<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
STEEL HEDDLE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
3552
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
57-1067030
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
1801 RUTHERFORD ROAD
GREENVILLE, SC 29607
TELEPHONE: (864) 244-4110
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
JERRY B. MILLER
1801 RUTHERFORD ROAD
GREENVILLE, SC 29607
TELEPHONE: (864)244-4110
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copy to:
JACK M. FEDER, ESQ.
KIRKLAND & ELLIS
655 15TH STREET, N.W.
WASHINGTON, D.C. 20005
TELEPHONE: (202) 879-5100
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM
PRICE AGGREGATE
TITLE OF EACH CLASS OF AMOUNT PER OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED UNIT (1) PRICE (1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
13 3/4% Series B Senior Discount Debentures due
2009............................................ $29,250,000 52.749% $15,429,014 $4,552
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PROSPECTUS SUBJECT TO COMPLETION DATED AUGUST 7, 1998
$29,250,000
[STEEL HEDDLE LOGO]
STEEL HEDDLE GROUP, INC.
OFFER TO EXCHANGE ITS 13 3/4% SERIES B SENIOR DISCOUNT
DEBENTURES DUE 2009 FOR ANY AND ALL OF ITS
OUTSTANDING 13 3/4% SERIES A SENIOR DISCOUNT DEBENTURES DUE 2009
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED
Steel Heddle Group, Inc., a Delaware corporation ("SH Group"), hereby offers
(the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 13 3/4%
Series B Senior Discount Debentures due 2009 (the "New Debentures"), registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 13 3/4% Series A Senior Discount Debentures
due 2009 (the "Old Debentures"), of which $29,250,000 principal amount at
maturity is outstanding on the date hereof. The form and terms of the New
Debentures are the same as the form and terms of the Old Debentures (which they
replace) except that the New Debentures will bear a Series B designation and
will have been registered under the Securities Act and, therefore, will not bear
legends restricting their transfer and will not contain certain provisions
relating to an increase in the interest rate which were included in the terms of
the Old Debentures in certain circumstances relating to the timing of the
Exchange Offer. The New Debentures will evidence the same debt as the Old
Debentures (which they replace) and will be issued under and be entitled to the
benefits of the Indenture (the "Indenture") dated as of May 26, 1998 among SH
Group and United States Trust Company of New York, as trustee, governing the Old
Debentures. See "The Exchange Offer" and "Description of Debentures."
The New Debentures will mature on June 1, 2009. The New Debentures will
accrete at a rate of 13 3/4%, compounded semi-annually, to an aggregate
principal amount at maturity of $29.25 million on June 1, 2003. Cash interest
will not accrue on the New Debentures prior to June 1, 2003. Commencing on
December 1, 2003, cash interest on the New Debentures will be payable, at a rate
of 13 3/4% per annum, semi-annually in arrears on each June 1, and December 1.
See "Description of Debentures."
The New Debentures will be redeemable at the option of SH Group, in whole or
in part, at any time on or after June 1, 2003 in cash at the redemption prices
set forth herein, plus accrued and unpaid interest, if any, thereon to the date
of redemption. In addition, at any time prior to June 1, 2001, SH Group may, at
its option, on any one or more occasions, redeem up to 35% of the aggregate
principal amount at maturity of the New Debentures originally issued at a
redemption price equal to 113.750% of the Accreted Value (as defined herein)
thereof, with the Net Cash Proceeds (as defined herein) received by SH Group of
one or more Equity Offerings (as defined herein); provided that, in each case,
at least 65% of the aggregate principal amount at maturity of the New Debentures
originally issued will remain outstanding immediately following each such
redemption. Upon the occurrence of a Change of Control (as defined herein), each
holder of New Debentures will have the right to require SH Group to repurchase
the New Debentures at a price in cash equal to 101% of the Accreted Value
thereof in the case of any such purchase prior to June 1, 2003 or 101% of the
aggregate principal amount at maturity thereof, plus accrued and unpaid
interest, if any, thereon to the date of repurchase in the case of any such
purchase on or after June 1, 2003. See "Description of Debentures."
The New Debentures will be senior obligations of SH Group. The New Debentures
will rank pari passu in right of payment to all future senior indebtedness of SH
Group and will rank senior in right of payment to all subordinated indebtedness
of SH Group. The New Debentures will be effectively subordinated to all
liabilities of SH Group's subsidiaries. As of April 4, 1998, on a pro forma
basis after giving effect to the Acquisition Transactions, SH Group would have
had outstanding $15.0 million of Indebtedness (as defined herein), and SH
Group's subsidiaries would have had $163.4 million of liabilities outstanding,
including Indebtedness under the Old Notes (as defined herein) and the New
Credit Agreement and including trade payables and other accrued liabilities.
Concurrently with the Exchange Offer, Steel Heddle Mfg. Co. (the "Company"),
the wholly-owned subsidiary of SH Group, is offering to exchange pursuant to a
separate prospectus $100.0 million aggregate principal amount of its Series B
10 5/8% Senior Subordinated Notes due 2008 (the "New Notes") for each $1,000
principal amount of its outstanding Series A 10 5/8% Senior Subordinated Notes
due 2008 ("Old Notes" and together with the New Notes, the "Notes").
SH Group will accept for exchange any and all Old Debentures validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1998,
unless extended by SH Group in its sole discretion (the "Expiration Date").
Tenders of Old Debentures may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
The Old Debentures were issued on May 26, 1998 to the Initial Purchaser (as
defined herein) in a transaction not registered under the Securities Act in
reliance upon an exemption under the Securities Act. The Initial Purchaser
subsequently placed the Old Debentures with qualified institutional buyers in
reliance upon Rule 144A under the Securities Act. Accordingly, the Old
Debentures may not be reoffered, resold or otherwise transferred in the United
States unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is available.
The New Debentures are being offered hereunder in order to satisfy the
obligations of SH Group under the Registration Rights Agreement (as defined
herein) entered into by SH Group in connection with the original transfer of the
Old Debentures to the Initial Purchaser. See "The Exchange Offer."
The proceeds from the issuance and sale of the Old Debentures and the Common
Equity Contribution (as defined herein), together with the net proceeds of the
issuance of the Old Debentures and borrowings under the New Credit Agreement (as
defined herein) by the Company were used by SH Group to (i) pay the aggregate
purchase price payable to certain affiliates of Butler Capital Corporation and
certain other stockholders (collectively, the "Sellers") for the acquisition
(the "Acquisition") of the capital stock of SH Holdings Corp. ("Old Holdings"),
(ii) repay existing indebtedness of Old Holdings and (iii) pay related fees and
expenses. See "Acquisition Transactions."
Based on no-action letters issued by the staff of the Securities and Exchange
Commission (the "Commission") to third parties, SH Group believes the New
Debentures issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of SH Group within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Debentures are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of New Debentures. See "The Exchange Offer--Purpose and Effect of the Exchange
Offer" and "The Exchange Offer--Resale of the New Debentures." Each
broker-dealer (a "Participating Broker-Dealer") that receives New Debentures for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Debentures. The
Letter of Transmittal states that by so acknowledging 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. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Debentures
received in exchange for Old Debentures where such Old Debentures were acquired
by such Participating Broker-Dealer as a result of market-making activities or
other trading activities. SH Group has agreed that, for a period of one year
after the thirtieth business day following the Expiration Date (or such shorter
period as will terminate when all of the Old Debentures offered hereby for
exchange have been sold), it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
Holders of Old Debentures not tendered and accepted in the Exchange Offer
will continue to hold such Old Debentures and will be entitled to all the rights
and benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. SH Group will
pay all the expenses incurred by it incident to the Exchange Offer. See "The
Exchange Offer."
There has not previously been any public market for the Old Debentures or the
New Debentures. SH Group does not intend to list the New Debentures on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the New
Debentures will develop. See "Risk Factors -- Lack of a Public Market for the
Debentures." Moreover, to the extent that Old Debentures are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Debentures could be adversely affected.
SEE "RISK FACTORS," BEGINNING ON PAGE , FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD DEBENTURES IN
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 COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
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 ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 3
AVAILABLE INFORMATION
SH Group has filed with the Commission a Registration Statement on Form S-4
(the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the New
Debentures being offered hereby. This Prospectus does not contain all the
information set forth in the Exchange Offer Registration Statement. For further
information with respect to the Exchange Offer, reference is made to the
Exchange Offer Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Exchange Offer Registration Statement, including
the exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the Regional Offices of the Commission at 75 Park
Place, New York, New York 10007 and at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Additionally, the
Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including SH Group.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, SH Group will become subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will be required to file periodic reports and other
information with the Commission. The obligation of SH Group to file periodic
reports and other information with the Commission will be suspended if the New
Debentures are held of record by fewer than 300 holders as of the beginning of
any fiscal year of SH Group other than the fiscal year in which the Exchange
Offer Registration Statement is declared effective. SH Group will nevertheless
be required to continue to file reports with the Commission if the New
Debentures are listed on a national securities exchange. In the event SH Group
ceases to be subject to the informational requirements of the Exchange Act, SH
Group will be required under the Indenture to continue to file with the
Commission the annual and quarterly reports, information, documents or other
reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K,
which would be required pursuant to the informational requirements of the
Exchange Act. Under the Indenture, SH Group shall file with the Trustee annual,
quarterly and other reports within fifteen days after it files such reports with
the Commission. Further, to the extent that annual, quarterly or other financial
reports are furnished by SH Group to shareholders generally it will mail such
reports to holders of New Debentures. SH Group will furnish annual and quarterly
financial reports to shareholders of SH Group and will mail such reports to
holders of New Debentures pursuant to the Indenture, thus holders of New
Debentures will receive financial reports every quarter. Annual reports
delivered to the Trustee and the holders of New Debentures will contain
financial information that has been examined and reported upon, with an opinion
expressed by an independent public or certified public accountant. SH Group will
also furnish such other reports as may be required by law.
The New Debentures will be available initially only in book-entry form. SH
Group expects that the New Debentures issued pursuant to the Exchange Offer will
be issued in the form of Global Debentures (as defined herein) that will be
deposited with, or on behalf of, DTC and registered in its name or in the name
of Cede & Co., its nominee. Beneficial interests in such Debentures will be
shown on, and transfers thereof will be effected through, records maintained by
DTC and its participants. Beneficial interests in the New Debentures issued
pursuant to Regulation S may be held only through Euroclear (as defined herein)
or CEDEL (as defined herein). See "Description of Debentures-Book-Entry;
Delivery; Form and Transfer."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus including the "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
sections, contains "forward-looking statements" within
i
<PAGE> 4
the meaning of the Private Securities Litigation Reform Act of 1995, which can
be identified by the use of forward-looking terminology, such as "may,"
"intend," "will," "expect," "anticipate," "estimate" or "continue" or the
negative thereof or other variations thereon or comparable terminology. In
particular, any statement, express or implied, concerning future operating
results or the ability to generate revenues, income or cash flow to service the
New Debentures are forward-looking statements. Although SH Group believes that
the expectations reflected in such forward-looking statements are reasonable,
there can be no assurance that such expectations will prove to have been
correct. All forward-looking statements are expressly qualified by such
cautionary statements.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY ANY DEBENTURES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------------
The terms "SH(R)", "Duralite(R)", "Draw-O(R)" and "Jet Eye(R)" are
trademarks of the Company. All other trademarks, service marks or trade names
referred to in this Prospectus are the property of their respective owners.
Market data used throughout this Prospectus were obtained from internal
Company surveys, industry publications or other publicly available information.
Although the SH Group believes that such sources are reliable, the accuracy and
completeness of such information is not guaranteed and has not been
independently verified.
ii
<PAGE> 5
[This page intentionally left blank]
<PAGE> 6
SUMMARY
The following is a summary of certain information contained herein and is
qualified in its entirety by, and should be read in conjunction with, the more
detailed information and financial data, including the consolidated financial
statements and notes thereto, included elsewhere in this Prospectus. Unless the
context indicates otherwise, all references to the "Company" or "Steel Heddle"
shall mean Steel Heddle Mfg. Co. and its consolidated subsidiaries. References
to the Company's "fiscal year" are to the 52-week or 53-week period ending on
the Saturday closest to December 31 of each year.
THE COMPANY
The Company, founded in 1898, is one of the world's leading manufacturers
of precision textile loom accessories. The Company designs, manufactures and
markets virtually all of the replaceable wear parts necessary to operate a
commercial weaving loom, including heddles, dropwires, harness frames, reeds and
shuttles and bobbins, which are used to hold or guide individual yarns during
the weaving process. Textile loom accessories are highly engineered and often
customized products which require a high degree of precision to ensure a uniform
weave and to achieve desired fabric patterns while being able to withstand the
stresses of modern, high-speed weaving looms. While technology and performance
specifications vary, all commercial weaving looms require these accessories.
Because loom manufacturers do not produce these accessories, all woven fabric
producers must purchase textile loom accessories from third-party suppliers. In
addition to textile loom accessories, the Company manufactures precision rolled,
heat treated, bare and tinned flat wire used in the electronics, automotive,
solar power and other industries.
The Company has achieved adjusted EBITDA (as defined herein) margins
exceeding 24% in each of the last ten years. Beginning in 1995 and continuing
through 1996, the Company implemented a profitability-enhancing cost-reduction
program. This program contributed to an increase in adjusted EBITDA margin to
31.3% in 1997. For the 52-week period ended April 4, 1998, the Company had net
sales, Adjusted EBITDA and operating income of $73.6 million, $23.3 million and
$17.9 million, respectively.
Steel Heddle is a critical supplier to virtually all North American textile
weaving mills, including such companies as WestPoint Stevens, Inc., Milliken &
Co. and Burlington Industries, Inc., many of which have been customers for
decades. In North America, management estimates that the Company holds
substantial market shares in all of its major product lines and estimates that
it supplies over 80% of the market for heddles, dropwires and harness frames,
over 50% of reeds and over 90% of the market for shuttles and bobbins. Although
international markets such as Europe and Asia have different competitive
dynamics than the North American market, the Company also has a strong presence
in many international markets in which it perceives the opportunity for
profitable growth. International sales accounted for approximately 22% of the
Company's net sales in 1997.
Textile loom accessories have represented a steady source of revenue and
cash flow because these parts require frequent replacement due to wear and
changes in production runs. Approximately 75% of the Company's net sales were
derived from the sale of replacement parts in 1997. The Company estimates that
more than 90% of all looms installed in North America are delivered
"unaccessorized," with the accessories being designed and supplied by a
third-party supplier such as Steel Heddle. Once the Company has outfitted new
looms with its accessories, its has generally been able to continue to supply
replacement parts for the life of the loom. The Company believes it has achieved
its leading position in the industry primarily because of its willingness and
ability to work closely with its customers, both before and after the
installation of new looms, to design the appropriate accessories to meet
specific manufacturing needs and then continue to meet those needs on an ongoing
basis.
In addition to its textile loom accessories business, the Company converts
round rod to flat wire through a rolling process which results in a flat wire
with a round edge. Originally developed to satisfy in-house heddle manufacturing
needs, the Company recognized that its ability to produce these products to
extremely tight tolerances could be tailored to meet similar needs in other
industries and began to pursue outside sales. Because these rolled products are
custom-made for specific applications, they have historically commanded
1
<PAGE> 7
attractive margins. The Company's rolled products can be found in a variety of
other industries, including electronics, automotive and solar power. Among the
end-use applications for the Company's products are notebook computers, cellular
telephones, electronic control devices and automotive applications such as
control mechanisms for air bags, turn signals and cruise controls. Major
customers include Kemet Corporation, Parlex Corporation, AMP Incorporated and
Siemens Corporation. Rolled products generated approximately $9.0 million in net
sales in 1997.
LOOM ACCESSORY INDUSTRY OVERVIEW
The textile industry is comprised of several subsectors: (i) apparel
production (consisting primarily of "cut and sew" business), (ii) synthetic and
natural yarn production, (iii) knitted fabric and (iv) woven fabric production.
Woven fabric production is the focus of the Company's customers. The end users
of weaving looms and weaving loom accessories are textile mills which utilize
looms to produce woven fabric. The U.S. weaving market is estimated at
approximately $19.5 billion and accounted for approximately 16.4 billion square
yards of fabric in 1997. This output has remained relatively stable since 1986,
varying between 15.2 and 16.6 billion square yards annually.
The U.S. textile industry, after having undergone significant restructuring
during the 1980s and early 1990s, has emerged as one of the most
capital-intensive, modern and efficient producers in the world. Annual capital
expenditures by woven fabric mills, while subject to fluctuations in the demand
for woven fabric, have risen in the 1990s, from approximately $550 million in
1991 to approximately $850 million in 1996. In order to maintain their
competitive position in the world markets, U.S. textile mills are expected to
continue to invest heavily in faster, newer generations of loom technology. With
modern equipment and increased automation, labor cost differentials are not a
significant factor in the competitiveness of U.S. producers. In addition, the
advantages of producing in the U.S., one of the world's largest end-markets,
have increased with manufacturers' demands for rapid response times and
retailers' desire to reduce inventories.
The U.S. installed textile loom base has shifted away from older-technology
shuttle looms towards faster, shuttleless looms such as air-jet and water-jet
looms. This trend benefits the Company in two ways. Higher weaving speeds lead
to faster wear of loom accessories, driving an increase in unit demand for
replacement parts. In addition, faster looms require a higher degree of
precision and performance from accessories, increasing the dollar value of
accessories sold per loom and the demand for the higher-priced, quality
accessories for which Steel Heddle is known.
LOOM ACCESSORY PRODUCT OVERVIEW
Heddles and Dropwires. Heddles are flat, specially-designed, stamped parts
manufactured to precise tolerances (as tight as two thousandths of an inch) from
high-performance steel. Heddles are designed to guide and hold individual yarns
during high-speed weaving. Dropwires are precision-made plated-carbon steel or
stainless steel stamped parts specially engineered to trigger a loom shutdown in
the event of broken yarn. The Company estimates that 50% to 60% of heddles and
dropwires are made to order, and approximately 75% of the Company's net sales of
heddles and dropwires are derived from replacement sales. Heddles and dropwires
accounted for approximately 37.9% of the Company's 1997 net sales.
Harness Frames. Harness frames are specialized carriages constructed from
special aluminum alloys and composite materials which raise and lower heddles
during the weaving process, creating a woven fabric pattern. As modern,
high-performance looms operate at 650 to 1,000 picks per minute (two to four
times faster than older technology), harness frames must withstand the
tremendous stress from continuous acceleration and deceleration without buckling
or breaking. The Company estimates that 90% of harness frames are made to order
and approximately 65% of harness frame revenue results from replacement sales.
Harness frames accounted for approximately 20.6% of the Company's 1997 net
sales.
Reeds. Reeds are precision-made, comb-like devices used to evenly space
yarn on the loom. Individual, specially designed, flat wire spacers called
"dents" are assembled in a reed to yield a particular fabric pattern or style.
Reed production requires exacting manufacturing processes as absolutely smooth,
straight and
2
<PAGE> 8
precisely spaced dents are critical to the production of quality woven fabric.
Reeds must be replaced each time a loom is used to weave a new fabric pattern.
Virtually all reeds are made to order and replacement sales accounted for
approximately 90% of reed net sales. Reeds accounted for approximately 24.6% of
the Company's 1997 net sales.
Shuttles and Bobbins. Shuttles, used in older, slower looms, are specially
fabricated from composite materials to carry "pick" or "filling" yarns across
the loom as the main yarn or "warp" yarn is pulled through the reed. Bobbins are
cylindrical wooden yarn carriers held by the shuttle. Shuttles and bobbins are
exclusively made to order. All shuttle and bobbin sales are made as
replacements. Shuttles and bobbins accounted for approximately 3.5% of the
Company's 1997 net sales.
COMPETITIVE STRENGTHS
The Company's objective is to maintain and enhance its competitive position
as the foremost supplier of loom accessories in the U.S. while broadening its
presence in international markets. The Company intends to achieve its objectives
by capitalizing on the following competitive strengths:
Leading Market Position. The Company is a critical supplier to virtually
all North American textile weaving mills, with leading market shares across all
of its product lines in North America. The Company is the sole domestic
manufacturer of heddles, dropwires, harness frames, shuttles and bobbins, with
estimated market share in North America in each category of over 80%, and over
90% market share in shuttles and bobbins. Steel Heddle is also the largest
domestic manufacturer of reeds, with an estimated 50% market share in North
America. In addition, the Company has a strong presence in those international
markets in which it sees profitable growth opportunities.
Cost-efficient Manufacturing. The Company is the only vertically-integrated
producer of loom accessories in the world. The Company has developed and tooled
proprietary production machinery and produces its own heat-treated, flat-rolled
carbon and stainless steel wire which is the key raw material in the production
of heddles and dropwires. In 1995 and continuing through 1996, the Company
implemented a comprehensive profitability enhancing, cost-reduction program
which, among other things, eliminated 120 full-time positions and decreased
pension and benefit costs. Because of its vertical integration, proprietary
production machinery, experienced low-cost labor force and economies of scale,
the Company believes it is one of the most efficient producers in the textile
loom accessory industry.
Long-standing and Diverse Customer Relationships. The Company has developed
and maintained long-term relationships with its customers, in some cases for
over 50 years. The Company has built its customer relationships by providing
consistent quality, a broad product line and technical support as well as
maintaining a strong customer service orientation. The Company's sales people
visit each customer every two to four weeks, enabling the Company to gain early
knowledge of a customer's intent to purchase new looms and accessories. In
addition, the Company's technical personnel work closely with the weaving mills
and original equipment manufacturers ("OEMs") to help them select the
appropriate accessories and resolve design or engineering issues. The Company's
customer base is diversified, with no one customer representing more than 6.6%
of net sales. Sales to top ten customers represented approximately 31.2% of the
Company's net sales in 1997.
Strong Brand Name. The Company's brand name enjoys significant worldwide
recognition in the textile industry as a result of its 100-year history. Since
it introduced flat steel heddles to U.S. weaving mills in 1898, the Company has
manufactured high-quality loom accessories. Because of its longevity, product
innovation, high-quality reputation, strong service orientation and broad
product line, the Company has built and maintained its significant market share
in the North American market and has built a strong presence internationally.
The Company's headquarters are located at 1801 Rutherford Road, Greenville,
S.C. 29607, and its telephone number is (864) 244-4110.
3
<PAGE> 9
THE ACQUISITION
Pursuant to a stock purchase agreement dated May 1, 1998 (the "Stock
Purchase Agreement"), SH Group, a corporation formed by American Industrial
Partners Capital Fund II, L.P. (together with its affiliates, "AIP") in
contemplation of the Acquisition, acquired all of the issued and outstanding
capital stock of Old Holdings, in a purchase accounting transaction, from
certain affiliates of Butler Capital Corporation and certain other stockholders
for an aggregate purchase price (including the repayment of outstanding
indebtedness of the Company, transaction expenses of approximately $8.6 million
and an estimated purchase price adjustment of approximately $1.1 million) of
approximately $175.2 million, subject to post-closing adjustments. Immediately
after the consummation of the Acquisition, (i) SH Intermediate Corp., a direct,
wholly-owned subsidiary of Old Holdings, was merged with and into its direct,
wholly-owned subsidiary, the Company, with the Company being the surviving
corporation ("Merger I"), (ii) Old Holdings was merged with and into its direct
wholly-owned subsidiary, the Company, with the Company being the surviving
corporation ("Merger II"), and (iii) Merger Sub was merged with and into the
Company, with the Company being the surviving corporation ("Merger III" and,
together with Merger I and Merger II, the "Mergers"). The Company is a direct,
wholly owned subsidiary of SH Group.
In order to finance the Acquisition and to repay the existing indebtedness
of the Company, (i) AIP and certain members of management contributed $25.0
million in exchange for common equity of SH Group, including management's
rollover of approximately $1.7 million of securities of Old Holdings in the
Acquisition (the "Common Equity Contribution"), (ii) SH Group contributed
proceeds of approximately $15.0 million from the issuance and sale of Old
Debentures, (iii) the Company (as successor by merger to Merger Sub) entered
into syndicated senior secured loan facilities (the "New Credit Agreement")
providing for term loan borrowings in the aggregate principal amount of $30.0
million and revolving loan borrowings of up to $20.0 million (including letters
of credit) and borrowed all term loans available and approximately $4.9 million
of revolving loans, (iv) the Company (as successor by merger to Merger Sub)
issued and sold $100.0 million aggregate principal amount of Old Notes and (v)
the Company loaned approximately $66.0 million of the net proceeds from the
issuance and sale of the Old Notes and borrowings under the New Credit Agreement
to SH Group pursuant to an intercompany note (the "Intercompany Note") to pay
part of the purchase price of the Acquisition. Upon the consummation of the
Acquisition, the Company forgave the Intercompany Note. The Acquisition, the
Mergers, the Offering, the Common Equity Contribution, the issuance and sale by
the Company of the Old Notes and the execution of, and initial borrowings under,
the New Credit Agreement are referred to herein collectively as the "Acquisition
Transactions." Upon consummation of the Mergers, the Company succeeded to the
obligations of Merger Sub under the New Credit Agreement and the Note Indenture
(as defined herein).
AIP is a private investment fund based in San Francisco and New York which,
together with its affiliates, has committed capital of approximately $800
million. AIP does not seek to play a role in daily management; rather, AIP seeks
to provide its portfolio companies with access to the management expertise of
its operating partners, all of whom are former Chief Executive Officers of
Fortune 500 corporations, through active board-level participation as well as
on-call advice when desired. Robert Purdum, an operating partner of AIP and
former Chairman of Armco, Inc., is the Company's Non-Executive Chairman of the
Board.
4
<PAGE> 10
THE INITIAL OFFERING
OLD DEBENTURES............. The Old Debentures were sold by SH Group on May 26,
1998 (the "Issue Date") to Donaldson, Lufkin &
Jenrette Securities Corporation (the "Initial
Purchaser") pursuant to a Purchase Agreement dated
as of May 21, 1998. The Initial Purchaser
subsequently resold the Old Debentures to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act.
REGISTRATION RIGHTS
AGREEMENT.................. Pursuant to the Purchase Agreement, SH Group and
the Initial Purchaser entered into a Registration
Rights Agreement dated May 26, 1998 (the
"Registration Rights Agreement"), which grants the
holders of the Old Debentures certain exchange and
registration rights. The Exchange Offer is intended
to satisfy such exchange and registration rights
which terminate upon the consummation of the
Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED......... $29,250,000 aggregate principal amount at maturity
of 13 3/4% Series B Senior Discount Debentures due
2009.
THE EXCHANGE OFFER......... $1,000 principal amount of the New Debentures in
exchange for each $1,000 principal amount of Old
Debentures. As of the date hereof, $29,250,000
aggregate principal amount at maturity of Old
Debentures are outstanding. SH Group will issue the
New Debentures on or promptly after the Expiration
Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, SH Group believes that New
Debentures issued pursuant to the Exchange Offer in
exchange for Old Debentures may be offered for
resale, resold and otherwise transferred by any
holder thereof (other than any such holder which is
an "affiliate" of SH Group within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such New Debentures are acquired in the
ordinary course of such holder's business and that
such holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such New
Debentures.
Any Participating Broker-Dealer that acquired Old
Debentures for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives New
Debentures for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
of such New Debentures. The Letter of Transmittal
states that by so acknowledging 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. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New
Debentures received in exchange for Old Debentures
where such Old Debentures were acquired by such
Participating Broker-Dealer as a result of
market-making activities or other trading
activities.
