an Opinion of
Counsel to the effect set forth therein and (y) the proposed transferee has
delivered to the Warrant Agent and the Company a certificate substantially
in the form of Exhibit B-2 hereto if such transferee is a Non-Global
Purchaser.
(ii) (A) If the proposed transferor is an Agent Member holding a
beneficial interest in the Global Warrant, upon receipt by the Warrant
Agent and the Company of the documents required by paragraph (i) above and
instructions given in accordance with the Depositary's and the Warrant
Agent's procedures, the Company shall execute and the Warrant Agent shall
countersign Certificated Warrants in an amount equal to the amount of
Warrants represented by the Global Warrant to be transferred, and the
<PAGE>
23
Warrant Agent shall decrease the amount of Warrants represented by the
Global Warrant.
(c) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Warrant Certificates not bearing the Private Placement Legend,
the Warrant Agent shall deliver Warrant Certificates that do not bear the
Private Placement Legend. Upon the transfer, exchange or replacement of Warrant
Certificates bearing the Private Placement Legend, the Warrant Agent shall
deliver only Warrant Certificates that bear the Private Placement Legend unless
there is delivered to the Warrant Agent an opinion of counsel reasonably
satisfactory to the Company and its Counsel and the Warrant Agent to the effect
that neither such legend nor the related restrictions on transfer are required
in order to maintain compliance with the provisions of the Securities Act.
(d) General. (i) By its acceptance of any Warrants represented by a
-------
Warrant Certificate bearing the Private Placement Legend, each Holder of such
Warrants acknowledges the restrictions on transfer of such Warrants set forth in
this Agreement and in the Private Placement Legend and agrees that it will
transfer such Warrants only as provided in this Agreement. The Warrant Agent
shall not register a transfer of any Warrants unless such transfer complies with
the restrictions on transfer of such Warrants set forth in this Agreement. In
connection with any transfer of Warrants, each Holder agrees by its acceptance
of Warrants to furnish the Warrant Agent or the Company such certifications,
legal opinions or other information as either of them may reasonably require to
confirm that such transfer is being made pursuant to an exemption from, or a
transaction not subject to, the registration requirements of the Securities Act;
provided that the Warrant Agent shall not be required to determine (but may rely
on a determination made by the Company with respect to) the sufficiency of any
such certifications, legal opinions or other information.
(ii) The Warrant Agent shall retain copies of all letters, notices
and other written communications received pursuant to Section 8.2 hereof or
this Section 8.3. The Company shall have the right to inspect and make
copies of all such letters, notices or other written communications at any
reasonable time upon the giving of reasonable written notice to the Warrant
Agent.
Section 8.4. Surrender of Warrant Certificates. Any Warrant
----------- ---------------------------------
Certificate surrendered for registration of transfer, exchange or exercise of
the Warrants represented thereby shall, if surrendered to the Company, be
delivered to the Warrant Agent, and all Warrant Certificates surrendered or so
delivered to the Warrant Agent shall be promptly cancelled by the Warrant Agent
and shall not be reissued by the Company and, except as provided in this Article
VIII in case of an exchange, Article III hereof in case of the exercise of less
than all the Warrants represented thereby or Article VI in case of a mutilated
Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu
thereof. The Warrant Agent shall deliver to the Company from time to time or
otherwise dispose of such cancelled Warrant Certificates as the Company may
direct in writing.
<PAGE>
24
ARTICLE IX
WARRANT HOLDERS
Section 9.1. Warrant Holder Deemed Not a Shareholder. The Company
----------- ---------------------------------------
and the Warrant Agent may deem and treat the registered Holder(s) of the Warrant
Certificates as the absolute owner(s) thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone), for the purpose of any
exercise thereof and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Accordingly, the
Company and/or the Warrant Agent shall not, except as ordered by a court of
competent jurisdiction as required by law, be bound to recognize any equitable
or other claim to or interest in the Warrants on the part of any person other
than such registered Holder, whether or not it shall have express or other
notice thereof. Prior to the exercise of the Warrants, no Holder of a Warrant
Certificate, as such, shall be entitled to any rights of a shareholder of the
Company, including, without limitation, the right to vote or to consent to any
action of the shareholders, to receive dividends or other distributions, to
exercise any preemptive right or to receive any notice of meetings of
shareholders and, except as otherwise provided in this Agreement, shall not be
entitled to receive any notice of any proceedings of the Company.
Section 9.2. Right of Action. All rights of action with respect to
----------- ---------------
this Agreement are vested in the Holders of the Warrants, and any Holder of any
Warrant, without the consent of the Warrant Agent or the Holders of any other
Warrant, may, on such Holder's own behalf and for such Holder's own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, or otherwise in respect of, such Holder's right
to exercise such Warrants in the manner provided in the Warrant Certificate
representing such Warrants and in this Agreement.
<PAGE>
25
ARTICLE X
THE WARRANT AGENT
Section 10.1. Duties and Liabilities. The Warrant Agent hereby
------------ ----------------------
accepts the agency established by this Agreement and agrees to perform the same
upon the terms and conditions herein set forth, by all of which the Company and
the Holders of Warrants, by their acceptance thereof, shall be bound. The
Warrant Agent shall not, by countersigning Warrant Certificates or by any other
act hereunder, be deemed to make any representations as to the validity or
authorization of the Warrants or the Warrant Certificates (except as to its
countersignature thereon) or of any Common Shares issued upon exercise of any
Warrant, or as to the accuracy of the computation of the Exercise Price or the
number or kind or amount of Common Shares deliverable upon exercise of any
Warrant or the correctness of the representations of the Company made in the
certificates that the Warrant Agent receives. The Warrant Agent shall not be
accountable for the use or application by the Company of the proceeds of the
exercise of any Warrant. The Warrant Agent shall not have any duty to calculate
or determine any adjustments with respect to either the Exercise Price or the
kind and amount of Common Shares receivable by Holders upon the exercise of
Warrants required from time to time and the Warrant Agent shall have no duty or
responsibility in determining the accuracy or correctness of such calculation.
The Warrant Agent shall not be (a) liable for any recital or statement of fact
contained herein or in the Warrant Certificates or for any action taken,
suffered or omitted by it in good faith in the belief that any Warrant
Certificate or any other documents or any signatures are genuine or properly
authorized, (b) responsible for any failure on the part of the Company to comply
with any of its covenants and obligations contained in this Agreement or in the
Warrant Certificates or (c) liable for any act or omission in connection with
this Agreement except for its own gross negligence, bad faith or willful
misconduct. The Warrant Agent is hereby authorized to enter into, and perform
its duties under, the Warrant Registration Rights Agreement, as warrant agent in
its capacity as such and on behalf of the Holders. The Warrant Agent also is
hereby authorized to accept instructions with respect to the performance of its
duties hereunder from the Chairman of the Board, Vice-Chairman of the Board,
Chief Executive Officer or other executive officer of the Company and to apply
to any such officer for instructions (which instructions will be promptly given
in writing when requested) and the Warrant Agent shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with the
instructions of any such officer; however, in its discretion, the Warrant Agent
may, in lieu thereof, accept other evidence of such or may require such further
or additional evidence as it may deem reasonable. The Warrant Agent shall not be
liable for any action taken with respect to any matter in the event it requests
instructions from the Company as to that matter and does not receive such
instructions within a reasonable period of time after the request therefor.
The Warrant Agent may execute and exercise any of the rights and
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents or employees, and the Warrant Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys, agents or employees; provided reasonable care has been exercised
with respect to the retention of any such attorney, agent or employee. The
Warrant Agent shall not be under any obligation or duty to institute, appear in
or defend any action, suit or legal proceeding in respect hereof, unless first
indemnified to its reasonable satisfaction. The Warrant Agent shall promptly
notify the Company in writing of any claim made or action, suit or proceeding
instituted against it arising out of or in
<PAGE>
26
connection with this Agreement.
The Company will perform, execute, acknowledge and deliver or cause to
be delivered all such further acts, instruments and assurances as are consistent
with this Agreement and as may reasonably be required by the Warrant Agent in
order to enable it to carry out or perform its duties under this Agreement.
The Warrant Agent shall act solely as agent of the Company hereunder.
The Warrant Agent shall not be liable except for the failure to perform such
duties as are specifically set forth herein, and no implied covenants or
obligations shall be read into this Agreement against the Warrant Agent, whose
duties and obligations shall be determined solely by the express provisions
hereof.
Section 10.2. Right to Consult Counsel. The Warrant Agent may at any
------------ ------------------------
time consult with legal counsel (who may be legal counsel for the Company), and
the opinion or advice of such counsel shall be full and complete authorization
and protection to the Warrant Agent and the Warrant Agent shall incur no
liability or responsibility to the Company or to any Holder for any action
taken, suffered or omitted by it in good faith in accordance with the opinion or
advice of such counsel.
Section 10.3. Compensation; Indemnification. The Company agrees
------------ -----------------------------
promptly to pay the Warrant Agent from time to time and in any case within 30
days of receipt of an invoice, compensation for its services hereunder and under
the Warrant Registration Rights Agreement as the Company and the Warrant Agent
may agree from time to time, and to reimburse it upon its request for reasonable
fees or expenses and reasonable counsel fees and expenses incurred in connection
with the execution and administration of this Agreement and the Warrant
Registration Rights Agreement, and further agrees to indemnify the Warrant Agent
and save it harmless against any losses, liabilities or expenses arising out of
or in connection with the acceptance and administration of this Agreement or the
Warrant Registration Rights Agreement, including, without limitation, the
reasonable costs and expenses of investigating or defending any claim of such
liability, except that the Company shall have no liability hereunder to the
extent that any such loss, liability or expense results from the Warrant Agent's
own gross negligence, bad faith or willful misconduct. The obligations of the
Company under this Section 10.3 shall survive the exercise and the expiration of
the Warrants, the termination of this Agreement or the Warrant Registration
Rights Agreement and the resignation or removal of the Warrant Agent in respect
of services rendered or expenses incurred in connection with the Warrants or
this Agreement.
Section 10.4. No Restrictions on Actions. Nothing in this Agreement
------------ --------------------------
shall be deemed to prevent the Warrant Agent and any shareholder, director,
officer or employee of the Warrant Agent from buying, selling or dealing in any
of the Warrants or other securities of the Company or becoming pecuniarily
interested in transactions in which the Company may be interested, or
contracting with or lending money to the Company or otherwise acting as fully
and freely as though it were not the Warrant Agent under this Agreement.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
Section 10.5. Discharge or Removal; Replacement Warrant Agent. The
------------ -----------------------------------------------
Warrant Agent may resign from its position as such and be discharged from all
further duties
<PAGE>
27
and liabilities hereunder and under the Warrant Registration Rights Agreement
(except liability arising as a result of the Warrant Agent's own gross
negligence, bad faith or willful misconduct), after giving one month's prior
written notice to the Company. The Company may at any time remove the Warrant
Agent upon one month's written notice specifying the date when such discharge
shall take effect, and the Warrant Agent shall thereupon in like manner be
discharged from all further duties and liabilities hereunder and under the
Warrant Registration Rights Agreement, except as aforesaid. The Warrant Agent
shall mail to each Holder of a Warrant or Warrant Shares, at the Company's
expense and, in the case of Warrant Shares, upon provision by the Company to the
Warrant Agent of a list of all such Holders of Warrant Shares, a copy of said
notice of resignation or notice of removal, as the case may be. Upon such
resignation or removal the Company shall appoint in writing a new warrant agent.
If the Company shall fail to make such appointment within a period of 30
calendar days after it has been notified in writing of such resignation by the
resigning Warrant Agent or after such removal, then the resigning or removed
Warrant Agent or the Holder of any Warrant or Warrant Share may apply to any
court of competent jurisdiction for the appointment of a new warrant agent.
After 30 calendar days from receipt of, or giving, notice, as the case may be,
and pending appointment of a successor to the original Warrant Agent, either by
the Company or by such a court, the duties of the Warrant Agent shall be carried
out by the Company. Any new warrant agent, whether appointed by the Company or
by such a court, shall be a bank or trust company doing business under the laws
of the United States or any state thereof, in good standing and having a
combined capital and surplus of not less than $25,000,000. The combined capital
and surplus of any such new warrant agent shall be deemed to be the combined
capital and surplus as set forth in the most recent annual report of its
condition published by such warrant agent prior to its appointment, provided
that such reports are published at least annually pursuant to law or to the
requirements of a federal or state supervising or examining authority. After
acceptance in writing of such appointment by the new warrant agent, it shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; however, the original Warrant Agent shall in
all events deliver and transfer to the successor Warrant Agent all property
(including, without limitation, documents and recorded information), if any, at
the time held hereunder by the original Warrant Agent and if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning or
removed Warrant Agent. Not later than the effective date of any such
appointment, the Company shall file notice thereof with the resigning or removed
Warrant Agent and shall forthwith cause a copy of such notice to be mailed by
the successor Warrant Agent to each Holder of a Warrant or Warrant Share.
Failure to give any notice provided for in this Section 10.5, however, or any
defect therein, shall not affect the legality or validity of the resignation of
the Warrant Agent or the appointment of a new warrant agent, as the case may be.
No Warrant Agent hereunder shall be liable for any acts or omissions of any
successor Warrant Agent.
Section 10.6. Successor Warrant Agent. Any corporation into which
------------ -----------------------
the Warrant Agent or any new warrant agent may be merged or converted, or any
corporation resulting from any consolidation to which the Warrant Agent or any
new warrant agent shall be a party or any corporation succeeding to all or
substantially all the corporate agency business of the Warrant Agent, shall be a
successor Warrant Agent under this Agreement without any further act, provided
that such corporation would be eligible for appointment as
<PAGE>
28
successor to the Warrant Agent under the provisions of Section 10.5 hereof. Any
such successor Warrant Agent shall promptly cause notice of its succession as
Warrant Agent to be mailed to each Holder of a Warrant.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Monies Deposited with the Warrant Agent. The Warrant
------------ ---------------------------------------
Agent shall not be required to pay interest on any monies deposited pursuant to
the provisions of this Agreement except such as it shall agree in writing with
the Company to pay thereon. Any monies, securities or other property which at
any time shall be deposited by the Company or on its behalf with the Warrant
Agent pursuant to this Agreement shall be and are hereby assigned, transferred
and set over to the Warrant Agent in trust for the purpose for which such
monies, securities or other property shall have been deposited; but such monies,
securities or other property need not be segregated from other funds, securities
or other property except to the extent required by law. Any monies, securities
or other property deposited with the Warrant Agent for payment or distribution
to the Holders that remains unclaimed for one year after the date the monies,
securities or other property was deposited with the Warrant Agent shall be
delivered to the Company upon its request therefor.
Section 11.2. Payment of Taxes. Subject to Article VI hereof, all
------------ ----------------
Common Shares issuable upon the exercise of Warrants shall be validly issued,
fully paid and not subject to any calls for funds, and the Company shall pay any
taxes and other governmental charges that may be imposed under the laws of the
United States of America or any political subdivision or taxing authority
thereof or therein in respect of the issue or delivery thereof upon exercise of
Warrants (other than income taxes imposed on the Holders). The Company shall
not be required, however, to pay any tax or other charge imposed in connection
with any transfer involved in the issue of any certificate for Common Shares
(including other securities or property issuable upon the exercise of the
Warrants) or payment of cash to any Person other than the Holder of a Warrant
Certificate surrendered upon the exercise of a Warrant and in case of such
transfer or payment, the Warrant Agent and the Company shall not be required to
issue any share certificate or pay any cash until such tax or charge has been
paid or it has been established to the Warrant Agent's and the Company's
satisfaction that no such tax or charge is due.
Section 11.3. No Merger, Consolidation or Sale of Assets of the
------------ -------------------------------------------------
Company. Except as otherwise provided herein, the Company will not merge into
- -------
or consolidate with any other Person, or sell or otherwise transfer its
property, assets and business substantially as an entirety to a successor of the
Company, unless the Person resulting from such merger or consolidation, or such
successor of the Company, shall expressly assume, by supplemental agreement
satisfactory in form to the Warrant Agent and executed and delivered to the
Warrant Agent, the due and punctual performance and observance of each and every
covenant and condition of this Agreement or contained in the Warrants to be
performed and observed by the Company.
Section 11.4. Reports to Holders. At all times from and after the
------------ ------------------
Separation Date, whether or not the Company is then required to file reports
with the Commission, the
<PAGE>
29
Company shall file with the Commission, to the extent such filings are accepted
by the Commission, all quarterly and annual reports and other information,
documents and reports that would be required to be filed with the Commission
pursuant to Section 13 under the Exchange Act if the Company were required to
file under such section. The Company shall supply the Warrant Agent and each
Holder or shall supply to the Warrant Agent for forwarding to each such Holder,
without cost to such Holder, copies of such reports and other information. In
addition, at all times, the Company shall supply to each Holder, to each
prospective purchaser of Warrants designated by Holders of Warrants which are
required to bear the Private Placement Legend and to broker-dealers, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Section 11.5. Notices; Payment. (a) Except as otherwise provided in
------------ ----------------
Section 11.5(c) hereof, any notice, demand or delivery authorized by this
Agreement shall be sufficiently given or made when mailed, if sent by first
class mail, postage prepaid, addressed to any Holder of a Warrant at such
Holder's last known address appearing on the register of the Company maintained
by the Warrant Agent and to the Company or the Warrant Agent as follows:
To the Company:
Scovill Holdings Inc.
c/o Saratoga Partners III, L.P.