5
<PAGE> 11
SH Group has agreed to use its best efforts to keep
the Exchange Offer Registration Statement,
including this Prospectus, continuously effective
for one year from consummation of the Exchange
Offer.
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the New
Debentures could not rely on the position of the
staff of the Commission enunciated in no-action
letters and, in the absence of an exemption
therefrom, must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any resale transaction.
Failure to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which the
holder is not indemnified by SH Group.
EXPIRATION DATE............ 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
CONDITIONS TO THE EXCHANGE
OFFER.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by SH Group. See
"The Exchange Offer -- Conditions."
PROCEDURES FOR TENDERING
OLD DEBENTURES........... Each holder of Old Debentures wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof or transmit an Agent's Message (as defined
herein) in connection with a book-entry transfer,
in accordance with the instructions contained
herein and therein, and mail or otherwise deliver
such Letter of Transmittal, or such facsimile or
such Agent's Message, together with the Old
Debentures and any other required documentation to
the Exchange Agent (as defined herein) at the
address set forth herein. By executing the Letter
of Transmittal or Agent's Message, each holder will
represent to SH Group that, among other things, the
New Debentures acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of
business of the person receiving such New
Debentures, whether or not such person is the
holder, that neither the holder nor any such other
person (i) has any arrangement or understanding
with any person to participate in the distribution
of such New Debentures, (ii) is engaging or intends
to engage in the distribution of such New
Debentures or (iii) is an "affiliate," as defined
under Rule 405 of the Securities Act, of SH Group.
See "The Exchange Offer--Purpose and Effect of the
Exchange Offer" and "--Procedures for Tendering."
UNTENDERED DEBENTURES...... Following the consummation of the Exchange Offer,
holders of Old Debentures eligible to participate
but who do not tender their Old Debentures will not
have any further exchange rights and such Old
Debentures will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Debentures
could be adversely affected.
CONSEQUENCES OF FAILURE TO
EXCHANGE................. The Old Debentures that are not exchanged pursuant
to the Exchange Offer will remain restricted
securities. Accordingly, Old Debentures may be
resold only (i) to SH Group, (ii) pursuant to Rule
144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States to
a foreign person
6
<PAGE> 12
pursuant to the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act.
See "The Exchange Offer -- Consequences of Failure
to Exchange."
SHELF REGISTRATION
STATEMENT.................. If any holder of the Old Debentures (other than any
such holder which is an "affiliate" of SH Group
within the meaning of Rule 405 under the Securities
Act) is not eligible under applicable securities
laws to participate in the Exchange Offer, and such
holder has provided information regarding such
holder and the distribution of such holder's Old
Debentures to SH Group for use therein, SH Group
has agreed to register the Old Debentures on a
shelf registration statement (the "Shelf
Registration Statement") and use its best efforts
to cause it to be declared effective by the
Commission as promptly as practical on or after the
consummation of the Exchange Offer. SH Group has
agreed to maintain the effectiveness of the Shelf
Registration Statement for, under certain
circumstances, a maximum of two years, to cover
resales of the Old Debentures held by any such
holders.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Old Debentures are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender should contact such 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
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering its Old Debentures, either make
appropriate arrangements to register ownership of
the Old Debentures 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. SH Group will keep the
Exchange Offer open for not less than twenty
business days in order to provide for the transfer
of registered ownership.
GUARANTEED DELIVERY
PROCEDURES................. Holders of Old Debentures who wish to tender their
Old Debentures and whose Old Debentures are not
immediately available or who cannot deliver their
Old Debentures, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with
the procedures for book-entry transfer) prior to
the Expiration Date must tender their Old
Debentures according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
ACCEPTANCE OF DEBENTURES
AND DELIVERY OF NEW
DEBENTURES............... SH Group will accept for exchange any and all Old
Debentures which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Debentures
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer -- Terms of the Exchange."
7
<PAGE> 13
FEDERAL INCOME TAX
CONSEQUENCES............. The exchange pursuant to the Exchange Offer should
not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Consequences."
USE OF PROCEEDS............ There will be no cash proceeds to SH Group from the
exchange pursuant to the Exchange Offer.
EXCHANGE AGENT............. United States Trust Company of New York.
THE NEW DEBENTURES
GENERAL.................... The form and terms of the New Debentures are the
same as the form and terms of the Old Debentures
(which they replace) except that (i) the New
Debentures bear a Series B designation, (ii) the
New Debentures have been registered under the
Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (iii)
the holders of New Debentures will not be entitled
to certain rights under the Registration Rights
Agreement, including the provisions providing for
an increase in the interest rate on the Old
Debentures in certain circumstances relating to the
timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is consummated.
See "The Exchange Offer -- Purpose and Effect of
the Exchange Offer." The New Debentures will
evidence the same debt as the Old Debentures and
will be entitled to the benefits of the Indenture.
See "Description of Debentures." The Old Debentures
and the New Debentures are referred to herein
collectively as the "Debentures."
SECURITIES OFFERED......... $29,250,000 in aggregate principal amount at
maturity of 13 3/4% Series B Senior Discount
Debenture Notes due 2009.
ISSUER..................... The Debentures will be the obligations of SH Group.
MATURITY DATE.............. June 1, 2009.
YIELD AND INTEREST......... 13 3/4% (computed on a semi-annual bond equivalent
basis) calculated from May 26, 1998. The New
Debentures will accrete at a rate of 13 3/4%,
compounded semi-annually, to an aggregate principal
amount of $29,250,000 on June 1, 2003. Cash
interest will not accrue on the New Debentures
prior to June 1, 2003. Commencing June 1, 2003 cash
interest on the New Debentures will accrue and be
payable, at a rate of 13 3/4% per annum,
semi-annually in arrears on each June 1 and
December 1.
OPTIONAL REDEMPTION........ The New Debentures will be redeemable at the option
of SH Group, in whole or in part, at any time on or
after June 1, 2003 in cash at the redemption prices
set forth herein, plus accrued and unpaid interest,
if any, thereon to the applicable date of
redemption. In addition, at any time prior to June
1, 2001, SH Group may, at its option, on any one or
more occasions, redeem up to 35% of the aggregate
principal amount at maturity of the New Debentures
originally issued at a redemption price equal to
113.750% of the Accreted Value thereof, with the
Net Cash Proceeds received by SH Group from one or
more Equity Offerings; provided, that in each case
at least 65% of the original aggregate principal
amount at maturity of the New Debentures will
remain
8
<PAGE> 14
outstanding immediately following each such
redemption. See "Description of
Debentures -- Optional Redemption."
CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control, each
holder of the New Debentures will have the right to
require SH Group to repurchase New Debentures at a
price in cash equal to 101% of the Accreted Value
thereof, in the case of any such purchase prior to
June 1, 2003 or 101% of the aggregate principal
amount at maturity thereof, plus accrued and unpaid
interest, if any, thereon to the date of repurchase
in the case of any such purchase on or after June
1, 2003. SH Group does not have, and may not in the
future have, any assets other than common stock of
the Company. As a result, SH Group's ability to
repurchase all or any part of the New Debentures
upon the occurrence of a Change of Control will be
dependent upon the receipt of dividends or other
distributions from its direct and indirect
subsidiaries. The New Credit Agreement and the
Notes restrict the Company from paying dividends
and making any other distributions to SH Group. If
SH Group is unable to obtain dividends from the
Company sufficient to permit the repurchase of the
New Debentures or does not refinance such
Indebtedness, SH Group will likely not have the
financial resources to purchase New Debentures upon
the occurrence of a Change of Control. In any
event, there can be no assurance that SH Group's
subsidiaries will have the resources available to
pay any such dividend or make any such
distribution. Furthermore, the New Credit Agreement
provides that certain change of control events
constitute a default thereunder and the Old Notes
provide that, in the event of a Change of Control,
the Company is required to offer to repurchase the
Notes at the price specified therefor. SH Group's
failure to make a Change of Control Offer (as
defined herein) when required or to purchase
tendered New Debentures when tendered would
constitute an Event of Default (as defined herein)
under the Indenture (as defined herein). See
"Description of Debentures."
RANKING.................... The New Debentures will be senior obligations of SH
Group. The New Debentures will rank pari passu in
right of payment with all future senior
indebtedness of SH Group and will rank senior in
right of payment to all future subordinated
indebtedness of SH Group. The New Debentures will
be effectively subordinate to all liabilities of SH
Group's subsidiaries. On a pro forma basis, as of
April 4, 1998, after giving effect to the
Acquisition Transactions, SH Group would have had
outstanding approximately $15.0 million of
Indebtedness and SH Group's subsidiaries would have
had $163.4 million of total liabilities
outstanding, including Indebtedness under the Notes
and the New Credit Agreement and including trade
payables and other accrued liabilities.
ORIGINAL ISSUE DISCOUNT.... The New Debentures are being offered at an original
issue discount for United States federal income tax
purposes. Thus, although cash interest will not be
payable on the New Debentures prior to December 1,
2003 original issue discount will accrue from the
issue date (the "Issue Date") of the New Debentures
and will be included as interest income
periodically (including for periods ending prior to
June 1, 2003) in a holder's gross income for United
States federal income tax purposes in advance of
receipt of the cash payments to which the income is
attributable.
CERTAIN COVENANTS.......... The Indenture contains certain covenants that,
among other things, limit the ability of SH Group
and its Subsidiaries (as defined herein) to: incur
9
<PAGE> 15
indebtedness and issue preferred stock; repurchase
Capital Stock (as defined herein) and certain
Indebtedness; engage in transactions with
affiliates; incur or suffer to exist certain liens;
pay dividends or other distributions; make certain
investments; sell assets; and engage in certain
mergers and consolidations.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered before deciding whether to tender Old Debentures for the New
Debentures offered hereby.
10
<PAGE> 16
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary consolidated historical and pro
forma financial, operating and other data of the Company and its subsidiaries.
The summary consolidated financial data for each of the fiscal years in the
three-year period ended January 3, 1998 has been derived from the audited
Consolidated Financial Statements of the Company and the related notes thereto
included elsewhere herein. The summary financial data for the fiscal quarters
ended April 4, 1998 and April 5, 1997 have been derived from the Unaudited
Consolidated Financial Statements of the Company and include, in the opinion of
management, all adjustments necessary to present fairly the data for such
periods. The results for the fiscal quarter ended April 4, 1998 are not
necessarily indicative of the results to be expected for the year ending January
2, 1999 or for any future period. The summary consolidated pro forma balance
sheet data give effect to the Acquisition Transactions as if they had occurred
as of April 4, 1998. The data presented below should be read in conjunction with
the Consolidated Financial Statements and the related notes thereto included
elsewhere herein, the other financial information included elsewhere herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." No summary financial data is presented for SH Group as that entity
was incorporated on April 14, 1998 to effectuate the acquisition of Old
Holdings, the ultimate parent of the Company.
<TABLE>
<CAPTION>
FISCAL QUARTER
FISCAL YEAR ENDED
------------------------------ -------------------
APRIL 4, APRIL 5,
1997 1996 1995 1998 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............................................. $72,983 $64,484 $68,118 $19,266 $18,606
Gross profit.......................................... 26,535 20,410 20,412 7,336 6,525
Selling, general and administrative expenses.......... 8,489 8,875 8,667 2,178 2,231
Operating income(a)................................... 16,842 10,081 9,920 4,908 3,844
Interest expense, net................................. 5,148 5,844 6,307 1,010 1,459
Net income (loss)(b).................................. 4,714 2,599 1,130 2,501 (1,316)
OTHER DATA:
Adjusted EBITDA(c).................................... $22,841 $17,523 $16,906 $ 6,149 $ 5,697
Adjusted EBITDA margin(d)............................. 31.3% 27.2% 24.8% 31.9% 30.6%
Capital expenditures.................................. $ 2,558 $ 2,809 $ 3,455 $ 618 $ 416
Depreciation and amortization......................... 4,409 6,019 6,096 1,139 1,337
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 4,
1998
---------------------
SH
GROUP
COMPANY PRO
HISTORICAL FORMA
---------- -----
<S> > <C> <C>
BALANCE SHEET DATA:
Net working capital(g)................................................................ $18,953 $ 23,131
Net property, plant and equipment..................................................... 16,298 40,815
Total assets.......................................................................... 66,394 196,562
Long-term debt (including current portion)............................................ 53,492 149,923
Redeemable common stock............................................................... 1,336 --
Shareholders' equity (deficit)........................................................ (2,008) 18,169
</TABLE>
- ------------------------------
(a) Operating income includes restructuring charges of $0.8 million in 1995
relating to a reduction in the domestic workforce, closure of the Company's
Canadian operation and writedown of certain assets.
11
<PAGE> 17
(b) Includes cumulative effect of change in method of accounting for
postretirement benefits of $0.9 million, net of taxes, in fiscal 1995 and
extraordinary loss on early extinguishment of debt of $2.8 million, net of
taxes, in fiscal 1997 and fiscal quarter ended April 5, 1997.
(c) Adjusted EBITDA, presented herein, represents operating income plus
depreciation, amortization and items which management believes to be
unusual, including, but not limited to, management and transaction fees paid
to BCC Industrial Services, Inc. ("BCC") and AIP, director's fees,
non-recurring restructuring charges, supplemental bonus compensation,
compensation expense for certain eliminated management positions and
incremental increases in obsolete inventory reserves. EBITDA represents
operating income plus depreciation and amortization. The following is a
summary of historical adjustments to operating income:
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED
FISCAL YEAR ---------------------
--------------------------- APRIL 4, APRIL 5,
1997 1996 1995 1998 1997
------- ------- ------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating income............................................ $16,842 $10,081 $ 9,920 $4,908 $3,844
Depreciation................................................ 3,550 5,118 5,161 924 943
Amortization................................................ 729 729 729 182 182
------- ------- ------- ------ ------
EBITDA.................................................... 21,121 15,928 15,810 6,014 4,969
Unusual items:
Management and transaction fees........................... 475 725 275 68 268
Director's fees........................................... -- -- -- -- --
Non-recurring restructuring charges....................... -- -- 821 -- --
Supplemental bonus compensation........................... 775 870 -- -- 185
Compensation expense for certain eliminated management
positions............................................... 260 -- -- 67 65
Incremental increases in obsolete inventory reserves...... 210 -- -- -- 210
------- ------- ------- ------ ------
Adjusted EBITDA......................................... $22,841 $17,523 $16,906 $6,149 $5,697
======= ======= ======= ====== ======
</TABLE>
EBITDA and Adjusted EBITDA are not intended to represent cash flow from
operations as defined by GAAP (as defined herein) and should not be used as
an alternative to net income as an indicator of operating performance or to
cash flows as a measure of liquidity. EBITDA and Adjusted EBITDA are not
defined in the same manner as "Consolidated EBITDA" in the Indenture or in
the "Description of Debentures" herein. See "Description of
Debentures -- Certain Definitions." EBITDA and Adjusted EBITDA are included
herein as it is a basis upon which the Company assesses its financial
performance, and certain covenants in the Company's borrowing arrangements
will be tied to similar measures. EBITDA and Adjusted EBITDA, as presented,
represent a useful measure of assessing the Company's ongoing operating
activities without the impact of financing activities and unusual items.
While EBITDA and Adjusted EBITDA are frequently used as a measure of
operations and the ability to meet debt service requirements, it is not
necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies in the method of calculation.
(d) Adjusted EBITDA as a percentage of net sales.
(e) Excludes amortization of financing costs.
(f) Represents cash interest expense plus accretion on the Debentures.
(g) Net working capital represents (i) current assets excluding cash less (ii)
current liabilities excluding the current portion of long-term debt.
12
<PAGE> 18
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors before
deciding whether to tender their Old Debentures for New Debentures offered
hereby. This Prospectus, including the "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business"
sections, contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, which can be identified by the
use of forward-looking terminology, such as "may," "intend," "will," "expect,"
"anticipate," "estimate," or "continue" or the negative thereof or other
variations thereon or comparable terminology. In particular, any statements,
express or implied, concerning future operating results or the ability to
generate revenues, income or cash flow to service the New Debentures are
forward-looking statements. The matters set forth below constitute cautionary
statements identifying important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially from those in such forward-looking statements.
FAILURE TO EXCHANGE OLD DEBENTURES
New Debentures will be issued in exchange for Old Debentures only after
timely receipt by the Exchange Agent of such Old Debentures, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. Therefore, holders of Old Debentures desiring to tender such Old
Debentures in exchange for New Debentures should allow sufficient time to ensure
timely delivery. Neither the Exchange Agent nor SH Group are under any duty to
give notification of defects or irregularities with respect to tenders of Old
Debentures for exchange. Old Debentures that are not tendered or are tendered
but not accepted will, following consummation of the Exchange Offer, continue to
be subject to the existing restrictions upon transfer thereof. In addition, any
holder of Old Debentures who tenders in the Exchange Offer for the purpose of
participating in a distribution of the New Debentures will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each Participating Broker-Dealer that
received New Debentures for its own account in exchange for Old Debentures,
where such Old Debentures were acquired by such Participating Broker-Dealer as a
result of market-making activities or any other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Debentures. To the extent that Old Debentures are tendered and accepted
in the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Debentures could be adversely affected due to the limited amount,
or "float," of the Old Debentures that are expected to remain outstanding
following the Exchange Offer. Generally, a lower "float" of a security could
result in less demand to purchase such security and could, therefore, result in
lower prices for such security. For the same reason, to the extent that a large
amount of Old Debentures are not tendered or are tendered and not accepted in
the Exchange Offer, the trading market for the New Debentures could be adversely
affected. See "Plan of Distribution" and "The Exchange Offer."
SUBSTANTIAL LEVERAGE; LIQUIDITY
SH Group and the Company have a significant amount of indebtedness. As of
April 4, 1998 on a pro forma basis after giving effect to the Acquisition
Transactions, SH Group would have had $15.0 million of indebtedness. In
addition, subject to the restrictions in the New Credit Agreement, the Note
Indenture and the Indenture, SH Group and the Company may incur additional
senior or other indebtedness from time to time to finance acquisitions or
capital expenditures or for other general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of Debentures" and
"Description of Other Indebtedness."
The level of SH Group's and the Company's indebtedness could have important
consequences to the holders of the Debentures, including, but not limited to,
the following: (i) SH Group's and the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions,
product development, general corporate purposes or other purposes may be
materially limited or impaired; (ii) a significant portion of SH Group's and the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to SH Group
13
<PAGE> 19
and the Company for their operations and future business opportunities; (iii)
significant amounts of SH Group's and the Company's borrowings bear interest at
variable rates, which could result in higher interest expense in the event of
increases in interest rates; (iv) the Indenture, the Note Indenture and the New
Credit Agreement contain financial and restrictive covenants, the failure to
comply with which may result in an event of default which, if not cured or
waived, could have a material adverse effect on SH Group and the Company; (v)
the indebtedness outstanding under the New Credit Agreement is secured and
matures prior to the maturity of the Debentures; (vi) SH Group and the Company
may be substantially more leveraged than certain of their competitors, which may
place SH Group and the Company at a competitive disadvantage; and (vii) SH
Group's and the Company's substantial degree of leverage may limit their
flexibility to adjust to changing market conditions, reduce their ability to
withstand competitive pressures and make them more vulnerable to a downturn in
general economic conditions or in their business or be unable to carry out
capital spending that is important to their growth and productivity improvement
programs. See "Description of Debentures" and "Description of Other
Indebtedness."
SH Group's and the Company's ability to make scheduled payments or to
refinance their debt obligations will depend upon their future financial and
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, certain of which are beyond their
control, including interest rates, unscheduled plant shutdowns, increased
operating costs, regulatory developments and the ability of SH Group and the
Company to repatriate cash generated outside of the United States without
incurring a substantial tax liability. There can be no assurance that SH Group's
and the Company's operating results, cash flow and capital resources will be
sufficient for payment of their respective indebtedness in the future. In the
absence of such operating results and capital resources, SH Group and the
Company could face substantial liquidity problems, may be forced to reduce or
delay capital expenditures, and might be required to dispose of material assets
or operations to meet their respective debt service and other obligations, and
there can be no assurance as to the timing of such sales or the proceeds that SH
Group and the Company could realize therefrom. In addition, because significant
amounts of SH Group's and the Company's borrowings will bear interest at
variable rates, an increase in interest rates could adversely affect, among
other things, SH Group's and the Company's ability to meet their debt service
obligations. If SH Group and the Company are unable to service their respective
indebtedness, they may take actions such as reducing or delaying planned
expansion and capital expenditures, selling assets, restructuring or refinancing
their indebtedness or seeking additional equity capital. There can be no
assurance that any of these actions could be effected on satisfactory terms, if
at all.
RESTRICTIVE DEBT COVENANTS
The Indenture, the Note Indenture and the New Credit Agreement contain a
number of significant covenants that, among other things, restrict the ability
of SH Group and the Company and their subsidiaries to dispose of assets, incur
additional indebtedness, prepay indebtedness (including the New Debentures),
amend certain debt instruments (including the Indenture and the Note Indenture),
pay dividends, create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances, make acquisitions, engage in
mergers or consolidations, change the business conducted by SH Group, the
Company or its subsidiaries, or engage in certain transactions with affiliates
and otherwise restrict certain corporate activities. In addition, under the New
Credit Agreement, the Company is required to comply with specified financial
ratios and tests, including minimum interest coverage ratios, leverage ratios
below a specified maximum, minimum net worth levels and minimum ratios of
inventory to senior debt. See "Description of Debentures" and "Description of
Other Indebtedness."
SH Group's and the Company's ability to comply with such agreements may be
affected by events beyond their control, including prevailing economic,
financial and industry conditions. The breach of any of such covenants or
restrictions could result in a default under the New Credit Agreement, the Note
Indenture or the Indenture, which would permit the senior lenders, or the
holders of the Debentures, or both, as the case may be, to declare all amounts
borrowed thereunder to be due and payable, together with accrued and unpaid
interest, and the commitments of the senior lenders to make further extensions
of credit under the New Credit Agreement could be terminated. If the Company
were unable to repay its indebtedness to its senior lenders,
14
<PAGE> 20
such lenders could proceed against the collateral securing such indebtedness as
described under "Description of Other Indebtedness."
LIMITATION ON ACCESS TO CASH FLOW OF SUBSIDIARIES; HOLDING COMPANY STRUCTURE
SH Group is a holding company, and its ability to pay interest on the New
Debentures is dependent upon the receipt of dividends from its direct and
indirect subsidiaries. SH Group does not have and may not in the future have,
any assets other than the common stock of the Company. The Company and its
subsidiaries are parties to the New Credit Agreement and the Note Indenture,
each of which imposes substantial restrictions on the Company's ability to pay
dividends to SH Group. Any payment of dividends will be subject to the
satisfaction of certain financial conditions set forth in the Note Indenture and
the New Credit Agreement. The ability of the Company and its subsidiaries to
comply with such conditions in the Note Indenture may be affected by events that
are beyond the control of SH Group. The breach of any such conditions could
result in a default under the Note Indenture and the New Credit Agreement, and
in the event of any such default, the holders of the Notes or the lenders under
the New Credit Agreement could elect to accelerate the maturity of all the Notes
or the loans under the New Credit Agreement. If the maturity of the Notes or the
loans under the New Credit Agreement were to be accelerated, all such
outstanding debt would be required to be paid in full before the Company or its
subsidiaries would be permitted to distribute any assets or cash to SH Group.
There can be no assurance that the assets of SH Group would be sufficient to
repay all of such outstanding debt and to meet its obligations under the
Indenture. Future borrowings by the Company can be expected to contain
restrictions or prohibitions on the payment of dividends by the Company and its
subsidiaries to SH Group. The Company is incorporated under the laws of the
Commonwealth of Pennsylvania. Under Pennsylvania law, a corporation is permitted
to pay dividends on its capital stock only if after giving effect thereto the
corporation would be able to pay its debts as they become due in the usual
course of its business or the total assets of the corporation would be less than
the sum of its liabilities plus the amount that would be needed (if the
corporation were to be dissolved at the time as of which the distribution is
measured) to satisfy the preferential rights upon dissolution of shareholders
whose preferential rights are superior to those receiving the distribution. In
determining the Company's ability to pay dividends, Pennsylvania law permits the
board of directors of the Company to take into account in valuing the assets and
liabilities of the Company book value, unrealized appreciation and depreciation
or other changes, current value or any other reasonable valuation method. SH
Group cannot predict what the value of its subsidiaries' assets or the amounts
of their liabilities will be in the future and, accordingly, there can be no
assurance that SH Group will be able to pay its debt service obligations on the
New Debentures. In addition, indebtedness outstanding under the New Credit
Agreement will be secured by substantially all of the assets of the Company
(including the common stock of the Company.)
As a result of the holding company structure of SH Group, the holders of
the New Debentures will be structurally junior to all creditors of SH Group's
subsidiaries, except to the extent that SH Group is itself recognized as a
creditor of any such subsidiary, in which case the claims of SH Group would
still be subordinate to any security in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by SH Group. In the event of
insolvency, liquidation, reorganization, dissolution or other winding-up of SH
Group's subsidiaries, SH Group will not receive any funds available to pay to
creditors of the subsidiaries. As of April 4, 1998 on a pro forma basis after
giving effect to the Acquisition Transactions, the aggregate amount of
indebtedness and other obligations of SH Group's subsidiaries (including trade
payables and other accrued liabilities) would have been $163.4 million.
POSSIBLE INABILITY TO REPURCHASE DEBENTURES UPON CHANGE OF CONTROL
In the event of a Change of Control, each holder of New Debentures will
have the right to require SH Group to repurchase all or any part of such
holder's New Debentures at the offer price specified therefore in the Debenture
Indenture. SH Group does not have, and may not in the future have, any assets
other than common stock of the Company (which will be pledged to secure the
Company's obligations under the New Credit Agreement). As a result, SH Group's
ability to repurchase all or any part of the Debentures upon the occurrence of a
Change of Control will be dependent upon the receipt of dividends or other
distributions from its direct and indirect subsidiaries. The New Credit
Agreement and the Notes restrict the Company from
15
<PAGE> 21
paying dividends and making any other distributions to SH Group. If SH Group
does not obtain dividends from the Company sufficient to permit the repurchase
of the New Debentures or does not refinance such Indebtedness, SH Group will
likely not have the financial resources to purchase New Debentures upon the
occurrence of a Change of Control. In any event, there can be no assurance that
SH Group's subsidiaries will have the resources available to pay such dividend
or make any such distribution. Furthermore, the New Credit Agreement provides
that certain change of control events will constitute a default thereunder, and
the Notes provide that, in the event of a Change of Control, the Company will be
required to offer to repurchase the Notes at the price specified therefor. SH
Group's failure to make a Change of Control offer when required or to purchase
tendered Debentures when tendered would constitute an Event of Default under the
Debenture Indenture. See "Description of Debentures" and "Description of Other
Indebtedness."
FRAUDULENT TRANSFER CONSIDERATIONS
SH Group's obligations under the New Debentures may be subject to review
under state or federal fraudulent transfer laws in the event of the bankruptcy
or other financial difficulty of SH Group.