535 Madison Avenue
New York, New York 10022
Attention: Christian L. Oberbeck
To the Warrant Agent:
(for surrender or transfer of Warrants)
United States Trust Company of New York,
as Warrant Agent
770 Broadway - 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
(for notices, demands and other purposes):
United States Trust Company of New York,
as Warrant Agent
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Administration
or such other address as shall have been furnished to the party giving or making
such notice, demand or delivery. Any notice that is mailed in the manner herein
provided shall be conclusively presumed to have been duly given (i) to the
Holder when mailed, whether or not the Holder receives the notice and (ii) to
the Warrant Agent or the Company, when received.
(b) Payment of the Exercise Price should be made in accordance with
the
<PAGE>
30
provisions of this Agreement at the office of the Warrant Agent therefor, as
set forth above.
(c) Any notice required to be given by the Company to the Holders
shall be made by mailing by registered mail, return receipt requested, to the
Holders at their last known addresses appearing on the register maintained by
the Warrant Agent. The Company hereby irrevocably authorizes the Warrant Agent,
in the name and at the expense of the Company, to mail any such notice upon
receipt thereof from the Company. Any notice that is mailed in the manner
herein provided shall be conclusively presumed to have been duly given when
mailed, whether or not the Holder receives the notice.
Section 11.6. Binding Effect. This Agreement shall be binding upon
------------ --------------
and inure to the benefit of the Company and the Warrant Agent and their
respective successors and assigns, and the Holders from time to time of the
Warrants. Nothing in this Agreement is intended or shall be construed to confer
upon any Person, other than the Company, the Warrant Agent and the Holders of
the Warrants, any right, remedy or claim under or by reason of this Agreement or
any part hereof.
Section 11.7. Counterparts. This Agreement may be executed manually
------------ ------------
or by facsimile in any number of counterparts, each of which shall be deemed an
original, but all of which together constitute one and the same instrument.
Section 11.8. Amendments. (a) The Warrant Agent may, without the
------------ ----------
consent or concurrence of the Holders of the Warrants, by supplemental agreement
or otherwise, join with the Company in making any changes or corrections in this
Agreement that (a) are required to cure any ambiguity or to correct any
defective or inconsistent provision or clerical omission or mistake or manifest
error herein contained or (b) add to the covenants and agreements of the Company
in this Agreement further covenants and agreements of the Company thereafter to
be observed, or surrender any rights or power reserved to or conferred upon the
Company in this Agreement; provided that in either case such changes or
corrections do not and will not adversely affect, alter or change the rights,
privileges or immunities of the Holders of Warrants. Upon the Warrant Agent's
request, the Company shall promptly provide an Officer's Certificate and Opinion
of Counsel which provide all conditions precedent to adoption of an amendment
that have been satisfied.
(b) Notwithstanding the foregoing, the Company and the Warrant Agent
may amend this Agreement, with the prior written consent of all Holders of
Warrants issued hereunder, including any amendment to the terms of the Warrants,
the Warrant Shares or the outstanding Warrant Certificates. If any such
amendment shall amend the outstanding Warrant Certificates, the Warrant Agent
shall notify each holder of such amendment and request that each holder
surrender its Warrant Certificate at the corporate trust office address of the
Warrant Agent set forth under Section 11.5 hereof in exchange for a new
certificate evidencing such amendment.
Section 11.9. Headings. The descriptive headings of the several
------------ --------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 11.10. Common Shares Legend. Unless and until the Common
------------- --------------------
Shares issuable upon the exercise of the Warrants are registered under the
Securities Act, or unless
<PAGE>
31
otherwise agreed by the Company and the Holder thereof, such Common Shares will
bear a legend to the following effect:
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF 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 OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT,
WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES
ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS SECURITY, (A) SUCH
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) (a) 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) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO THE TRANSFER AGENT AND REGISTRAR A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRANSFER
AGENT AND REGISTRAR) AND IF SUCH TRANSFER IS IN RESPECT OF SECURITIES
HAVING A PURCHASE PRICE OF LESS THAN $100,000, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (c) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
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) BUT ONLY IN THE CASE OF A
TRANSFER THAT IS EFFECTED BY THE DELIVERY TO THE TRANSFEREE OF DEFINITIVE
SECURITIES REGISTERED IN ITS NAME (OR ITS NOMINEE'S NAME) IN THE BOOKS
MAINTAINED BY THE REGISTRAR, AND SUBJECT TO THE RECEIPT BY THE REGISTRAR OF
A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (2) TO THE
COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
<PAGE>
32
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. IN CONNECTION
WITH ANY TRANSFER OF THIS SECURITY WITHIN THE TIME PERIOD REFERRED TO
ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE
HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE
TO THE TRANSFER AGENT AND REGISTRAR. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRANSFER AGENT AND REGISTRAR AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. IN ADDITION, THE HOLDER OF THIS
SECURITY UNDERSTANDS THAT THE SECURITY MAY NOT BE SOLD OR TRANSFERRED TO,
AND SUCH HOLDER SHALL BE DEEMED TO HAVE REPRESENTED AND COVENANTED THAT IT
IS NOT ACQUIRING THIS SECURITY FOR OR ON BEHALF OF, AND WILL NOT TRANSFER
THIS SECURITY TO, ANY PERSON OTHER THAN (I) AN INDIVIDUAL CITIZEN OR
RESIDENT OF THE UNITED STATES FOR U.S. FEDERAL INCOME TAX PURPOSES, (II) A
CORPORATION, PARTNERSHIP OR OTHER ENTITY CREATED OR ORGANIZED IN OR UNDER
THE LAWS OF THE UNITED STATES OR ANY POLITICAL SUBDIVISION THEREOF, (III)
AN ESTATE THE INCOME OF WHICH IS SUBJECT TO UNITED STATES FEDERAL INCOME
TAX REGARDLESS OF THE SOURCE, (IV) A TRUST WHOSE ADMINISTRATION IS SUBJECT
TO THE PRIMARY SUPERVISION OF A UNITED STATES COURT AND WHICH HAS ONE OR
MORE UNITED STATES PERSONS WHO HAVE THE AUTHORITY TO CONTROL ALL
SUBSTANTIAL DECISIONS OF THE TRUST, OR (V) ANY OTHER PERSON WHOSE INCOME OR
GAIN IN RESPECT OF THIS SECURITY IS EFFECTIVELY CONNECTED WITH THE CONDUCT
OF A UNITED STATES TRADE OR BUSINESS (OR, IF APPLICABLE, ATTRIBUTABLE TO A
PERMANENT ESTABLISHMENT SITUATED IN THE UNITED STATES) WHO DELIVERS
APPROPRIATE DOCUMENTATION TO THE ISSUER OF THIS SECURITY.
Section 11.11. Third Party Beneficiaries. The Holders shall be third
------------- -------------------------
party beneficiaries to the agreements made hereunder between the Company, on the
one hand, and the Warrant Agent, on the other hand, and each Holder shall have
the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder. By acquiring Warrants, each Holder agrees to be bound by the
obligations of Holders generally as set forth herein and as such obligations may
be applicable to such Holder.
Section 11.12. Termination. Except as otherwise specified herein,
------------- -----------
this
<PAGE>
33
Agreement shall terminate at 5:00 p.m. (New York City time) on the twelfth
anniversary of the Closing Date. Notwithstanding the foregoing, this Agreement
shall terminate on any earlier date as of which all Warrants have been
exercised.
Section 11.13. Governing Law. This Agreement shall be governed by
------------- -------------
the laws of the State of New York.
<PAGE>
34
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
SCOVILL HOLDINGS INC.
By:_______________________________
Name:
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK, as Warrant Agent
By:_______________________________
Name:
Title:
<PAGE>
EXHIBIT A
FORM OF WARRANT CERTIFICATE
SCOVILL HOLDINGS INC.
[CUSIP] [CINS] [ISIN] No. _____
No. _____
WARRANTS TO PURCHASE COMMON SHARES
This certifies that ______________, or its registered assigns, is the
owner of _________________ Warrants, each of which represents the right to
purchase, after November 26, 1998, from SCOVILL HOLDINGS INC., a Delaware
corporation (the "Company"), [_______] common shares, par value $0.0001 per
-------
share, of the Company (the "Common Shares") at an exercise price (the "Exercise
------------- --------
Price") of $____ per Common Share (subject to adjustment as provided in the
- -----
Warrant Agreement hereinafter referred to below), upon surrender hereof at the
office of the United States Trust Company of New York, or to its successor, as
the warrant agent under the Warrant Agreement (any such warrant agent being
herein called the "Warrant Agent"), with the Subscription Form on the reverse
-------------
hereof duly executed, with signature guaranteed as therein specified and
simultaneous payment in full by wire transfer in immediately available funds or
by certified or official bank or bank cashier's check payable to the order of
the Company. Notwithstanding the foregoing, the Exercise Price may be paid by
surrendering additional Warrants to the Warrant Agent having an aggregate Spread
equal to the aggregate Exercise Price of the Warrants being exercised. At any
time after November 26, 1998 and on or before 5:00 p.m. (New York City time) on
November 30, 2009 any outstanding Warrants may be exercised on any Business Day;
provided that the Warrant Registration Statement is, at the time of exercise,
effective and available for the exercise of Warrants, or the exercise of such
Warrants is exempt from the registration requirements of the Securities Act, and
the Common Shares are qualified for sale or exempt from qualification under the
applicable securities laws of the states or other jurisdictions in which the
various holders of the Warrants reside.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of November 26, 1997 (the "Warrant Agreement"),
-----------------
between the Company and the United States Trust Company of New York, as Warrant
Agent, and a Registration Rights Agreement dated as of November 26, 1997 (the
"Warrant Registration Rights Agreement"), between the Company and the United
--------------------------- ---------
States Trust Company of New York, as Warrant Agent, and is subject to the
Certificate of Incorporation and Bylaws of the Company and to the terms and
provisions contained therein, to all of which terms and provisions the Holder of
this Warrant Certificate consents by acceptance hereof. The terms of the
Warrant Agreement and the Warrant Registration Rights Agreement are hereby
incorporated herein by reference and made a part hereof. Reference is hereby
made to the Warrant Agreement and the Warrant Registration Rights Agreement for
a full description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Company and the Holders of the Warrants. The
summary of the terms of the Warrant Agreement and the Warrant Registration
Rights Agreement contained in this Warrant Certificate is qualified in its
entirety by express reference to the Warrant Agreement and the Warrant
Registration Rights Agreement. All terms used in this Warrant Certificate that
are defined in the Warrant Agreement and the Warrant Registration Rights
Agreement shall have the meanings assigned to them in such
<PAGE>
A-2
agreements.
Copies of the Warrant Agreement and the Warrant Registration Rights
Agreement are on file at the office of the Warrant Agent and may be obtained by
writing to the Warrant Agent at the following address:
United States Trust Company of New York,
as Warrant Agent
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Administration
If the Company merges or consolidates with or into, or sells all or
substantially all of its property and assets to, another Person and the
consideration received by holders of Common Shares consists solely of cash, the
Holders of Warrants shall be entitled to receive distributions on the date of
such event on an equal basis with holders of Common Shares (or other securities
issuable upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event (less the Exercise Price). Upon receipt of such
payment, if any, the rights of a Holder shall terminate and cease and such
Holder's Warrants shall expire.
The number of Common Shares purchasable upon the exercise of each
Warrant and the price per share are subject to adjustment as provided in the
Warrant Agreement. Except as stated in the immediately preceding paragraph, in
the event the Company merges or consolidates with, or sells all or substantially
all of its assets to, another Person, each Warrant will, upon exercise, entitle
the Holder thereof to receive the number of shares of capital stock or other
securities or the amount of money and other property which the holder of an
Common Share (or other securities or property issuable upon exercise of a
Warrant) is entitled to receive upon completion of such merger, consolidation or
sale. Notwithstanding anything to the contrary herein contained, if the
Company, Scovill Fasteners Inc. (subsequent to the merger of Scovill Acquisition
Inc. with and into Scovill Fasteners Inc.) or any entity which owns, directly or
indirectly, a majority of the capital stock of Scovill Fasteners Inc. conducts,
in the case of the Company, any initial public offering of equity securities
(other than Common Shares) and, in the case of Scovill Fasteners Inc. or any
entity which owns, directly or indirectly, a majority of the capital stock of
Scovill Fasteners Inc., any initial public offering of equity securities, in
each case regardless of whether such offering consists of the issuance of new
shares or the sale of outstanding shares, the Company will give the Holders the
opportunity to convert such Warrants into warrants to purchase such equity
securities and such Warrant Shares or such other securities that have been
received by the Holders upon the exercise of Warrants into such equity
securities.
As to any final fraction of a share which the same Holder of one or
more Warrant Certificates would otherwise be entitled to purchase upon exercise
thereof in the same transaction, the Company may pay the cash value thereof
determined as provided in the Warrant Agreement.
Subject to Article VI of the Warrant Agreement, all Common Shares
issuable by the Company upon the exercise of Warrants shall be validly issued,
fully paid and not
<PAGE>
A-3
subject to any calls for funds, and the Company shall pay any taxes and other
governmental charges that may be imposed under the laws of the United States of
America or any political subdivision or taxing authority thereof or therein in
respect of the issue or delivery thereof upon exercise of Warrants (other than
income taxes imposed on the Holders). The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for Common Shares (including other
securities or property issuable upon the exercise of the Warrants) or payment of
cash to any Person other than the Holder of a Warrant Certificate surrendered
upon the exercise of a Warrant and in case of such transfer or payment, the
Warrant Agent and the Company shall not be required to issue any share
certificate or pay any cash until such tax or charge has been paid or it has
been established to the Warrant Agent's and the Company's satisfaction that no
such tax or charge is due.
Subject to the restrictions on and conditions to transfer set forth in
Article VIII of the Warrant Agreement, this Warrant Certificate and all rights
hereunder are transferable by the registered Holder hereof, in whole or in part,
on the register of the Company maintained by the Warrant Agent for such purpose
at the Warrant Agent's office at 770 Broadway, 13th Floor, New York, New York
10003, Attention: Corporate Trust Services, upon surrender of this Warrant
Certificate duly endorsed, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Warrant Agent duly executed, with
signatures guaranteed as specified in the attached Form of Assignment, by the
registered Holder hereof or his attorney duly authorized in writing and by such
other documentation required pursuant to the Warrant Agreement and upon payment
of any necessary transfer tax or other governmental charge imposed upon such
transfer. Upon any partial transfer, the Company will sign and issue and the
Warrant Agent will countersign and deliver to such Holder a new Warrant
Certificate or Certificates with respect to any portion not so transferred.
Each taker and Holder of this Warrant Certificate, by taking and holding
the same, consents and agrees that prior to the registration of transfer as
provided in the Warrant Agreement, the Company and the Warrant Agent may treat
the person in whose name the Warrants are registered as the absolute owner
hereof for any purpose and as the Person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding. Accordingly, the
Company and/or the Warrant Agent shall not, except as ordered by a court of
competent jurisdiction as required by law, be bound to recognize any equitable
or other claim to or interest in the Warrants on the part of any person other
than such Registered Holder, whether or not it shall have express or other
notice thereof.
This Warrant Certificate may be exchanged at the office of the Warrant
Agent maintained for such purpose in at 770 Broadway, 13th Floor, New York, New
York 10003 , Attention: Corporate Trust Services, for Warrant Certificates
representing the same aggregate number of Warrants, each new Warrant Certificate
to represent such number of Warrants as the Holder hereof shall designate at the
time of such exchange.
Prior to the exercise of the Warrants represented hereby, the Holder
of this Warrant Certificate, as such, shall not be entitled to any rights of a
shareholder of the Company, including, without limitation, the right to vote or
to consent to any action of the shareholders, to receive any distributions, to
exercise any pre-emptive right or to receive any notice of meetings of
shareholders, and shall not be entitled to receive any notice of any proceedings
of the Company except as provided in the Warrant Agreement.
<PAGE>
A-4
This Warrant Certificate shall be void and all rights evidenced hereby
shall cease on November 30, 2009, unless sooner terminated by the liquidation,
dissolution or winding-up of the Company or as otherwise provided in the Warrant
Agreement upon the consolidation or merger of the Company with, or sale of the
Company to, another Person or unless such date is extended as provided in the
Warrant Agreement.
<PAGE>
A-5
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
Dated: _____________
SCOVILL HOLDINGS INC.
By: _________________________
Name:
Title:
Countersigned:
United States Trust Company of New York,
as Warrant Agent
By: ___________________________
Authorized Signatory
<PAGE>
FORM OF REVERSE OF WARRANT CERTIFICATE
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: United States Trust Company of New York,
as Warrant Agent
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
The undersigned irrevocably exercises ________of the Warrants
represented by this Warrant Certificate and herewith makes payment [of $_______
(such payment being by wire transfer in immediately available funds or by
certified or official bank or bank cashier's check payable to the order or at
the direction of Scovill Holdings Inc.] [by surrendering additional Warrants
having an aggregate Spread equal to the aggregate exercise price of the Warrants
being exercised], all at the exercise price and on the terms and conditions
specified in this Warrant Certificate and in the Warrant Agreement and the
Warrant Registration Rights Agreement referred to herein and surrenders this
Warrant Certificate and all right, title and interest therein to and directs
that the Common shares, par value $0.0001 per share, of Scovill Holdings Inc.