Under those laws, if a court, in a lawsuit by an unpaid creditor or
representative of creditors of SH Group, such as a trustee in bankruptcy or SH
Group as a Chapter 11 debtor in possession, were to find that when SH Group
issued the New Debentures, it (a) received less than fair consideration or
reasonably equivalent value therefor and (b) either (i) was or was rendered
insolvent, (ii) was engaged in a business or transaction for which its remaining
unencumbered assets constituted unreasonably small capital or (iii) intended to
incur or believed (or reasonably should have believed) that it would incur debts
beyond its ability to pay as such debts matured, the court could avoid the New
Debentures and SH Group's obligations thereunder, or subordinate the New
Debentures to all of SH Group's other obligations, and in either case direct the
return of any amounts paid thereunder to SH Group or to a fund for the benefit
of its creditors. It should be noted that a court could avoid the New Debentures
and SH Group's obligations thereunder without regard to factors (a) and (b)
above if it found that SH Group issued the New Debentures with actual intent to
hinder, delay or defraud its creditors.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair salable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured.
LACK OF A PUBLIC MARKET FOR THE DEBENTURES
As of the date hereof, the only registered holder of Old Debentures is Cede
& Co., as the nominee of DTC. Prior to the offering of the Old Debentures, there
had been no market for the Debentures and there can be no assurance that such a
market will develop, or if such market develops, as to the liquidity of such
market. The New Debentures will not be listed on any securities exchange, but
the Old Debentures are eligible for trading in the PORTAL market. The Initial
Purchaser has advised SH Group that it currently intends to make a market in the
Debentures, as permitted by applicable laws and regulations; however, the
Initial Purchaser is not obligated to do so and may discontinue such
market-making at any time without notice to the holders of the Debentures. In
addition, such market-making activities may be limited during the Exchange Offer
and the pendency of the Shelf Registration Statement. Accordingly, there can be
no assurance that a trading market for the Debentures will develop or will
provide liquidity to the holders thereof. Historically, the market for
non-investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the Debentures.
There can be no assurance that, if a market for the Debentures were to develop,
such a market would not be subject to similar disruptions. See "The Exchange
Offer" and "Plan of Distribution."
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDERS' CLAIMS
The New Debentures will be issued at a substantial original issue discount
from their principal amount at maturity. Consequently, purchasers of the New
Debentures will be required to include amounts in gross
16
<PAGE> 22
income for federal income tax purposes in advance of receipt of the cash
payments to which the income is attributable. See "Certain Federal Income Tax
Considerations" for a more detailed discussion of the federal income tax
consequences to the purchasers of the New Debentures resulting from the
purchase, ownership or disposition thereof.
Under the Indenture, in the event of an acceleration of the maturity of the
Debentures upon the occurrence of an Event of Default, the holders of the
Debentures may be entitled to recover only the amount which may be declared due
and payable pursuant to the Indenture, which will be less than the principal
amount at maturity of such Debentures. See "Description of Debentures -- Certain
Covenants -- Events of Default and Remedies."
If a bankruptcy case is commenced by or against SH Group under the
Bankruptcy Code, the claim of a holder of Debentures with respect to the
principal amount thereof may be limited to an amount equal to the sum of (i) the
issue price of the Debentures as set forth on the cover page hereof and (ii)
that portion of the original issue discount (as determined on the basis of such
issue price) which is not deemed to constitute "unmature interest" for purposes
of the Bankruptcy Code. Accordingly, holders of the Debentures under such
circumstances may, even if sufficient funds are available, receive a lesser
amount than they would be entitled to under the express terms of the Indenture.
In addition, payments received by holders of Debentures in a bankruptcy case are
subject to the same rules as those used for the calculation of original issue
discount under federal income tax law and, accordingly, a holder might be
required to recognize gain or loss in the event of a distribution related to
such a bankruptcy case.
TEXTILE INDUSTRY DEPENDENCE; CYCLICALITY
The principal operations of the Company have been, and will continue to be,
directly dependent upon domestic and foreign production of woven fabric.
Historically, the textile industry has experienced periodic, cyclical downturns.
Industry sales and production can be affected by the general strength of the
economy and by other factors, including the cost of raw materials and the demand
for woven fabric, which may have an effect on the level of the Company's sales.
There is no assurance that the demand for textile products will continue. A
substantial decrease in demand for woven fabric would have a material adverse
effect on the Company's and SH Group's financial condition and operating
results.
ASIAN MARKET INSTABILITY
Economies and financial markets in Asia have recently experienced
significant turmoil. Approximately 12% of the Company's 1997 revenues were
derived from sales to Asian customers. The recent turmoil in the Asian financial
markets has not had a material impact on the Company's sales orders. However,
the financial instability in this region may have an adverse impact on the
financial position of customers in the region which could impact future orders
from such customers and/or the ability of such customers to pay the Company. If
the Company's customers in Asia are unable to maintain sales or current margins
on their sales, then the Company's sales and/or sales margins may be adversely
affected.
COMPETITION
The market for textile loom accessories is competitive. One of the
Company's international competitors is larger and has greater financial and
other resources available to it than the Company. There can be no assurance that
the Company's products will continue to compete successfully with the products
of other companies. The Company has a leading market share in the U.S., but the
Company could face additional competition as other established and emerging
companies enter the textile loom accessory market. Increased competition could
result in price reductions, fewer customer orders, reduced gross margins and
loss of market share, any of which could materially adversely affect the
Company's business, financial condition and operating results. The Company faces
substantially more competition in foreign markets. See "Business -- Competition
and Market Share."
17
<PAGE> 23
YEAR 2000
The Company uses software that will be affected by the date change in the
year 2000 and recognizes that the arrival of the year 2000 poses challenges that
will require modifications of portions of its software to enable it to function
properly. As the year 2000 approaches, date sensitive systems will recognize the
year 2000 as 1900, or not at all. This may cause systems to process critical
financial and operational information incorrectly. The Company, like may other
companies, is expected to incur expenditures over the next year to address this
issue. The Company has taken various actions to understand the nature and work
required to make its systems year 2000 compliant. The Company continues to
evaluate the estimated costs and has commenced portions of the work required to
achieve compliance. While compliance has and will involve additional costs,
estimated to be $1.0 million in total, the Company believes, based on current
information, it will achieve year 2000 compliance without a material adverse
effect on its operations, cash flows or financial position. The Company's
failure to address successfully year 2000 issues could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team. Although the Company believes it could replace key employees in an orderly
fashion should the need arise, the loss of such key personnel could have a
material adverse effect on the Company's financial condition or results of
operations. See "Management--Directors and Executive Officers".
CONTROL OF SH GROUP BY AIP
Upon consummation of the Acquisition Transactions, AIP became the owner of
a substantial majority of the outstanding capital stock of SH Group which allows
AIP to elect the directors of SH Group. AIP is in a position to cause the
Company or SH Group to enter into transactions that in its judgment could
ultimately enhance shareholder value but involve risks to holders of the
Debentures. See "Acquisition Transactions" and "Certain Relationships and
Related Transactions."
RISKS RELATED TO POSSIBLE ACQUISITIONS
The Company may, from time to time, seek to expand its operations through
the acquisition of competing or complimentary businesses. There can be no
assurance that the Company will be able to finance, acquire, profitably manage
or successfully integrate into the Company any such business without incurring
substantial expenses (including additional indebtedness), delays or other
operational or financial problems. Further, acquisitions may involve a number of
special risks, including diversion of management's attention, failure to retain
key acquired personnel, increased costs to improve managerial, operational,
financial and administrative systems, legal liabilities, and increased interest
expense and amortization of acquired intangible assets, some or all of which
could materially and adversely affect the Company's business, operating results
and financial condition.
ENVIRONMENTAL MATTERS
The Company's facilities are subject to federal, state and local
environmental requirements, including those governing discharges to the air and
water, the handling and disposal of solid and hazardous wastes, and the
remediation of contamination associated with releases of hazardous substances.
The Company's manufacturing operations involve the use of hazardous substances
and, as is the case with manufacturers in general, if a release of hazardous
substances occurs or has occurred on or from the Company's facilities, the
Company may be held liable and may be required to pay the cost of remedying the
condition. The amount of any such liability could be material. In 1989, the
Company began a groundwater remediation program at the Company's Greenville, SC
facility under the federal Resource Conservation and Recovery Act ("RCRA"). As
required by RCRA, the Company has posted financial assurance in the amount of
$671,000 to ensure funds are available to complete the permit requirements.
Nonetheless, the Company is continuing to investigate certain areas of the
facility. It is possible that, based on the results of such investigation,
additional actions
18
<PAGE> 24
could be required, in which case the costs could materially increase. See
"Business -- Environmental Matters."
LEGAL PROCEEDINGS
Although the Company may be subject to litigation from time to time in the
ordinary course of its business, it is not a party to any pending or threatened
legal proceedings that it believes will have a material impact on its business.
The risks, costs and uncertainties associated with litigation, include legal
fees and expenses, disruption of executive schedules and focus, the possibility
that the Company may be called upon to satisfy a judgment and the possibility
that the Company will be unable to realize proceeds from any judgment it may
obtain.
19
<PAGE> 25
ACQUISITION TRANSACTIONS
Pursuant to the Stock Purchase Agreement, SH Group, a corporation formed by
AIP in contemplation of the Acquisition, acquired all of the issued and
outstanding capital stock of Old Holdings from the Sellers, in a purchase
accounting transaction, for an aggregate purchase price (including the repayment
of outstanding indebtedness of the Company, transaction expenses of
approximately $8.6 million and an estimated purchase price adjustment of
approximately $1.1 million) of approximately $175.2 million, subject to
post-closing adjustments. Immediately after the consummation of the Acquisition,
the Mergers were consummated. Immediately after the consummation of the Mergers,
the Company became a direct wholly-owned subsidiary of SH Group.
In order to finance the Acquisition and to repay the existing indebtedness
of the Company, (i) AIP and certain members of management contributed the Common
Equity Contribution, (ii) SH Group contributed the proceeds from the issuance
and sale of the Old Debentures, (iii) the Company (as successor by merger to
Merger Sub) entered into the New Credit Agreement and borrowed all term loans
available and approximately $4.9 million of revolving loans, (iv) the Company
(as successor by merger to Merger Sub) issued and sold $100.0 million aggregate
principal amount of Old Notes and (v) the Company loaned approximately $66.0
million of the net proceeds from the issuance and sale of the Old Notes and the
New Credit Agreement to SH Group pursuant to the Intercompany Note to pay part
of the purchase price of the Acquisition. Shortly after the consummation of the
Acquisition, the Company forgave the Intercompany Note.
The Stock Purchase Agreement contains provisions customary for transactions
of this size and type, including representations and warranties with respect to
the condition and operations of the business, covenants with respect to the
conduct of the business prior to the consummation of the Acquisition and the
receipt of all material consents and approvals. The Stock Purchase Agreement
provides that, subject to certain time and dollar limitations, the Sellers shall
indemnify the Company and SH Group for liabilities arising from inaccuracies of
representations and warranties and breaches of covenants or agreements contained
in the Stock Purchase Agreement. With respect to certain matters relating to
environmental liabilities, see "Business--Environmental Matters."
AIP is a private investment fund based in San Francisco and New York which,
together with its affiliates, has committed capital of approximately $800
million. AIP does not seek to play a role in daily management; rather, AIP seeks
to provide its portfolio companies with access to the management expertise of
its operating partners, all of whom are former Chief Executive Officers of
Fortune 500 corporations, through active board-level participation as well as
on-call advice when desired. Following consummation of the Acquisition, Robert
Purdum, an operating partner of AIP and former Chairman of Armco, Inc., became
the Company's Non-Executive Chairman of the Board.
20
<PAGE> 26
USE OF PROCEEDS
USE OF PROCEEDS OF THE NEW DEBENTURES
The Exchange Offer is intended to satisfy certain obligations of SH Group
under the Registration Rights Agreement. SH Group will not receive any proceeds
from the issuance of the New Debentures offered hereby. In consideration for
issuing the New Debentures as contemplated in this Prospectus, SH Group will
receive, in exchange, Old Debentures in like principal amount. The form and
terms of the New Debentures are substantially identical in all material respects
to the form and terms of the Old Debentures, except as otherwise described
herein under "The Exchange Offer -- Terms of the Exchange." The Old Debentures
surrendered in exchange for the New Debentures will be retired and canceled and
cannot be reissued. Accordingly, issuance of the New Debentures will not result
in any increase in the outstanding indebtedness of SH Group.
USE OF PROCEEDS OF THE OLD DEBENTURES
The gross proceeds of approximately $15.0 million from the sale of the Old
Debentures, together with the borrowings under the New Credit Agreement, the
Common Equity Contribution, and the proceeds from the issuance of the Old Notes
were used to finance the Acquisition Transactions and to pay related fees and
expenses and certain expenses of the Sellers (including discounts and
commissions and estimated expenses of the Offering). See "Acquisition
Transactions."
The following table sets forth the estimated sources and uses of funds as
if the Acquisition Transactions, including the application of the proceeds
therefrom, occurred and were completed on April 4, 1998.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Total Sources:
Existing cash............................................. $ 260
Borrowings under New Credit Agreement(a).................. 34,907
Old Notes................................................. 100,000
Old Debentures............................................ 15,016
Common Equity Contribution(b)............................. 25,000
--------
Total Sources..................................... $175,183
========
Total Uses:
Purchase Price of Acquisition(c).......................... $165,451
Estimated purchase price adjustment(d).................... 1,130
Estimated transaction fees and expenses................... 8,602
--------
Total Uses........................................ $175,183
========
</TABLE>
- ------------------------------
(a) The New Credit Agreement provides for a $30 million Term Loan Facility (as
defined herein) and a $20 million Revolving Credit Facility (as defined
herein). All available amounts under the Term Loan Facility and
approximately $4.9 million under the Revolving Credit Facility were drawn at
closing. The Revolving Credit Facility is expected to be used to finance
working capital and capital expenditures. See "Description of Other
Indebtedness."
(b) Includes the value of management's rollover interest of approximately $1.7
million.
(c) Estimate of amounts payable to the Sellers under the Stock Purchase
Agreement and approximately $53.5 million used to repay outstanding
indebtedness of the Company.
(d) Based on preliminary findings of net working capital, as defined, at May 25,
1998.
21
<PAGE> 27
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of April 4, 1998 and of SH Group as adjusted to give effect to
the consummation of the Acquisition Transactions, including the sale of the Old
Debentures, as of such date. The following table should be read in conjunction
with the "Unaudited Pro Forma Condensed Consolidated Financial Data" and the
related notes thereto included elsewhere herein and the "Selected Consolidated
Historical Financial Data" and the related notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
AS OF APRIL 4, 1998
-------------------------
COMPANY SH GROUP
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and short-term cash investments........................ $ 276 $ 16
======= ========
Debt:
Existing credit facility.................................. $53,492 $ --
New Revolving Credit Facility(a).......................... -- 4,907
New Term Loan Facility.................................... -- 30,000
Old Notes................................................. -- 100,000
Old Debentures............................................ -- 15,016
------- --------
Total debt............................................. 53,492 149,923
Redeemable common stock..................................... 1,366 --
Shareholders' equity (deficit).............................. (2,008) 18,169
------- --------
Total capitalization $52,850 $168,092
======= ========
</TABLE>
- ------------------------------
(a) The Revolving Credit Facility provides for up to $20 million of borrowing
availability, $4.9 million of which is expected to be drawn at closing. See
"Description of Other Indebtedness."
22
<PAGE> 28
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Condensed Consolidated Financial Data
have been derived by the application of pro forma adjustments to the Company's
historical financial data included elsewhere herein. The pro forma consolidated
statements of operations for the periods presented give effect to the
Acquisition Transactions as if such Acquisition Transactions were consummated as
of the beginning of each of the periods presented. The pro forma consolidated
balance sheet gives effect to the Acquisition Transactions as if such
Acquisition Transactions had occurred as of April 4, 1998. The adjustments are
described in the accompanying notes and reflect a preliminary allocation of the
purchase price. The Unaudited Pro Forma Condensed Consolidated Financial Data do
not purport to represent what SH Group's results of operations or financial
position actually would have been if the Acquisition Transactions had been
consummated on the date indicated, or what such results will be as of any future
date or for any future period. The Unaudited Pro Forma Condensed Consolidated
Financial Data should be read in conjunction with the "Selected Consolidated
Historical Financial Data" and the related notes thereto included elsewhere
herein.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JANUARY 3, 1998
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
COMPANY --------------------- SH GROUP
HISTORICAL COMPANY SH GROUP PRO FORMA
---------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales....................................... $72,983 $ -- $ -- $ 72,983
Cost of goods sold.............................. 46,448 2,479(a) -- 48,927
------- -------- ------- --------
Gross profit............................... 26,535 (2,479) -- 24,056
Selling, general and administrative
expenses(b)................................... 8,489 150(c) -- 8,639
Management fees................................. 475 420(d) -- 895
Amortization of goodwill........................ 729 1,894(e) (23)(e) 2,600
------- -------- ------- --------
Operating income........................... 16,842 (4,943) 23 11,922
Other income (expense):
Interest income............................... 136 -- -- 136
Interest expense.............................. (5,284) (9,004)(f) (2,199)(f) (16,487)
Other financing expense....................... (212) -- -- (212)
------- -------- ------- --------
Income (loss) before income taxes............... 11,482 (13,947) (2,176) (4,641)
Income tax expense(benefit)................ 4,015 (3,955)(g) (836)(g) (776)
------- -------- ------- --------
Income (loss) before extraordinary item......... $ 7,467 $ (9,992) $(1,340) $ (3,865)
======= ======== ======= ========
Adjusted EBITDA(h).............................. $22,841 $ -- $ -- $ 22,841
======= ======== ======= ========
Net cash flow provided by operating
activities.................................... $ 9,960 $ -- $ -- $ 9,960
======= ======== ======= ========
</TABLE>
See accompanying notes to the unaudited pro forma statements of operations
and "Selected Consolidated Historical Financial Data."
23
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FISCAL QUARTER ENDED APRIL 4, 1998
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
COMPANY --------------------- SH GROUP
HISTORICAL COMPANY SH GROUP PRO FORMA
---------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales......................................... $19,266 $ -- $ -- $19,266
Cost of goods sold................................ 11,930 584(a) -- 12,514
------- ------- ----- -------
Gross profit................................. 7,336 (584) -- 6,752
Selling, general and administrative expenses(b)... 2,178 38(c) -- 2,216
Management fees................................... 68 156(d) -- 224
Amortization of goodwill.......................... 182 474(e) (6)(e) 650
------- ------- ----- -------
Operating income............................. 4,908 (1,252) 6 3,662
Other income (expense):
Interest income................................. 17 -- -- 17
Interest expense................................ (1,027) (2,479)(f) (550)(f) (4,056)
Other financing costs........................... (50) -- -- (50)
------- ------- ----- -------
Income (loss) before income taxes................. 3,848 (3,731) (544) (427)
Income tax expense (benefit).................... 1,347 (1,053)(g) (209)(g) 85
------- ------- ----- -------
Net income (loss)................................. $ 2,501 $(2,678) $(335) $ (512)
======= ======= ===== =======
Adjusted EBITDA(h)................................ $ 6,149 $ -- $ -- $ 6,149
======= ======= ===== =======
Net cash flow used in operating activities........ $ (258) $ -- $ -- $ (258)
======= ======= ===== =======
</TABLE>
See accompanying notes to the unaudited pro forma statements of operations
and "Selected Consolidated Historical Financial Data."
24
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(a) The following table summarizes the pro forma adjustments to cost of
goods sold:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL QUARTER
ENDED ENDED
JANUARY 3, 1998 APRIL 4, 1998
--------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Pro forma depreciation of property, plant and equipment
(estimated useful lives ranging from six to thirty
years)................................................... $ 5,071 $ 1,268
Pro forma amortization of identifiable intangible assets
(estimated useful lives of thirteen years)............... 959 240
Less: Historical depreciation expense...................... (3,551) (924)
------- -------
$ 2,497 $ 584
======= =======
</TABLE>
(b) The pro forma financial statements do not include non-recurring charges
of approximately $3.6 million of fees associated with identifying a
buyer, $3.8 million of bonuses to management and $1.1 million of fees
associated with bridge financing.
(c) Represents director's fees.
(d) Represents the difference between the new subordinated management fee
and the historical management fee.
(e) Represents the estimated increase in amortization expense on assignment
of purchase price to goodwill which is amortized over forty years.
(f) The following table reflects the pro forma adjustments to interest
expense:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL QUARTER
ENDED ENDED
JANUARY 3, 1998 APRIL 4, 1998
--------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Old Notes and New Credit Agreement at rates ranging from
8.0% to 10.625%..........................................
$13,668 $ 3,354
Senior Discount Debentures.................................
2,135 534
Amortization of debt issuance costs........................
684 168
Less: Historical interest expense..........................
(5,284) (1,027)
------- -------
Total............................................
$11,203 $ 3,029
======= =======
</TABLE>
(g) Reflects the adjustment to income tax expense to arrive at pro forma
income tax expense (benefit) equal to pro forma pre-tax income (loss)
plus non-deductible goodwill expense multiplied by the effective rate
of 38%.
(h) Adjusted EBITDA, as presented herein, represents operating income plus
depreciation, amortization and items which management believes to be
unusual, including, but not limited to, management and transaction fees
paid to BCC and AIP, director's fees, non-recurring restructuring
charges, supplemental bonus compensation, compensation expense for
certain eliminated management positions and incremental increases in
obsolete inventory reserves. EBITDA represents operating income plus
depreciation and amortization. EBITDA and Adjusted EBITDA are not
intended to represent cash flow from operations as defined by GAAP and
should not be used as an alternative to net income as an indicator of
operating performance or to cash flows as a measure of liquidity.
EBITDA and Adjusted EBITDA are not defined in the same manner as
"Consolidated EBITDA" in the Indenture or in the "Description of
Debentures" herein. See "Description of Debentures -- Certain
Definitions." EBITDA and Adjusted EBITDA are included in the Prospectus
as it is a basis
25
<PAGE> 31
upon which the Company assesses its financial performance, and certain
covenants in the Company's borrowing arrangements are tied to similar
measures. EBITDA and Adjusted EBITDA, as presented, represent a useful
measure of assessing the Company's ongoing operating activities without
the impact of financing activities and unusual items. While EBITDA and
Adjusted EBITDA are frequently used as a measure of operations and the
ability to meet debt service requirements, it is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation.
26
<PAGE> 32
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF APRIL 4, 1998
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
COMPANY --------------------- SH GROUP
HISTORICAL COMPANY SH GROUP PRO FORMA
---------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 276 $ (260)(b) $ -- $ 16
Accounts receivable, net................. 11,115 -- -- 11,115
Inventories.............................. 15,071 4,512(a) -- 19,583
Prepaid expenses and other assets........ 50 -- -- 50
------- -------- -------- --------
Total current assets.................. 26,512 4,252 -- 30,764
Property, plant and equipment, net......... 16,298 24,517(a) -- 40,815
Intangibles and other assets, net.......... 22,355 99,398(a) -- 121,753
Other...................................... 1,229 2,001(a) -- 3,230
------- -------- -------- --------
Total assets.......................... $66,394 $130,168 $ -- $196,562
======= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable......................... $ 2,194 $ -- $ -- $ 2,194
Accrued liabilities...................... 3,130 281(a) -- 3,411
Current maturities of long-term debt..... 6,500 (5,500)(b) -- 1,000
Income taxes payable..................... 1,289 -- -- 1,289
Deferred taxes........................... 670 53(a) -- 723
------- -------- -------- --------
Total current liabilities............. 13,783 (5,166) -- 8,617
Long-term debt, excluding current
maturities............................... 46,992 86,915(b) 15,016(b) 148,923
Deferred taxes............................. 1,120 14,592(a) -- 15,712
Other noncurrent liabilities............... 5,141 -- -- 5,141
------- -------- -------- --------
Total liabilities..................... 67,036 96,341 15,016 178,393
Redeemable common stock.................... 1,366 (1,366)(d) -- --
Total shareholders' equity (deficit)....... (2,008) 35,193(c) (15,016)(c) 18,169
------- -------- -------- --------
Total liabilities and shareholders'
equity (deficit).................... $66,394 $130,168 $ -- $196,562
======= ======== ======== ========
</TABLE>
See accompanying notes to the unaudited pro forma balance sheet.
27
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
a) The acquisition will be accounted for as a purchase, applying the
provisions of Accounting Principles Board Opinion No. ("APB") 16. The purchase
cost will be allocated to the acquired assets and liabilities based on their
relative fair values at the closing date, based on valuations and other studies
which are not yet complete. Furthermore, the aggregate purchase price is subject
to adjustment as set forth in the Stock Purchase Agreement. Accordingly, the
excess of the purchase cost over the book value of the net assets acquired has
not yet been allocated to individual assets and liabilities. The Company does
not expect the final allocation to differ significantly from amounts reflected
in the pro forma presentation.
The purchase cost and preliminary allocation of the excess of cost over the
net book value of assets acquired is as follows (dollars in thousands):
<TABLE>
<S> <C>
Purchase cost pursuant to the Stock Purchase Agreement:
Enterprise value..................................... $164,150
Add: Compensation tax benefit........................ 1,301
Add: Estimated purchase price adjustment............. 1,130
Less: Existing indebtedness to be repaid............. (53,492)
Less: Unpaid seller expenses......................... (7,457)
Less: Value of management's rollover securities...... (1,655)
--------
Purchase of stock of Old Holdings...................... 103,977
Transaction fees and expenses.......................... 8,602
--------
Total purchase cost.................................... 112,579
Book value of redeemable common stock................ 1,366
Book value of net assets acquired (deficit).......... (2,008)
--------
Excess of purchase price over the net book value of
assets acquired..................................... $113,221
========
Allocated to:
Increase in value of property, plant and equipment... $ 24,517
Increase in value of inventory....................... 4,512
Increase in pension cost to the projected benefit
obligation.......................................... 2,001
Increase in value of identifiable intangible
assets.............................................. 11,983
Elimination of existing goodwill..................... (22,355)
Liabilities assumed for unpaid seller expenses....... (7,457)
Increase in environmental liability accrual.......... (281)
Adjustment of deferred taxes for step-up in asset
bases............................................... (15,063)
Deferred debt issuance costs......................... 5,900
Bridge loan financing costs.......................... 1,100
Adjustment to equity for carryover stockholder
basis............................................... 4,494
Remaining excess purchase cost over the net book
value of assets acquired............................ 103,870
--------
Total allocation....................................... $113,221
========
Adjustments to intangibles include:
Excess of purchase cost over the net book value of
assets acquired..................................... $103,870
Adjustment to increase value of identifiable
intangible assets................................... 11,983
Deferred debt issuance costs......................... 5,900
Less: Goodwill written off........................... (22,355)
--------
$ 99,398
========
</TABLE>
28
<PAGE> 34
<TABLE>
<S> <C>
Adjustments to deferred income taxes:
Adjustment of deferred taxes for step-up in asset
bases............................................... $(15,063)
Tax effect of bridge loan financing costs............ 418
--------
Total................................................ (14,645)
========
Current liability.................................... (53)
--------
Noncurrent liability................................. $(14,592)
========
b) The net effect on cash and cash equivalents reflects the
following:
TOTAL SOURCES:
Existing cash.......................................... $ 260
New Credit Agreement proceeds.......................... 34,907
Old Notes.............................................. 100,000
AIP Common Equity Contribution......................... 23,345
Senior Discount Debentures............................. 15,016
--------
$173,528
========
TOTAL USES:
Total assets acquired.................................. $103,977
Payment of seller expenses............................. 7,457
Repayment of existing debt............................. 53,492
Estimated transaction fees and expenses................ 8,602
--------
$173,528
========
c) Represents the net change in stockholders' equity as a
result of the Acquisition Transactions:
AIP equity contribution................................ $ 23,345
Adjustment to equity for carryover stockholder basis... (4,494)
Write-off bridge loan financing expenses, net of income
taxes................................................. (682)
--------
Pro forma stockholders' equity......................... 18,169
Net book value of assets acquired (deficit)............ (2,008)
--------
Pro forma adjustments to stockholders' equity.......... $ 20,177
========
d) Represents elimination of redeemable common stock sold
in the transaction.