(the "Common Shares") deliverable upon the exercise of such Warrants be
-------------
registered or placed in the name and at the address specified below and
delivered thereto.
Dated: _______________________________
(Signature of Owner)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip Code)
Signature Guaranteed By:
_______________________________
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Warrant Agent which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Warrant Agent in
addition to or in substitution for, STAMP, all in accordance with the Securities
Exchange Act of 1934, as amended.
<PAGE>
A-7
Securities and/or check or other property to be issued or delivered to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE>
FORM OF ASSIGNMENT
In consideration of monies or other valuable consideration received
from the Assignee(s) named below, the undersigned registered Holder of this
Warrant Certificate hereby sells, assigns, and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants constituting
a part of the Warrants evidenced by this Warrant Certificate not being assigned
hereby) all of the right of the undersigned under this Warrant Certificate, with
respect to the number of Warrants set forth below:
Name(s) of Assignee(s): ___________________________________
Address: __________________________________________________
No. of Warrants: __________________________________________
Please insert social security or other identifying number of assignee(s):
and does hereby irrevocably constitute and appoint ________________________ the
undersigned's attorney to make such transfer on the books of __________________
maintained for the purposes, with full power of substitution in the premises.
In connection with any transfer of Warrants, the undersigned confirms
that without utilizing any general solicitation or general advertising that:
[Check One]
[_] (a) these Warrants are being transferred in compliance with the exemption
from registration under the U.S. Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
or
--
[_] (b) these Warrants are being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Warrant Certificate and the
Warrant Agreement.
or
--
[_] (c) these Warrants are being transferred pursuant to an effective
registration statement under the U.S. Securities Act of 1933, as
amended.
<PAGE>
A-9
If none of the foregoing boxes is checked, the Warrant Agent shall not be
obligated to register the Warrants in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Article VIII of the Warrant Agreement shall
have been satisfied.
Dated:
_________________________
(Signature of Owner)
_________________________
(Street Address)
_________________________
(City) (State) (Zip Code)
Signature Guaranteed By:
___________________________
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Warrant Agent which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Warrant Agent in
addition to or in substitution for, STAMP, all in accordance with the Securities
Exchange Act of 1934, as amended.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing the
Warrant(s) for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the U.S. Securities
Act of 1933, as amended, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding Scovill Holdings Inc. as the undersigned has requested pursuant to
Rule 144A or has determined not to request such information and that it is aware
that the transferor is relying upon the undersigned's foregoing representations
in order to claim the exemption from registration provided by Rule 144A.
Dated:________________
______________________________________________
[NOTE: To be executed by an executive officer]
<PAGE>
EXHIBIT B-1
Form of Certificate to be
Delivered by Transferor in Connection with
Transfers to Institutional Accredited Investors
- -----------------------------------------------
[Date]
Scovill Holdings Inc.
c/o Saratoga Partners III, L.P.
535 Madison Avenue
New York, New York 10022
Attention: Christian L. Oberbeck
United States Trust Company of New York,
as Warrant Agent
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
Re:Warrants (the "Warrants") to Purchase
Common Shares of Scovill Holdings Inc. (the "Company")
Ladies and Gentlemen:
We hereby certify that such transfer is being effected in compliance with the
transfer restrictions applicable to the Warrants or interests therein
transferred pursuant to and in accordance with the Securities Act, and
accordingly we hereby further certifies that (check one):
[Check One]
(a)[_] such transfer is being effected pursuant to and in accordance with Rule
144 under the Securities Act;
or
- --
(b)[_]such transfer is being effected to the Company or a subsidiary thereof;
or
- --
(c)[_]such transfer is being effected pursuant to an effective registration
statement under the Securities Act;
<PAGE>
B1-2
or
- --
(d) [_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or Rule 144
, and we hereby further certify that such transfer complies with the transfer
restrictions applicable to the Warrants or interests therein transferred to
Institutional Accredited Investors and in accordance with the requirements of
the exemption claimed, which certification is supported by an Opinion of Counsel
provided by us or the transferee (a copy of which we have attached to this
certification), to the effect that (a) such transfer is in compliance with the
Securities Act and such (b) such transfer complies with any applicable blue sky
securities laws of any state of the United States. Upon consummation of the
proposed transfer in accordance with the terms of the Warrant Agreement, the
transferred Warrants or interests therein will be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the IAI
Certificated Warrant and in the Warrant Agreement and the Securities Act.
Very truly yours,
[Name of Transferor]
By:____________________________________
Authorized Signatory
<PAGE>
EXHIBIT B-2
Form of Certificate to be
Delivered By Transferees in Connection with
Transfers to Institutional Accredited Investors
-----------------------------------------------
[Date]
Scovill Holdings Inc.
c/o Saratoga Partners III, L.P.
535 Madison Avenue
New York, New York 10022
Attention: Christian L. Oberbeck
United States Trust Company of New York,
as Warrant Agent
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
Re: Warrants (the "Warrants") to Purchase
--------
Common Shares of
Scovill Holdings Inc. (the "Company")
-------
Ladies and Gentlemen:
In connection with our proposed purchase of ___________ aggregate
number of Warrants, we confirm that:
(i) We understand that any subsequent transfer of the Warrants, any
interest therein or the Common Stock (or other securities) issuable upon
exercise of any Warrant (the "Warrant Shares") is subject to certain
--------------
restrictions and conditions set forth in the Warrant Agreement dated as of
November 26, 1997 relating to the Warrants (the "Warrant Agreement") and the
-----------------
Warrant Registration Rights Agreement dated November 26, 1997 relating to
the Warrants (the "Warrant Registration Rights Agreement") and the
-------------------------------------
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Warrants or the Warrant Shares except in compliance with, such
restrictions and conditions and the U.S. Securities Act of 1933, as amended
(the "Securities Act").
--------------
(ii) we are an institutional "accredited investor" within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933,
as amended ("Securities Act"), or an entity in which all of the equity
owners are institutional accredited investors within the meaning of Rule
501(a) under the Securities Act (an "Institutional Accredited Investor");
(iii) any purchase of Warrants by us will be for our own account or
for the account of one or more other Institutional Accredited Investors;
(iv) in the event that we purchase any Warrants, we will acquire
Warrants having a minimum purchase price of at least $100,000 for our own
account and for each
<PAGE>
B2-2
separate account for which we are acting;
(v) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of purchasing
Warrants;
(vi) we are not acquiring the Warrants for or on behalf of, and will
not transfer the Warrants or the Warrant Shares to, any pension or welfare
plan (as defined in Section 3 of the Employee Retirement Income Security Act
of 1974, as amended) or plan (as defined in Section 4975 of the Internal
Revenue Code, as amended), except as permitted by the Warrant Agreement, the
Warrants or the Warrant Shares.
We understand that the Warrants 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 Warrants, that, within the time period referred to
under Rule 144(k) under the Securities Act as in effect on the date of the
transfer of such Warrants or Warrant Shares, such Warrants or Warrant Shares may
be offered, resold, pledged or otherwise transferred only (i) (a) 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, (b) to an Institutional Accredited Investor that, prior to such
transfer, furnishes to the Warrant Agent (as defined in the Warrant Agreement)
or, in the case of the Warrant Shares, to the transfer agent and registrar
thereof, a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Warrants or Warrant Shares (the
form of which letter can be obtained from the Warrant Agent or such transfer
agent and registrar) and, if such transfer is in respect of Warrants or Warrant
Shares having a purchase price at the time of transfer of less than $100,000, an
opinion of counsel acceptable to the Company that such transfer is in compliance
with the Securities Act, (c) in a transaction meeting the requirements of Rule
144 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), but only in the case of a transfer that
is effected by the delivery to the transferee of definitive securities
registered in its name (or its nominee's name) in the books maintained by the
applicable registrar, and subject to the receipt by such registrar of a
certification of the transferor and an opinion of counsel to the effect that
such transfer is in compliance with the Securities Act, (ii) to the Company or
(iii) pursuant to an effective registration statement under the Securities Act,
and, in each case, in accordance with any applicable securities laws of any
State of the United States or any other applicable jurisdiction. We will notify
any purchaser from us that the Warrants or Warrant Shares are subject to the
resale restrictions set forth in the above sentence. We understand that the
Warrant Agent or the transfer agent and registrar, if any, will not be required
to accept for registration or transfer any Warrants or Warrant Shares, except
upon presentation of evidence satisfactory to the Company that the foregoing
restrictions on transfer have been complied with. We further understand that
the Warrants purchased by us will be issued in the form of definitive physical
certificates, subject to the terms and conditions of the Warrant Agreement, and
that such certificates will bear a legend reflecting the substance of this
paragraph.
We understand that the Warrants may not be sold or transferred to, and
we represent and covenant that we are not acquiring the Warrants for or on
behalf of, and will not transfer the Warrants to, any person other than (i) an
individual citizen or resident of the United States for U.S. federal income tax
purposes, (ii) a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political
<PAGE>
B2-3
subdivision thereof, (iii) an estate the income of which is subject to U.S.
federal income tax regardless of source, (iv) a trust whose administration is
subject to the primary supervision of a United States court and which has one or
more United States persons who have the authority to control all substantial
decisions of the trust, or (v) any other person whose income or gain in respect
of the Warrants is effectively connected with the conduct of a United States
trade or business (or, if applicable, attributable to a permanent establishment
situated in the United States) who delivers appropriate documentation to the
Company.
We acknowledge that you 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.
Very truly yours,
[Name of Transferee]
By:________________________________________
Authorized Signature
<PAGE>
EXHIBIT 10.1.4
_______________________________________________________________________________
WARRANT REGISTRATION RIGHTS AGREEMENT
between
SCOVILL HOLDINGS INC.
and
UNITED STATES TRUST COMPANY OF NEW YORK
as Warrant Agent
Dated as of November 26, 1997
_______________________________________________________________________________
<PAGE>
WARRANT REGISTRATION RIGHTS AGREEMENT
WARRANT REGISTRATION RIGHTS AGREEMENT, dated as of November 26, 1997
(this "Agreement"), between SCOVILL HOLDINGS INC., a Delaware corporation (the
---------
"Company"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking
- --------
corporation, as warrant agent (in such capacity, the "Warrant Agent").
-------------
Pursuant to the terms of a Purchase Agreement, dated November 26, 1997
(the "Purchase Agreement"), among the Company and SBC Warburg Dillon Read Inc.
------------------
and BT Alex. Brown Incorporated, as initial purchasers (the "Initial
-------
Purchasers"), the Company has agreed to issue and sell to the Initial Purchasers
- ----------
an aggregate of 100,000 warrants (the "Warrants"), to purchase four (4) shares
--------
of Common Stock (as defined below) of the Company at an exercise price of $0.10
per share, as part of 100,000 units (the "Units"), each Unit consisting of one
-----
share of 13 3/4% Series A Cumulative Redeemable Exchangeable Preferred Stock of
the Company (the "Senior Preferred Stock"), and one Warrant. The Senior
----------------------
Preferred Stock and the Warrant included in each Unit will not be separately
tradeable until the earliest to occur of: (i) the date which is 90 days after
the Closing Date (as defined below), (ii) such earlier date as may be determined
by the Initial Purchasers, (iii) in the event of a Change of Control (as defined
in the Warrant Agreement), the date on which the Company mails notice thereof to
holders of the Senior Preferred Stock, and (iv) the date upon which a
registration statement with respect to shares of preferred stock to be exchanged
for the Senior Preferred Stock is declared effective pursuant to the Preferred
Stock Registration Rights Agreement (as defined below).
In consideration of the foregoing and of the mutual agreements
contained herein and in the Unit Purchase Agreement, the Company and the Warrant
Agent hereby agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Auditors" means, at any time, the independent auditors of the Company
at such time.
"Blackout Period" has the meaning specified in Section 2 hereof.
"Board" means the board of directors of the Company from time to time.
"Closing Date" means the date hereof.
"Comfort Letter" has the meaning specified in Section 3 hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Common Shares" means the shares of the Common Stock of the Company.
"Common Stock" means the common stock, par value $0.0001 per share, of
the Company.
"Company" has the meaning specified in the preamble to this Agreement.
<PAGE>
2
"Company IPO Shares" has the meaning specified in Section 2 hereof.
"Cutback Notice" has the meaning specified in Section 2 hereof.
"Demand Period" has the meaning specified in Section 2 hereof.
"Demand Registration Rights" has the meaning specified in Section 2
hereof.
"Demand Registration Statement" has the meaning specified in Section 2
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
"Expiration Date" means the twelfth anniversary of the Closing Date.
"Holders" means the record holders of the Warrants and the holders of
Common Shares (or other securities) received upon exercise thereof.
"Includible Secondary Shares" has the meaning specified in Section 2
hereof.
"Includible Shares" has the meaning specified in Section 2 hereof.
"Initial Purchasers" has the meaning specified in the recitals to this
Agreement.
"managing underwriter" has the meaning specified in Section 2 hereof.
"Opinion" has the meaning specified in Section 3 hereof.
"Other IPO Shares" has the meaning specified in Section 2 hereof.
"Piggy-back Registration Rights" has the meaning specified in Section
2 hereof.
"Piggy-back Registration Statement" has the meaning specified in
Section 2 hereof.
"Registration Statement" has the meaning specified in Section 2
hereof.
"Resales Registration Statement" has the meaning specified in Section
9 hereof.
"Resale Shelf" has the meaning specified in Section 3 hereof.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Senior Preferred Stock" has the meaning specified in the recitals to
this Agreement.
"Shelf Expiration Date" has the meaning specified in Section 3 hereof.
"Underlying Securities" means the Common Shares issuable upon exercise
of the
<PAGE>
3
Warrants or such other securities as shall be issuable upon the exercise of the
Warrants, pursuant to the Warrant Agreement.
"Unit Purchase Agreement" has the meaning specified in the recitals to
this Agreement.
"Units" has the meaning specified in the recitals to this Agreement.
"Warrants" has the meaning specified in the recitals to this
Agreement.
"Warrant Agent" has the meaning specified in the preamble to this
Agreement.
"Warrant Agreement" means the Warrant Agreement dated as of the
Closing Date between the Company and the Warrant Agent.
"Warrant Shares" has the meaning specified in Section 2 hereof.
"Warrant Shelf Registration Statement" has the meaning specified in
Section 3 hereof.
2. Registration Rights.
-------------------
(a) Demand Registrations Rights.
---------------------------
(i) Following the earlier of (x) the 180th day after an initial
public offering of Common Stock (or other securities) issuable upon the
exercise of the Warrants or (y) the fifth anniversary of the Closing Date,
and for a period of twelve years (the "Demand Period"), the Holders of at
-------------
least 25% of the Warrants then outstanding shall have the right ("Demand
------
Registration Rights") to require the Company to file a registration
-------------------
statement under the Securities Act in respect of an underwritten offering
and sale of Common Shares issuable upon exercise of such Holders' Warrants
or such other securities issuable upon exercise of the Warrants, or Common
Shares or such other securities previously received upon exercise of
Warrants pursuant to the Warrant Agreement (the "Warrant Shares"),
--------------
provided, however, that Holders shall be entitled to only two (2) Demand
-------- -------
Registration Rights hereunder. After the Company receives a written request
from such Holders demanding that the Company so register the number of
Warrant Shares specified in such request, the Company shall file with the
Commission and thereafter use its best efforts to cause to be declared
effective within 120 days of such demand a registration statement (a
"Demand Registration Statement") providing for the registration of all
-----------------------------
Warrant Shares as such Holders shall have demanded be registered.
(ii) Anything in this Agreement to the contrary notwithstanding, the
Company shall be entitled to postpone and delay, until the earliest
practicable time at which such Demand Registration Statement can reasonably
be effective (the "Blackout Period"), the filing of the Demand Registration
---------------
Statement if the Company shall determine that any such filing or the
offering of any Warrant Shares would (x) in the reasonable judgment of the
Board, materially impede, delay or otherwise interfere with any pending or
contemplated financing, acquisition, corporation reorganization or other
similar transaction involving the Company, (y) based upon advice from the
Company's investment banker or financial
<PAGE>
4
advisor, adversely affect any pending or contemplated offering or sale of
any class of securities by the Company, or (z) require disclosure of
material nonpublic information which, if disclosed at such time, would be
materially harmful to the interests of the Company and its shareholders;
provided, however, that the Blackout Period shall terminate upon the
-------- -------
completion or abandonment of the relevant financing, acquisition, corporate
reorganization or other similar transaction, such time as such Demand
Registration Statement shall no longer affect the relevant pending or
contemplated offering of securities by the Company, or the public
disclosure by the Company or public admission by the Company of such
material nonpublic information or such time as such material nonpublic
information shall be publicly disclosed, as the case may be. After the
expiration of any Blackout Period and without any further request from any
Holder, the Company shall effect the filing of the Demand Registration
Statement and shall use its best efforts to cause any such Demand
Registration to be declared effective as promptly as practicable unless
Holders shall have, prior to the effective date of such Demand Registration
Statement, withdrawn in writing the initial request such that less than 25%
of the Warrant Shares originally requested to be included in the
registration shall not have withdrawn, in which case such withdrawn request
shall not constitute a demand for purposes of Section 2(a)(i) hereunder.
(iii) Except with respect to a request by Holders under Section
2(a)(i) which is subsequently withdrawn (in the manner described above)
prior to such Demand Registration Statement becoming effective by reason of
(x) a material adverse change affecting the Company or capital markets
generally, (y) notification by the Company of an intention to file a
registration with respect to the Common Shares (or other securities
issuable upon exercise of the Warrants), or (iii) the circumstances
described in Section 2(a)(ii), such withdrawing Holders shall pay all
expenses relating to the preparation of such withdrawn Demand Registration
Statement.
(b) Piggy-Back Registration Rights.
------------------------------
(i) If the Company proposes to file a registration statement with the
Commission respecting an offering of any shares of Common Stock (or other
securities) issuable upon exercise of the Warrants (other than an offering
registered solely on Form S-4 or S-8 or any successor form thereto and
other than the initial public offering of shares of Common Stock (or other
securities) issuable upon exercise of the Warrants if no shareholder of the
Company, including the Holders pursuant to Section 2(a), participates
therein), the Company shall give prompt written notice to all the Holders
of Warrants, Warrant Shares or such other securities received upon exercise
of Warrants at least 30 days prior to the initial filing of the
registration statement relating to such offering (the "Piggy-Back
----------
Registration Statement" and, together with the Demand Registration
----------------------
Statement, the "Registration Statement"). Each such Holder shall have the
----------------------
right, within 20 days after delivery of such notice, to request in writing
that the Company include all or a portion of such Warrant Shares in such
Registration Statement ("Piggy-back Registration Rights"). The Company
------------------------------
shall include in the public offering all of the Warrant Shares that a
Holder has requested be included, unless the underwriter for the public
offering or the underwriter managing the public offering (in either case,
the "managing underwriter") delivers a notice (a "Cutback Notice") pursuant
-------------------- --------------
to Section 2(b)(ii) or 2(b)(iii) hereof. The managing underwriter may
deliver one or more Cutback Notices at any time prior to the execution of
the underwriting agreement for the public
<PAGE>
5
offering.
(ii) If a proposed public offering includes both securities to be
offered for the account of the Company ("Company IPO Shares") and shares to
------------------
be sold by shareholders, the provisions of this Section 2(b)(ii) shall be
applicable if the managing underwriter delivers a Cutback Notice stating
that, in its opinion, the number of Common Shares (other than Warrant
Shares to be sold by the Holders) that selling shareholders propose to sell
therein, whether or not such selling shareholders have the right to include
shares therein (the "Other IPO Shares"), plus the number of Warrant Shares
----------------
that the Holders have requested to be sold therein, plus the Company IPO
Shares, exceeds the maximum number of shares specified by the managing
underwriter in such Cutback Notice that may be distributed without
adversely affecting the price, timing or distribution of the
Company IPO Shares. Such maximum number of shares that may be so sold,
excluding the Company IPO Shares, are referred to as the "Includible
----------
Shares."
------
If the managing underwriter delivers such Cutback Notice, the Company
shall be entitled to include all of the Company IPO Shares in the public
offering and each requesting Holder shall be entitled to include in the
public offering up to its pro rata portion of the Includible Shares and in
priority to the inclusion of any Other IPO Shares that are proposed to be
sold in such public offering. No shareholder that proposes to sell Other
IPO Shares in the proposed initial public offering may sell any such shares
therein unless all Warrant Shares requested by the Holders to be sold
therein are so included.
(iii) If a proposed public offering is entirely a secondary offering,
the provisions of this Section 2(b)(iii) shall be applicable if the
managing underwriter delivers a Cutback Notice stating that, in its
opinion, the aggregate number of Warrant Shares and Other IPO Shares
proposed to be sold therein exceeds the maximum number of shares (the
"Includible Secondary Shares") specified by the managing underwriter in
---------------------------
such Cutback Notice that may be distributed without adversely affecting the
price, timing or distribution of the Common Shares being distributed. If
the managing underwriter delivers such Cutback Notice, each requesting
Holder shall be entitled to include in the public offering up to its pro
rata portion of the Includible Secondary Shares and in priority to the
inclusion of any Other IPO Shares that are proposed to be sold in such
public offering. No shareholder that proposes to sell Other IPO Shares in
such public offering may sell any such shares therein unless all Warrant
Shares requested by the Holders to be sold therein are so included.
(iv) The underwriting agreement for such public offering shall
provide that each requesting Holder shall have the right to sell its
Warrant Shares (other than Warrant Shares excluded from such public
offering pursuant to a Cutback Notice and the terms of Sections 2(b)(ii)
and 2(b)(iii)) to the underwriters and that the underwriters shall purchase
the Warrant Shares at the price paid by the underwriters for the Common
Shares sold by the Company and/or other selling shareholders, as the case
may be.
3. Shelf Registration.
------------------
(a) If only the Company sells Common Shares (or other securities
issuable upon the exercise of Warrants) in an initial public offering or all of
the Warrant Shares (or other securities issuable upon the exercise of Warrants)
have not been sold in an initial public offering
<PAGE>
6
or a public offering of Common Shares (or such other securities) within 180 days
after the closing of the Company's initial public offering of Common Shares, the
Company shall use its best efforts to cause to be filed pursuant to Rule 415
under the Securities Act a shelf registration statement on the appropriate form
(the "Warrant Shelf Registration Statement") covering the issuance of the
------------------------------------
Warrant Shares upon exercise of the Warrants and shall use its best efforts to
cause the Warrant Shelf Registration Statement to become effective under the
Securities Act within 180 days after the closing date of the initial public
offering of Common Shares; provided, however, that (x) in no event may the
-------- -------
Warrant Shelf Registration Statement be declared effective prior to the first
anniversary of the Closing Date and (y) if the Commission shall request that the
Company register the resale of the Warrant Shares instead of the issuance
thereof, the Warrant Shelf Registration Statement shall register such resale as
opposed to such issuance. The Company shall use reasonable efforts to keep the
Warrant Shelf Registration Statement continuously effective until the earlier of
(1) such time as all Warrants have been exercised, (2) the Expiration Date and
(3) the date on which all Warrant Shares are freely transferable, or in the case
of clause (y), such time as all Warrant Shares have been resold (the "Shelf
-----
Expiration Date"). Prior to filing the Warrant Shelf Registration Statement or
- ---------------
any amendment thereto, the Company shall provide a copy thereof to the Initial
Purchasers and their counsel and afford them a reasonable time to comment
thereon.
(b) If the Warrant Shelf Registration Statement shall register the
resale of the Warrant Shares (a "Resale Shelf") as provided in clause (y) of the
------------
proviso to the first sentence of Section 3(a) above, the Company agrees to:
(i) make available for inspection by a representative of the Holders,
any underwriter participating in any disposition pursuant to such Resale
Shelf and attorneys and accountants designated by the Holders, at
reasonable times and in a reasonable manner, financial and other records,
documents and properties of the Company or any subsidiary thereof that are
pertinent to the conduct of due diligence customary for an underwritten
offering, and cause the officers, directors and employees of the Company or
any such subsidiary to supply all information reasonably requested by any
such representative, underwriter, attorney or accountant in connection with
a Resale Shelf; provided, however, that such persons shall first agree in
-------- -------
writing with the Company to use such information only in connection with
the transaction for which such information was obtained and that any
information that is reasonably and in good faith designated by the Company
or any such subsidiary in writing as confidential at the time of delivery
of such information shall be kept confidential by such persons, unless and
to the extent that disclosure of such information is required by law or
such information becomes generally available to the public other than as a
result of a disclosure or failure to safeguard such information by such
person. Each selling Holder, underwriter, attorney or accountant
requesting disclosure will agree that it will, upon learning that
disclosure of such information is sought in connection with a court
proceeding, give notice to the Company and allow the Company at its own
expense to undertake appropriate action to prevent disclosure of the
information deemed confidential;
(ii) use its best efforts to cause all Warrant Shares sold under a
Resale Shelf to be listed on any securities exchange or any automated
quotation system on which similar securities issued by the Company are then
listed if requested by the Holders of Warrant Shares representing a
majority of the Warrants originally issued, to the extent such Warrant
Shares satisfy applicable listing requirements;
<PAGE>
7
(iii) provide a reasonable number of copies of the prospectus
included in such Resale Shelf to Holders that are selling Warrant Shares
pursuant to such Resale Shelf;
(iv) cause to be provided to the Warrant Agent, on behalf of the
Holders and beneficial owners of Warrant Shares, upon the effectiveness of
such Resale Shelf, a customary "10b-5" opinion of independent counsel (an
"Opinion") and a customary "cold comfort" letter of independent auditors (a
-------
"Comfort Letter");
--------------
(v) cause to be provided to the Warrant Agent, on behalf of the
Holders and beneficial owners of Warrant Shares, an Opinion and Comfort
Letter with respect to each Form 10-K, including any amendments thereto,
that is incorporated by reference in such Resale Shelf upon the initial
filing with the Commission of such documents; and
(vi) notify the Warrant Agent, for distribution to the Holders, (A)
when the Resale Shelf has become effective and when any post-effective
amendment thereto has been filed and becomes effective, (B) of any request
by the Commission or any state securities authority for amendments and
supplements to the Resale Shelf or of any material request by the
Commission or any state securities authority for additional information
after the Resale Shelf has become effective, (C) of the issuance by the
Commission or any state securities authority of any stop order suspending
the effectiveness of the Resale Shelf or the initiation of any proceedings
for that purpose, (D) if, between the effective date of the Resale Shelf
and the closing of any sale of Warrant Shares covered thereby, the
representations and warranties of the Company contained in any underwriting
agreement, securities sales agreement or other similar agreement, including
this Agreement, relating to disclosure cease to be true and correct in all
material respects or if the Company receives any notification with respect
to the suspension of the qualification of the Warrant Shares for sale in
any jurisdiction or the initiation of any proceeding for such purpose, (E)
of the happening of any event during the period the Resale Shelf is
effective such that such Resale Shelf or the related prospectus contains an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make statements therein not
misleading and (F) of any determination by the Company that a post-
effective amendment to a Registration Statement would be appropriate. The
Holders hereby agree to suspend use of the prospectus contained in a Resale
Shelf upon receipt of such notice under clause (C) (but only to the extent
of the issuance of any stop order), (E) or (F) above until, in the case of
clause (C) above, such stop order is removed or rescinded, or, in the case
of clause (E) and (F) above, the Company has amended or supplemented such
prospectus to correct such misstatement or omission.
<PAGE>
8
4. Suspension.
----------
Notwithstanding the foregoing, in addition to any suspension
contemplated by clause (C), (E) or (F) of Section 3(vi), during any consecutive
365-day period during which the Warrants are exercisable, the Company shall have
the privilege to suspend availability of the Warrant Shelf Registration
Statement and the related prospectus for up to 60 days in the aggregate, except
during the 60 days immediately prior to the Expiration Date, if the Board
determines in good faith that there is a valid purpose for such suspension and
provides notice of such determination (but not the purpose) to the Holders at
their addresses appearing in the register of Warrants maintained by the Warrant
Agent.
5. Blue Sky.
--------
The Company shall use its reasonable best efforts to register or
qualify the Underlying Securities proposed to be sold or issued pursuant to the
Registration Statement or the Warrant Shelf Registration Statement under all
applicable securities or "blue sky" laws of all jurisdictions in the United
States in which any Holder of Warrants may or may be deemed to purchase
Underlying Securities upon the exercise of Warrants or resale of the Warrant
Shares, as the case may be, and shall use its reasonable best efforts to
maintain such registration or qualification through the earliest of (A) in the
case of the Registration Statement, the date upon which all of the Warrant
Shares have been sold or such other date as shall be required by applicable law,
(B) the date upon which all Warrants have been exercised or all Warrant Shares
have been resold, as the case may be, under the Warrant Shelf Registration
Statement and (C) the Expiration Date; provided, however, that the Company shall
-------- -------
not be required to (i) qualify as a foreign corporation or as a broker or a
dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 5, (ii) file any general consent to
service of process or (iii) subject itself to taxation in any jurisdiction if it
is not otherwise so subject.
6. Accuracy of Disclosure.
----------------------
The Company (and its successors) represents and warrants to each
Holder (and each beneficial owner of a Warrant or Warrant Share) and agrees for
the benefit of each Holder (and each beneficial owner of a Warrant or Warrant
Share) that, except during any period in which the availability of the Warrant
Shelf Registration Statement has been suspended, (i) the Warrant Shelf
Registration Statement and the documents incorporated by reference therein will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading; and (ii) the
prospectus contained in the Warrant Shelf Registration Statement delivered to
such Holder upon its exercise of Warrants or pursuant to which such Holder sells
its Warrant Shares, as the case may be, and the documents incorporated by
reference therein will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, except that the
representations, warranties and agreements set forth in this Section 6 do not
apply to statements or omissions in the Warrant Shelf Registration Statement or
any such prospectus based upon information relating to any Holder furnished to
the Company in writing by such Holder expressly for use therein.
7. Indemnity.
---------
The Company hereby agrees to indemnify each beneficial owner of a
Warrant and
<PAGE>
9
each person, if any, who controls any beneficial owner of a Warrant within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, or is under common control with, or is controlled by, any beneficial owner
of a Warrant (whether or not it is, at the time the indemnity provided for in
this Section 7 is sought, such a beneficial owner), from and against all losses,
damages or liabilities which such beneficial owner or any such controlling or
affiliated person suffers as a result of any breach, on the date of any exercise
of a Warrant by such beneficial owner or the resale of any Warrant Share by such
Holder, in either case pursuant to the Warrant Shelf Registration Statement, of
the representations, warranties or agreements contained in Section 6. Each
beneficial owner of a Warrant Share sold pursuant to a Resale Shelf, by
accepting its beneficial ownership of a Warrant, hereby (i) agrees to provide
the Company with information with respect to it that the Company reasonably
requests in connection with any Resale Shelf and (ii) agrees, severally and not
jointly, to indemnify the Company, its directors and officers and each person,
if any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act against any liability incurred
by it or such controlling person as a result of any misstatement of information
provided by such beneficial owner to the Company in writing expressly for
inclusion in the Resale Shelf or any omission from such information that the
Company reasonably requested such Holder to provide.
8. Expenses.
--------
Except as otherwise stated in Section 2(a), all expenses incident to
the Company's performance of or compliance with its obligations under this
Agreement will be borne by the Company, regardless of whether a Registration
Statement or Warrant Shelf Registration Statement becomes effective, including
without limitation (i) all Commission or National Association of Securities
Dealers, Inc. registration and filing fees, (ii) all reasonable fees and
expenses incurred in connection with compliance with state securities or "blue
sky" laws, (iii) all reasonable expenses of any persons incurred by or on behalf
of the Company in preparing or assisting in preparing, word processing, printing
and distributing any registration statement, any prospectus, any amendments or
supplements thereto and other documents relating to the performance of and
compliance with this Agreement, (iv) the reasonable fees (including legal fees
and expenses) and disbursements of the Warrant Agent, (v) the reasonable fees
and disbursements of counsel for the Company and (vi) the fees and
disbursements, if any, of the Auditors but excluding any fees, expenses and
disbursements of the Holders (not included above), including, without
limitation, (x) fees and disbursements of any counsel retained by the
participating Holders and (y) the Holders' share of underwriting discounts and
commissions.
9. Resale Shelf Registration Statement
-----------------------------------
In the event that, after an initial public offering of Common Shares,
any Initial Purchaser, or any successor thereto, in their opinion, is or becomes
an Affiliate (as such term is defined in Rule 144 under the Securities Act) of
the Company, or any successor thereto, the Company (or its successor) shall use
its best efforts to cause to be filed as soon as practicable after receiving
notice thereof from such Initial Purchaser (or its successor) a shelf
registration statement (the "Resales Registration Statement") under the
------------------------------
Securities Act providing for the resale by such Initial Purchaser (or its
successor) of all Warrants and Common Shares it acquires from time to time in
connection with market-making activities and to have such shelf registration
statement declared effective by the Commission. The provisions of this
Agreement concerning the Warrant Shelf Registration Statement shall apply to the
Resales Registration Statement as if
<PAGE>
10
such Resales Registration Statement were the Warrant Shelf Registration
Statement (except that the Company (or its successor) will use its best efforts
to keep the Resales Registration Statement effective until the earlier of (i)
the twelfth anniversary of the Closing Date and (ii) such time as such Initial
Purchaser shall, in its opinion, cease to be an Affiliate of the Company, as
evidenced by written notice sent promptly upon such event).
10. Miscellaneous.
-------------
(a) No Inconsistent Agreements. Each of the Company and the Warrant
--------------------------
Agent represent to the other that it has not entered into, and agrees that on or
after the date of this Agreement it will not enter into, any agreement which is
inconsistent with the rights granted to the Holders of Warrants or Warrant
Shares in this Agreement or otherwise conflicts with the provisions hereof. The
Company represents that 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 other issued and outstanding securities under any
agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company and the Warrant Agent have obtained the
written consent of Holders of at least a majority of the outstanding Warrants
affected by such amendment, modification, supplement, waiver or consent;
provided that any amendment, modification or supplement to this Agreement which,
- --------
in the good faith opinion of the Board (and evidenced by a resolution of the
Board), does not adversely affect any Holder, shall not be subject to such
requirement for written consent.