</TABLE>
29
<PAGE> 35
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated historical and
financial, operating, other and balance sheet data of the Company for each of
the fiscal years in the five-year period ended January 3, 1998, derived from the
audited Consolidated Financial Statements of the Company and the related notes
thereto included elsewhere herein. The selected consolidated financial data for
the fiscal quarters ended April 4, 1998 and April 5, 1997 have been derived from
the Unaudited Consolidated Financial Statements of the Company, and include, in
the opinion of management, all adjustments necessary to present fairly the data
for such periods. The results for the fiscal quarter ended April 4, 1998 are not
necessarily indicative of the results to be expected for the fiscal year 1998 or
for any future period. The data presented below should be read in conjunction
with the Consolidated Financial Statements and the related notes thereto, the
unaudited condensed consolidated financial statements and notes thereto included
elsewhere herein, the other financial information included elsewhere herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." No selected financial data is presented for SH Group as that entity
was incorporated on April 14, 1998 to effectuate the acquisition of Old
Holdings, the ultimate parent of the Company.
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED
FISCAL YEAR -------------------
----------------------------------------------- APRIL 4, APRIL 5,
1997 1996 1995 1994 1993 1998 1997
------- ------- ------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $72,983 $64,484 $68,118 $68,302 $67,115 $ 19,266 $18,606
Cost of goods sold........................... 46,448 44,074 47,706 47,996 46,389 11,930 12,081
------- ------- ------- ------- ------- -------- -------
Gross profit............................... 26,535 20,410 20,412 20,306 20,726 7,336 6,525
Selling, general and administrative
expenses................................... 8,489 8,875 8,667 8,198 7,712 2,178 2,231
Management fees.............................. 475 725 275 275 275 68 268
Amortization of goodwill..................... 729 729 729 936 943 182 182
Restructuring charges(a)..................... -- -- 821 -- -- -- --
------- ------- ------- ------- ------- -------- -------
Operating income........................... 16,842 10,081 9,920 10,897 11,796 4,908 3,844
Interest expense, net........................ (5,148) (5,844) (6,307) (7,061) (6,672) (1,010) (1,459)
Other financing expense...................... (212) -- -- -- (112) (50) (175)
------- ------- ------- ------- ------- -------- -------
Income before taxes, extraordinary item and
cumulative effect of change in
accounting............................... 11,482 4,237 3,613 3,836 5,012 3,848 2,210
Income tax expense........................... 4,015 1,638 1,628 1,788 1,916 1,347 773
------- ------- ------- ------- ------- -------- -------
Income before extraordinary item and
cumulative effect of change in
accounting............................... 7,467 2,599 1,985 2,048 3,096 2,501 1,437
Extraordinary item(b)........................ (2,753) -- -- -- -- -- (2,753)
Effect of change in accounting(c)............ -- -- 855 -- -- -- --
------- ------- ------- ------- ------- -------- -------
Net income (loss).......................... $ 4,714 $ 2,599 $ 1,130 $ 2,048 $ 3,096 $ 2,501 $(1,316)
======= ======= ======= ======= ======= ======== =======
OPERATING AND OTHER DATA:
Net cash provided by (used in)
operating activities....................... $ 9,960 $11,236 $ 7,612 $ 9,623 $10,857 $ (258) $(1,345)
Net cash provided by (used in)
investing activities....................... (2,529) (2,767) (3,357) (2,784) (3,174) (537) (416)
Net cash provided by (used in)
financing activities....................... (11,697) (4,700) (5,000) (10,262) (7,341) 692 (2,537)
Adjusted EBITDA(d)........................... 22,841 17,523 16,906 16,825 17,512 6,149 5,697
Adjusted EBITDA margin(e).................... 31.3% 27.2% 24.8% 24.6% 26.1% 31.9% 30.6%
Depreciation and amortization................ $ 4,409 $ 6,019 $ 6,096 $ 5,859 $ 5,728 $ 1,139 $ 1,337
Capital expenditures......................... 2,558 2,809 3,455 2,839 3,200 618 416
Ratio of earnings to fixed charges(f)........ 3.2x 1.7x 1.6x 1.5x 1.7x 4.7x 2.5x
BALANCE SHEET DATA (AT PERIOD END):
Net working capital(g)....................... $14,968 $10,235 $11,169 $13,401 $15,530 $ 18,953 $17,046
Net property, plant and equipment............ 16,685 17,756 20,106 21,911 24,050 16,298 17,229
Total assets................................. 64,340 68,716 68,771 71,890 79,072 66,394 64,909
Long-term debt (including current portion)... 52,800 50,000 52,700 59,700 70,000 53,492 61,875
Redeemable common stock...................... 1,366 1,350 1,350 1,350 1,316 1,366 1,366
Shareholders' equity (deficit)............... (4,523) (1,309) (3,911) (5,025) (7,042) (2,008) (10,654)
</TABLE>
30
<PAGE> 36
- ------------------------------
(a) Includes restructuring charges of $0.8 million in 1995 related to a
reduction in the domestic workforce, closure of the Company's Canadian
operation and writedown of certain assets.
(b) Extraordinary item relates to a loss on the early extinguishment of debt,
net of taxes of $1.7 million.
(c) Includes a cumulative effect of change in method of accounting for
postretirement benefits of $0.9 million net of taxes in fiscal year 1995.
(d) Adjusted EBITDA, as presented herein, represents operating income plus
depreciation, amortization and items which management believes to be
unusual, including, but not limited to, management and transaction fees paid
to BCC and AIP, non-recurring restructuring charges, supplemental bonus
compensation, compensation expense for certain eliminated management
positions and incremental increases in obsolete inventory reserves. EBITDA
represents operating income plus depreciation and amortization. The
following is a summary of historical adjustments to operating income:
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED
FISCAL YEAR ---------------------
----------------------------------------------- APRIL 4, APRIL 5,
1997 1996 1995 1994 1993 1998 1997
------- ------- ------- ------- ------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating income........................................ $16,842 $10,081 $ 9,920 $10,897 $11,796 $4,908 $3,844
Depreciation............................................ 3,550 5,118 5,161 4,924 4,785 924 943
Amortization............................................ 729 729 729 729 656 182 182
------- ------- ------- ------- ------- ------ ------
EBITDA................................................. 21,121 15,928 15,810 16,550 17,237 6,014 4,969
Unusual items:
Management and transaction fees........................ 475 725 275 275 275 68 268
Non-recurring restructuring charges.................... -- -- 821 -- -- -- --
Supplemental bonus compensation........................ 775 870 -- -- -- -- 185
Compensation expense................................... 260 -- -- -- -- 67 65
Incremental increases in obsolete inventory reserves... 210 -- -- -- -- -- 210
------- ------- ------- ------- ------- ------ ------
Adjusted EBITDA...................................... $22,841 $17,523 $16,906 $16,825 $17,512 $6,149 $5,697
======= ======= ======= ======= ======= ====== ======
</TABLE>
EBITDA and Adjusted EBITDA are not intended to represent cash flow from
operations as defined by GAAP and should not be used as an alternative to
net income as an indicator of operating performance or to cash flows as a
measure of liquidity. EBITDA and Adjusted EBITDA are not defined in the same
manner as "Consolidated EBITDA" in the Indenture or in the "Description of
Debentures" herein. See "Description of Debentures -- Certain Definitions."
EBITDA and Adjusted EBITDA are included in the Prospectus as it is a basis
upon which the Company assesses its financial performance, and certain
covenants in the Company's borrowing arrangements will be tied to similar
measures. EBITDA and Adjusted EBITDA, as presented, represent a useful
measure of assessing the Company's ongoing operating activities without the
impact of financing activities and unusual items. While EBITDA and Adjusted
EBITDA are frequently used as a measure of operations and the ability to
meet debt service requirements, it is not necessarily comparable to other
similarly titled captions of other companies due to potential
inconsistencies in the method of calculation.
(e) Adjusted EBITDA as a percentage of net sales.
(f) For purposes of this computation, fixed charges consist of interest expense
and amortization of deferred financing fees. Earnings consist of income
before income taxes, extraordinary item and cumulative effect of changes in
accounting principles, plus fixed charges. Pro forma fixed charges exceeded
pro forma earnings by $4.6 million for the year ended January 3, 1998 and by
$0.4 million for the quarter ended April 4, 1998.
(g) Net working capital represents (i) current assets excluding cash less (ii)
current liabilities excluding the current portion of long-term debt.
31
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Historical Financial Data" and the Consolidated Financial
Statements and the related notes thereto included elsewhere herein.
GENERAL
The Company, founded in 1898, is one of the world's leading manufacturers
of precision textile loom accessories. The Company manufactures and markets
virtually all of the replaceable wear parts necessary to operate a commercial
weaving loom including heddles, dropwires, harness frames, reeds and shuttles
and bobbins. In addition to textile loom accessories, the Company also
manufactures precision rolled, heat treated, bare, ferrous and nonferrous and
tinned flat wire used in the electronics, automotive, solar power and other
industries. The Company has achieved adjusted EBITDA margins exceeding 24% in
each of the last ten years. For the 52-week period ended April 4, 1998, the
Company had net sales, Adjusted EBITDA and operating income of $73.6 million,
$23.3 million and $17.9 million, respectively.
In November 1995, after a comprehensive review of the business, the Company
initiated a cost reduction plan which was completed in December 1996. As part of
the cost reduction plan, the Company eliminated 120 full-time positions from its
work force including 36 direct labor positions and 84 indirect and
administrative positions. The Company's headcount reduction has not resulted in
any unforeseen effects on operations, and the Company has not found it necessary
to replace any of the eliminated positions. In addition, the Company also
undertook other cost savings initiatives in its manufacturing and administrative
functions, including aggressively renegotiating certain raw material supply
contracts, reconfiguring manufacturing space, outsourcing certain manufacturing
functions and modifying certain employee benefit programs. The Company's
financial results for fiscal 1997 represent the first full fiscal year to
benefit from this cost-reduction plan. Primarily as a result of these cost
savings initiatives, gross profit margins increased to 36.4% in fiscal 1997 from
31.7% in fiscal 1996 and 30.0% in 1995. In addition, selling, general and
administrative expenses ("SG&A") as a percentage of net sales decreased to 11.6%
in fiscal 1997 from 13.8% in fiscal 1996 and 12.7% in 1995.
In 1996, output of woven fabrics in the United States declined to 15.8
billion square yards, compared to an average annual output of 16.3 billion
square yards for the prior four years. This textile industry recession, which
began in 1995, was caused primarily by record high cotton prices as a result of
flooding and pest problems in the key cotton producing nations of India,
Pakistan and China. Consequently, many textile mills attempted to reduce non-raw
material costs by delaying the purchase of new weaving looms and loom
accessories. Despite such industry-related pressure on sales, as a result of the
Company's cost reductions program and related initiatives, the Company improved
its gross margin and operating income in fiscal 1996.
As weaving technology has evolved, and faster, more efficient, air-jet and
water-jet looms replace older, slower shuttle and bobbin looms, the demand for
shuttles and bobbins has decreased while demand for accessories of newer
technology looms has increased. The Company expects this trend to continue as
shuttle looms continue to be replaced. Commensurate with this decrease, the
Company expects net sales of shuttle and bobbins to decrease while net sales
related to newer technologies take their place. Net sales, excluding shuttle and
bobbin sales, have increased since fiscal 1993 from $61.0 million to $70.4
million while net sales of shuttles and bobbins during the same period decreased
from $6.1 million in fiscal 1993 to $2.6 million. Shuttles and bobbins
contributed $0.1 million to gross profit in fiscal 1997.
BASIS OF PRESENTATION
The Company's fiscal year ended January 3, 1998 was 53 weeks in duration
compared to 52 weeks for the fiscal year ended December 28, 1996. As a result,
the Company's results from operations for the fiscal year ended January 3, 1998
will include an additional week of financial results.
32
<PAGE> 38
The following table summarizes the Company's historical results of
operations (in millions of dollars) and as a percentage of net sales for the
fiscal years 1997, 1996 and 1995 and the fiscal quarters ended April 4, 1998 and
April 5, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $73.0 100.0% $64.5 100.0% $68.1 100.0%
Cost of goods sold........... 46.4 63.6 44.1 68.3 47.7 70.0
Gross profit................. 26.5 36.4 20.4 31.7 20.4 30.0
SG&A......................... 8.5 11.6 8.9 13.8 8.7 12.7
Operating income............. 16.8 23.1 10.1 15.6 9.9 14.6
Net income (loss)............ 4.7 6.4 2.6 4.0 1.1 1.6
Adjusted EBITDA.............. 22.8 31.3 17.5 27.2 16.9 24.8
<CAPTION>
FISCAL QUARTER ENDED
-----------------------------------------
APRIL 4, 1998 APRIL 5, 1997
------------------- -------------------
<S> <C> <C> <C> <C>
Net sales.................... $19.3 100.0% $18.6 100.0%
Cost of goods sold........... 11.9 61.9 12.1 64.9
Gross profit................. 7.3 38.1 6.5 35.1
SG&A......................... 2.2 11.3 2.2 12.0
Operating income............. 4.9 25.5 3.8 20.7
Net income (loss)............ 2.5 13.0 (1.3) (7.0)
Adjusted EBITDA.............. 6.1 31.9 5.7 30.6
</TABLE>
The costs of goods sold as a percentage of net sales partially decreased in
fiscal 1997 as compared to earlier years because certain fixed assets were fully
depreciated.
COMPARISON OF RESULTS OF OPERATIONS
FISCAL QUARTER ENDED APRIL 4, 1998 COMPARED TO FISCAL QUARTER ENDED APRIL 5,
1997
Net Sales. Net sales increased to $19.3 million for the first quarter of
1998 from $18.6 million for the first quarter of 1997, an increase of 3.5%. This
increase is primarily attributable to increased sales of rolled products which
increased 23% to $2.7 million. Due primarily to a decline in international sales
caused by the economic and monetary crisis in Asia, textile product sales were
flat at $16.2 million. The decline in international textile sales was offset by
an increase of $0.4 million in domestic sales.
Gross Profit. Gross profit increased to $7.3 million during the first
quarter of 1998 from $6.5 million in the first quarter of 1997, an increase of
12.4%. As a percentage of net sales, gross profit margin increased to 38.1% from
35.1%. The increase in both gross profit and gross profit margin as a percentage
of sales is due primarily to the increase in sales of domestic textile products
and rolled products (both generally carrying higher margins than products sold
internationally), as well as cost savings derived from improved purchasing of
raw materials used in the production of rolled products.
Selling, General and Administrative Expenses. SG&A remained flat at $2.2
million for the first quarter of 1998 and 1997. As a percentage of net sales,
SG&A decreased to 11.3% from 12.0%. This decrease was due primarily to lower
executive bonuses of approximately $0.4 million, partially offset by increases
associated with the Company's year 2000 computer project, which is expected to
increase SG&A for 1998 by approximately $0.3 million.
Operating Income. Operating income increased to $4.9 million for the first
quarter of 1998 from $3.8 million in the first quarter of 1997, an increase of
27.7%. This increase in operating income resulted from the increase in net sales
and gross profit. As a percentage of net sales, operating income increased to
25.5% from 20.7%.
Net Income. Net income increased to $2.5 million for the quarter ended
April 4, 1998 from a net loss of $1.3 million from the prior year comparable
quarter. The increase in net income is attributable to the factors noted above.
Adjusted EBITDA. Adjusted EBITDA increased to $6.1 million in the first
quarter of 1998 from $5.7 million in the first quarter of 1997, an increase of
7.9%.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Net Sales. Net sales increased to $73.0 million in 1997 from $64.5 million
in 1996, an increase of 13.2%. The growth in net sales was primarily
attributable to increased sales of loom accessories driven by the emergence of
the U.S. textile industry from the recession of 1996. Of the Company's loom
accessory products, heddle and dropwire sales increased 12.4%, frame sales
increased 13.2% and reed sales increased 8.1%. The
33
<PAGE> 39
growth in net sales of loom accessories was partially offset by a 6.4% decrease
in shuttle sales as older-technology shuttle-type looms continued to be phased
out. Further contributing to the Company's strong growth in net sales, sales of
rolled products increased to $9.0 million in 1997 from $7.4 million in 1996, an
increase of 21.9%.
Gross Profit. Gross profit increased to $26.5 million in 1997 from $20.4
million in 1996, an increase of 30.0%. As a percentage of net sales, the
Company's gross profit margin increased to 36.4% from 31.7%. The increase in
both gross profit and gross profit margin was due primarily to the
implementation of the cost reduction plan which was implemented between August
1995 and December 1996 and efficiency gains resulting from increased unit
production. In addition, gross profit margin increased as a result of the
Company's shift in product mix towards more customized, higher margin loom
accessories and the reduction of depreciation expense associated with certain
assets which became fully depreciated in 1996.
Selling, General and Administrative Expenses. SG&A decreased from $8.9
million for 1996 to $8.5 million for 1997. As a percentage of net sales, SG&A
decreased to 11.6% from 13.8%. The improvement in SG&A as a percentage of net
sales primarily stems from the implementation of the Company's cost reduction
plan.
Operating Income. Operating income increased to $16.8 million in 1997 from
$10.1 million in 1996, an increase of 67.1%, primarily as a result of the
increase in net sales, as well as the improvement in gross profit margin. As a
percentage of net sales, operating income increased to 23.1% from 15.6%.
Net Income. Net income increased to $4.7 million in 1997 from $2.6 million
in 1996, an increase of 80.8%. The increase is a result of the items noted
above.
Adjusted EBITDA. Adjusted EBITDA increased to $22.8 million in 1997 from
$17.5 million in 1996, an increase of 30.3%.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net Sales. Net sales decreased to $64.5 million in 1996 from $68.1 million
in 1995, a decrease of 5.3%. The decrease in net sales of loom accessories can
be attributed largely to the difficulties of the textile industry which began in
1995 and continued through 1996. Net sales of heddles declined 3.2%, frame sales
declined by approximately 9.2% although frame export sales increased due
primarily to an increase in higher-priced, higher-margin section frame sales.
Reed sales increased by 2.4% due to slight increases in both units and prices,
primarily attributable to a 8.0% increase in tunnel reed sales. Shuttle sales
declined as older-technology shuttle-type looms continued to be phased out.
Rolled product sales decreased to $7.4 in 1996 from $8.4 in 1995, a decline of
11.9% due primarily to two key customers decreasing inventory levels.
Gross Profit. Gross profit was flat at $20.4 million in 1995 and 1996. As a
percentage of net sales, gross profit increased to 31.7% from 30.0%. The
increase in gross profit margin was due primarily to the initiation of the
Company's cost-reduction plan in August 1995 which eliminated overhead and
direct labor positions and established tight controls over manufacturing costs.
The gross margin increases achieved through the cost-reduction plan were
partially offset by a decrease in heddle export prices.
Selling, General and Administrative Expenses. SG&A increased to $8.9
million in 1996 from $8.7 million in 1995, an increase of 2.4%. As a percentage
of net sales, SG&A increased to 13.8% from 12.7%. This increase is related to
performance bonuses paid during the year of approximately $1.3 million. No such
bonuses were paid in 1995. Excluding these bonuses, SG&A in 1996 would have been
$7.6 million, a decrease of $1.1 million, due primarily to the Company's
cost-reduction plan.
Operating Income. Operating income increased to $10.1 million in 1996 from
$9.9 million in 1995, an increase of 1.6%. Included in 1995 operating income was
a one-time restructuring charge of $0.8 million related to a reduction of the
U.S. workforce, closure of the Company's Canadian operation and writedown of
certain assets. In addition, management fees paid to BCC increased to $0.7
million in 1996 from $0.3 million in 1995. Excluding the effects of these
charges, operating income decreased to $10.8 million in 1996 from $11.0 million
in 1995, a decrease of $0.2 million or 1.9%.
34
<PAGE> 40
Net Income. Net income increased to $2.6 million in 1996 from $1.1 million
in 1995, an increase of $1.5 million. The increase is attributable to the
factors noted above.
Adjusted EBITDA. Adjusted EBITDA increased to $17.5 million in 1996 from
$16.9 million in 1995, an increase of 3.6%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated sufficient internal cash flow from
operations to fund its operations, capital expenditures and working capital
requirements. Cash used in operating activities for the three months ended April
4, 1998 decreased to $0.3 million from $1.3 million for the three months ended
April 5, 1997. The decrease was primarily due to the improvement in net income
and reduction in working capital, partially offset by the extraordinary loss
incurred upon the early extinguishment of debt. Cash provided by operating
activities for the fiscal year ended January 3, 1998 decreased to $10.0 million
from $11.2 million for the fiscal year ended December 28, 1996. The decrease was
primarily due to an increase in working capital requirements, as the Company
increased its inventory levels due to the higher sales volume in 1997 and
reduced its accounts payable and accrued expense balances. The increase in
working capital requirements were partially offset by the increase in the
Company's net income.
Capital expenditures were $3.5 million, $2.8 million and $2.6 million in
1995, 1996 and 1997, respectively. These amounts primarily reflect cash outlays
for maintaining and upgrading the Company's manufacturing plant and equipment.
Management estimates that the Company will continue to spend, approximately $3.0
million annually to maintain and upgrade its plant and equipment.
In January 1997, the Company undertook a recapitalization led by Butler
Capital Corporation. In connection with this recapitalization, the Company
entered into a $67.5 million credit facility consisting of a $52.5 million term
loan and a $15.0 million revolving credit facility (the "Existing Credit
Facility"). Proceeds from the Existing Credit Facility were used to refinance
existing indebtedness of $55.7 million (including a prepayment penalty of $5.7
million) and pay shareholders a $7.9 million dividend.
Following the Acquisition, the Company's principal sources of liquidity
will be cash flow from operations supplemented by borrowings under the Revolving
Credit Facility.
In connection with the Acquisition, the Company issued the Old Notes for
$100.0 million in gross proceeds and entered into the Term Loan Facility and the
Revolving Credit Facility under the New Credit Agreement. The Revolving Credit
Facility provides revolving loans in an aggregate amount of up to $20.0 million
(including letters of credit). Upon closing of the Acquisition Transactions, the
Company borrowed $30.0 million available under the Term Loan Facility and
approximately $4.9 million under the Revolving Credit Facility. Proceeds to the
Company from the issuance of the Old Notes and from initial borrowings under the
New Credit Agreement were distributed to SH Group to finance, in part, the
Acquisition and the fees and expenses in connection therewith, and the repayment
of outstanding indebtedness of the Company under the Existing Credit Facility.
To provide additional financing to fund the Acquisition, SH Group raised $25.0
million through an equity contribution by AIP and its related investors,
including certain members of management and an additional $15.0 million through
the offering of Old Debentures.
Borrowings under the New Credit Agreement bear interest at a rate per annum
equal (at the Company's option) to a margin over either a base rate or LIBOR (as
defined herein). The Term Loan Facility and Revolving Credit Facility will
mature in six years. The Company's obligations under the New Credit Agreement
are guaranteed by each of the Company's direct and indirect domestic
subsidiaries. The New Credit Agreement and the guarantees thereof are secured by
a perfected first priority security interest in substantially all assets of SH
Group and its direct and indirect domestic subsidiaries and, to the extent no
adverse tax consequences would result, foreign subsidiaries.
The New Credit Agreement contains a number of covenants that, among other
things, restrict the ability of SH Group, the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, prepay other indebtedness or
amend certain debt instruments, pay dividends, create liens on assets, enter
into sale and leaseback transactions, make investments, loans or advances, make
acquisitions, engage in mergers or
35
<PAGE> 41
consolidations, make capital expenditures, change the business conducted by the
Company or its subsidiaries or engage in certain transactions with affiliates
and otherwise restrict certain corporate activities. In addition, under the New
Credit Agreement, the Company is required to maintain specified financial ratio
tests, including leverage ratios below a specified maximum and minimum interest
coverage levels. See "Risk Factors -- Restrictive Debt Covenants" and
"Description of Other Indebtedness."
The Old Notes were issued by the Company, are guaranteed by each Subsidiary
(as defined herein) of the Company, other Foreign Subsidiaries (as defined
herein), but are not guaranteed by SH Group. The Old Notes mature on June 1,
2008. Interest on the Old Notes is payable semi-annually in cash. The Old Notes
contain customary covenants and events of default, including covenants that
limit the ability of the Company and its subsidiaries to incur debt, pay
dividends and make certain investments. See "Description of Other Indebtedness."
The Debentures mature on June 1, 2009. Cash interest will not accrue on the
Debentures prior to June 1, 2003. Thereafter, interest on the Debentures will be
payable semi-annually in cash.
SH Group is a holding company, and its ability to pay interest on the
Debentures is dependent upon the receipt of dividends from its direct and
indirect subsidiaries. SH Group does not have, and may not in the future have,
any assets other than the common stock of the Company (which will be pledged to
secure the obligations of the Company and SH Group under the New Credit
Agreement). The Company and any Subsidiary of the Company (other than Foreign
Subsidiaries) are parties to the New Credit Agreement and the Note Indenture,
each of which imposes substantial restrictions on the Company's ability to pay
dividends to SH Group. See "Risk Factors -- Substantial Leverage; Liquidity."
Management believes that, upon completion of the Acquisition Transactions,
cash flow from operations and availability under the Revolving Credit Facility
will provide adequate funds for the Company's foreseeable working capital needs,
planned capital expenditures and debt service obligations. The Company's ability
to fund its operations and make planned capital expenditures, to make scheduled
debt payments, to refinance indebtedness and to remain in compliance with all of
the financial covenants under its debt agreements depends on its future
operating performance and cash flow, which in turn, are subject to prevailing
economic conditions and to financial, business and other factors, some of which
are beyond its control. See "Risk Factors."
YEAR 2000 MATTERS
Steel Heddle initiated the process of preparing its computer systems and
applications for the year 2000 in 1997. This process involves modifying or
replacing certain hardware and software maintained by the Company as well as
communicating with customers and suppliers to ensure that they are taking
appropriate actions to remedy their year 2000 issues. Management expects to have
substantially all of the systems and applications changes completed by mid-year
1999 and believes that its level of preparedness is appropriate.
The Company will utilize both internal and external resources to reprogram
or replace, and test the software for year 2000 modifications. The Company
anticipates completing the year 2000 project by mid-year 1999, which is prior to
any anticipated impact on its operating systems. The cost of the year 2000
project is estimated at $1.0 million and is being funded through operating cash
flows. Of the total project cost, approximately $0.4 million is attributable to
the purchase of new software and hardware and will be capitalized. The remaining
$0.6 million, which is being expensed as incurred, is not expected to have a
material effect on the results of operations.
The Company has initiated communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failures to remediate
their own year 2000 issue.
The costs of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates can
be achieved and actual results
36
<PAGE> 42
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information." Additionally, in
February 1998, the FASB issued SFAS No. 132 "Employer's Disclosures about
Pensions and Other Postretirement Benefits." Each of these standards is
effective in 1998 but affects only the display and disclosure of financial
information in the Company's financial statements.
SFAS No. 130 requires comprehensive income to be displayed in a financial
statement with the same prominence as net income.
SFAS No. 131 requires entities to disclose financial and detailed
information about its operating segments in a manner consistent with internal
reporting used by the Company to allocate resources and assess financial
performance. The Company has not completed the analyses required to determine
such segment disclosures or additional disclosure requirements, if any, arising
from the adoption of SFAS No. 131. The Company will adopt this statement
retroactively during the fiscal year ending January 2, 1999.
SFAS No. 132 standardizes the disclosures for pensions and other
postretirement liabilities, requires additional information on changes in the
benefit obligations and fair values of plan assets and eliminates certain other
disclosures.
37
<PAGE> 43
BUSINESS
THE COMPANY
The Company, founded in 1898, is one of the world's leading manufacturers
of precision textile loom accessories. The Company designs, manufactures and
markets virtually all of the replaceable wear parts necessary to operate a
commercial weaving loom, including heddles, dropwires, harness frames, reeds and
shuttles and bobbins, which are used to hold or guide individual yarns during
the weaving process. Textile loom accessories are highly engineered and often
customized products which require a high degree of precision to ensure a uniform
weave and to achieve desired fabric patterns while being able to withstand the
stresses of modern, high-speed weaving looms. While technology and performance
specifications vary, all commercial weaving looms require these accessories.
Because loom manufacturers do not produce these accessories, all woven fabric
producers must purchase textile loom accessories from third-party suppliers. In
addition to textile loom accessories, the Company manufactures precision rolled,
heat treated, bare and tinned flat wire used in the electronics, automotive,
solar power and other industries.
The Company has achieved adjusted EBITDA margins exceeding 24% in each of
the last ten years. Beginning in 1995 and continuing through 1996, the Company
implemented a profitability enhancing, cost-reduction program. This program
contributed to an increase in adjusted EBITDA margin to 31.3% in 1997. For the
52-week period ended April 4, 1998, the Company had net sales, Adjusted EBITDA
and operating income of $73.6 million, $23.3 million and $17.9 million,
respectively.
Steel Heddle is a critical supplier to virtually all North American textile
weaving mills, including such companies as WestPoint Stevens, Inc., Milliken &
Co. and Burlington Industries, Inc., many of which have been customers for
decades. In North America, management estimates that the Company holds
substantial market shares in all of its major product lines and estimates that
it supplies over 80% of the market for heddles, dropwires and harness frames,
over 50% of reeds and over 90% of the market for shuttles and bobbins. Although
international markets such as Europe and Asia have different competitive
dynamics than the North American market, the Company also has a strong presence
in many international markets in which it perceives the opportunity for
profitable growth. International sales accounted for approximately 22% of the
Company's net sales in 1997.
Textile loom accessories have represented a steady source of revenue and
cash flow because these parts require frequent replacement due to wear and
changes in production runs. Approximately 75% of the Company's net sales were
derived from the sale of replacement parts in 1997. The Company estimates that
more than 90% of all looms installed in North America are delivered
"unaccessorized," with the accessories being designed and supplied by a
third-party supplier such as Steel Heddle. Once the Company has outfitted new
looms with its accessories it has generally been able to continue to supply
replacement parts for the life of the loom. The Company believes it has achieved
its leading position in the industry primarily because of its willingness and
ability to work closely with its customers, both before and after the
installation of new looms, to design the appropriate accessories to meet
specific manufacturing needs and then continue to meet those needs on an ongoing
basis.
In addition to its textile loom accessories business, the Company converts
round rod to flat wire through a rolling process which results in a flat wire
with a round edge. Originally developed to satisfy in-house heddle manufacturing
needs, the Company recognized that its ability to produce these products to
extremely tight tolerances could be tailored to meet similar needs in other
industries and began to pursue outside sales. Because these rolled products are
custom-made for specific applications, they have historically commanded
attractive margins. The Company's rolled products can be found in a variety of
other industries, including electronics, automotive and solar power. Among the
end-use applications for the Company's products are notebook computers, cellular
telephones, electronic control devices and automotive applications such as
control mechanisms for air bags, turn signals and cruise controls. Major
customers include Kemet Corporation, Parlex Corporation, AMP Incorporated and
Siemens Corporation. Rolled products generated approximately $9.0 million in net
sales in 1997.
38
<PAGE> 44
COMPETITIVE STRENGTHS
The Company's objective is to maintain and enhance its competitive position
as the foremost supplier of loom accessories in the U.S. while broadening its
presence in international markets. The Company intends to achieve its objectives
by capitalizing on the following competitive strengths:
Leading Market Position. The Company is a critical supplier to virtually
all North American textile weaving mills, with leading market shares across all
of its product lines in North America. The Company is the sole domestic
manufacturer of heddles, dropwires, harness frames, shuttles and bobbins, with
estimated market share in North America in each category of over 80%, and over
90% market share in shuttles and bobbins. Steel Heddle is also the largest
domestic manufacturer of reeds, with an estimated 50% market share in North
America. In addition, the Company has a strong presence in those international
markets in which it sees profitable growth opportunities.
Cost-efficient Manufacturing. The Company is the only vertically-integrated
producer of loom accessories in the world. The Company has developed and tooled
proprietary production machinery and produces its own heat-treated, flat-rolled
carbon and stainless steel wire which is the key raw material in the production
of heddles and dropwires. In 1995 and continuing through 1996, the Company
implemented a comprehensive profitability enhancing, cost-reduction program
which, among other things, eliminated 120 full time positions and decreased
pension and benefit costs. Because of its vertical integration, proprietary
production machinery, experienced low-cost labor force and economies of scale,
the Company believes it is one of the most efficient producers in the textile
loom accessory industry.
Long-standing and Diverse Customer Relationships. The Company has developed
and maintained long-term relationships with its customers, in some cases for
over 50 years. The Company has built its customer relationships by providing
consistent quality, a broad product line and technical support as well as
maintaining a strong customer service orientation. The Company's sales people
visit each customer every two to four weeks, enabling the Company to gain early
knowledge of a customer's intent to purchase new looms and accessories. In
addition, the Company's technical personnel work closely with the weaving mills
and OEMs to help them select the appropriate accessories and resolve design or
engineering issues. The Company's customer base is diversified, with no one
customer representing more than 6.6% of net sales. Sales to top ten customers
represented approximately 31.2% of the Company's net sales in 1997.
Strong Brand Name. The Company's brand name enjoys significant worldwide
recognition in the textile industry as a result of its 100-year history. Since
it introduced flat steel heddles to U.S. weaving mills in 1898, the Company has
manufactured high-quality loom accessories. Because of its longevity, product
innovation, high-quality reputation, strong service orientation and broad
product line, the Company has built and maintained its significant market share
in the North American market and has built a strong presence internationally.
LOOM ACCESSORY INDUSTRY OVERVIEW
The textile industry is comprised of several subsectors: (i) apparel
production (consisting primarily of "cut and sew" business), (ii) synthetic and
natural yarn production, (iii) knitted fabric and (iv) woven fabric production.
Woven fabric production is the focus of the Company's customers. The end users
of weaving looms and weaving loom accessories are textile mills which utilize
looms to produce woven fabric. The U.S. weaving market is estimated at
approximately $19.5 billion and accounted for approximately 16.4 billion square
yards of fabric in 1997. This output has remained relatively stable since 1986,
varying between 15.2 and 16.6 billion square yards annually.
The U.S. textile industry, after having undergone significant restructuring
during the 1980s and early 1990s, has emerged as one of the most
capital-intensive, modern and efficient producers in the world. Annual capital
expenditures by woven fabric mills, while subject to fluctuations in the demand
for woven fabric, have risen in the 1990s, from approximately $550 million in
1991 to approximately $850 million in 1996. In order to maintain their
competitive position in the world markets, U.S. textile mills are expected to
continue to invest heavily in faster, newer generations of loom technology. With
modern equipment and increased automation,
39
<PAGE> 45
labor cost differentials are not a significant factor in the competitiveness of
U.S. producers. In addition, the advantages of producing in the U.S., one of the
world's largest end-markets, have increased with manufacturers' demands for
rapid response times and retailers' desire to reduce inventories.
The U.S. installed textile loom base has shifted away from older-technology
shuttle looms towards faster, shuttleless looms such as air-jet and water-jet
looms. This trend benefits the Company in two ways. Higher weaving speeds lead
to faster wear of loom accessories, driving an increase in unit demand for
replacement parts. In addition, faster looms require a higher degree of
precision and performance from accessories, increasing the dollar value of
accessories sold per loom and the demand for the higher-priced, quality
accessories for which Steel Heddle is known.
TEXTILE LOOM TECHNOLOGY
Weaving is the process of forming a fabric by interlacing, at right angles,
two or more sets of yarn or other material. The first step in weaving is to
install the longitudinal yarns, called the warp. The pick, or filling yarn,
crosses the warp, to create fabric. After the installation of the warp, there
are three essential steps: (i) shedding -- raising every alternative warp yarn
or set of yarns to receive the pick, (ii) picking -- inserting the filling and
(iii) beating up -- pressing home the pick to make the fabric compact.
Fabric is woven on a loom. The fundamental accessories of a loom include:
(i) heddles, each with an eye through which is drawn a warp thread; (ii) the
harness frame, a rectangular frame set with a series of heddles operated to form
a shed between the warp threads for insertion of pick threads; (iii) the reed, a
comb-like frame that pushes the filling yarn firmly against the finished cloth
after each pick and (iv) the shuttle, a boat-shaped bobbin holder that carries
the pick through the shed. Modern looms are "shuttleless;" the pick is carried
through the shed by a stream of air ("air jet") or water ("water jet") or other
gripper device, permitting faster speeds of production. Steel Heddle
manufactures heddles, reeds, harness frames, and shuttles and bobbins.
Older technology involves the use of a shuttle to move the yarn through the
shed, known as a "shuttle loom." Since the late 1970s, shuttle looms have
steadily been replaced with faster shuttleless looms. Shuttleless looms can be
classified into four types: (i) air jet, (ii) water jet, (iii) rapier and (iv)
projectile. Loom technology is continually evolving--early shuttleless looms
installed in the 1980s are being replaced with even faster, more user-friendly
shuttleless looms. Faster looms require a high degree of precision and
performance from installed accessories. Higher loom speeds lead to faster wear
of loom accessories, increasing the demand for replacement parts. Accessories
sold as replacements generally carry higher margins as compared to accessories
sold with new looms.
TEXTILE LOOM ACCESSORIES
Textile loom accessories are highly engineered products, requiring
precision manufacturing to ensure a uniform weave and to achieve the desired
fabric patterns. In addition, given the high speeds at which shuttleless looms
operate, the parts must be extremely smooth to avoid snags or breakages in the
yarn. Any unintended variance in a reed, heddle or frame can result in broken or
damaged yarn, unusable cloth, or wasted weaving time.
The loom accessory market is driven by four primary factors: (i) faster
loom speeds; (ii) flexible production requirements; (iii) new loom purchases;
and (iv) weaving mill utilization rates.
The North American Loom Accessory Market. In North America, more than 90%
of looms are purchased by mills from OEMs without accessories. No loom maker
produces accessories. The Company believes that several factors deter OEMs from
manufacturing accessories. Among these are: (i) limited possibilities for growth
or economies of scale because OEMs are reluctant to buy accessories produced by
their competitors; (ii) the focus of OEMs on original equipment/capital goods
markets rather than the after-market/replacement business; (iii) worldwide
competition among accessory manufacturers resulting in stable supplies of
competitively priced accessories; (iv) the cost of investment in proprietary
tooling and production machinery; and (v) the incompatibility of accessory
manufacturing and OEM production schemes. In
40
<PAGE> 46
addition, the Company believes that U.S. textile mills prefer the flexibility to
select accessories that are engineered to meet their individual needs. Textile
mills base purchases of loom accessories on (a) product performance, (b) service
and technical support provided by the accessory manufacturer, (c) long-term
business relationships and (d) price. In addition, a local manufacturing
presence providing timely response is important to textile manufacturers.
The Global Market for Loom Accessories. The global loom accessory market is
divided into four major regional markets: North America, Europe, Asia, and Latin
America. Asia is, by far, the largest market for textile loom accessories. Of
textile loom accessories, generally only heddles are sold internationally.
Harness frames, reeds and shuttles and bobbins are produced and sold within
regional markets and competition tends to be among smaller local companies.
However, the Company does pursue, on an opportunistic basis, sales of all of its
loom accessories into the international loom accessory market.
PRODUCTS
The Company's core business strategy is to manufacture a full range of
technically advanced textile loom accessories capable of fulfilling its
customers' varying weaving requirements. The Company manufactures the broadest
range of loom accessories in the textile industry, providing the Company with a
distinct competitive advantage. The accessories that are essential to the
successful operation of a loom include heddles, dropwires, harness frames and
reeds. Each of these accessories has differing demand and replacement dynamics.
HEDDLES AND DROPWIRES
Steel Heddle manufactures a full range of high-quality heddles and
dropwires for all types of looms. Heddles and dropwires are precision-made to
perform within tight parameters. Stamped from flat-rolled steel and polished to
be extremely smooth, heddles and dropwires require exacting manufacturing
specifications, thorough quality control and expert metal-working capabilities.
All of the Company's heddles and dropwires are produced to precise tolerances of
two-thousandths to three-thousandths of an inch. The Company estimates that
50-60% of heddles and dropwires are made to order, and approximately 75% of net
sales of heddles and dropwires are derived from replacement sales. Both products
are generally shipped within one to three days of order if from stock and four
to six weeks if custom manufactured. In 1997, heddles and dropwires formed the
largest single product line at Steel Heddle, accounting for approximately 37.9%
of net sales, with export sales accounting for approximately 41.0% of such net
sales.
HEDDLES
Heddles are flat, specially designed stamped parts that guide and hold
individual yarn during the high-speed weaving process. Steel Heddle produces a
wide variety of heddle types, each designed to meet specific performance
parameters. The Company's heddles accommodate a vast range of customer
specifications. All of the Company's heddles are available in two material
types: stainless steel and plated carbon steel. In 1997, heddles accounted for
approximately 84% of total heddle and dropwire net sales.
DROPWIRES
Dropwires are precision-made plated-carbon steel or stainless steel stamped
parts which detect broken yarns and trigger a loom to shut down, minimizing
energy and yarn used in the production of imperfect cloth. The Company's
dropwires are precision manufactured from similar flat rolled steel as is used
to manufacture heddles and are held to the same exacting tolerances. The Company
believes the use of its tempered steel dropwires contributes to the production
of superior cloth, increased machine running time and lower operating costs. In
1997, dropwires accounted for approximately 17% of total heddle and dropwire net
sales.
HARNESS FRAMES
Steel Heddle manufactures a full range of harness frames for all types of
looms. Harness frames are specialized carriages for heddles constructed from
special aluminum alloys and composite materials. Each frame holds between 200
and 1,500 heddles, and each loom holds between 2 and 28 harness frames,
depending
41
<PAGE> 47
upon the complexity of the final woven fabric. Harness frames raise and lower
the heddles, creating the woven fabric pattern. As modern, high-performance
looms operate at 650 to 1,000 picks per minute (two to four times faster than
older technology), harness frames must be precision engineered in order to
withstand the tremendous stress caused by continuous acceleration and
deceleration without buckling or bending. Approximately 90% of harness frames
are made to order, and approximately 65% of net sales of harness frames are
derived from replacement sales.
The Company manufactures the following four types of harness frames:
high-speed jet frames; standard aluminum frames; projectile frames; and section
frames. In addition, the Company manufactures supporting hardware and components
and offers frame repair and frame reconditioning services. In 1997, harness
frames accounted for approximately 20.6% of Steel Heddle's total net sales, with
export sales accounting for approximately 17% of such net sales.
REEDS
Reeds are precision-manufactured, comb-like devices used to evenly space
yarns on the loom. One reed per loom is mounted on the loom's drive mechanism
which moves the reed forward to beat up, or press, the pick into the finished
fabric. Each reed is composed of a series of dents. Dents are specially designed
flat wire spacers and are assembled in a reed to yield a particular fabric
pattern or style. Reed production requires exacting manufacturing processes as
absolutely smooth, straight and precisely spaced dents are critical to the
production of quality woven fabric. In 1997, reeds accounted for approximately
24.6% of Steel Heddle's net sales, with only 4.0% derived from export sales of
domestically produced reeds.
While the demand for most loom accessories is driven by the purchase of new
looms or replacement of worn accessories, reed purchases are primarily driven by
style changes. Reeds must be replaced each time a loom is used to weave a new
fabric pattern. Thus, reeds are rarely used for their entire useful life. To
remain competitive, the Company's customers must react quickly to fabric style
changes and as a result, frequently purchase new reeds. For reeds, the Company
fulfills its customers' exacting demands for product performance and rapid
delivery through its three U.S.-based reed manufacturing facilities located in
the primary U.S. woven-textile producing regions of Virginia/North Carolina,
South Carolina, and Georgia/Alabama.
The Company custom manufactures reeds for use in all types of looms. The
Company produces two types of reeds: profile and flat. The Company's profile
reeds are required in air-jet weaving looms and are manufactured using precision
engineering. In addition to close tolerance assembly, these reeds require
precision stamped and polished profile dents and specific air management
settings. As a result, profile reeds are sold at prices that are four to six
times higher than prices of flat reeds. Profile reeds currently account for
approximately 60% of net sales of reeds, but the Company expects demand to
increase for these reeds as weaving mills continue to purchase the more
technically advanced air jet looms. In comparison, the Company's flat reeds are
comprised of flat dents (i.e., without profiles or contours) and are used
primarily on shuttle, projectile, rapier and water jet weaving looms. Flat reeds
accounted for approximately 33% of net sales of reeds in 1997. In addition to
the Company's profile and flat reeds, the Company produces warp preparation
products, which are used for preparing the warp prior to the weaving process.
Warp preparation products consist of expansion combs, slasher combs, comb
panels, fan reeds, hock reeds and lease rods. Warp preparation products
accounted for approximately 10% of net sales of reeds in 1997.
SHUTTLES AND BOBBINS
Shuttles, used in older, slower looms, are specially fabricated from
composite materials to carry "pick" or "filling" yarns across the loom as the
main yarn or "warp" yarn is pulled through the reed. Bobbins are cylindrical
wooden yarn carriers held by the shuttle. Shuttles and bobbins account for 80%
of the net sales in the product line, with the remaining 20% derived from the
sale of tension products. Most of the Company's shuttles and bobbins are
consumed domestically, but approximately 18% are exported primarily to South
America. Steel Heddle is the sole supplier of automatic shuttles and bobbins to
textile mills in the United States. All shuttles and bobbins sales are
replacement sales. Shuttles and bobbins accounted for 3.5% of the Company's net
sales in 1997.
42
<PAGE> 48
ROLLED PRODUCTS
The Company manufactures precision rolled ferrous and non-ferrous, heat
treated, bare and tinned flat wire. The finished flat wire is then precision
wound and packaged to customer specifications. Because the Company rolls rather
than slits the flat wire, it benefits from the product advantages of round,
smooth edges and long continuous strand lengths. Through its vertical
integration, the Company supplies its internal annual requirements of tempered
stainless and carbon steel of approximately 2.9 million pounds.
Originally established to satisfy in-house needs, the Company recognized
that it possessed the technical expertise to produce rolled products to exacting
tolerances and, as a result, has opportunistically pursued outside sales. With
no commodity-oriented or standard inventory production, the Company's rolled
products are custom-produced for specific applications, generating attractive
gross margins to the Company. Excluding internal consumption, in 1997 the
Company sold approximately 1.7 million pounds to customers in the electronics,
automotive and solar power industries and in a variety of other industries in
which tight tolerances and smooth edges are required. The Company's rolled
products can be found in a variety of end-use products, including notebook
computers, cellular phones, electronic control devices, automotive applications
such as control mechanisms for air bags, turn signals and cruise controls. The
Company's major customers include Kemet Corporation, Paralex Corporation, AMP
Incorporated and Siemens Corporation. In 1997, outside rolled product sales
accounted for approximately 12.2% of the Company's net sales.
All rolled products are custom-manufactured for specific applications and
can be grouped into three broad categories: flat rolled steel, copper wire and
aluminum wire. The Company manufactures flat rolled steel wire which is used for
specialty applications such as garment stays, orthopaedic braces and saw blades.
Flat rolled steel wire is also used internally in the production of heddles and
dropwires. The Company manufactures tinned and bare copper flat wire for use in
a variety of applications including capacitor leads and laminated cable in which
smooth wire edges are necessary to prevent the cutting of layers which cause
short circuits. The Company also manufactures flat wire which is used as wire
connectors and conductors in electronic products and tin-coated copper wire used
in solar cells. In addition, the Company rolls aluminum flat wire for use in a
variety of applications, including capacitor leads and carrier bars for
capacitor manufacturing.
COMPETITION AND MARKET SHARE
Over the past ten years, the U.S. woven textile industry has consolidated
and invested in modern loom technology. Today, loom accessories are highly
engineered products that require sophisticated manufacturing techniques. Steel
Heddle's capabilities in producing a broad range of accessories, its reputation
for quality and service and its long-term customer relationships, provide it
with an important competitive advantage. None of Steel Heddle's domestic
competition has its breadth of products, established relationships or ability to
customize its products to its customers' needs.
North American Competition and Market Share. Steel Heddle is the leading
supplier of loom accessories in the North American market. The Company estimates
that its market share in North America exceeds 80% for all major product lines
other than reeds. In heddles, dropwires, and harness frames, Grob & Co. AG
("Grob"), holding an estimated 13% market share, is the Company's only
significant competitor. The Company believes Grob is at a significant cost and
delivery disadvantage in the U.S. compared to Steel Heddle because, among other
things, Grob does not have manufacturing operations in the U.S. In addition,
Steel Heddle believes it is more flexible and responsive to customer needs than
Grob. With manufacturing and technical personnel located in Switzerland, it is
difficult for Grob to service the U.S. market. Although Grob has sold into the
U.S. market since 1960 and has had a sales office in the U.S. since 1972, its
manufacturing operations have remained outside of North America, and it has been
largely unsuccessful at obtaining incremental market share.
The Company estimates it has a 50% market share of the reed market and that
its nearest competitor, Palmetto Loom Reed, Inc. ("Palmetto"), has a market
share of approximately 30%. Palmetto is a privately-held, family-run business
based in Greenville, South Carolina. There are only two other reed manufacturers
in the U.S. which split the remaining 20% of the market. Reed sales are affected
by timeliness of delivery,
43
<PAGE> 49
making competition regional. Consequently, the reed market is slightly more
fragmented than any of the other accessory markets.
Steel Heddle is the major producer of automatic shuttles and bobbins
serving the North American market. Demand for shuttles and bobbins has decreased
over the last several years as shuttle looms have been retired or replaced with
more efficient shuttleless technology.
International Competition and Market Share. With an estimated 30% global
market share (excluding the United States), Steel Heddle is the number two
producer of heddles and dropwires worldwide. The Company's only significant
competitor, Grob, has an estimated 45% global market share. The Company
differentiates itself from Grob by its ability to service all weaving accessory
requirements and its technical expertise that it uses to solve its customers'
weaving problems. Management also believes that Grob incurs higher production
costs than the Company. The Company believes it is poised to capture additional
worldwide market share from Grob as customers seek better service and technical
support.
Steel Heddle has been building relationships with OEMs (which are more
important internationally than domestically), foreign textile mills and trading
companies over the last several years as part of its international strategy.
Management expects its international market share to grow over time. Steel
Heddle's international strategy is focused on (i) building long-term
relationships, (ii) customer service and technical support and (iii) providing
superior quality. In addition, the Company continues to strengthen its
international sales agent networks. The Company believes that as it strengthens
its relationships with its international customers and becomes a critical
partner in their success, as it has done in the U.S., its international sales
will increase.
MANUFACTURING
Steel Heddle is headquartered in Greenville, South Carolina and conducts
its primary operations through a manufacturing facility located adjacent to the
Company's headquarters. In addition, rolled products are manufactured in Oconee
County, South Carolina, and reeds are manufactured in North Carolina, Georgia
and Mexico. Below is a summary of the Company's existing facilities:
<TABLE>
<CAPTION>
SQUARE
LOCATION FUNCTION FOOTAGE OWNED/LEASED
-------- -------- ------- ------------
<S> <C> <C> <C>
Greenville, S.C. Corporate offices; Heddle, Frame, Reed, Shuttle
and Bobbin Manufacturing..................... 474,036 Owned
Oconee County, SC Rolled Products Manufacturing.................. 123,312 Owned
Greensboro, NC Reed Manufacturing............................. 12,000 Owned
Meriwether County, GA Reed Manufacturing............................. 18,000 Owned
Mexico City, Mexico Reed Manufacturing............................. 6,000 Leased
</TABLE>
The Company believes that its manufacturing operations are among the most
efficient in the textile loom accessory industry. Most of the machinery used by
the Company has been specifically designed and/or manufactured by the Company
and most of its products are made-to-order.
Heddles. Heddles are precision stamped from flat rolled, heat treated, high
carbon or stainless steel. Each heddle passes through eight to ten stamping
stations before being cut to length. Precision stamping tools are manufactured
in-house to support this stamping operation. Close dimensional control is
assured by computer-controlled optical measuring equipment. Thorough polishing
of each stamped area assures smooth yarn contact edges. Electroplating of nickel
or zinc on carbon steel or passivation of stainless steel provides the proper
resistance to corrosion.
Frames. Frames are assemblies of high strength aluminum alloy extrusions,
high carbon or stainless steel heddle carrying rods and precision machined loom
connection devices. Highly engineered material selection, along with precision
machining and assembly provide for frames suitable to withstand extreme stresses
associated with today's high speed looms.
Reeds. Profile reeds are assembled from individual dents that are held in
place by precision spacing wires and specially formulated thermoplastic
adhesive. The top and bottom edges of the reed are encased in steel or
44
<PAGE> 50
aluminum channel or bands. Proper air management specifications are then set
according to required weaving parameters. The individual dents are stamped from
precision wide strip steel then deburred and polished to achieve suitable yarn
contact surfaces. Flat reeds are similar assemblies, except straight dents are
cut from coils of wire and used in place of profile dents.
Rolled Products. Rolled products are produced by rolling round cross
section materials of copper, aluminum, carbon steel or stainless steel to flat
wire. As required, rolled materials then undergo heat treatment for annealing or
hardening. In addition, the copper products may be tin coated. A variety of
precision wound packages are tailored to customer requirements.
SALES, MARKETING AND CUSTOMERS
The Company markets its loom accessories through a 14-person sales force,
eight of whom are located in the United States and six of whom are located
abroad. In North America, sales are made directly to woven textile mills, the
end-users of the Company's loom accessories. In international markets, the
majority of sales are also made to end-users primarily through a network of (i)
ten agents located in Asia, (ii) seven agents located in Europe and Turkey and
(iii) 28 agents located throughout the rest of the world. Sales are also made to
OEMs, primarily manufacturers of textile machinery that also package accessories
with their new looms. Steel Heddle also cooperates with large Japanese trading
companies that are active in the weaving machinery business. Rolled products are
sold through a dedicated sales force of two people who also manage four
independent sales representatives.
The Company has long-term relationships with its customers, many of which
extend beyond 50 years. Steel Heddle's consistent quality, broad product line,
technical support and customer service orientation continue to underpin its
relationships. The Company's customer base is diversified, with no one customer
representing more than 6.6% of net sales. Sales to top ten customers represents
approximately 31.2% of total net sales.