(c) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery
(i) if to a Holder, at the most current address given by such Holder to the
Company by means of a notice given in accordance with the provisions of this
Section 10(c); (ii) if to the Company, initially at the Company's address set
forth in the Warrant Agreement and thereafter at such other address, notice of
which is given in accordance with the provisions of this Section 10(c); and
(iii) if to the Warrant Agent, initially at the Warrant Agent address set forth
in the Warrant Agreement and thereafter at such other address, notice of which
is given in accordance with the provisions of this Section 10(c).
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
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
<PAGE>
11
(d) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation, subsequent Holders; provided that
--------
nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Warrants in violation of the terms of the Unit Purchaser
Agreement, the Warrant Agreement or applicable law. If any transferee of any
Holder shall acquire Warrants, in any manner, whether by operation of law or
otherwise, such Warrants shall be held subject to all of the terms of this
Agreement and the Warrant Agreement, and by taking and holding such Warrants
such person shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement or the Warrant
Agreement and such person shall be entitled to receive the benefits hereof.
(e) Purchases and Sales of Warrants. The Company shall not, and shall
-------------------------------
use its best efforts to cause its affiliates (as defined in Rule 405 under the
Securities Act) not to, purchase and then resell or otherwise transfer any
Warrants other than Warrants acquired and cancelled.
(f) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Company and the
Warrant Agent, and each Holder shall have the right to enforce such agreements
directly to the extent it deems such enforcement necessary or advisable to
protect its rights or the rights of Holders hereunder. Notwithstanding anything
to the contrary contained herein, the Initial Purchasers will be a third party
beneficiary to the agreements between the Company and the Warrant Agent
contained in Section 9 hereof, such section shall not be amended, modified or
supplemented without the prior written consent of the Initial Purchasers and the
Company's obligations under Section 9 will survive the termination of this
Agreement and the performance of all other obligations under this Agreement.
(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.
(i) Governing Law. This Agreement shall be governed by the internal
-------------
laws of the State of New York.
(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) Waiver of Immunity. To the extent that the Company has or
------------------
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment prior to judgement,
attachment in aid of execution, execution or otherwise) with respect to itself
or its property, it hereby irrevocably waives such immunity in respect of its
obligations under this Agreement to the fullest extent permitted by law.
<PAGE>
12
(l) Initial Public Offering. Notwithstanding anything to the contrary
-----------------------
herein contained, if the Company conducts an initial public offering of equity
securities (other than Common Shares), the Company will give the Holders the
opportunity to convert such Warrants into warrants to purchase such equity
securities and their Warrant Shares into such equity securities. In addition, if
Scovill Fasteners Inc. (or any entity owning a majority of the Capital Stock or
assets of Scovill Fasteners Inc.) ("Fasteners") conducts an initial public
offering of equity securities, the Company shall, and shall cause Fasteners to,
give holders of Warrants and Warrant Shares the opportunity to convert such
Warrants into warrants to purchase such equity securities of Fasteners and the
opportunity to convert such Warrant Shares into such equity securities of
Fasteners. All rights and obligations contained in this Agreement with respect
to the Warrants and Warrant Shares shall, upon any such conversion, apply
equally to any warrants or equity securities of Fasteners. Such conversion
opportunities will be on terms and conditions determined to be fair and
reasonable by the Board.
<PAGE>
13
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SCOVILL HOLDINGS INC.
By ______________________________
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW YORK
By ______________________________
Name:
Title:
<PAGE>
EXHIBIT 10.1.5
--------------
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as October 10, 1997 by and between SLF Corporation, a
Delaware corporation ("Acquisition") and David J. Barrett ("Executive").
----------- ---------
W I T N E S S E T H :
-------------------
WHEREAS, the Executive is presently employed as an executive officer
of Scovill Fasteners Inc., a Delaware corporation ("Fasteners"); and
---------
WHEREAS, Acquisition has agreed to purchase all of the outstanding
capital stock of KSCO Acquisition Corporation, a Delaware corporation
("Parent"), pursuant to that certain Stock Purchase Agreement dated as of even
------
date herewith among Parent, its stockholders and Acquisition, KSCO Acquisition
Corporation;
WHEREAS, concurrently with such purchase, Acquisition will merge with
and into Parent, and then Parent will merge with and into Fasteners, with
Fasteners surviving the mergers (such survivor, the "Company") (such purchase
-------
and such mergers are referred to herein as the "Transactions");
------------
WHEREAS, Acquisition believes that it is in the best interest of the
Company to assure the continued services of the Executive under the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and conditions herein contained, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Employment. Contingent and effective upon the closing of the
----------
Transactions (the date and time of such closing, the "Closing Date") and the
------------
implementation of the Term Sheet attached hereto as Exhibit A, the Company
---------
hereby employs Executive, and Executive hereby accepts employment with the
Company, upon the terms and conditions herein contained. The Executive's
principal office and responsibilities shall be that of Chief Executive Officer
of the Company, and Chief Executive Officer of those of the Company's principal
subsidiaries as so designated from time to time by the Board of Directors of the
<PAGE>
-2-
Company. Executive shall perform such reasonable duties consistent with such
office as shall be assigned to him from time to time by the Board of Directors
of the Company in that capacity and, in the absence of such assignment, such
services customary to such office and as are necessary to the operations of the
Company and its subsidiaries.
2. Term of Agreement. The initial term (the "Initial Term") of this
----------------- ------------
Agreement shall be the period from the Closing Date to the third anniversary of
such date. After the initial term, this Agreement shall automatically renew for
additional terms of one (1) year unless, not less than ninety (90) days before
the next termination date of the Agreement, a party provides notice in writing
to the other party that it does not intend to renew the Agreement.
3. Compensation.
------------
(a) Base Salary. The Company shall pay, and Executive shall accept,
as compensation for services rendered hereunder the following annual base
salaries (the "Base Salary"), during the term of this Agreement payable in
-----------
monthly installments in accordance with the prevailing salary payroll prac-
tices of the Company, subject to Section 8 hereof and to such further deductions
as are agreed to by Executive:
- Salary for year one = $243,750.
- Salary for year two = $243,750.
- Salary for year three = $243,750.
In the event this Agreement continues beyond its initial three-year
term, Executive's salary for subsequent years shall be negotiated between
Executive and the Company, but in no event shall it be less than the amount set
forth above for year three.
(b) Benefit Plans. Executive shall be entitled to participate in such
benefit plan or plans of the Company, now in existence or which may hereafter
during the term of this Agreement become effective for senior executives of the
Company, except for any severance benefit or any other benefit duplicative of
the benefits otherwise provided under this Agreement. Nothing in this Section
shall be deemed to prevent the Company from altering or abolishing any of such
plans or benefits provided.
<PAGE>
-3-
(c) Vacation. During the term of this Agreement, Executive shall be
entitled to paid vacation in accordance with the established policy of the
Company in effect at the relevant time. Executive also shall be entitled to all
paid holidays and personal days given by the Company.
(d) Expenses. The Company shall pay or reimburse Executive upon
submission of vouchers or receipts for all reasonable out-of-pocket expenses
for entertainment, travel, meals, hotel accommodations and the like, incurred by
him that are in accordance with the expense reimbursement policy of the Company.
(e) Incentive Payment. Upon the closing date of an "Incentive Event"
(as defined below), Executive shall receive a one-time lump-sum "Incentive
Payment" (as defined below), provided that Executive cooperates and is
responsive to the reasonable requests of the Company in effecting the Incentive
Event; provided, however, that the Company shall not be required to make an
-------- -------
Incentive Payment in respect of an Incentive Transaction that closes after an
initial public offering of the common stock of the Company or any of its
subsidiaries (an "IPO"). "Incentive Event" shall mean either (i) a sale to an
--- ---------------
unaffiliated purchaser of greater than 50% of the Company's common stock, (ii)
any transaction with an unaffiliated entity whereby Saratoga Partners III, L.P.
or an affiliate thereof no longer controls the Board of Directors of the
Company, or (iii) the sale of all or substantially all of the assets of the
Company; provided, however, that "Incentive Event" shall not include an IPO.
-------- -------
"Incentive Payment" shall be equal to two times Executive's annual base salary
-----------------
on the closing date of the Incentive Event and shall be paid within three (3)
business days of such closing date.
(f) Fringe Benefits. The Company will maintain in effect the same
nature and level of fringe benefits that Executive enjoyed before the
Transactions, which shall include but not be limited to a company-paid
automobile, personal computer and cellular telephone services.
4. Termination of Employment. Notwithstanding any provisions to the
-------------------------
contrary, Executive's employment with the Company may be terminated prior to the
completion of the term described in Section 2 hereof, subject to the following
terms and conditions:
(a) Termination Without Cause. Upon the occurrences of any one of the
following events: (i) a termination by the
<PAGE>
-4-
Company of Executive's employment with the Company at any time, other than for
Cause (as defined below), (ii) termination of Executive's employment with the
Company by Executive following a material diminution of Executive's
responsibilities and/or authority without his consent, (iii) termination of
Executive's employment with the Company by Executive following the Company's
requiring Executive, without his consent, to be based at an office or location
other than the Company's facilities located in the Atlanta, Georgia
metropolitan area, Clarkesville, Georgia, or within thirty-five (35) miles of
either of such locations, or (iv) termination of Executive's employment with
the Company by Executive following failure of the Company to comply with Section
11 hereof (such events being referred to herein collectively as "Termination
-----------
Without Cause"), the Company shall pay to Executive the "Severance Payment,"
- ------------- -----------------
which shall consist of a lump-sum cash payment in an amount equivalent to the
greater of (x) two times Executive's annual base salary on that date and (y) the
total of all remaining base salary for the Initial Term which would have been
paid to Executive under this Agreement if Executive had not been Terminated
Without Cause. The Severance Payment shall be paid to Executive as promptly as
practicable, but in no event later than five (5) business days following the
happening of the event described above as Termination Without Cause.
In addition, in the event of a termination of the employment of
Executive hereunder pursuant to a Termination Without Cause that occurs in
anticipation of or in connection with a Transaction, or within the two-month
period prior to completing a Transaction, Executive shall be entitled to
receive the Incentive Payment, provided that Executive cooperates and responds
to the Company's reasonable requests up to the date of such termination in
effecting a Transaction; provided, however, that any Severance Payment shall be
-------- -------
reduced by the amount of such Incentive Payment.
(b) Termination for Cause. This Agreement may be terminated by the
Company at any time for Cause upon written notice to Executive, given in
accordance with subsections 4(d) and (e) below and Section 15 hereof (such
termination being referred to herein as "Termination for Cause"). Upon the
---------------------
termination of this Agreement by the Company for Cause, the Company's
obligation to pay Executive any and all compensation and benefits, including
without limitation, his Base Salary and Incentive Payment shall terminate on
the Date of Termination and the Company shall not be liable for any further
payments to Executive hereunder except for accrued salary, accrued vacation
days, reimbursement of appropriate expense vouchers, applicable
<PAGE>
-5-
indemnification obligations and other benefit continuation obligations imposed
by law.
For purposes of this Agreement, "Cause" shall mean termination upon
-----
(A) the willful failure by Executive to perform his duties with the Company or
its subsidiaries (other than any such actual or anticipated failure resulting
from termination by Executive as a result of a willful and material violation
by the Company of its obligations hereunder), or (B) the engaging by Executive
in conduct that is dishonest or in bad faith.
(c) Voluntary Termination by Executive. Any termination of the
employment of Executive hereunder by resignation, retirement or other action of
Executive (other than a Termination Without Cause or a Termination for Cause)
shall be deemed to be a "Voluntary Termination." In the event of a Voluntary
---------------------
Termination, Executive shall give the Company thirty (30) days notice in the
Notice of Termination required pursuant to Section 4(d). Upon any such
Voluntary Termination, the Company's obligation to pay Executive any and all
compensation and benefits, including without limitation, his Base Salary and
Incentive Payments, shall terminate on the Date of Termination and the Company
shall not be liable for any further payments to Executive hereunder except for
(i) accrued salary, accrued vacation days, and reimbursement of appropriate
expense vouchers up to the Date of Termination included in the Notice of
Termination, (ii) indemnification pursuant to Section 9 hereof, and (iii) COBRA
or is successor law.
(d) Notice of Termination. Any purported termination of Executive's
employment by the Company or by Executive as described in Paragraphs 3(a), (b)
or (c) above shall be communicated by written Notice of Termination to the
other party. For purposes of this Agreement, "Notice of Termination" shall mean
---------------------
a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the specific
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(e) Date of Termination. "Date of Termination" shall mean the date
-------------------
specified in the Notice of Termination.
5. Devotion of Time. Except for vacations as provided herein and
----------------
absences due to temporary illness, Executive agrees to devote his full business
time, best efforts and undivided attention and energies during the term of this
Agreement
<PAGE>
-6-
to the performance of his duties and to advance the Company's interests. During
the term of this Agreement, Executive shall not, without the prior written
approval of the Board of Directors, or its designee, be engaged in any other
business activity which, in the reasonable judgment of the Board of Directors,
conflicts with the duties of Executive hereunder, whether or not such business
activity is pursued for gain, profit, or other pecuniary advantage; but this
restriction shall not be construed as preventing Executive from investing his
assets in such form or manner as will not require the performance of services of
Executive in the operations of the affairs of the enterprises or companies in
which said investments are made. Notwithstanding the foregoing, (i) services
which are neither substantial nor significant, individually or in the aggregate,
shall be permitted with respect to investments of Executive provided that they
shall not have an adverse effect on Executive's duties hereunder, and (ii)
Executive shall at no time during the term of this Agreement own or control
directly or indirectly 5% or more of any class of securities of any public
company.
6. Effect of Termination.
---------------------
(a) Non-Competition. Executive agrees that during the period of
Executive's employment by the Company and for a period of eighteen months after
this Agreement has been terminated (if such termination is the result of a
Termination for Cause or a Voluntary Termination):
(i) Executive will not divert, solicit, or pirate on Executive's
behalf, or on the behalf of any employer, person, or entity, any customer of the
Company for whom services were performed during the last two years of
Executive's employment with the Company.
(ii) Executive will not divert, solicit, or pirate on Executive's
behalf, or on the behalf of any employer, person, or entity, any employee of the
Company or directly or indirectly cause any such employee to leave the Company's
employment.
(iii) Executive will not, either directly, on Executive's
behalf or in the service or on behalf of others, render or be retained to render
similar services (defined as set forth in Section 1 of this Agreement) whether
as an officer, partner, trustee, consultant, or employee, for any business
engaged in the same business as the Company including any customer of the
Company for whom Executive has provided serv-
<PAGE>
-7-
ices during the last two years of Executive's employment with the Company. "Same
----
Business" means the manufacture, sale or distribution of apparel or non-apparel
- --------
snap fastener, zippers, or tack buttons, rivets and burrs.
The geographic area to which the restrictions and covenants in this
Section 6(a) apply is the area comprising the Unites States.
(b) Tolling. In the event of breach of any post-employment covenants
or restriction contained in this Agreement, the period of restraining set forth
therein shall be automatically tolled and suspended for the amount of time that
the violation continues.
(c) Survival of Certain Provisions. Sections 6, 7 and 16 of this
Agreement shall survive termination of this Agreement.
7. Confidential Information.
------------------------
(a) Confidentiality. During the period of Executive's employment
with the Company and for all periods thereafter, Executive shall not disclose
in any manner or for any reason, without the Company's prior written consent,
any confidential business information (not already otherwise made public) about
the affairs and business of the Company or any of its subsidiaries or affiliates
or make the same available, to any competitor of the Company, or a subsidiary or
affiliate thereof, or any other person or organization (except to other
employees of the Company or its subsidiaries or affiliates in the course of
their employment), unless in furtherance of the business or purpose of the
Company or unless Executive is required to make such disclosure pursuant to a
valid subpoena or other court order. Upon termination of Executive's employment
with the Company, Executive shall deliver to the Company all materials,
including personal notes and reproductions relating to the Company's business in
the possession or control of Executive.
(b) Trade Secrets. Executive understands and agrees that the
covenants, restrictions and prohibitions against disclosure of confidential
information in Section 7(a) above are in addition to, and not in lieu of, any
rights or remedies which the Company may have available pursuant to the laws of
any jurisdiction or at common law to prevent disclosure of trade secrets or
proprietary information, and the enforcement by the Company of its rights and
remedies pursuant to this
<PAGE>
-8-
Agreement shall not be construed as a waiver of any other rights or available
remedies which it may possess in law or equity absent this Agreement.
8 Withholding. Executive acknowledges that the Company may
-----------
withhold from amounts payable to Executive under this Agreement with respect to
certain income, unemployment and social security taxes required to be withheld
from the wages of employees under applicable Federal, State, and local law. No
other taxes, fees, impositions, duties or other charges of any kind shall be
deducted or withheld from amounts payable hereunder, unless otherwise required
by law.
9. Indemnification. the Company and each of its respective
---------------
subsidiaries for whom Executive is an officer shall indemnify and hold harmless
Executive in his capacity as an officer as provided in the certificate of
incorporation and by-laws of the Company, as amended from time to time. This
provision shall in no manner limit the Company's right to amend its certificate
of incorporation or by-laws.