RAW MATERIALS
Aluminum extrusions, aluminum and copper rod and wire, and stainless and
carbon steel in rod, round wire and flat wire form are the primary raw materials
used by the Company. All raw materials are readily available from multiple
sources. The Company does not experience much volatility in its raw materials
prices. Steel Heddle has well-established long-term relationships with each of
its raw material suppliers.
INTELLECTUAL PROPERTY
The Company has numerous trademarks and patents effective in the United
States and several trademarks effective in several foreign countries for varying
lengths of time. Company trademarks include "SH(R)", "Duralite(R)", "Draw-O(R)",
and "Jet Eye(R)" under which it markets certain weaving accessory products. The
Company also has a number of applications for trademarks pending in the United
States and abroad. Management considers its various trademarks, trademark
applications and patents to be valuable assets but believes that the loss of any
one trademark or patent would not have a material adverse effect on the
Company's operations.
EMPLOYEES AND EMPLOYEE RELATIONS
As of April 4, 1998, the Company employed approximately 626 employees in
the United States and approximately 17 employees outside the United States. None
of the Company's hourly employees are covered by collective bargaining
agreements. The Company believes its employee and labor relationships are good.
LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. Management believes that none of
these matters in which the Company is currently involved, either individually or
in the aggregate, are expected to have a material adverse effect on the
Company's business or financial condition. See "--Environmental Matters."
45
<PAGE> 51
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local environmental
requirements, including those governing discharges to the air and water, the
handling and disposal of solid and hazardous wastes, and the remediation of
contamination associated with releases of hazardous substances. Based on a
review conducted by independent environmental consultants in connection with the
Acquisition, the Company believes that it is currently in substantial compliance
with environmental requirements, except as would not be expected to have a
material adverse effect on the Company. Nevertheless, the Company's
manufacturing operations involve the use of hazardous substances and, as is the
case with manufacturers in general, if a release of hazardous substances occurs
or has occurred on or from the Company's facilities, the Company may be held
liable and may be required to pay the cost of remedying the condition. The
amount of any such liability could be material.
The Company has made, and will continue to make, expenditures to comply
with current and future environmental requirements. The Company does not
anticipate material capital expenditures for environmental controls in the
current or succeeding fiscal year. However, because environmental requirements
are becoming increasingly stringent, the Company's expenditures for
environmental compliance or clean up may increase in the future.
In 1987, the United States Environmental Protection Agency certified the
closure of three former wastewater lagoons at the Company's Greenville, SC
facility under RCRA. In 1989, the Company began a groundwater remediation
program at the facility in accordance with RCRA requirements. In 1996, the
Company received a post-closure care permit for the former lagoons. This permit
requires post-closure care for the former lagoons, continued groundwater
remediation, and investigation of certain areas of the facility. As required by
RCRA, the Company has posted financial assurance in the amount of $671,000 to
ensure funds are available to complete the permit requirements. Nonetheless, the
Company is continuing to investigate certain areas of the facility. It is
possible that, based on the results of such investigation, additional actions
could be required, in which case the costs could materially increase.
The Company is involved as a potentially responsible party ("PRP") under
the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") with regard to past waste disposal at the Aqua Tech Superfund site in
Greer, SC. Some risk of similar environmental liability is inherent in the
nature of the Company's current and former operations. While strict joint and
several liability is authorized under CERCLA, cleanup costs are usually
allocated among the PRPs. The Company has paid its share of past cleanup costs
for the site. Because the amount of future cleanup costs at the site is not yet
known, the Company cannot predict with certainty the amount of its share of
these future costs. However, based on its allocated share of past cleanup costs,
the Company does not expect its share of future costs to be material.
In connection with the Acquisition, Sellers have indemnified the Company,
subject to time and dollar limitations, for breaches of certain representations
and warranties pertaining to environmental matters. There can be no assurance,
however, that Sellers will have the ability to indemnify the Company if called
upon to do so. The Sellers also agreed to clean up a past release of mineral
spirits at the Company's Oconee County, SC facility. To pay for this clean up,
$350,000 of the purchase price has been placed in an escrow account. The
Sellers' cleanup obligation is limited to the escrow amount. Based on a
preliminary investigation of the area, the Company believes it is unlikely that
the clean up will exceed the escrow amount.
46
<PAGE> 52
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age as of April 4, 1998 and
position with the Company of each person who is expected to serve as director or
executive officer of the Company following the Acquisition Transactions.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Benjamin G. Team............................ 57 President, Chief Executive Officer and Director
Robert W. Dillon............................ 50 Executive Vice President and Director
Jerry B. Miller............................. 51 Vice President--Finance and Secretary
J. Brant Conner............................. 53 General Sales Manager
Thomas A. Korbutt........................... 55 Vice President--Frame Division
John D. Wright.............................. 53 Manager--Heddle Division
Randy Boggs................................. 38 Manager--Reed Division
Edward J. Treglia........................... 37 Manager--Rolled Products Division
Nathan L. Belden............................ 28 Director
Robert J. Klein............................. 33 Director
Kim A. Marvin............................... 35 Director
Robert L. Purdum............................ 62 Non-Executive Chairman and Director
Theodore C. Rogers.......................... 63 Director
</TABLE>
BENJAMIN G. TEAM--PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Mr. Team joined Steel Heddle after seven years with Textile Loom Reed
Company which was acquired by Steel Heddle in 1969. He began with Steel Heddle
as Manager of the Greensboro Reed Plant in 1969 and was later named Manager of
the Company's Reed Division in 1975. Mr. Team was elected Vice President in 1978
and was named head of all textile products manufacturing in 1986. Mr. Team was
appointed President in 1992.
ROBERT W. DILLON--EXECUTIVE VICE PRESIDENT AND DIRECTOR
Mr. Dillon joined Steel Heddle in 1969 after receiving a B.S. degree from
Philadelphia College of Textile and Science. Mr. Dillon has held positions of
increasing responsibility in the sales, administrative, and manufacturing areas
of the Company. He was promoted to Vice President-Heddle Division in 1988 and
Executive Vice President in 1992.
JERRY B. MILLER--VICE PRESIDENT-FINANCE AND SECRETARY
Mr. Miller joined Steel Heddle in 1988 in his present position. He had
previously worked as an audit supervisor for Ernst & Whinney from 1975-1984, as
a Controller for Carolina Tool & Equipment Company and as Vice President and
Controller of Ballenger Group, Inc. Mr. Miller holds a B.A. degree from Clemson
University, a Master's degree from the University of Georgia and is a Certified
Public Accountant.
J. BRANT CONNER--GENERAL SALES MANAGER
Mr. Conner joined Steel Heddle in 1972 as a Sales Representative. He was
promoted to District Sales Manager for the Southwest Region in 1978. Mr. Conner
also served as plant manager for the Meriwether Reed Plant and was promoted to
his present position in 1994. Mr. Conner received his B.S. and Masters degrees
in Textiles from Georgia Tech and served in the U.S. Army for two years,
obtaining the rank of First Lieutenant.
THOMAS A. KORBUTT--VICE PRESIDENT-FRAME DIVISION
Mr. Korbutt joined Steel Heddle in 1973 as a project engineer after working
in various engineering and manufacturing positions in the automotive and
shipbuilding industries. He was appointed Engineering
47
<PAGE> 53
Manager in 1975. In 1984, he was promoted to his present position. Mr. Korbutt
received a degree in Tool Engineering Design from Henry Ford Community College.
JOHN D. WRIGHT--MANAGER-HEDDLE DIVISION
Mr. Wright joined Steel Heddle in early 1997 after overseeing engineering
and manufacturing at Freudenberg North America. Before Freudenberg, Mr. Wright
worked for twelve years at Johnson & Johnson in several engineering and
manufacturing positions. Mr. Wright holds a degree in Mechanical Engineering
from Texas Tech University and served as an engineering officer in the U.S.
Navy.
RANDY BOGGS--MANAGER-REED DIVISION
Mr. Boggs joined Steel Heddle in 1994 after leaving Palmetto Loom Reed,
Inc. where he was Plant Manager. Previously, he was Weaving Superintendent with
the Bibb Company's White Horse Plant. He was also employed with J.P. Stevens
where he held various management positions in the Greige Fabrics Division. He
has a B.A. in Business Administration from Southern Wesleyan College.
EDWARD J. TREGLIA--MANAGER-ROLLED PRODUCTS DIVISION
Mr. Treglia joined Steel Heddle in 1987 as an Industrial Engineer and in
1989 was transferred to the Rolled Products Division. In September 1996, he was
named Plant Manager. Before joining Steel Heddle, he worked with Southeastern
Kusan and Sheller-Globe. Mr. Treglia graduated from the University of Cincinnati
with a B.S. in Industrial Engineering. While working on his degree, he was a
co-op Industrial Engineer with IBM and Wierton Steel.
NATHAN L. BELDEN--DIRECTOR
Mr. Belden joined AIP in 1995 from the Mergers & Acquisitions Department of
Kidder, Peabody & Co., Inc. where he was employed since 1993.
ROBERT J. KLEIN--DIRECTOR
Mr. Klein is a Principal of AIP. He has been an employee of AIP since 1992.
From 1991 to 1992, he was an associate at The First Boston Corporation and prior
thereto was an associate with Rosecliff, Inc., an affiliate of Acadia Partners,
L.P. Mr. Klein is a director of Easco Corporation and RBX Corporation.
KIM A. MARVIN--DIRECTOR
Mr. Marvin is a Principal of AIP. He joined the San Francisco office of AIP
in 1997 from the Mergers & Acquisitions Department of Goldman, Sachs & Co. where
he was employed since 1994. Mr. Marvin is a director of Bucyrus International,
Inc.
ROBERT L. PURDUM--NON-EXECUTIVE CHAIRMAN AND DIRECTOR
Mr. Purdum is a Director and Managing Director of American Industrial
Partners Corporation. Mr. Purdum is expected to become the Non-Executive
Chairman of the Company's Board following the Acquisition Transactions. Mr.
Purdum retired as Chairman of Armco Inc., in 1994. From November 1990 to 1993,
Mr. Purdum was Chairman and Chief Executive Officer of Armco. Mr. Purdum has
been a director of AIP Management Co. since joining AIP in 1994. Mr. Purdum is
also a director of Bucyrus International, Inc., Holophane Corporation, Berlitz
International, Inc. and Kettering University.
THEODORE C. ROGERS--DIRECTOR
Mr. Rogers is a Director, the Chairman of the Board and the Secretary of
American Industrial Partners Corporation. He co-founded AIP and has been a
director and officer of the firm since 1989. He is currently a director of
Bucyrus International, Inc., Easco Corporation, Sweetheart Holdings, Inc., SF
Holdings, Inc., RBX Corporation, Stanadyne Automotive Corp. and Derby
International.
Directors are not expected to receive compensation for their services as
directors, except for the Non-Executive Chairman of the Board who will receive
$150,000 per year.
48
<PAGE> 54
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for each of
the three years ended December 31, 1997, of these persons who served as (i) the
chief executive officer during such years and (ii) the other four most highly
compensated executive officers of the Company during such years:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
OTHER
NAME AND PRINCIPAL ANNUAL
POSITION YEAR SALARY($) BONUS($)(a) COMPENSATION($)(b)
------------------ ---- --------- ----------- ------------------
<S> <C> <C> <C> <C>
Benjamin G. Team............................................ 1997 244,800 344,746 35,356
Chief Executive 1996 235,000 231,894 23,348
Officer and President 1995 235,000 -- 24,629
Robert W. Dillon............................................ 1997 182,200 249,102 28,297
Executive Vice President 1996 174,900 195,561 19,504
1995 174,900 -- 21,037
Jerry B. Miller............................................. 1997 155,200 222,837 28,376
Vice President Finance 1996 148,700 189,703 18,358
1995 148,700 -- 19,786
Thomas A. Korbutt........................................... 1997 121,400 124,727 21,536
Vice President Frame 1996 117,700 145,884 15,381
Division 1995 117,700 -- 16,391
J.E. Merritt*............................................... 1997 120,100 104,727 21,973
1996 117,700 127,884 15,381
1995 117,700 -- 16,390
</TABLE>
- ------------------------------
(a) Bonuses are reported in the year earned even if paid in a subsequent year.
(b) Other annual compensation includes the Company's contribution to the
Employee Thrift and Savings Plan and the Cash Balance Plan.
* Retired December 1997
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
-------------------------------------------------------------------- -----------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE OR BASE
NAME GRANTED FISCAL YEAR PRICE ($/SH) EXPIRATION DATE 5%($) 10%($)
---- ------------ --------------- ----------------- --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Benjamin G. Team................. 6,764 25.7 15 02/20/02 148,824 183,807
Robert W. Dillon................. 4,924 18.7 15 02/20/02 99,692 123,418
Jerry B. Miller.................. 4,924 18.7 15 02/20/02 99,692 123,418
Thomas A. Korbutt................ 2,204 8.4 15 02/20/02 27,060 34,147
J.E. Merritt..................... 2,204 8.4 15 02/20/02 27,060 34,147
</TABLE>
49
<PAGE> 55
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES (A)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY
FISCAL YEAR END(#) OPTIONS AT
SHARES ACQUIRED ON EXERCISABLE/ FISCAL YEAR END($) EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ------------------ ----------------- ------------------ -------------------------------
<S> <C> <C> <C> <C>
Benjamin G. Team.............. 420 9,038 6,344 136,523
Robert W. Dillon.............. -- -- 4,924 105,964
Jerry B. Miller............... 660 14,203 4,264 91,761
Thomas A. Korbutt............. -- -- 2,204 47,430
J.E. Merritt.................. -- -- 2,204 47,430
</TABLE>
- ------------------------------
(a) Options held by certain employees of the Company were converted at the
consummation of the Acquisition into options to purchase common stock of SH
Group. In addition, SH Group adopted a performance-based option plan
pursuant to which options to acquire up to 7% of SH Group's common stock (on
a fully diluted basis) were awarded to certain members of the Company's
management.
PENSION PLANS
The Company maintains a cash balance pension plan that provides a monthly
annuity payable at age 65. The amount of such annuity is the actuarial
equivalent of the value of an individual account balance which is comprised of
the following: (i) a participant's accrued benefit under the plan determined as
of December 31, 1994; (ii) a percentage (from 2.25% to 7.00%) of the
participant's annual earnings plus a percentage (from 3.0% to 5.0%) of the
participant's annual earnings in excess of 50% of the Social Security wage base
for the calendar year, with such percentages determined based on the
participant's age at the beginning of each year; and (iii) interest credits
based on an index weighted to reflect 60% of the return of the Lehman Brothers
Governmental/Corporate Bond Index and 40% of the return of the S&P 500 stock
index, determined as of December 31 of the calendar year in which the interest
is credited. The estimated annual benefit payable at age 65 for each of the
named executive officers is shown below. For purposes of determining such
benefit, no increases in salary or Social Security wage base were assumed, and a
5% interest rate was used for determining interest credits and for converting
the individual account balance to an annuity at age 65:
<TABLE>
<CAPTION>
PROJECTED ANNUAL
ANNUITY PAYABLE AT
NORMAL
PROJECTED INDIVIDUAL RETIREMENT
NAME ACCOUNT BALANCE AGE
---- -------------------- ------------------
<S> <C> <C>
Benjamin G. Team................................... $442,924 $38,103
Robert W. Dillon................................... $563,832 $48,504
Jerry B. Miller.................................... $401,004 $34,479
Thomas A. Korbutt.................................. $309,992 $26,667
J.E. Merritt....................................... $309,144 $26,594
</TABLE>
EMPLOYMENT AGREEMENTS
Messrs. Team, Miller and Dillon each are party to a severance arrangement
under which each will receive severance pay if his employment is terminated by
the Company (other than for cause) for the number of months between the date of
termination and December 31, 2000 if termination occurs on or before December
31, 1999 or for twelve months if termination occurs on or after January 1, 2000.
Messrs. Team, Miller and Dillon each are a party to a Sale Bonus Agreement dated
April 21, 1998, pursuant to which each received approximately $1.3 million upon
the consummation of a sale of the Company.
Messrs. Connor and Korbutt each are a party to a severance arrangement
under which each will receive severance pay if his employment is terminated by
the Company (other than for cause) for the number of months between the date of
termination and December 31, 1999 if termination occurs on or before December
31, 1998 or for twelve months if termination occurs on or after January 1, 1999.
50
<PAGE> 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION ARRANGEMENTS
In connection with the Acquisition Transactions, the Company, AIP and
management investors entered into a stockholders' agreement (the "Stockholders'
Agreement") pursuant to which such persons were granted certain registration
rights and participation rights. Pursuant to the Stockholders' Agreement, AIP
has the right to elect the majority of the directors of the Company.
At the close of the Acquisition Transactions, AIP was paid a fee of $2.0
million and reimbursed for out-of-pocket expenses in connection with the
negotiation of the Acquisition and for providing certain investment banking
services to the Company including the arrangement and negotiation of the terms
of the New Credit Agreement, the arrangement and negotiation of the terms of the
Old Notes and for other financial advisory and management consulting services.
Upon consummation of the Acquisition, Messrs. Team, Miller and Dillon each
received sale bonuses of approximately $1.3 million.
MANAGEMENT SERVICES AGREEMENTS
BCC, an affiliate of Butler Capital Corporation, provided consulting
services to the Company pursuant to a Consulting Services Agreement dated as of
January 1, 1996 and received remuneration of $275,000 in each of fiscal 1997,
1996 and 1995. In fiscal 1996, BCC received a special one-time payment of
$450,000. Such agreement was terminated upon consummation of the Acquisition
Transactions. In connection with the Company's refinancing in fiscal 1997, BCC
received payment of $200,000.
AIP expects to provide substantial ongoing financial and management
services to the Company utilizing the extensive operating and financial
experience of AIP's principals. AIP will receive an annual fee of $895,000 for
providing general management, financial and other corporate advisory services to
the Company and will be reimbursed for out-of-pocket expenses. The fees will be
paid to AIP pursuant to a management services agreement among AIP and the
Company and will be subordinated in right of payment to the Old Notes.
51
<PAGE> 57
DESCRIPTION OF SH GROUP COMMON STOCK
SH Group is authorized by its Certificate of Incorporation to issue 300,000
shares of common stock, par value $0.01 per share (the "Common Stock"), 234,949
of which were issued upon consummation of the Acquisition Transactions, all of
which are owned by AIP, its related investors and certain members of management
of the Company. In addition, SH Group issued options to certain members of
management of the Company pursuant to an option plan to be established by its
board of directors. See "Management--Executive Compensation." The holders of
shares of Common Stock are entitled to receive such dividends, if any, as may be
declared from time to time by the board of directors in its discretion from
funds legally available therefor and, upon liquidation or dissolution are
entitled to receive all assets available for distribution to the shareholders.
SECURITY OWNERSHIP
As of July 30, 1998, there were 13 holders of record of shares of Common
Stock. The following table sets forth certain information regarding beneficial
ownership of Common Stock as of July 30, 1998, assuming the exercise of stock
options exercisable within 60 days of such date, by (i) each person who is known
by SH Group to be the beneficial owner of more than 5% of the Common Stock, (ii)
each of SH Group's directors and the named executive officers in the Summary
Compensation Table and (iii) all directors and executive officers as a group. To
the knowledge of SH Group, each stockholder has sole voting and investment power
as to the shares of Common Stock shown unless otherwise noted. Except as
indicated below, the address for each such person is c/o Steel Heddle Mfg., Co.,
1801 Rutherford Road, Greenville, South Carolina, 29607.
<TABLE>
<CAPTION>
NAME NUMBER(1) PERCENTAGE(2)
---- --------- -------------
<S> <C> <C>
American Industrial Partners Capital Fund II, L.P.(3)....... 226,299 96.3
Nathan L. Belden(3)......................................... 200 *
Theodore C. Rogers(4)....................................... 0 0
Robert L. Purdum(4)......................................... 1,000 *
Kim A. Marvin(4)............................................ 0 0
Robert J. Klein(4).......................................... 250 *
Benjamin G. Team............................................ 6,334(5) *
Robert W. Dillon............................................ 4,916(5) *
Jerry B. Miller............................................. 4,257(5) *
Thomas A. Korbutt........................................... 2,200(5) *
All directors and executive officers as a group (9
persons).................................................. 19,157(6) 7.6
</TABLE>
- ---------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities and Exchange Commission. In computing the number of shares of
Common Stock beneficially owned by a person and the percentage of beneficial
ownership of that person, shares of Common Stock subject to options held by
that person that are currently exercisable or exercisable within 60 days are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of each other person. The
persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and except as indicated
in the other footnotes to this table.
(2) Based upon 234,949 shares of Common Stock outstanding as of July 30, 1998.
(3) The address of such person or entity is One Maritime Plaza, Suite 2525, San
Francisco, CA, 94111.
(4) The address of such person is 551 Fifth Avenue, Suite 3800, New York, NY,
10176.
(5) Represents shares of Common Stock which are issuable upon exercise of
options within 60 days of the date hereof.
(6) Includes an aggregate of 17,707 shares of Common Stock held by directors and
executive officers which are issuable upon exercise of options exercisable
within 60 days of the date hereof.
52
<PAGE> 58
DESCRIPTION OF DEBENTURES
GENERAL
The New Debentures will be issued as a separate series pursuant to an
Indenture (the "Indenture") between Steel Heddle Group, Inc. and United States
Trust Company of New York, as trustee (the "Trustee"). The terms of the New
Debentures include those stated in the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The New Debentures are
subject to all such terms, and Holders of New Debentures are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The form and
terms of the New Debentures are identical in all material respects to the form
and terms of the Old Debentures (which they replace) except that (i) the New
Debentures bear a Series B designation, (ii) the New Debentures have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (iii) the holders of the New Debentures
will not be entitled to certain rights under the Registration Rights Agreement,
including the provisions increasing the interest rate on the Old Debentures in
certain circumstances relating to the timing of the Exchange Offer, which rights
terminate when the Exchange Offer is consummated. The following summary of
certain provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. A copy of the proposed form of
Indenture and Registration Rights Agreement is available as set forth under
"--Additional Information." The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions."
The New Debentures will be senior, unsecured, general obligations of SH
Group, limited in aggregate principal amount at maturity to $29.25 million. The
New Debentures will rank senior in right of payment to all existing and future
subordinated Indebtedness of SH Group and pari passu in right of payment with
all existing and future senior obligations of SH Group. As of April 4, 1998, on
a pro forma basis after giving effect to the Acquisition Transactions, the
aggregate amount of Indebtedness of SH Group would have been $15.0 million (all
of which would have been attributable to the Old Debentures). SH Group in
addition, however, is a guarantor under the Credit Agreement, which guarantee
will be secured by a pledge of the common stock of the Company. SH Group
conducts all of its operations through its subsidiaries. The New Debentures will
be effectively subordinated to all existing and future Indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
SH Group's subsidiaries. As of April 4, 1998, on a pro forma basis after giving
effect to the Acquisition Transactions, SH Group's subsidiaries would have had
$134.9 million of Indebtedness outstanding, including Indebtedness under the Old
Notes and the Credit Agreement, in addition to trade payables and other accrued
liabilities.
As of the date of the Indenture, none of SH Group's Subsidiaries will be
Unrestricted Subsidiaries. However, under certain circumstances, SH Group will
be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries generally will not be subject to the
restrictive covenants set forth in the Indenture. The term "Subsidiaries" as
used herein does not include Unrestricted Subsidiaries. Notwithstanding anything
herein to the contrary, the Indenture shall not prevent or restrict consummation
of any of the Acquisition Transactions.
PRINCIPAL, MATURITY AND INTEREST
The Debentures are limited in aggregate principal amount at maturity to
$29.25 million and will mature on June 1, 2009. The Old Debentures were issued
at a substantial discount from their principal amount at maturity to generate
gross proceeds of $15.0 million. Until June 1, 2003, no interest will accrue on
the Debentures, but the Accreted Value will increase (representing amortization
of original issue discount) between the date of original issuance and June 1,
2003, on a semi-annual bond equivalent basis using a 360-day year comprised of
twelve 30-day months, such that the Accreted Value shall be equal to the full
principal amount at maturity of the Debentures on June 1, 2003. Beginning on
June 1, 2003, interest on the Debentures will accrue at the rate of 13 3/4% per
annum and will be payable semi-annually in arrears on June 1 and December 1,
commencing on December 1, 2003, to Holders of record on the immediately
preceding May 15 and November 15, respectively. Interest on the Debentures will
accrue from the most recent date to which interest has been paid, or, if no
interest has been paid, from June 1, 2003. Interest will be computed on
53
<PAGE> 59
the basis of a 360-day year comprised of twelve 30-day months. Principal,
premiums if any, and interest and Liquidated Damages, if any, on the Debentures
will be payable at the office or agency of SH Group maintained for such purpose
within the City and State of New York or, at the option of SH Group, any payment
of interest and Liquidated Damages, if any, may be made by check mailed to the
Holders of the Debentures at their respective addresses set forth in the
register of Holders of Debentures; provided, that all payments with respect to
all Global Notes and Certificated Notes (as defined herein) the Holders of whom
have given wire transfer instructions to SH Group will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by SH Group, SH Group's office or
agency in New York will be the office of the Trustee maintained for such
purpose. The Debentures will be issued in denominations of $1,000 and integral
multiples thereof.
OPTIONAL REDEMPTION
The Debentures are not redeemable at SH Group's option prior to June 1,
2003, except as provided below. Thereafter, the Debentures will be subject to
redemption at the option of SH Group, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of Accreted Value) set forth below plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the applicable redemption date if
redeemed during the twelve-month period beginning on June 1 of the years below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003........................................................ 106.875%
2004........................................................ 104.583%
2005........................................................ 102.292%
2006 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to June 1, 2001, SH
Group may (but shall not have the obligation to) redeem up to 35% of the
original aggregate principal amount at maturity of the Debentures at a
redemption price equal to 113.750% of the Accreted Value thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the redemption
date, with the Net Cash Proceeds received by SH Group from one or more Equity
Offerings; provided that, in each case at least 65% of the aggregate principal
amount at maturity of Debentures originally issued remain outstanding
immediately after the occurrence of such redemption; and provided further, that
such redemption shall occur within 60 days of the date of the closing of such
Equity Offering.
If less than all of the Debentures are to be redeemed at any time,
selection of Debentures for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Debentures are listed, or, if the Debentures are not so listed, on a
pro rata basis, by lot or in accordance with any other method as the Trustee
shall deem fair and appropriate; provided that no Debentures of $1,000 or less
shall be redeemed in part. Notices of redemption shall be mailed by first class
mail at least 30 but not more than 60 days before the redemption date to each
Holder whose Debentures are to be redeemed at its registered address. If any
Debenture is to be redeemed in part only, the notice of redemption that relates
to such Debenture shall state the portion of the principal amount thereof to be
redeemed, and, after the redemption date upon surrender of such Debenture, a new
Debenture in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Debenture. On and after the redemption date, interest ceases to accrue on
Debentures or portions of them called for redemption unless SH Group defaults in
making redemption payments due on such redemption date.
MANDATORY REDEMPTION
SH Group is not required to make mandatory redemption or sinking fund
payments with respect to the Debentures.
54
<PAGE> 60
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Debentures will
have the right to require SH Group to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Debentures pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages if any, thereon to the date of purchase
or, in the case of repurchases of Debentures prior to June 1, 2003, at a
purchase price equal to 101%, of the Accreted Value thereof as of the date of
repurchase plus Liquidated Damages, if any, thereon to the date of purchase (the
"Change of Control Payment") on a date (the "Change of Control Payment Date") no
later than 60 Business Days after the occurrence of the Change of Control.
Within 35 days following any Change of Control, SH Group will mail a notice to
each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Debentures pursuant to the
procedures required by the Indenture and described in such notice, which offer
shall remain open for at least 20 Business Days following its commencement, but
in any event no longer than 30 Business Days. SH Group will comply with the
requirements of 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 connection with the repurchase of the Debentures as a result of a
Change of Control. To the extent that the provisions of any such securities laws
or regulations conflict with the provisions of this paragraph, compliance by SH
Group with such laws and regulations shall not in and of itself cause a breach
of its obligations under such covenant.
On the Change of Control Payment Date, SH Group will, to the extent lawful,
(1) accept for payment all Debentures or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Debentures or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Debentures so accepted together with an Officers' Certificate
stating the aggregate principal amount of Debentures or portions thereof being
purchased by SH Group. The Paying Agent will promptly mail to each Holder of
Debentures so tendered the Change of Control Payment for such Debentures, and
the Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Debenture equal in principal amount to any
unpurchased portion of the Debentures surrendered, if any; provided that each
such new Debenture will be in a principal amount of $1,000 or an integral
multiple thereof. SH Group will announce publicly the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Debentures
to require that SH Group repurchase or redeem the Debentures in the event of a
takeover, recapitalization or similar restructuring.
The Change of Control purchase feature of the Debentures may make more
difficult or discourage a takeover of SH Group, and, thus, the removal of
incumbent management.
The phrase "all or substantially all" of the assets of SH Group will likely
be interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of the
assets of SH Group has occurred. In addition, no assurances can be given that SH
Group will be able to acquire Debentures tendered upon the occurrence of a
Change of Control.
If the Change of Control Payment Date hereunder is on or after an interest
payment Record Date and on or before the associated Interest Payment Date, any
accrued and unpaid interest (and Liquidated Damages, if any), due on such
Interest Payment Date will be paid to the person in whose name a Debenture is
registered at the close of business on such Record Date, and such interest (and
Liquidated Damages, if applicable) will not be payable to Holders who tender the
Debentures pursuant to the Change of Control Offer.
The Credit Agreement and the Note Indenture restrict the Company from
paying dividends or making other distributions to SH Group. If SH Group is
unable to obtain dividends from the Company sufficient to permit the repurchase
of the Debentures or does not refinance such Indebtedness, SH Group will likely
not
55
<PAGE> 61
have the financial resources to purchase Debentures. In any event, there can be
no assurance that SH Group's Subsidiaries will have the resources to pay any
such dividend or make any such distribution.
Prior to complying with the provisions of the preceding paragraphs, but in
any event within 30 days following a Change of Control, SH Group will either
repay all outstanding Indebtedness of its Subsidiaries (including the Company)
or obtain the requisite consents, if any, under such Indebtedness (including
Indebtedness under the New Credit Agreement and the Notes) to permit the
repurchase of the Debentures required by this covenant. SH Group will not be
required to purchase any Debentures until it has complied with the preceding
sentence, but SH Group's failure to make a Change of Control Offer when required
or to purchase tendered Debentures when tendered would constitute an Event of
Default under the Indenture which would, in turn, constitute a default under the
Credit Agreement. See "Risk Factors--Substantial Leverage; Liquidity" and
"--Limitation on Access to Cash Flow of Subsidiaries; Holding Company
Structure."
ASSET SALES
The Indenture provides that SH Group will not, and will not permit any of
its Subsidiaries to, engage in an Asset Sale in excess of $1.0 million unless
(i) SH Group (or such Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the fair market value of the
assets or Equity Interests sold or otherwise disposed of or, in the case of a
lease of assets, a lease providing for rent and other conditions which are no
less favorable to SH Group (or such Subsidiary, as the case may be) in any
material respect than the then prevailing market conditions (evidenced in each
case by a resolution of the Board of Directors of such entity set forth in an
Officers' Certificate delivered to the Trustee) and (ii) at least 75% (100% in
the case of lease payments) of the consideration therefor received by SH Group
or such Subsidiary is in the form of cash or Cash Equivalents; provided that the
amount of (x) any liabilities (as shown on SH Group's or such Subsidiary's most
recent balance sheet or in the notes thereto, but excluding contingent
liabilities and trade payables) of SH Group or any Subsidiary (other than
liabilities that are by their terms subordinated to the Debentures) that are
assumed by the transferee of any such assets and from which SH Group or such
Subsidiary are released and (y) any notes or other obligations received by SH
Group or any such Subsidiaries from such transferee that are promptly, but in no
event more than 30 days after receipt, converted by SH Group or such Subsidiary
into cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision and the receipt of such cash shall be treated as cash
received from the Asset Sale for which such notes or obligations were received.
SH Group or any of its Subsidiaries may apply the Net Proceeds from each
Asset Sale, at its option, within 395 days after the consummation of such Asset
Sale, (a) to permanently reduce any Indebtedness of any Subsidiary of SH Group
(and in the case of any senior revolving indebtedness to correspondingly
permanently reduce commitments with respect thereto), (b) to make capital
expenditures, for the acquisition of another business or the acquisition of
other long-term assets, in each case, in the same or a Related Business, or (c)
to reimburse SH Group or its Subsidiaries for expenditures made, and costs
incurred, to repair, rebuild, replace or restore property subject to loss,
damage or taking to the extent that the Net Proceeds consist of insurance
proceeds received on account of such loss, damage or taking. Pending the final
application of any such Net Proceeds, SH Group may temporarily reduce any senior
revolving debt or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, SH Group will be required to make an offer to all
Holders of Debentures (an "Asset Sale Offer") and to holders of other
Indebtedness of SH Group outstanding ranking on a parity with the Debentures
with similar provisions requiring SH Group to make a similar offer with proceeds
from asset sales, pro rata in proportion to the respective principal amounts (or
accreted values in the case of Indebtedness issued with an original issue
discount) of the Debentures and such other Indebtedness then outstanding, to
purchase the maximum principal amount (or accreted value, as applicable) of
Debentures and such other Indebtedness, if any, that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date
56
<PAGE> 62
of purchase, or, in the case of repurchases of Debentures prior to June 1, 2003,
at a purchase price equal to 100% of the Accreted Value thereof plus Liquidated
Damages, if any, as of the date of repurchase in accordance with the procedures
set forth in the Indenture. If the aggregate principal amount at maturity, or
Accreted Value, as the case may be, of the Debentures and such Indebtedness
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Debentures and such Indebtedness to be purchased on a
pro rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
The Credit Agreement and the Note Indenture restrict the Company from
paying any dividends or making any other distributions to SH Group. If SH Group
is unable to obtain dividends from the Company sufficient to permit the
repurchase of the Debentures or does not refinance such Indebtedness, SH Group
will likely not have the financial resources to purchase Debentures. In any
event, there can be no assurance that SH Group's Subsidiaries will have the
resources available to pay any such dividend or make any such distribution. SH
Group's failure to make an Asset Sale Offer when required or to purchase
tendered Debentures when tendered would constitute an Event of Default under the
Indenture. See "Risk Factors--Substantial Leverage; Liquidity" and "--Limitation
on Access to Cash Flow of Subsidiaries; Holding Company Structure."
Any Asset Sale Offer shall remain open for at least 20 Business Days, in
any event no longer than 30 Business Days, and shall be made in compliance with
all applicable laws, rules, and regulations, including, if applicable,
Regulation 14E of the Exchange Act and the rules and regulations thereunder and
all other applicable Federal and state securities laws. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this paragraph, compliance by SH Group or any of its Subsidiaries with such laws
and regulations shall not in and of itself cause a breach of its obligations
under such covenant.
If the payment date in connection with an Asset Sale Offer hereunder is on
or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages,
if any), due on such Interest Payment Date will be paid to the person in whose
name a Debenture is registered at the close of business on such Record Date, and
such interest (or Liquidated Damages, if applicable) will not be payable to
Holders who tender Debentures pursuant to such Asset Sale Offer.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that SH Group will not, and will not permit any of
its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any distribution on account of SH Group or any of its Subsidiaries' or
direct or indirect parent's Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving SH Group)
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of SH Group or dividends or distributions payable to SH
Group or any Subsidiary of SH Group); (ii) purchase, redeem or otherwise acquire
or retire for value any Equity Interests of SH Group or any direct or indirect
parent of SH Group or other Affiliate or Subsidiary of SH Group (other than any
such Equity Interests owned by SH Group or any Wholly Owned Subsidiary of SH
Group); (iii) make any principal payment on or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
or pari passu (unless, in the case of pari passu Indebtedness only, such
purchase, redemption, defeasance, acquisition, or retirement is made, or offered
(if applicable), pro rata with the Debentures) with the Debentures (and other
than Debentures), except for any scheduled repayment or at the final maturity
thereof; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
57
<PAGE> 63
(b) SH Group would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by SH Group and its Subsidiaries after the Issue
Date (including Restricted Payments permitted by clauses (i), (vi), (vii),
(viii) and (ix), but excluding Restricted Payments permitted by clauses
(ii), (iii), (iv) and (v), of the next succeeding paragraph), is less than
the sum of (i) 50% of the Consolidated Net Income (adjusted to exclude any
amounts that are otherwise included in this clause (c) to the extent there
would be, and to avoid, any duplication in the crediting of any such
amounts) of SH Group for the period (taken as one accounting period) from
the beginning of the first fiscal quarter commencing after the Issue Date
to the end of SH Group's most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit), plus (ii) 100% of the aggregate Net Proceeds
received by SH Group after the Issue Date from a Capital Contribution or
from the issue or sale of Equity Interests of SH Group or of debt
securities of SH Group that have been converted into such Equity Interests
(other than Equity Interests (or convertible debt securities) sold to a
Subsidiary or an Unrestricted Subsidiary of SH Group and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (iii) 100% of any cash dividends received by SH
Group or any of its Wholly Owned Subsidiaries after the Issue Date from an
Unrestricted Subsidiary of SH Group, plus (iv) 100% of the Net Proceeds
realized by SH Group or a Wholly Owned Subsidiary of SH Group upon the sale
of any Unrestricted Subsidiary (less the amount of any reserve established
for purchase price adjustments and less the maximum amount of any
indemnification or similar contingent obligation for the benefit of the
purchaser, any of its Affiliates or any other third party in such sale, in
each case as adjusted for any permanent reduction in any such amount on or
after the date of such sale, other than by virtue of a payment made to such
person) following the Issue Date, plus (v) to the extent that any
Restricted Investment that was made after the Issue Date is sold for cash
or otherwise liquidated or repaid for cash, the amount of Net Proceeds
received by SH Group or any of its Subsidiaries with respect to such
Restricted Investment.
Notwithstanding the foregoing, SH Group's Subsidiaries are permitted to
make any Restricted Payment not prohibited by the Note Indenture as in effect on
the Issue Date, so long as any Notes remain outstanding and the Company is a
consolidated Subsidiary of SH Group.
The foregoing provisions do not prohibit (i) 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; (ii) the payment of a fee to AIP or its designee on the date of the
Indenture in an aggregate amount, together with any fees paid by any Subsidiary
of SH Group on the date of the Indenture, not to exceed $2.0 million for certain
investment banking, advisory and management services rendered to SH Group and
its Subsidiaries in connection with the Acquisition Transactions and if no
Default or Event of Default shall have occurred and be continuing (and shall not
have been waived) or shall occur as a consequence thereof, the payment by SH
Group (either directly or indirectly, e.g., through the Parent) of a management
fee to AIP in an aggregate amount, together with any management fees paid to AIP
by any Subsidiary of SH Group during or in respect of such period, not to exceed
$895,000 in any year plus an additional amount in such year (not to exceed
$895,000) to the extent such management fee was not payable by reason of this
clause (ii) in any prior fiscal year and the reimbursement by SH Group of AIP's
reasonable out-of-pocket expenses incurred in connection with the rendering of
management services to or on behalf of SH Group; provided, however, that the
obligation of SH Group to pay such management fee will be subordinated to the
payment of all Obligations with respect to the Debentures; (iii) the making of
any Restricted Investment, directly or indirectly, in exchange for, or out of
the Net Cash Proceeds received by SH Group after the Issue Date from a
substantially concurrent Capital Contribution or sale (other than to a
Subsidiary of SH Group) of Equity Interests of SH Group (other than Disqualified
Stock); provided, that any Net Cash Proceeds that are
58
<PAGE> 64
utilized for any such Restricted Investment shall be excluded from clauses
(c)(i) and (c)(ii) of the preceding paragraph; (iv) the redemption, repurchase,
retirement or other acquisition of any Equity Interests of SH Group in exchange
for, or out of the proceeds of, the substantially concurrent sale (other than to
a Subsidiary of SH Group) of other Equity Interests of SH Group (other than any
Disqualified Stock); provided that any Net Cash Proceeds that are utilized for
any such redemption, repurchase, retirement or other acquisition shall be
excluded from clauses (c)(i) and (c)(ii) of the preceding paragraph; (v) the
defeasance, redemption, repurchase, acquisition or other retirement of pari
passu or subordinated Indebtedness with the Net Cash Proceeds from an incurrence
of Permitted Refinancing Indebtedness or, in exchange for, or out of the Net
Cash Proceeds of, the substantially concurrent sale (other than to a Subsidiary
of SH Group) of Equity Interests of SH Group (other than Disqualified Stock);
provided, that any Net Cash Proceeds that are utilized for any such defeasance,
redemption, repurchase shall be excluded from clauses (c)(i) and (c)(ii) of the
preceding paragraph; (vi) the repurchase, redemption, or other acquisition or
retirement for value of any Equity Interests of SH Group or any Subsidiary of SH
Group held by any member of SH Group's (or any Subsidiaries') management
pursuant to any management agreement or stock option agreement; provided that
the aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $5.0 million in the aggregate (net of the Net
Cash Proceeds received by SH Group from subsequent reissuances of such Equity
Interests to new members of management), and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction; (vii)
so long as no Default or Event of Default shall have occurred and is continuing,
Restricted Payments in an aggregate amount not to exceed $1.0 million; (viii)
pro rata dividends and other distributions on the Capital Stock of any
Subsidiary of SH Group by such Subsidiary; and (ix) payments in lieu of
fractional shares in an amount not to exceed $250,000 in the aggregate.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default. For purposes of making
such determination, all outstanding Investments by SH Group and its Subsidiaries
(except to the extent repaid in cash) in the Subsidiary so designated will be
deemed to be Restricted Payments at the time of such designation and will reduce
the amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount equal to the greatest of (x) the net book value of such
Investments at the time of such designation, (y) the fair market value of such
Investments at the time of such designation and (z) the original fair market
value of such Investments at the time they were made. Such designation will only
be permitted if such Restricted Payment would be permitted at such time and if
such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by SH Group or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, SH Group shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this covenant were computed, which calculations may be based upon SH Group's
latest available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that SH Group will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness) and that SH Group will not issue any Disqualified Stock
and will not permit any of its Subsidiaries to issue any shares of preferred
stock or Disqualified Stock; provided, however, that SH Group may incur
Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified
Stock and SH Group's Subsidiaries may incur Indebtedness and issue preferred
stock or Disqualified Stock, if: (i) the Fixed Charge Coverage Ratio for SH
Group's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1, determined on a pro forma
59
<PAGE> 65
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be at the beginning of such
four-quarter period; and (ii) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof; provided, that no
Guarantee may be incurred pursuant to this paragraph, unless the guaranteed
Indebtedness is incurred by SH Group or a Subsidiary of SH Group pursuant to
this paragraph. The foregoing provisions will not apply to:
(i) the incurrence of Indebtedness by SH Group or its Subsidiaries
under the New 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 potential liability of SH Group and its Subsidiaries
thereunder) not to exceed an amount (including any Indebtedness incurred to
refinance, retire, renew, defease, refund or otherwise replace any such
Indebtedness) equal to $70.0 million, less (i) an amount equal to the
cumulative mandatory amortization payments required under the New Credit
Agreement in existence as of the Issue Date (irrespective of whether any
such payments are actually made or whether the New Credit Agreement remains
in existence) and (ii) the aggregate amount of all Net Proceeds of Asset
Sales applied to permanently reduce the outstanding amount or, as
applicable, the commitments with respect to such Indebtedness pursuant to
the covenant described above under the caption "--Asset Sales,"
(ii) the Existing Indebtedness;
(iii) the incurrence by SH Group of Indebtedness represented by the
Debentures and the incurrence by the Company and its Subsidiaries of
Indebtedness represented by the Notes and any Guarantee thereof;
(iv) the incurrence by SH Group or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or Purchase Money Obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of SH Group or such
Subsidiary, in an aggregate principal amount not to exceed $10.0 million at
any time outstanding (including any Indebtedness incurred to refinance,
retire, renew, defease, refund or otherwise replace any such Indebtedness);
(v) the incurrence by SH Group or any of its Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund, Indebtedness
that was permitted to be incurred by the Indenture or by the Note
Indenture, including the Notes and any Guarantees thereof, or was
outstanding on the Issue Date, after giving effect to the Acquisition
Transactions;
(vi) the incurrence by SH Group or any of its Wholly Owned
Subsidiaries of intercompany Indebtedness between or among SH Group and any
of its Wholly Owned Subsidiaries or between or among any Wholly Owned
Subsidiaries; provided, however, that (i) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than a Wholly Owned Subsidiary and (ii) any sale or
other transfer of any such Indebtedness to a Person that is not either SH
Group or a Wholly Owned Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by SH Group or such
Subsidiary, as the case may be;
(vii) the incurrence by SH Group or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate risk with respect to any floating rate Indebtedness that is permitted
by the Indenture to be incurred;
(viii) the incurrence by SH Group or any of its Subsidiaries of
Indebtedness in an aggregate principal amount at any time outstanding
(including any Indebtedness incurred to refinance, retire, renew, defease,
refund or otherwise replace any such Indebtedness) not to exceed $10.0
million;
(ix) the incurrence by SH Group or any Subsidiary of Indebtedness in
respect of judgment, appeal, surety, performance and other like bonds,
bankers acceptances and letters of credit provided by SH Group and its
Subsidiaries in the ordinary course of business in an aggregate amount
outstanding
60
<PAGE> 66
(including any indebtedness incurred to refinance, retire, renew, defease,
refund or otherwise replace any such Indebtedness) at any time of not more
than $500,000; and
(x) Indebtedness incurred by SH Group or any of its Subsidiaries
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from guarantees of letters of
credit, surety bonds or performance bonds securing the performance of SH
Group or any of its Subsidiaries to any person acquiring all or a portion
of such business or assets of a Subsidiary of SH Group for the purpose of
financing such acquisition, in a principal amount not to exceed 25% of the
gross proceeds (with proceeds other than cash or Cash Equivalents being
valued at the fair market value thereof as determined by the Board of
Directors of SH Group in good faith) actually received by SH Group or any
of its Subsidiaries in connection with such disposition.
Notwithstanding any other provision of this covenant, a Guarantee by a
Subsidiary of Indebtedness of SH Group or a Wholly Owned Subsidiary of SH Group
permitted by the terms of the Indenture at the time such Indebtedness was
incurred will not constitute a separate incurrence of Indebtedness.
The Indenture also provides that SH Group will not incur any Indebtedness
that is contractually subordinated to any Indebtedness unless it is subordinated
to the Debentures at least to the same extent as it is to such other
Indebtedness.
Notwithstanding the foregoing, (i) the SH Group's Subsidiaries will be
permitted to incur any Indebtedness to the extent such incurrence is not
prohibited by the Note Indenture, as in effect on the Issue Date, so long as any
Notes remain outstanding, and (ii) SH Group may incur Indebtedness to the extent
such incurrence would not be prohibited if incurred by SH Group's Subsidiaries
under the Debt Incurrence Ratio in the first paragraph of the covenant
"Incurrence of Indebtedness and Issuance of Preferred Stock" in the Note
Indenture, as in effect on the Issue Date, so long as any Notes remain
outstanding (for the purposes of this clause (ii) only, any debt incurred
pursuant to this clause shall be deemed to have been incurred under the Note
Indenture for the purposes of determining whether any additional Indebtedness
may be incurred pursuant to this clause (ii)).
Indebtedness or Disqualified Stock of any person which is outstanding at
the time such Person becomes a Subsidiary of SH Group (including upon
designation of any subsidiary or other person as a Subsidiary) or is merged with
or into or consolidated with SH Group or a Subsidiary of SH Group shall be
deemed to have been incurred at the time such Person becomes such a Subsidiary
of SH Group or is merged with or into or consolidated with SH Group or a
Subsidiary of SH Group, as applicable.
LIENS
The Indenture provides that SH Group will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens, unless the Debentures are secured by such Lien on an
equal and ratable basis; provided, that, if the Obligation secured by any Lien
is subordinate or junior in right of payment to the Debentures, the Lien
securing such Obligation shall be subordinate and junior to the Lien securing
the Debentures with the same or lesser relative priority as such Obligation
shall have been with respect to the Debentures.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that SH Group will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any encumbrance or restriction on the ability of
any Subsidiary to (i)(a) pay dividends or make any other distributions to SH
Group or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to
any other interest or participation in, or measured by, its profits, or (b) pay
any Indebtedness owed to SH Group or any of its Subsidiaries, (ii) make loans or
advances to SH Group or any of its Subsidiaries or (iii) transfer any of its
properties or assets to SH Group or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Credit Agreement
and the Note
61
<PAGE> 67
Indenture, in each case as in effect as of the date of the Indenture, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings may be no more restrictive with respect to such
dividend and other payment restrictions than the most restrictive of those
contained in the Credit Agreement or the Note Indenture, in each case as in
effect on the date of the Indenture, (c) the Indenture and the Debentures or
Indebtedness permitted to be incurred pursuant to the Indenture and ranking pari
passu with the Debentures, as applicable, to the extent such restrictions are no
more restrictive than those of the Indenture, (d) applicable law, (e) any
instrument governing Acquired Indebtedness or Capital Stock of a Person acquired
by SH Group or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Acquired Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, (f) by reason of customary non-assignment provisions in leases and
licenses entered into in the ordinary course of business and consistent with
past practices, (g) Purchase Money Obligations or Capital Lease Obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iii) above only on the property so acquired, (h)
agreements relating to the financing of the acquisition of real or tangible
personal property acquired after the date of the Indenture, provided, that such
encumbrance or restriction relates only to the property which is acquired and in
the case of any encumbrance or restriction that constitutes a Lien, such Lien
constitutes a Permitted Lien as set forth in clause (xi) of the definition of
"Permitted Lien," (i) any restriction or encumbrance contained in contracts for
sale of assets permitted by this Indenture in respect of the assets being sold
pursuant to such contract, (j) Indebtedness permitted to be incurred under the
Indenture and incurred on or after the date of the Indenture; provided, that
such encumbrances or restrictions in such Indebtedness are no more onerous than
the most restrictive of those contained in the Credit Agreement or the Note
Indenture, in each case as in effect on the date of the Indenture, or (k)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that SH Group will not in a single transaction or
series of related transactions consolidate or merge with or into (whether or not
SH Group is the surviving corporation), or directly or indirectly, sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) SH Group is the surviving corporation
or the entity or the Person formed by or surviving any such consolidation or
merger (if other than SH Group) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the entity or Person formed by or surviving any
such consolidation or merger (if other than SH Group) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of SH Group, as the case may
be, under the Debentures and the Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; (iv) SH Group, or the entity
or Person formed by or surviving any such consolidation or merger (if other than
SH Group), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock"; and (v)
SH Group shall have delivered to the Trustee an Officer's Certificate and an
opinion of counsel, each stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with the Indenture. Notwithstanding
the foregoing, the transactions comprising the Acquisition Transactions shall be
deemed to be expressly permitted under the Indenture and shall not require the
execution and delivery of a supplemental indenture.
62
<PAGE> 68
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of SH Group in accordance with the foregoing, the successor
corporation formed by such consolidation or into which SH Group is merged or to
which such transfer is made shall succeed to and (except in the case of a lease)
be substituted for, and may exercise every right and power of, SH Group under
the Indenture with the same effect as if such successor corporation had been
named therein as SH Group, and (except in the case of a lease) SH Group shall be
released from the obligations under the Debentures and the Indenture except with
respect to any obligations that arise from, or are related to, such transaction.
For the purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries of SH Group, SH Group's interest in which constitutes all or
substantially all of the properties and assets of SH Group shall be deemed to be
the transfer of all or substantially all of the properties and assets of SH
Group.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that SH Group will not, and will not permit any of
its Subsidiaries to enter into any transaction (including the sale, lease,
exchange, transfer or other disposition of any of its properties or assets or
services, or the purchase of any property, assets or services), or enter into or
make any contract, agreement, understanding, loan, advance or guarantee with, or
for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to SH Group or the relevant Subsidiary than those that would have
been obtained in a comparable transaction by SH Group or such Subsidiary with an
unrelated Person and (ii) SH Group delivers to the Trustee (a) with respect to
any Affiliate Transaction or series of related Affiliate Transactions entered
into after the date of the Indenture involving aggregate consideration in excess
of $5.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transactions comply with
clause (i) above and that such Affiliate Transactions have been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transactions or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, a
favorable written opinion as to the fairness to SH Group or such Subsidiary of
such Affiliate Transactions from a financial point of view issued by an
investment banking firm of national standing in the United States, or in the
event such transaction is a type that investment bankers do not generally render
fairness opinions, a valuation or appraisal firm of national standing; provided,
that, the following shall not be deemed to be Affiliate Transactions: (w) the
provision of administrative or management services by SH Group or any of its
officers to any of its Subsidiaries in the ordinary course of business
consistent with past practice, (x) any employment agreement entered into by SH
Group or any of its Subsidiaries in the ordinary course of business and
consistent with the past practice of SH Group or such Subsidiary, (y)
transactions between or among SH Group and/or its Wholly Owned Subsidiaries and
(z) transactions permitted by the provisions of the Indenture described above
under the caption "Restricted Payments." In addition, none of the Acquisition
Transactions shall be deemed to be Affiliate Transactions.
LINE OF BUSINESS
The Indenture provides that neither SH Group nor any of its Subsidiaries
shall directly or indirectly engage to any substantial extent in any line or
lines of business activity other than that which, in the reasonable good faith
judgment of the Board of Directors of SH Group, is a Related Business.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission so long as any Debentures are outstanding, SH
Group will furnish to the Holders of Debentures (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 SH Group 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 SH Group's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if SH Group were required to file such reports. In
63
<PAGE> 69
addition, whether or not required by the rules and regulations of the
Commission, at any time after the effectiveness of a registration statement with
respect to the Exchange Offer, SH Group will file a copy of all such information
and reports with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, SH Group has
agreed that, for so long as any Debentures remain outstanding, it will furnish
to the Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Debentures; (ii) default in
payment when due of the principal of or premium, if any, on the Debentures;
(iii) failure by SH Group to comply with the provisions described under the
captions "Repurchase at the Option of Holders" for a period of 30 days; (iv)
failure by SH Group to comply with any of its other agreements or covenants in,
or provisions of, the Indenture or the Debentures; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by SH
Group or any of its Subsidiaries (or the payment of which is Guaranteed by SH
Group or any of its Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium on such Indebtedness when due
(after giving effect to any applicable grace period provided in such
Indebtedness) or (b) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been such a payment default or the maturity of which has
been so accelerated, aggregates $5.0 million or more; (vi) failure by SH Group
or any of its Significant Subsidiaries to pay nonappealable final judgments (not
fully covered by insurance) aggregating in excess of $5.0 million, which
judgments are not paid, bonded, discharged or stayed within a period of 60 days;
and (vii) certain events of bankruptcy or insolvency with respect to SH Group or
any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Debentures may declare all the Debentures to be due and payable immediately by
notice in writing to SH Group (and to the Trustee if given by the Holders) (an
"Acceleration Notice"). Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency with respect
to SH Group, any Significant Subsidiary or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Debentures
will become due and payable without further action or notice. Upon any
acceleration of maturity of the Debentures, all principal of and accrued
interest and Liquidated Damages, if any, on (if subsequent to June 1, 2003) or
Accreted Value of and Liquidated Damages, if any, on (if prior to June 1, 2003)
the Debentures shall be due and payable immediately. Holders of the Debentures
may not enforce the Indenture or the Debentures except as provided in the
Indenture. Subject to certain limitations, Holders of not less than a majority
in aggregate principal amount of the then outstanding Debentures may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Debentures notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The Holders of not less than a majority in aggregate principal amount of
the Debentures then outstanding by written notice to the Trustee may on behalf
of the Holders of all of the Debentures waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the
Debentures.