10. Assignability. This Agreement and all rights hereunder are
-------------
personal to Executive and shall not be assignable except in accordance with the
laws of descent and distribution, and any purported assignment in violation
thereof shall not be valid or binding on the Company. This Agreement, however,
shall inure to the benefit of, and be binding upon each successor of, the
Company, whether resulting from a merger or consolidation or to the recipient
of all or substantially all of the assets of the Company (and such successor
shall thereafter be deemed the same as the Company for purposes of this Agree-
ment). This Agreement shall in no way restrict the Company's right to merge,
consolidate, sell all or substantially all of its assets or engage in any
business combination or other transaction of any nature, subject to the
provisions of Section 11 hereof, as they may be applicable.
11. Successorship Obligation. In the event of (i) a consolidation or
------------------------
merger of the Company with or into another corporation or entity, (ii) a sale to
an unaffiliated purchaser of greater than 50% of the Company's common stock,
(iii) any transaction with an unaffiliated entity whereby Saratoga Partners or
an affiliate of Saratoga Partners no longer controls the Board of Directors of
the Company, or (iv) the sale of substantially all of the operating assets of
the Company to another corporation, entity or person, the successor-in-interest
shall be deemed to have assumed all liabilities of the Company hereunder and
shall assume such liabilities in a written state-
<PAGE>
-9-
ment executed and delivered to Executive upon which the successor-in-interest
shall be substituted for the Company under this Agreement and the Company shall
be excused from any further obligation hereunder.
12. Entire Agreement. This Agreement supersedes and replaces any and
----------------
all present, written or oral, agreements, of employment and severance agreements
or arrangements between the parties hereto or their predecessors or affiliates
(including, without limitation, the Employment Agreement dated January 1, 1995
between the Company Fasteners, Inc. and Executive, as modified by the
Termination Agreement between the Company Fasteners, Inc. and Executive dated
as of October 17, 1995), and all such agreements are hereby deemed canceled,
revoked, and of no further force or effect; provided, however, that it is un-
-------- -------
derstood that this Agreement is not intended to modify or affect in any manner
(i) the Patent and Confidential Information Agreement between the Company and
Executive attached hereto as Exhibit B, or (ii) the Employee Patent and Secrecy
---------
Agreement between the Company and Executive attached hereto as Exhibit C.
---------
13. Acknowledgment. The restrictions contained in Sections 5, 6 and
--------------
7 hereof are considered reasonable by Executive and the Company and it is the
desire of both parties that such restrictions and the other provisions of this
Agreement be enforced to the fullest extent permissible under the laws and the
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any such restriction or provision shall be found
to be void or invalid but would be valid if some part thereof were deleted or
the period or area of application reduced, such restriction or provisions
shall apply with such modification as shall be necessary to make it valid and
effective. A deletion resulting from any adjudication shall occur only with
respect to the operation of the provision or a portion thereof affected in the
particular jurisdiction in which such adjudication is made, and each court or
other body are hereby empowered to modify by reduction, rather that deletion,
the time periods or other restrictions referred to in the provisions of this
Agreement.
13. Modification. This Agreement constitutes the whole agreement of
------------
employment of Executive by the Company and there are no terms other than those
stated herein. No variation hereof shall be deemed valid unless in writing and
signed by the parties hereto, and no discharge of the terms hereof shall be
deemed valid unless by full performance by the parties hereto and by a writing
signed by the parties hereto. No waiver by either party of any provision or
condition of this
<PAGE>
-10-
Agreement by him or it to be performed shall be deemed a waiver of similar or
dissimilar provisions and conditions at the same time or any prior or subsequent
time.
15. Notices. Any notice, statement report, request or demand
-------
required or permitted to be given by this Agreement shall be in writing, and
shall be sufficient if addressed and sent by certified mail, return receipt
requested, to the parties at the addresses set forth below or at such other
place that either party may designate by notice to the other:
Company:
Highway 385 South/441 Business
Clarkesville, GA 30523
Attention: Board of Directors
with copies to:
Saratoga Partners III, L.P.
535 Madison Avenue
New York, NY 10022
Attention: Christian Oberbeck
Executive:
c/o Scovill Fasteners Inc.
Highway 385 South/441 Business
Clarkesville, GA 30523
16. Equitable Relief/Payment of Fees. The parties to this Agreement
--------------------------------
agree that each of them shall be entitled, in addition to any other remedies
they may have under this Agreement, at law, or otherwise, to immediate
injunctive and other equitable relief to prevent or curtail any breach of this
Agreement. Each party agrees to indemnify the other party for all costs and
attorney's fees incurred in enforcing this Agreement should the first such
party prevail in any litigation over a breach of any provision of this
Agreement.
17. Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Georgia (regardless of the laws that might otherwise govern under
applicable principles or conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
<PAGE>
-11-
18. Mandatory Arbitration. Should any dispute arise as to the
---------------------
interpretation and enforcement of the terms of this Agreement, each party
irrevocably consents to submit all disputes arising out of the obligations
created by this Agreement to mandatory, binding arbitration pursuant to the
Commercial Arbitration Rules of the American Arbitration Association, to be held
in Atlanta, Georgia.
19. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be an original, but which together shall constitute one and
the same instrument.
20. Limited Agreements. This Agreement is intended by the parties to
------------------
govern only those rights and obligations described herein, and it is not the
parties' intent to abrogate any other rights in favor of Executive or the
Company provided under Federal or State Law.
21. Term Sheet. The parties hereto shall use their best efforts to
----------
effect the transactions and enter into the agreements outlined in the Term Sheet
attached hereto as Exhibit A on substantially the terms set forth therein.
---------
This Agreement will be null and void if the parties are unable to do so.
22. Headings. The Section headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
-12-
IN WITNESS HEREOF, the parties hereby have duly executed this
Agreement as of the date first written above.
________________ _________________________
Executive SLF Corporation
By: ____________________
Name:
Title:
<PAGE>
EXHIBIT 10.1.6
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as October 10, 1997 by and between SLF Corporation, a
Delaware corporation ("Acquisition") and Martin A. Moore ("Executive").
----------- ---------
W I T N E S S E T H :
-------------------
WHEREAS, the Executive is presently employed as an executive officer
of Scovill Fasteners Inc., a Delaware corporation ("Fasteners"); and
---------
WHEREAS, Acquisition has agreed to purchase all of the outstanding
capital stock of KSCO Acquisition Corporation, a Delaware corporation
("Parent"), pursuant to that certain Stock Purchase Agreement dated as of even
------
date herewith among Parent, its stockholders and Acquisition, KSCO Acquisition
Corporation;
WHEREAS, concurrently with such purchase, Acquisition will merge with
and into Parent, and then Parent will merge with and into Fasteners, with
Fasteners surviving the mergers (such survivor, the "Company") (such purchase
-------
and such mergers are referred to herein as the "Transactions");
------------
WHEREAS, Acquisition believes that it is in the best interest of the
Company to assure the continued services of the Executive under the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and conditions herein contained, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Employment. Contingent and effective upon the closing of the
----------
Transactions (the date and time of such closing, the "Closing Date") and the
------------
implementation of the Term Sheet attached hereto as Exhibit A, the Company
---------
hereby employs Executive, and Executive hereby accepts employment with the
Company, upon the terms and conditions herein contained. The Executive's
principal office and responsibilities shall be that of Chief Financial Officer
of the Company, and Chief Financial Officer of those of the Company's principal
subsidiaries as so designated from time to time by the Board of Directors of the
<PAGE>
-2-
Company. Executive shall perform such reasonable duties consistent with such
office as shall be assigned to him from time to time by the Board of Directors
of the Company in that capacity and, in the absence of such assignment, such
services customary to such office and as are necessary to the operations of the
Company and its subsidiaries.
2. Term of Agreement. The initial term (the "Initial Term") of this
----------------- ------------
Agreement shall be the period from the Closing Date to the third anniversary of
such date. After the initial term, this Agreement shall automatically renew for
additional terms of one (1) year unless, not less than ninety (90) days before
the next termination date of the Agreement, a party provides notice in writing
to the other party that it does not intend to renew the Agreement.
3. Compensation.
------------
(a) Base Salary. The Company shall pay, and Executive shall accept,
as compensation for services rendered hereunder the following annual base
salaries (the "Base Salary"), during the term of this Agreement payable in
-----------
monthly installments in accordance with the prevailing salary payroll practices
of the Company, subject to Section 8 hereof and to such further deductions
as are agreed to by Executive:
- Salary for year one = $187,813.
- Salary for year two = $187,813.
- Salary for year three = $187,813.
In the event this Agreement continues beyond its initial three-year
term, Executive's salary for subsequent years shall be negotiated between
Executive and the Company, but in no event shall it be less than the amount set
forth above for year three.
(b) Benefit Plans. Executive shall be entitled to participate in such
benefit plan or plans of the Company, now in existence or which may hereafter
during the term of this Agreement become effective for senior executives of the
Company, except for any severance benefit or any other benefit duplicative of
the benefits otherwise provided under this Agreement. Nothing in this Section
shall be deemed to prevent the Company from altering or abolishing any of such
plans or benefits provided.
<PAGE>
-3-
(c) Vacation. During the term of this Agreement, Executive shall be
entitled to paid vacation in accordance with the established policy of the
Company in effect at the relevant time. Executive also shall be entitled to all
paid holidays and personal days given by the Company.
(d) Expenses. The Company shall pay or reimburse Executive upon
submission of vouchers or receipts for all reasonable out-of-pocket expenses
for entertainment, travel, meals, hotel accommodations and the like, incurred by
him that are in accordance with the expense reimbursement policy of the Company.
(e) Incentive Payment. Upon the closing date of an "Incentive Event"
(as defined below), Executive shall receive a one-time lump-sum "Incentive
Payment" (as defined below), provided that Executive cooperates and is
responsive to the reasonable requests of the Company in effecting the Incentive
Event; provided, however, that the Company shall not be required to make an
-------- -------
Incentive Payment in respect of an Incentive Transaction that closes after an
initial public offering of the common stock of the Company or any of its
subsidiaries (an "IPO"). "Incentive Event" shall mean either (i) a sale to an
--- ---------------
unaffiliated purchaser of greater than 50% of the Company's common stock, (ii)
any transaction with an unaffiliated entity whereby Saratoga Partners III, L.P.
or an affiliate thereof no longer controls the Board of Directors of the
Company, or (iii) the sale of all or substantially all of the assets of the
Company; provided, however, that "Incentive Event" shall not include an IPO.
-------- -------
"Incentive Payment" shall be equal to two times Executive's annual base salary
-----------------
on the closing date of the Incentive Event and shall be paid within three (3)
business days of such closing date.
(f) Fringe Benefits. The Company will maintain in effect the same
nature and level of fringe benefits that Executive enjoyed before the
Transactions, which shall include but not be limited to a company-paid
automobile, personal computer and cellular telephone services.
4. Termination of Employment. Notwithstanding any provisions to the
-------------------------
contrary, Executive's employment with the Company may be terminated prior to the
completion of the term described in Section 2 hereof, subject to the following
terms and conditions:
(a) Termination Without Cause. Upon the occurrences of any one of the
following events: (i) a termination by the
<PAGE>
-4-
Company of Executive's employment with the Company at any time, other than for
Cause (as defined below), (ii) termination of Executive's employment with the
Company by Executive following a material diminution of Executive's
responsibilities and/or authority without his consent, (iii) termination of
Executive's employment with the Company by Executive following the Company's
requiring Executive, without his consent, to be based at an office or location
other than the Company's facilities located in the Atlanta, Georgia
metropolitan area, Clarkesville, Georgia, or within thirty-five (35) miles of
either of such locations, or (iv) termination of Executive's employment with
the Company by Executive following failure of the Company to comply with Section
11 hereof (such events being referred to herein collectively as "Termination
-----------
Without Cause"), the Company shall pay to Executive the "Severance Payment,"
- ------------- -----------------
which shall consist of a lump-sum cash payment in an amount equivalent to the
greater of (x) two times Executive's annual base salary on that date and(y) the
total of all remaining base salary for the Initial Term which would have been
paid to Executive under this Agreement if Executive had not been Terminated
Without Cause. The Severance Payment shall be paid to Executive as promptly as
practicable, but in no event later than five (5) business days following the
happening of the event described above as Termination Without Cause.
(b) In addition, in the event of a termination of the employment of
Executive hereunder pursuant to a Termination Without Cause that occurs in
anticipation of or in connection with a Transaction, or within the two-month
period prior to completing a Transaction, Executive shall be entitled to
receive the Incentive Payment, provided that Executive cooperates and responds
to the Company's reasonable requests up to the date of such termination in
effecting a Transaction; provided, however, that any Severance Payment shall be
-------- -------
reduced by the amount of such Incentive Payment.
(b) Termination for Cause. This Agreement may be terminated by the
Company at any time for Cause upon written notice to Executive, given in
accordance with subsections 4(d) and (e) below and Section 15 hereof (such
termination being referred to herein as "Termination for Cause"). Upon the
---------------------
termination of this Agreement by the Company for Cause, the Company's
obligation to pay Executive any and all compensation and benefits, including
without limitation, his Base Salary and Incentive Payment shall terminate on
the Date of Termination and the Company shall not be liable for any further
payments to Executive hereunder except for accrued salary, accrued vacation
days, reimbursement of appropriate expense vouchers, applicable
<PAGE>
-5-
indemnification obligations and other benefit continuation obligations imposed
by law.
For purposes of this Agreement, "Cause" shall mean termination upon
-----
(A) the willful failure by Executive to perform his duties with the Company or
its subsidiaries (other than any such actual or anticipated failure resulting
from termination by Executive as a result of a willful and material violation
by the Company of its obligations hereunder), or (B) the engaging by Executive
in conduct that is dishonest or in bad faith.
(c) Voluntary Termination by Executive. Any termination of the
employment of Executive hereunder by resignation, retirement or other action of
Executive (other than a Termination Without Cause or a Termination for Cause)
shall be deemed to be a "Voluntary Termination." In the event of a Voluntary
---------------------
Termination, Executive shall give the Company thirty (30) days notice in the
Notice of Termination required pursuant to Section 4(d). Upon any such
Voluntary Termination, the Company's obligation to pay Executive any and all
compensation and benefits, including without limitation, his Base Salary and
Incentive Payments, shall terminate on the Date of Termination and the Company
shall not be liable for any further payments to Executive hereunder except for
(i) accrued salary, accrued vacation days, and reimbursement of appropriate
expense vouchers up to the Date of Termination included in the Notice of
Termination, (ii) indemnification pursuant to Section 9 hereof, and (iii) COBRA
or is successor law.
(d) Notice of Termination. Any purported termination of Executive's
employment by the Company or by Executive as described in Paragraphs 3(a), (b)
or (c) above shall be communicated by written Notice of Termination to the
other party. For purposes of this Agreement, "Notice of Termination" shall mean
---------------------
a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the specific
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(e) Date of Termination. "Date of Termination" shall mean the date
-------------------
specified in the Notice of Termination.
5. Devotion of Time. Except for vacations as provided herein and
----------------
absences due to temporary illness, Executive agrees to devote his full business
time, best efforts and undivided attention and energies during the term of this
Agreement
<PAGE>
-6-
to the performance of his duties and to advance the Company's interests. During
the term of this Agreement, Executive shall not, without the prior written
approval of the Board of Directors, or its designee, be engaged in any other
business activity which, in the reasonable judgment of the Board of Directors,
conflicts with the duties of Executive hereunder, whether or not such business
activity is pursued for gain, profit, or other pecuniary advantage; but this
restriction shall not be construed as preventing Executive from investing his
assets in such form or manner as will not require the performance of services of
Executive in the operations of the affairs of the enterprises or companies in
which said investments are made. Notwithstanding the foregoing, (i) services
which are neither substantial nor significant, individually or in the aggregate,
shall be permitted with respect to investments of Executive provided that they
shall not have an adverse effect on Executive's duties hereunder, and (ii)
Executive shall at no time during the term of this Agreement own or control
directly or indirectly 5% or more of any class of securities of any public
company.
6. Effect of Termination.
---------------------
(a) Non-Competition. Executive agrees that during the period of
Executive's employment by the Company and for a period of eighteen months after
this Agreement has been terminated (if such termination is the result of a
Termination for Cause or a Voluntary Termination):
(i) Executive will not divert, solicit, or pirate on
Executive's behalf, or on the behalf of any employer, person, or entity, any
customer of the Company for whom services were performed during the last two
years of Executive's employment with the Company.
(ii) Executive will not divert, solicit, or pirate on
Executive's behalf, or on the behalf of any employer, person, or entity, any
employee of the Company or directly or indirectly cause any such employee to
leave the Company's employment.
(iii) Executive will not, either directly, on Executive's
behalf or in the service or on behalf of others, render or be retained to render
similar services (defined as set forth in Section 1 of this Agreement) whether
as an officer, partner, trustee, consultant, or employee, for any business
engaged in the same business as the Company including any customer of the
Company for whom Executive has provided serv-
<PAGE>
-7-
ices during the last two years of Executive's employment with the Company. "Same
----
Business" means the manufacture, sale or distribution of apparel or non-apparel
- --------
snap fastener, zippers, or tack buttons, rivets and burrs.
The geographic area to which the restrictions and covenants in this
Section 6(a) apply is the area comprising the Unites States.
(b) Tolling. In the event of breach of any post-employment covenants
or restriction contained in this Agreement, the period of restraining set forth
therein shall be automatically tolled and suspended for the amount of time that
the violation continues.
(c) Survival of Certain Provisions. Sections 6, 7 and 16 of this
Agreement shall survive termination of this Agreement.
7. Confidential Information.
------------------------
(a) Confidentiality. During the period of Executive's employment
with the Company and for all periods thereafter, Executive shall not disclose
in any manner or for any reason, without the Company's prior written consent,
any confidential business information (not already otherwise made public) about
the affairs and business of the Company or any of its subsidiaries or affiliates
or make the same available, to any competitor of the Company, or a subsidiary or
affiliate thereof, or any other person or organization (except to other
employees of the Company or its subsidiaries or affiliates in the course of
their employment), unless in furtherance of the business or purpose of the
Company or unless Executive is required to make such disclosure pursuant to a
valid subpoena or other court order. Upon termination of Executive's employment
with the Company, Executive shall deliver to the Company all materials,
including personal notes and reproductions relating to the Company's business in
the possession or control of Executive.
(b) Trade Secrets. Executive understands and agrees that the
covenants, restrictions and prohibitions against disclosure of confidential
information in Section 7(a) above are in addition to, and not in lieu of, any
rights or remedies which the Company may have available pursuant to the laws of
any jurisdiction or at common law to prevent disclosure of trade secrets or
proprietary information, and the enforcement by the Company of its rights and
remedies pursuant to this
<PAGE>
-8-
Agreement shall not be construed as a waiver of any other rights or available
remedies which it may possess in law or equity absent this Agreement.
8. Withholding. Executive acknowledges that the Company may
-----------
withhold from amounts payable to Executive under this Agreement with respect to
certain income, unemployment and social security taxes required to be withheld
from the wages of employees under applicable Federal, State, and local law. No
other taxes, fees, impositions, duties or other charges of any kind shall be
deducted or withheld from amounts payable hereunder, unless otherwise required
by law.
9. Indemnification. the Company and each of its respective
---------------
subsidiaries for whom Executive is an officer shall indemnify and hold harmless
Executive in his capacity as an officer as provided in the certificate of
incorporation and by-laws of the Company, as amended from time to time. This
provision shall in no manner limit the Company's right to amend its certificate
of incorporation or by-laws.
10. Assignability. This Agreement and all rights hereunder are
-------------
personal to Executive and shall not be assignable except in accordance with the
laws of descent and distribution, and any purported assignment in violation
thereof shall not be valid or binding on the Company. This Agreement, however,
shall inure to the benefit of, and be binding upon each successor of, the
Company, whether resulting from a merger or consolidation or to the recipient
of all or substantially all of the assets of the Company (and such successor
shall thereafter be deemed the same as the Company for purposes of this
Agreement). This Agreement shall in no way restrict the Company's right to
merge, consolidate, sell all or substantially all of its assets or engage in any
business combination or other transaction of any nature, subject to the
provisions of Section 11 hereof, as they may be applicable.
11. Successorship Obligation. In the event of (i) a consolidation or
------------------------
merger of the Company with or into another corporation or entity, (ii) a sale to
an unaffiliated purchaser of greater than 50% of the Company's common stock,
(iii) any transaction with an unaffiliated entity whereby Saratoga Partners or
an affiliate of Saratoga Partners no longer controls the Board of Directors of
the Company, or (iv) the sale of substantially all of the operating assets of
the Company to another corporation, entity or person, the successor-in-interest
shall be deemed to have assumed all liabilities of the Company hereunder and
shall assume such liabilities in a written state-
<PAGE>
-9-
ment executed and delivered to Executive upon which the successor-in-interest
shall be substituted for the Company under this Agreement and the Company shall
be excused from any further obligation hereunder.
12. Entire Agreement. This Agreement supersedes and replaces any and
----------------
all present, written or oral, agreements, of employment and severance agreements
or arrangements between the parties hereto or their predecessors or affiliates
(including, without limitation, the Employment Agreement dated January 1, 1995
between the Company Fasteners, Inc. and Executive, as modified by the
Termination Agreement between the Company Fasteners, Inc. and Executive dated
as of October 17, 1995), and all such agreements are hereby deemed canceled,
revoked, and of no further force or effect; provided, however, that it is
-------- -------
understood that this Agreement is not intended to modify or affect in any
manner (i) the Patent and Confidential Information Agreement between the Company
and Executive attached hereto as Exhibit B, or (ii) the Employee Patent and
---------
Secrecy Agreement between the Company and Executive attached hereto as Exhibit
-------
C.
- -
13. Acknowledgment. The restrictions contained in Sections 5, 6 and
--------------
7 hereof are considered reasonable by Executive and the Company and it is the
desire of both parties that such restrictions and the other provisions of this
Agreement be enforced to the fullest extent permissible under the laws and the
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any such restriction or provision shall be found
to be void or invalid but would be valid if some part thereof were deleted or
the period or area of application reduced, such restriction or provisions
shall apply with such modification as shall be necessary to make it valid and
effective. A deletion resulting from any adjudication shall occur only with
respect to the operation of the provision or a portion thereof affected in the
particular jurisdiction in which such adjudication is made, and each court or
other body are hereby empowered to modify by reduction, rather that deletion,
the time periods or other restrictions referred to in the provisions of this
Agreement.
14. Modification. This Agreement constitutes the whole agreement of
------------
employment of Executive by the Company and there are no terms other than those
stated herein. No variation hereof shall be deemed valid unless in writing and
signed by the parties hereto, and no discharge of the terms hereof shall be
deemed valid unless by full performance by the parties hereto and by a writing
signed by the parties hereto. No waiver by either party of any provision or
condition of this
<PAGE>
-10-
Agreement by him or it to be performed shall be deemed a waiver of similar or
dissimilar provisions and conditions at the same time or any prior or subsequent
time.
15. Notices. Any notice, statement report, request or demand
-------
required or permitted to be given by this Agreement shall be in writing, and
shall be sufficient if addressed and sent by certified mail, return receipt
requested, to the parties at the addresses set forth below or at such other
place that either party may designate by notice to the other:
Company:
Highway 385 South/441 Business
Clarkesville, GA 30523
Attention: David J. Barrett
with copies to:
Saratoga Partners III, L.P.
535 Madison Avenue
New York, NY 10022
Attention: Christian Oberbeck
Executive:
c/o Scovill Fasteners Inc.
Highway 385 South/441 Business
Clarkesville, GA 30523
16. Equitable Relief/Payment of Fees. The parties to this
--------------------------------
Agreement agree that each of them shall be entitled, in addition to any other
remedies they may have under this Agreement, at law, or otherwise, to immediate
injunctive and other equitable relief to prevent or curtail any breach of this
Agreement. Each party agrees to indemnify the other party for all costs and
attorney's fees incurred in enforcing this Agreement should the first such
party prevail in any litigation over a breach of any provision of this
Agreement.
17. Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Georgia (regardless of the laws that might otherwise govern under
applicable principles or conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
<PAGE>
-11-
18. Mandatory Arbitration. Should any dispute arise as to the
---------------------
interpretation and enforcement of the terms of this Agreement, each party
irrevocably consents to submit all disputes arising out of the obligations
created by this Agreement to mandatory, binding arbitration pursuant to the
Commercial Arbitration Rules of the American Arbitration Association, to be held
in Atlanta, Georgia.
19. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be an original, but which together shall constitute one and
the same instrument.
20. Limited Agreements. This Agreement is intended by the parties to
------------------
govern only those rights and obligations described herein, and it is not the
parties' intent to abrogate any other rights in favor of Executive or the
Company provided under Federal or State Law.
21. Term Sheet. The parties hereto shall use their best efforts to
----------
effect the transactions and enter into the agreements outlined in the Term Sheet
attached hereto as Exhibit A on substantially the terms set forth therein.
---------
This Agreement shall be null and void if the parties are unable to do so.
22. Headings. The Section headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
-12-
IN WITNESS HEREOF, the parties hereby have duly executed this
Agreement as of the date first written above.
_________________________ ____________________________
Executive SLF Corporation
By: _______________________
Name:
Title:
<PAGE>
EXHIBIT 10.1.7
--------------
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as October 10, 1997 by and between SLF Corporation, a
Delaware corporation ("Acquisition") and Robert Feltz ("Executive").
----------- ---------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Executive is presently employed as an executive officer
of Scovill Fasteners Inc., a Delaware corporation ("Fasteners"); and
---------
WHEREAS, Acquisition has agreed to purchase all of the outstanding
capital stock of KSCO Acquisition Corporation, a Delaware corporation
("Parent"), pursuant to that certain Stock Purchase Agreement dated as of even
------
date herewith among Parent, its stockholders and Acquisition, KSCO Acquisition
Corporation;
WHEREAS, concurrently with such purchase, Acquisition will merge with
and into Parent, and then Parent will merge with and into Fasteners, with
Fasteners surviving the mergers (such survivor, the "Company") (such purchase
-------
and such mergers are referred to herein as the "Transactions");
------------
WHEREAS, Acquisition believes that it is in the best interest of the
Company to assure the continued services of the Executive under the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and conditions herein contained, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Employment. Contingent and effective upon the closing of the
----------
Transactions (the date and time of such closing, the "Closing Date") and the
------------
implementation of the Term Sheet attached hereto as Exhibit A, the Company
---------
hereby employs Executive, and Executive hereby accepts employment with the
Company, upon the terms and conditions herein contained. The Executive's
principal office and responsibilities shall be that of Executive Vice President-
Business Development of the Company, and Executive Vice President - Business
Development of those of the Company's principal subsidiaries as so designated
from time
<PAGE>
-2-
to time by the Board of Directors of the Company. Executive shall perform such
reasonable duties consistent with such office as shall be assigned to him from
time to time by the Board of Directors of the Company in that capacity and, in
the absence of such assignment, such services customary to such office and as
are necessary to the operations of the Company and its subsidiaries.
2. Term of Agreement. The initial term (the "Initial Term") of this
----------------- ------------
Agreement shall be the period from the Closing Date to the third anniversary of
such date. After the initial term, this Agreement shall automatically renew for
additional terms of one (1) year unless, not less than ninety (90) days before
the next termination date of the Agreement, a party provides notice in writing
to the other party that it does not intend to renew the Agreement.
3. Compensation.
------------
(a) Base Salary. The Company shall pay, and Executive shall accept,
as compensation for services rendered hereunder the following annual base
salaries (the "Base Salary"), during the term of this Agreement payable in
-----------
monthly installments in accordance with the prevailing salary payroll practices
of the Company, subject to Section 8 hereof and to such further deductions as
are agreed to by Executive:
- Salary for year one = $156,250
- Salary for year two = $156,250
- Salary for year three = $156,250.
In the event this Agreement continues beyond the Initial Term,
Executive's salary for subsequent years shall be negotiated between Executive
and the Company, but in no event shall it be less than the amount set forth
above for year three.
(b) Benefit Plans. Executive shall be entitled to participate in
such benefit plan or plans of the Company, now in existence or which may
hereafter during the term of this Agreement become effective for senior
executives of the Company, except for any severance benefit or any other benefit
duplicative of the benefits otherwise provided under this Agreement. Nothing in
this Section shall be deemed to prevent the Company from altering or abolishing
any of such plans or benefits provided.
<PAGE>
-3-
(c) Vacation. During the term of this Agreement, Executive shall be
entitled to paid vacation in accordance with the established policy of the
Company in effect at the relevant time. Executive also shall be entitled to all
paid holidays and personal days given by the Company.
(d) Expenses. The Company shall pay or reimburse Executive upon
submission of vouchers or receipts for all reasonable out-of-pocket expenses for
entertainment, travel, meals, hotel accommodations and the like, incurred by him
that are in accordance with the expense reimbursement policy of the Company.
(e) Incentive Payment. Upon the closing date of an "Incentive Event"
(as defined below), Executive shall receive a one-time lump-sum "Incentive
Payment" (as defined below), provided that Executive cooperates and is
responsive to the reasonable requests of the Company in effecting the Incentive
Event; provided, however, that the Company shall not be required to make an
-------- -------
Incentive Payment in respect of an Incentive Transaction that closes after an
initial public offering of the common stock of the Company or any of its
subsidiaries (an "IPO"). "Incentive Event" shall mean either (i) a sale to an
--- ---------------
unaffiliated purchaser of greater than 50% of the Company's common stock, (ii)
any transaction with an unaffiliated entity whereby Saratoga Partners III, L.P.
or an affiliate thereof no longer controls the Board of Directors of the
Company, or (iii) the sale of all or substantially all of the assets of the
Company; provided, however, that "Incentive Event" shall not include an IPO.
-------- -------
"Incentive Payment" shall be equal to two times Executive's annual base salary
- ------------------
on the closing date of the Incentive Event and shall be paid within three (3)
business days of such closing date.
(f) Fringe Benefits. The Company will maintain in effect the same
nature and level of fringe benefits that Executive enjoyed before the
Transactions, which shall include but not be limited to a company-paid
automobile, personal computer and cellular telephone services.
4. Termination of Employment. Notwithstanding any provisions to the
-------------------------
contrary, Executive's employment with the Company may be terminated prior to the
completion of the term described in Section 2 hereof, subject to the following
terms and conditions:
(a) Termination Without Cause. Upon the occurrences of any one of
the following events: (i) a termination by the
<PAGE>
-4-
Company of Executive's employment with the Company at any time, other than for
Cause (as defined below), (ii) termination of Executive's employment with the
Company by Executive following a material diminution of Executive's
responsibilities and/or authority without his consent, (iii) termination of
Executive's employment with the Company by Executive following the Company's
requiring Executive, without his consent, to be based at an office or location
other than the Company's facilities located in the Atlanta, Georgia
metropolitan area, Clarkesville, Georgia, or within thirty-five (35) miles of
either of such locations, or (iv) termination of Executive's employment with
the Company by Executive following failure of the Company to comply with Section
11 hereof (such events being referred to herein collectively as "Termination
-----------
Without Cause"), the Company shall pay to Executive the "Severance Payment,"
- ------------- -----------------
which shall consist of a lump-sum cash payment in an amount equivalent to the
greater of (x) two times Executive's annual base salary on that date and (y) the
total of all remaining base salary for the Initial Term which would have been
paid to Executive under this Agreement if Executive had not been Terminated
Without Cause. The Severance Payment shall be paid to Executive as promptly as
practicable, but in no event later than five (5) business days following the
happening of the event described above as Termination Without Cause.
In addition, in the event of a termination of the employment of
Executive hereunder pursuant to a Termination With out Cause that occurs in
anticipation of or in connection with a Transaction, or within the two-month
period prior to completing a Transaction, Executive shall be entitled to
receive the Incentive Payment, provided that Executive cooperates and responds
to the Company's reasonable requests up to the date of such termination in
effecting a Transaction; provided, however, that any Severance Payment shall be
-------- -------
reduced by the amount of such Incentive Payment.
(b) Termination for Cause. This Agreement may be terminated by the
Company at any time for Cause upon written notice to Executive, given in
accordance with subsections 4(d) and (e) below and Section 15 hereof (such
termination being referred to herein as "Termination for Cause"). Upon the
---------------------
termination of this Agreement by the Company for Cause, the Company's obligation
to pay Executive any and all compensation and benefits, including without
limitation, his Base Salary and Incentive Payment shall terminate on the Date of
Termination and the Company shall not be liable for any further payments to
Executive hereunder except for accrued salary, accrued vacation days,
reimbursement of appropriate expense vouchers, applicable
<PAGE>
-5-
indemnification obligations and other benefit continuation obligations imposed
by law.
For purposes of this Agreement, "Cause" shall mean termination upon
-----
(A) the willful failure by Executive to perform his duties with the Company or
its subsidiaries (other than any such actual or anticipated failure resulting
from termination by Executive as a result of a willful and material violation
by the Company of its obligations hereunder), or (B) the engaging by Executive
in conduct that is dishonest or in bad faith.
(c) Voluntary Termination by Executive. Any termination of the
employment of Executive hereunder by resignation, retirement or other action of
Executive (other than a Termination Without Cause or a Termination for Cause)
shall be deemed to be a "Voluntary Termination." In the event of a Voluntary
---------------------
Termination, Executive shall give the Company thirty (30) days notice in the
Notice of Termination required pursuant to Section 4(d). Upon any such
Voluntary Termination, the Company's obligation to pay Executive any and all
compensation and benefits, including without limitation, his Base Salary and
Incentive Payments, shall terminate on the Date of Termination and the Company
shall not be liable for any further payments to Executive hereunder except for
(i) accrued salary, accrued vacation days, and reimbursement of appropriate
expense vouchers up to the Date of Termination included in the Notice of
Termination, (ii) indemnification pursuant to Section 9 hereof, and (iii) COBRA
or is successor law.
(d) Notice of Termination. Any purported termination of Executive's
employment by the Company or by Executive as described in Paragraphs 3(a), (b)
or (c) above shall be communicated by written Notice of Termination to the
other party. For purposes of this Agreement, "Notice of Termination" shall mean
---------------------
a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the specific
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(e) Date of Termination. "Date of Termination" shall mean the date
-------------------
specified in the Notice of Termination.
5. Devotion of Time. Except for vacations as provided herein and
----------------
absences due to temporary illness, Executive agrees to devote his full business
time, best efforts and undivided attention and energies during the term of this
Agreement
<PAGE>
-6-
to the performance of his duties and to advance the Company's interests. During
the term of this Agreement, Executive shall not, without the prior written
approval of the Board of Directors, or its designee, be engaged in any other
business activity which, in the reasonable judgment of the Board of Directors,
conflicts with the duties of Executive hereunder, whether or not such business
activity is pursued for gain, profit, or other pecuniary advantage; but this
restriction shall not be construed as preventing Executive from investing his
assets in such form or manner as will not require the performance of services of
Executive in the operations of the affairs of the enterprises or companies in
which said investments are made. Notwithstanding the foregoing, (i) services
which are neither substantial nor significant, individually or in the aggregate,
shall be permitted with respect to investments of Executive provided that they
shall not have an adverse effect on Executive's duties hereunder, and (ii)
Executive shall at no time during the term of this Agreement own or control
directly or indirectly 5% or more of any class of securities of any public
company.
6. Effect of Termination.
---------------------
(a) Non-Competition. Executive agrees that during the period of
Executive's employment by the Company and for a period of eighteen months after
this Agreement has been terminated (if such termination is the result of a
Termination for Cause or a Voluntary Termination):
(i) Executive will not divert, solicit, or pirate on
Executive's behalf, or on the behalf of any employer, person, or entity, any
customer of the Company for whom services were performed during the last two
years of Executive's employment with the Company.
(ii) Executive will not divert, solicit, or pirate on
Executive's behalf, or on the behalf of any employer, person, or entity, any
employee of the Company or directly or indirectly cause any such employee to
leave the Company's employment.
(iii) Executive will not, either directly, on Executive's
behalf or in the service or on behalf of others, render or be retained to render
similar services (defined as set forth in Section 1 of this Agreement) whether
as an officer, partner, trustee, consultant, or employee, for any business
engaged in the same business as the Company including any customer of the
Company for whom Executive has provided serv-
<PAGE>
-7-
ices during the last two years of Executive's employment with the Company. "Same
----
Business" means the manufacture, sale or distribution of apparel or non-apparel
- --------
snap fastener, zippers, or tack buttons, rivets and burrs.
The geographic area to which the restrictions and covenants in this
Section 6(a) apply is the area comprising the Unites States.
(b) Tolling. In the event of breach of any post-employment covenants
or restriction contained in this Agreement, the period of restraining set forth
therein shall be automatically tolled and suspended for the amount of time that
the violation continues.
(c) Survival of Certain Provisions. Sections 6, 7 and 16 of this
Agreement shall survive termination of this Agreement.
7. Confidential Information.
------------------------
(a) Confidentiality. During the period of Executive's employment
with the Company and for all periods thereafter, Executive shall not disclose
in any manner or for any reason, without the Company's prior written consent,
any confidential business information (not already otherwise made public) about
the affairs and business of the Company or any of its subsidiaries or affiliates
or make the same available, to any competitor of the Company, or a subsidiary or
affiliate thereof, or any other person or organization (except to other
employees of the Company or its subsidiaries or affiliates in the course of
their employment), unless in furtherance of the business or purpose of the
Company or unless Executive is required to make such disclosure pursuant to a
valid subpoena or other court order. Upon termination of Executive's employment
with the Company, Executive shall deliver to the Company all materials,
including personal notes and reproductions relating to the Company's business in
the possession or control of Executive.
(b) Trade Secrets. Executive understands and agrees that the
covenants, restrictions and prohibitions against disclosure of confidential
information in Section 7(a) above are in addition to, and not in lieu of, any
rights or remedies which the Company may have available pursuant to the laws of
any jurisdiction or at common law to prevent disclosure of trade secrets or
proprietary information, and the enforcement by the Company of its rights and
remedies pursuant to this
<PAGE>
-8-
Agreement shall not be construed as a waiver of any other rights or available
remedies which it may possess in law or equity absent this Agreement.
8. Withholding. Executive acknowledges that the Company may
-----------
withhold from amounts payable to Executive under this Agreement with respect to
certain income, unemployment and social security taxes required to be withheld
from the wages of employees under applicable Federal, State, and local law. No
other taxes, fees, impositions, duties or other charges of any kind shall be
deducted or withheld from amounts payable hereunder, unless otherwise required
by law.
9. Indemnification. the Company and each of its respective
---------------
subsidiaries for whom Executive is an officer shall indemnify and hold harmless
Executive in his capacity as an officer as provided in the certificate of
incorporation and by-laws of the Company, as amended from time to time. This
provision shall in no manner limit the Company's right to amend its certificate
of incorporation or by-laws.
10. Assignability. This Agreement and all rights hereunder are
-------------
personal to Executive and shall not be assignable except in accordance with the
laws of descent and distribution, and any purported assignment in violation
thereof shall not be valid or binding on the Company. This Agreement, however,
shall inure to the benefit of, and be binding upon each successor of, the
Company, whether resulting from a merger or consolidation or to the recipient
of all or substantially all of the assets of the Company (and such successor
shall thereafter be deemed the same as the Company for purposes of this
Agreement). This Agreement shall in no way restrict the Company's right to
merge, consolidate, sell all or substantially all of its assets or engage in any
business combination or other transaction of any nature, subject to the
provisions of Section 11 hereof, as they may be applicable.
11. Successorship Obligation. In the event of (i) a consolidation or
------------------------
merger of the Company with or into another corporation or entity, (ii) a sale to
an unaffiliated purchaser of greater than 50% of the Company's common stock,
(iii) any transaction with an unaffiliated entity whereby Saratoga Partners or
an affiliate of Saratoga Partners no longer controls the Board of Directors of
the Company, or (iv) the sale of substantially all of the operating assets of
the Company to another corporation, entity or person, the successor-in-interest
shall be deemed to have assumed all liabilities of the Company hereunder and
shall assume such liabilities in a written state-
<PAGE>
-9-
ment executed and delivered to Executive upon which the successor-in-interest
shall be substituted for the Company under this Agreement and the Company shall
be excused from any further obligation hereunder.
12. Entire Agreement. This Agreement supersedes and replaces any and
----------------
all present, written or oral, agreements, of employment and severance agreements
or arrangements between the parties hereto or their predecessors or affiliates
(including, without limitation, the Employment Agreement dated January 1, 1995
between the Company Fasteners, Inc. and Executive, as modified by the
Termination Agreement between the Company Fasteners, Inc. and Executive dated
as of October 17, 1995), and all such agreements are hereby deemed canceled,
revoked, and of no further force or effect; provided, however, that it is
-------- -------
understood that this Agreement is not intended to modify or affect in any
manner (i) the Patent and Confidential Information Agreement between the Company
and Executive attached hereto as Exhibit B, or (ii) the Employee Patent and
---------
Secrecy Agreement between the Company and Executive attached hereto as Exhibit
-------
C.
- -
13. Acknowledgment. The restrictions contained in Sections 5, 6 and
--------------
7 hereof are considered reasonable by Executive and the Company and it is the
desire of both parties that such restrictions and the other provisions of this
Agreement be enforced to the fullest extent permissible under the laws and the
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any such restriction or provision shall be found
to be void or invalid but would be valid if some part thereof were deleted or
the period or area of application reduced, such restriction or provisions shall
apply with such modification as shall be necessary to make it valid and
effective. A deletion resulting from any adjudication shall occur only with
respect to the operation of the provision or a portion thereof affected in the
particular jurisdiction in which such adjudication is made, and each court or
other body are hereby empowered to modify by reduction, rather that deletion,
the time periods or other restrictions referred to in the provisions of this
Agreement.
14. Modification. This Agreement constitutes the whole agreement of
------------
employment of Executive by the Company and there are no terms other than those
stated herein. No variation hereof shall be deemed valid unless in writing and
signed by the parties hereto, and no discharge of the terms hereof shall be
deemed valid unless by full performance by the parties hereto and by a writing
signed by the parties hereto. No waiver by either party of any provision or
condition of this
<PAGE>
-10-
Agreement by him or it to be performed shall be deemed a waiver of similar or
dissimilar provisions and conditions at the same time or any prior or subsequent
time.
15. Notices. Any notice, statement report, request or demand
-------
required or permitted to be given by this Agreement shall be in writing, and
shall be sufficient if addressed and sent by certified mail, return receipt
requested, to the parties at the addresses set forth below or at such other
place that either party may designate by notice to the other:
Company:
Highway 385 South/441 Business
Clarkesville, GA 30523
Attention: David J. Barrett
with copies to:
Saratoga Partners III, L.P.
535 Madison Avenue
New York, NY 10022
Attention: Christian Oberbeck
Executive:
c/o Scovill Fasteners Inc.
Highway 385 South/441 Business
Clarkesville, GA 30523
16. Equitable Relief/Payment of Fees. The parties to this Agreement
--------------------------------
agree that each of them shall be entitled, in addition to any other remedies
they may have under this Agreement, at law, or otherwise, to immediate
injunctive and other equitable relief to prevent or curtail any breach of this
Agreement. Each party agrees to indemnify the other party for all costs and
attorney's fees incurred in enforcing this Agreement should the first such party
prevail in any litigation over a breach of any provision of this Agreement.
17. Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Georgia (regardless of the laws that might otherwise govern under
applicable principles or conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
<PAGE>
-11-
18. Mandatory Arbitration. Should any dispute arise as to the
---------------------
interpretation and enforcement of the terms of this Agreement, each party
irrevocably consents to submit all disputes arising out of the obligations
created by this Agreement to mandatory, binding arbitration pursuant to the
Commercial Arbitration Rules of the American Arbitration Association, to be held
in Atlanta, Georgia.
19. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be an original, but which together shall constitute one and
the same instrument.
20. Limited Agreements. This Agreement is intended by the parties to
------------------
govern only those rights and obligations described herein, and it is not the
parties' intent to abrogate any other rights in favor of Executive or the
Company provided under Federal or State Law.
21. Term Sheet. The parties hereto shall use their best efforts to
----------
effect the transactions and enter into the agreements outlined in the Term Sheet
attached hereto as Exhibit A on substantially the terms set forth therein.
---------
This Agreement shall be null and void if the parties are unable to do so.
22. Headings. The Section headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
-12-
IN WITNESS HEREOF, the parties hereby have duly executed this
Agreement as of the date first written above.
________________ _________________________
Executive SLF Corporation
By: ____________________
Name:
Title:
<PAGE>
Exhibit 12.1
SCOVILL FASTENERS, INC.
SCOVILL HOLDINGS, INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
-----------
Period from Period from Nine Nine
Year Ended 1/1/95 to 10/17/95 Year Ended Months Ended Months Ended Year Ended
31-Dec-94 10/17/95 12/31/95 31-Dec-96 30-Sep-96 30-Sep-97 31-Dec-96
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax Income (loss) 2,975 1,164 274 1,021 (196) 3,512 (7,989)
Fixed charges 5,339 3,694 953 6,532 5,070 4,338 15,149
----------------------------------------------------------------------------------------------------
8,314 4,858 1,227 7,553 4,874 7,850 7,160
Fixed Charges:
Interest expense 5,092 3,472 892 5,953 4,848 2,698 14,570
Interest factor related
to rentals 247 222 61 579 222 1,640 579
----------------------------------------------------------------------------------------------------
5,339 3,694 953 6,532 5,070 4,338 15,149
Ratio of earnings to
fixed charges 1.56 1.32 1.29 1.16 0.96 1.81 0.47
====================================================================================================
<CAPTION>
---Pro Forma--- ------------
Nine Twelve
Months Ended Months Ended
30-Sep-97 30-Sep-97
--------------------------------
<S> <C> <C>
Earnings:
Pretax Income (loss) (3,963) (5,276)
Fixed charges 12,569 16,567
--------------------------------
8,606 11,291
Fixed Charges:
Interest expense 10,929 14,570
Interest factor related
to rentals 1,640 1,997
--------------------------------
12,569 16,567
Ratio of earnings to
fixed charges 0.68 0.68
================================
</TABLE>
<PAGE>
SCOVILL FASTENERS, INC.
SCOVILL HOLDINGS, INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
---Pro Forma--- ---Pro Forma---
Nine
Year Ended Months Ended
31-Dec-96 30-Sep-97
-----------------------------------
<S> <C> <C>
Earnings:
Pretax income (loss) available to
common shareholders (9,447) (5,056)
Combined fixed charges 17,524 14,350
-----------------------------------
8,077 9,294
Combined fixed charges:
Interest expense 14,570 10,929
Accretion on preferred stock 83 62
Preferred stock dividends 2,292 1,719
Interest factor related
to rentals 579 1,640
-----------------------------------
17,524 14,350
Ratio of earnings to
combined fixed charges 0.46 0.65
===================================
</TABLE>
<PAGE>
EXHIBIT 21.2
SUBSIDIARIES OF SCOVILL FASTENERS INC.
--------------------------------------
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ------------------------------------------------------
<S> <C>
PCI Group, Inc. Delaware
Scovill Canada Inc. Montreal, Canada
Scomex, Inc. Delaware
Unifast-Scovill S.A. Belgium
Scovill Puerto Rico, Inc. Puerto Rico
Rau Fastener Delaware
Company, L.L.C.
Scovill Fasteners, S.A. de Mexico
C.V. (Mexico)
Daude S.A. France
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
Registration Statement of our report dated March 17, 1997, and to all references
to our firm included in this Registration Statement.
Arthur Andersen LLP
Atlanta, Georgia
December 23, 1997
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the use in this Registration Statement of Scovill Fasteners Inc.
and Scovill Holdings Inc. on Form S-1 of our report dated March 17, 1995,
appearing in the Prospectus, which is part of this Registration Statement, and
to the references to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.
Our audit of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Scovill Fasteners Inc., listed
in Item 16(b)(2). This financial statement schedule is the responsibility of the
Scovill Fasteners Inc.'s management. Our responsibility is to express an opinion
based on our audit. In our opinion, the information presented in such financial
statement schedule for the year ended December 31, 1994, when considered in
relation to the basic 1994 financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
December 23, 1997
<PAGE>
EXHIBIT 25.1
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) _______
__________________________
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I. R. S. Employer
if not a U. S. national bank) Identification No.)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
__________________________
Scovill Fasteners Inc.
(Exact name of OBLIGOR as specified in its charter)
Delaware 95-3959561
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1802 Scovill Drive 30523
Clarkesville, Georgia (Zip code)
(Address of principal executive offices)
<PAGE>
- 2 -
__________________________
Scovill Holdings Inc.
(Exact name of OBLIGOR as specified in its charter)
Delaware Applied For
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
c/o Saratoga Partners III, L.P. 10022
535 Madison Avenue (Zip code)
New York, New York
(Address of principal executive offices)
__________________________
11-1/4% Senior Notes due 2007
(Title of the indenture securities)
================================================================================
<PAGE>
- 3 -
GENERAL
1. GENERAL INFORMATION
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
The obligor currently is not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State
of New York Banking Department to transact business as a
Trust Company, is incorporated by reference to Exhibit T-
1.1 to Form T-1 filed on September 15, 1995 with the
Commission pursuant to the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990
(Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 4 -
16. LIST OF EXHIBITS
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
- ----
As of December 22, 1997, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
__________________
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 22th day
of December 1997.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ James E. Logan
--------------------------
James E. Logan
Vice President
<PAGE>
EXHIBIT T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
__________________________
By: /S/Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
SEPTEMBER 30, 1997
------------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 116,582
Short-Term Investments 183,652
Securities, Available for Sale 691,965
Loans 1,669,611
Less: Allowance for Credit Losses 16,067
----------
Net Loans 1,653,544
Premises and Equipment 61,796
Other Assets 125,121
----------
TOTAL ASSETS $2,832,660
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 541,619
Interest Bearing 1,617,028
----------
Total Deposits 2,158,647
Short-Term Credit Facilities 365,235
Accounts Payable and Accrued Liabilities 141,793
----------
TOTAL LIABILITIES $2,665,675
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,542
Retained Earnings 99,601
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes 2,847
----------
TOTAL STOCKHOLDER'S EQUITY 166,985
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,832,660
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
November 13, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001051885
<NAME> SCOVILL FASTENERS INC.
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 603 1,194
<SECURITIES> 0 0
<RECEIVABLES> 13,078 15,802
<ALLOWANCES> 640 754
<INVENTORY> 21,594 24,025
<CURRENT-ASSETS> 35,810 41,008
<PP&E> 44,587 49,884
<DEPRECIATION> 4,198 8,411
<TOTAL-ASSETS> 103,866 108,742
<CURRENT-LIABILITIES> 18,248 19,571
<BONDS> 0 0
0 0
0 0
<COMMON> 89 89
<OTHER-SE> 21,332 22,673
<TOTAL-LIABILITY-AND-EQUITY> 103,866 108,742
<SALES> 91,632 73,466
<TOTAL-REVENUES> 91,632 73,466
<CGS> 64,600 53,104
<TOTAL-COSTS> 81,651 64,801
<OTHER-EXPENSES> 3,007 2,455
<LOSS-PROVISION> 376 62
<INTEREST-EXPENSE> 5,953 2,698
<INCOME-PRETAX> 1,021 3,512
<INCOME-TAX> 923 1,586
<INCOME-CONTINUING> 98 1,926
<DISCONTINUED> 0 0
<EXTRAORDINARY> 950 0
<CHANGES> 0 0
<NET-INCOME> (852) 1,926
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