SH Group is required to deliver to the Trustee quarterly a statement
regarding compliance with the Indenture, and SH Group is required upon becoming
aware of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
64
<PAGE> 70
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of SH Group, as such, shall have any liability for any obligations
of SH Group under the Debentures, the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Debentures by accepting a Debenture waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Debentures.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SH Group may, at the option of its Board of Directors, at any time, elect
to have all of its obligations discharged with respect to all outstanding
Debentures ("Legal Defeasance") except for (i) the rights of Holders of
outstanding Debentures to receive payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages on such Debentures when
such payments are due from the trust referred to below, (ii) SH Group's
obligations with respect to the Debentures concerning issuing temporary
Debentures, registration of Debentures, mutilated, destroyed, lost or stolen
Debentures and the maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee under the Indenture, and SH Group's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, SH Group may, at the option of its Board of Directors, at any time,
elect to have the obligations of SH Group released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Debentures. In the event
Covenant Defeasance occurs, certain events (not including nonpayment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Debentures.
In order to exercise either Legal Defeasance or Covenant Defeasance: (i) SH
Group must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Debentures, cash in U.S. dollars, non-callable Government
Securities, 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, interest and Liquidated Damages on the
outstanding Debentures on the stated maturity or on the applicable redemption
date, as the case may be, and SH Group must specify whether the Debentures are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, SH Group shall deliver to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee confirming that (A) SH
Group has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of the Indenture, there has been a change
in the applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Debentures will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal 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 had not occurred; (iii) in
the case of Covenant Defeasance, SH Group shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Debentures will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Event of Default or Default
shall have occurred and be continuing on the date of such deposit (other than an
Event of Default or Default resulting from the borrowing of funds to be applied
to such deposit); (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which SH Group or any of
its Subsidiaries is a party or by which SH Group or any of its Subsidiaries is
bound; (vi) SH Group must have delivered to the Trustee an opinion of counsel to
the effect that after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) SH
Group must deliver to the Trustee an Officers' Certificate stating that the
deposit was not
65
<PAGE> 71
made by SH Group with the intent of preferring the Holders of Debentures over
the other creditors of SH Group with the intent of defeating, hindering,
delaying or defrauding creditors of SH Group or others; and (viii) SH Group must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for, in the case of the Officers'
Certificate, (i) through (vii) and, in the case of the opinion of counsel,
clauses (i) (with respect to the validity and perfection of the security
interest), (ii), (iii) and (v) of this paragraph relating to the Legal
Defeasance or the Covenant Defeasance, as applicable, have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Debentures in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and SH Group
may require a Holder to pay any taxes and fees required by law or permitted by
the Indenture. SH Group is not required to transfer or exchange any Debenture
selected for redemption. Also, SH Group is not required to transfer or exchange
any Debenture for a period of 15 days before a selection of Debentures to be
redeemed.
The registered Holder of a Debenture will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Debentures may be amended or supplemented with the consent of the Holders of
a majority in aggregate principal amount of the Debentures then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for Debentures) and any existing Default or Event of Default or compliance with
any provision of the Indenture or the Debentures may be waived with the consent
of the Holders of a majority in aggregate principal amount of the then
outstanding Debentures (including consents obtained in connection with a tender
offer or exchange offer for Debentures).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Debentures held by a non-consenting Holder): (i) reduce the
aggregate principal amount of Debentures whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Debenture or alter the provisions with respect to the
redemption of the Debentures (other than provisions relating to the covenants
described above under the caption "Repurchase at the Option of Holders"), (iii)
reduce the rate of or change the time for payment of interest on any Debenture,
(iv) waive a Default or Event of Default in the payment of Liquidated Damages or
principal of or premium, if any, or interest on the Debentures (except a
rescission of acceleration of the Debentures by the Holders of a majority in
aggregate principal amount of the Debentures and a waiver of the payment default
that resulted from such acceleration), (v) make any Debenture payable in money
other than that stated in the Debentures, (vi) make any change in the provisions
of the Indenture relating to waivers of past Defaults or the rights of Holders
of Debentures to receive payments of principal of or premium, if any, or
interest on the Debentures, (vii) waive a redemption payment with respect to any
Debenture (other than a payment required by one of the covenants described above
under the caption "Repurchase at the Option of Holders") or (viii) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of
Debentures, SH Group and the Trustee may amend or supplement the Indenture or
the Debentures to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Debentures in addition to or in place of certificated Debentures,
to provide for the assumption of SH Group's obligations to Holders of Debentures
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the Holders of Debentures or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act, or to evidence,
and provide for acceptance of, the appointment of a successor Trustee under the
Indenture.
66
<PAGE> 72
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of SH Group, 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 it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
as trustee or resign. The Trustee will also serve as trustee under the Note
Indenture.
The Holders of a majority in aggregate principal amount of the then
outstanding Debentures will have the right to direct the time, method and place
of conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man 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 of Debentures, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to SH Group at 1801
Rutherford Road, Greenville, South Carolina 29607, Attention: Chief Financial
Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accreted Value" means, as of any date of determination, the sum (rounded
to the nearest whole dollar) of (a) the initial offering price of each $1,000 in
principal amount at maturity of Debentures and (b) the portion of the excess of
the principal amount of Debentures over such initial offering price which shall
have been accreted thereon through such date, such amount to be so accreted on a
daily basis at the rate of 13 3/4% per annum compounded semi-annually on each
June 1 and December 1 from the date of issuance of the Debentures through the
date of determination. On or after June 1, 2003, the Accreted Value of each
Debenture shall be equal to its principal amount at maturity.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control. Notwithstanding the foregoing, the limited partners in
AIP shall not be deemed to be Affiliates of AIP solely by reason of their
investment in such funds.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
that does not constitute a Restricted Payment or an Investment by such person of
any of its non-cash assets (including, without limitation, by way of a sale and
leaseback and including the issuance, sale or other transfer of any of the
capital stock of any Subsidiary of such person but excluding Cash Equivalents
liquidated in the ordinary course of
67
<PAGE> 73
business) other than to SH Group or to any of its Wholly Owned Subsidiaries
(including the receipt of proceeds of insurance paid on account of the loss of
or damage to any asset and awards of compensation for any asset taken by
condemnation, eminent domain or similar proceeding, and including the receipt of
proceeds of business interruption insurance); and (ii) the issuance of Equity
Interests in any Subsidiaries or the sale of any Equity Interests in any
Subsidiaries, in each case, in one or a series of related transactions,
provided, that notwithstanding the foregoing, the term "Asset Sale" shall not
include: (a) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of SH Group, as permitted pursuant to the
covenant entitled "Merger, Consolidation or Sale of Assets," (b) the sale or
lease of equipment, inventory, accounts receivable or other assets in the
ordinary course of business consistent with past practice, (c) the sale or
disposal of damaged, worn out or other obsolete personal property in the
ordinary course of business so long as such property is no longer necessary for
the proper conduct of the business of SH Group or such Subsidiary, as
applicable; (d) a transfer of assets by SH Group to a Wholly Owned Subsidiary or
by a Wholly Owned Subsidiary to SH Group or to another Wholly Owned Subsidiary,
(e) an issuance of Equity Interests by a Wholly Owned Subsidiary to SH Group or
to another Wholly Owned Subsidiary, (f) the surrender or waiver of contract
rights or the settlement, release or surrender of contract, tort or other claims
of any kind, (g) the grant in the ordinary course of business of any
non-exclusive license of patents, trademarks, registrations therefor and other
similar intellectual property, or (h) Permitted Investments.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a Capital Lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Contribution" means any contribution to the equity of SH Group for
which no consideration is given other than common stock with no redemption
rights and no special privileges, preferences, or special voting rights.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (a) securities 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 is pledged in support thereof) having maturities not more than twelve
months from the date of acquisition, (b) U.S. dollar denominated (or foreign
currency fully hedged) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit of (i) any domestic commercial
bank of recognized standing having capital and surplus in excess of $100 million
or (ii) any bank whose short-term commercial paper rating from S&P is at least
A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank being an "Approved Lender"), in each case with maturities
of not more than twelve months from the date of acquisition, (c) commercial
paper and variable or fixed rate notes issued by any Approved Lender (or by the
parent company thereof) or any variable rate notes issued by, or guaranteed by,
any domestic corporation rated A-2 (or the equivalent thereof) or better by S&P
or P-2 (or the equivalent thereof) or better by Moody's and maturing within
twelve months of the date of acquisition, (d) repurchase agreements with a bank
or trust company or recognized securities dealer having capital and surplus in
excess of $100 million for direct obligations issued by or fully guaranteed by
the United States of America in which SH Group shall have a perfected first
priority security interest (subject to no other Liens) and having, on the date
of purchase thereof, a fair market value of at least 100% of the amount of
repurchase obligations, and (e) interests in money market mutual funds which
invest solely in assets or securities of the type described in subparagraphs
(a), (b), (c) or (d) hereof.
"Change of Control" means such time as (i) prior to the initial public
offering by SH Group of any shares of its common stock (other than a public
offering pursuant to a registration statement on Form S-8),
68
<PAGE> 74
AIP and its Affiliates (collectively, the "Initial Investors") cease to be,
directly or indirectly, the beneficial owners, in the aggregate of at least 51%
of the voting power of the voting common stock of SH Group or (ii) after the
initial public offering by SH Group of any shares of its common stock (other
than a public offering pursuant to a registration statement on Form S-8), (A)
any Schedule 13D, Form 13F or Schedule 13G under the Exchange Act, or any
amendment to such Schedule or Form, is received by SH Group which indicates
that, or SH Group otherwise becomes aware that, a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) has become,
directly or indirectly, the "beneficial owner", by way of merger, consolidation
or otherwise, of 35% or more of the voting power of the voting capital stock of
SH Group and (B) any such person or group has become, directly or indirectly,
the beneficial owner of a greater percentage of the voting capital stock of SH
Group than is beneficially owned by the Initial Investors, or (iii) the sale,
lease or transfer of all or substantially all of the assets of SH Group to any
person or group (other than the Initial Investors or their Related Parties (as
defined below)), or (iv) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted the Board of
Directors of SH Group (together with any Continuing Directors) cease for any
reason to constitute a majority of the directors of SH Group, then in office.
"Related Party" with respect to any Initial Investor means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse, or immediate family
member (in the case of any individual) of such Initial Investor or (B) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons beneficially holding an 80% or more
controlling interest of which consist of such Initial Investor and/or such other
persons referred to in the immediately preceding clause (A).
"Consolidated EBITDA" means, with respect to SH Group and its Subsidiaries
for any period, the sum of, without duplication, (i) the Consolidated Net Income
for such period, plus (ii) the Fixed Charges for such period, plus (iii)
provision for taxes based on income or profits for such period (to the extent
such income or profits were included in computing Consolidated Net Income for
such period), plus (iv) consolidated depreciation, amortization and other
non-cash charges of SH Group and its Subsidiaries required to be reflected as
expenses on the books and records of SH Group, minus (v) cash payments with
respect to any non-recurring, non-cash charges previously added back pursuant to
clause (iv), and (vi) excluding the impact of foreign currency translation.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated EBITDA only to the extent (and in the same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be paid as a dividend to SH Group by such
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded, (v) the Net Income of, or any dividends or other
distributions from, any Unrestricted Subsidiary, to the extent otherwise
included, shall be excluded, whether or not distributed to SH Group or one of
its Subsidiaries, and (vi) all other extraordinary gains and extraordinary
losses shall be excluded.
69
<PAGE> 75
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of SH Group who (i) was a member of such Board of
Directors on the Issue Date, (ii) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing Directors
who were members of such Board of Directors at the time of such nomination or
election or (iii) was appointed by AIP pursuant to the Shareholders Agreement.
"Credit Agreement" means that certain Credit Agreement, dated as of the
date of the Indenture, by and among the Company and NationsBank, N.A., as
administrative agent, and the lenders parties thereto, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced, extended, restated or refinanced from time to time, including any
agreement restructuring or adding SH Group or any of its Subsidiaries as
additional borrowers or guarantors thereunder and whether by the same or any
other agent, lender or group of lenders; provided that the total amount of
Indebtedness is not thereby increased beyond the amount that may then be
incurred at such time pursuant to the covenant described under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock".
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
on which the Debentures mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an underwritten public offering of Equity Interests
of SH Group, other than Disqualified Stock, pursuant to a registration statement
filed with the Commission in accordance with the Securities Act.
"Existing Indebtedness" means the Indebtedness of SH Group and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, amortization of deferred
financing fees, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the
consolidated interest expense of such Person and its Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or one of its Subsidiaries or
secured by a Lien on assets of such Person or one of its Subsidiaries (whether
or not such Guarantee or Lien is called upon) and (iv) the product of (a) all
cash dividend payments (and non cash dividend payments in the case of a Person
that is a Subsidiary) on any series of preferred stock of such Person payable to
a party other than SH Group or a Wholly Owned Subsidiary, times (b) 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, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Subsidiaries
for such period to the Fixed Charges of such Person and its Subsidiaries for
such period. In the event that SH Group or any of its Subsidiaries incurs,
assumes, retires, Guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement of
the four-quarter reference period for which the Fixed Charge Coverage Ratio is
being calculated but on or prior to the date on which the event for which the
70
<PAGE> 76
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, retirement, Guarantee or redemption of
Indebtedness, or such issuance or redemption of preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter reference period.
For purposes of making the computation referred to above, (i) acquisitions that
have been made by SH Group or any of its Subsidiaries, including through mergers
or consolidations and including any related financing and refinancing
transactions, during the four-quarter reference period subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period, and (ii) the
Consolidated EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of on or prior to
the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of on or prior to the Calculation Date,
shall be excluded, but only to the extent that the obligations giving rise to
such Fixed Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means any Wholly Owned Subsidiary organized and
incorporated in a jurisdiction outside of 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 have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such Person (whether arising by virtue of agreements to keep
well, to purchase assets, goods, letters of credit, reimbursement agreements,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has corresponding meaning.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates.
"Holder" means a Person in whose name a Debenture is registered on the
Registrar's books.
"Indebtedness" means, with respect to any Person, any (i) indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable
incurred in the ordinary course of business, but only (other than with respect
to, letters of credit and Hedging Obligations) if and to the extent any of the
foregoing indebtedness would appear as a liability upon a consolidated balance
sheet of such Person prepared in accordance with GAAP, (ii) all Obligations of
such Person with respect to any conditional sale or title retention agreement,
(iii) the amount of all Obligations of such Person with respect to redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Subsidiary of such Person, any preferred stock, (iv) all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, (v) to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
71
<PAGE> 77
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations, but
excluding guarantees of Indebtedness of SH Group or any Wholly Owned Subsidiary
to the extent such guarantee is permitted by the covenant "Incurrence of
Indebtedness and Issuance of Preferred Stock"), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), transfers of assets outside
the ordinary course of business other than Asset Sales, purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities and all other items that are or would be classified, as investments
on a balance sheet prepared in accordance with GAAP; provided that an
acquisition of assets, Equity Interests or other securities by SH Group for
consideration consisting of common equity securities of SH Group shall not be
deemed to be an Investment.
"Issue Date" means the date of first issuance of the Debentures under the
Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means, the amounts payable by SH Group, if any,
pursuant to the provisions described under "Registration Rights; Liquidated
Damages."
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by SH Group in the case of a sale or equity contribution in respect of
Qualified Capital Stock plus, in the case of an issuance of Qualified Capital
Stock upon any exercise, exchange or conversion of securities (including
options, warrants, rights and convertible or exchangeable debt) of SH Group that
were issued for cash after the Issue Date, the amount of cash originally
received by SH Group upon the issuance of such securities (including options,
warrants, rights and convertible or exchangeable debt) less, the sum of all
payments, fees, commissions, and customary and reasonable expenses (including,
without limitation, the fees and expenses of legal counsel and investment
banking fees and expenses) incurred in connection with such sale or equity
contribution in respect of Qualified Capital Stock.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash and Cash Equivalents received by SH
Group or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
noncash consideration received in any Asset Sale) and, with respect to the
covenant "Restricted Payments," by SH Group or any Subsidiary in respect of the
sale of an Unrestricted Subsidiary and the sale, liquidation or repayment for
cash of a Restricted Investment, in each case, net of the direct costs relating
thereto (including, without limitation, legal, accounting and investment banking
fees, and sales commissions) and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax-sharing arrangements), and
any reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Note Indenture" means the Indenture governing the Senior Subordinated
Notes.
72
<PAGE> 78
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damage and other liabilities payable under the
documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investments in any of the Senior
Subordinated Notes, (b) any Investments in SH Group or in a Wholly Owned
Subsidiary of SH Group and that is engaged in one or more Related Businesses,
(c) any Investments in Cash Equivalents; (d) Investments by SH Group or any
Subsidiary of SH Group in a Person if as a result of such Investment (i) such
Person becomes a Wholly Owned Subsidiary of SH Group that is engaged in one or
more Related Businesses or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, SH Group or a Wholly Owned Subsidiary of SH
Group and that is engaged in one or more Related Businesses; (e) Investments
made as a result of the receipt of non-cash consideration from an Asset Sale
that was made pursuant to and in compliance with the covenant described above
under the caption "--Repurchase at the Option of Holders--Asset Sales"; (f)
Investments outstanding as of the date of the Indenture; (g) Investments in the
form of promissory notes of members of SH Group's management in consideration of
the purchase by such members of Equity Interests (other than Disqualified Stock)
in SH Group; (h) Investments which constitute Existing Indebtedness of SH Group
or any of its Subsidiaries; (i) accounts receivable, endorsements for collection
or deposits arising in the ordinary course of business; and (j) other
Investments in any Person or Persons that do not in the aggregate exceed $10.0
million at any time outstanding; provided, however, that to the extent there
would be, and to avoid, any duplication in determining the amounts of
investments outstanding under this clause (j), any amounts which were credited
under clause (c) of the covenant "Restricted Payments" shall reduce the amounts
outstanding under this clause (j).
"Permitted Liens" means (i) Liens securing Indebtedness outstanding under
the Credit Agreement in an aggregate principal amount at any time outstanding
not to exceed amounts permitted under the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock"; (ii) Liens in favor of SH Group
or a Subsidiary of SH Group; (iii) Liens on property of a Person existing at the
time such Person is merged into or consolidated with SH Group or any Subsidiary
of SH Group, including Liens securing Permitted Refinancing Indebtedness with
respect thereto; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with SH Group; (iv)
Liens on property existing at the time of acquisition thereof by SH Group or any
Subsidiary of SH Group, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens existing on the date of the Indenture; (vii) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(viii) Liens incurred in the ordinary course of business of SH Group or any
Subsidiary of SH Group with respect to obligations that do not exceed in the
aggregate $5.0 million at any one time outstanding and that (a) are not incurred
in connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by SH Group or such
Subsidiary; (ix) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security; (x) easements, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the business of SH
Group or any of its Subsidiaries, (xi) Purchase Money Liens (including
extensions and renewals thereof); (xii) Liens securing reimbursement obligations
with respect to letters of credit which encumber only documents and other
property relating to such letters of credit and the products and proceeds
thereof; (xiii) judgment and attachment Liens not giving rise to an Event of
Default; (xiv) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements; (xv) Liens
arising out of consignment or similar arrangements for the sale of goods; (xvi)
any interest or title of a lessor in property subject to any capital lease
obligation or operating lease; and (xvii) Liens on assets of Subsidiaries with
respect to Acquired Indebtedness (including Permitted Refinancing Indebtedness
with respect thereto), provided, such Liens are only on assets or property
acquired with such Acquired Indebtedness and that such
73
<PAGE> 79
Liens were not created in contemplation of or in connection with such
Acquisition; and (xviii) Liens granted by a Foreign Subsidiary to secure
Indebtedness of such Foreign Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of SH Group or
any of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of SH Group or any of its Subsidiaries; provided that: (a) the principal amount
of such Permitted Refinancing Indebtedness does not exceed (after deduction of
reasonable and customary fees and expenses incurred in connection with such
refinancing and the amount of any premium or prepayment penalty paid in
connection with such refinancing transaction to the extent in accordance with
the terms of the document governing such Indebtedness (except for any
modification to any such document made in connection with or in contemplation of
such refinancing) the lesser of (i) the principal amount of the Indebtedness so
extended refinanced, renewed, replaced, defeased or refunded; and (ii) if such
Indebtedness being refinanced was issued with an original issue discount, the
accreted value thereof (as determined in accordance with GAAP) at the time of
such refinancing, plus, in each case accrued interest on such Indebtedness being
refinanced; (b) such Permitted Refinancing Indebtedness has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (c) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Debentures, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
Debentures on terms at least as favorable to the Holders of Debentures as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (d) such Indebtedness
is incurred either by SH Group or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Purchase Money Lien" means a Lien granted on an asset or property to
secure a Purchase Money Obligation permitted to be incurred under the Indenture
and incurred solely to finance the acquisition, including, in the case of a
Capital Lease, the lease, of such asset or property; provided, however, that
such Lien encumbers only such asset or property and is granted within 180 days
of such acquisition.
"Purchase Money Obligations" of any person means any obligations of such
person to any seller or any other person incurred or assumed to finance solely
the acquisition, including, in the case of a Capital Lease, the lease, of real
or personal property to be used in the business of such person or any of its
Subsidiaries in an amount that is not more than 100% of the cost of such
property, and incurred within 180 days after the date of such acquisition
(excluding accounts payable to trade creditors incurred in the ordinary course
of business).
"Qualified Capital Stock" means any Capital Stock of SH Group that is not
Disqualified Stock.
"Related Business" means the business conducted (or proposed to be
conducted) by SH Group and its Subsidiaries as of the Issue Date and any and all
businesses that in the good faith judgment of the Board of Directors of SH Group
are materially related businesses, including reasonable extensions or expansions
thereof.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Subordinated Notes" means the 10 5/8% Senior Subordinated Notes due
2008 of Steel Heddle Mfg. Co.
"Shareholders Agreement" means the shareholders agreement by and between SH
Group and certain of its shareholders.
"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 Exchange Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" when used with respect to any Debenture, means June 1,
2009.
"Steel Heddle Mfg. Co." means Steel Heddle Mfg. Co., a Pennsylvania
corporation.
74
<PAGE> 80
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof). Unrestricted
Subsidiaries shall not be included in the definition of Subsidiary for any
purposes of the Indenture (except, as the context may otherwise require, for
purposes of the definition of "Unrestricted Subsidiary").
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with SH Group or any Subsidiary of SH Group unless
the terms of any such agreement, contract, arrangement or understanding are no
less favorable to SH Group or such Subsidiary than those that might be obtained
at the time from Persons who are not Affiliates of SH Group; (c) is a Person
with respect to which neither SH Group nor any of the Subsidiaries has any
direct or indirect obligation to subscribe for additional Equity Interests or
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified level of operating results; and (d) has not guaranteed
or otherwise directly or indirectly provided credit support for any Indebtedness
of SH Group or any of its Subsidiaries, and (ii) any Subsidiary of an
Unrestricted Subsidiary. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolutions giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "Certain
Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Subsidiary of SH Group as of such date (and, if such Indebtedness is not
permitted nor incurred as of such date under the covenant described under the
caption "Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," SH Group shall be in default of such covenant). The Board of Directors
of SH Group may at any time designate any Unrestricted Subsidiary to be a
Subsidiary; provided, that such designation shall be deemed to be an incurrence
of Indebtedness by a Subsidiary of SH Group of any outstanding Indebtedness of
such Unrestricted Subsidiary and such designation shall only be permitted if (i)
such Indebtedness is permitted under the covenant described under the caption
"Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock,"
and (ii) no Default or Event of Default would be in existence following such
designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each of the remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twentieth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person. Unrestricted
Subsidiaries shall not be included in the definition of Wholly Owned Subsidiary
for any purposes of the Indenture (except, as the context may otherwise require,
for purposes of the definition of "Unrestricted Subsidiary.")
75
<PAGE> 81
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
SH Group and the Initial Purchaser entered into the Registration Rights
Agreement on May 26, 1998. In the Registration Rights Agreement, SH Group agreed
to file this Registration Statement with the Commission within 75 days of the
Closing Date and to use its best efforts to have it declared effective within
150 days of the Closing Date. SH Group also agreed to use its best efforts to
cause the Exchange Offer Registration Statement (of which this Prospectus is a
part) to be effective continuously, to keep the Exchange Offer open for a period
of not less than 20 business days and cause the Exchange Offer to be consummated
no later than the 30th business day after it is declared effective by the
Commission. To participate in the Exchange Offer, each Holder must represent
that it is not an affiliate of SH Group, 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 Debentures and it is acquiring the New
Debentures in the Exchange Offer in its ordinary course of business.
If (i) the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any Holder of Old Debentures which are Transfer Restricted
Securities notifies SH Group prior to the 20th business day following the
consummation of the Exchange Offer that (a) it is prohibited by law or
Commission policy from participating in the Exchange Offer, (b) it may not
resell the New Debentures acquired by it in the Exchange Offer to the public
without delivering a prospectus, and the Prospectus contained in this
Registration Statement is not appropriate or available for such resales by it or
(c) it is a broker-dealer and holds the Old Debentures acquired directly from SH
Group or any of the SH Group's affiliates, SH Group will file with the
Commission a Shelf Registration Statement to register for public resale the
Transfer Restricted Securities held by any such Holder who provides SH Group
with certain information for inclusion in the Shelf Registration Statement.
For the purposes of the Registration Rights Agreement, "Transfer Restricted
Securities" means each Old Debenture until the earliest of the date of which (i)
such Old Debentures is exchanged hereby and entitled to be resold to the public
by the Holder thereof without complying with the prospectus delivery
requirements of the Securities Act, (ii) such Old Debentures has been disposed
of in accordance with the Shelf Registration Statement, (iii) such Old Debenture
is disposed of by a broker-dealer pursuant to the "Plan of Distribution"
contemplated by the Exchange Offer Registration Statement (including delivery of
the Prospectus contained therein) or (iv) such Old Debenture is distributed to
the public pursuant to Rule 144 under the Securities Act.
The Registration Rights Agreement provides that (i) if SH Group fails to
file an Exchange Offer Registration Statement with the Commission on or prior to
the 75th day after the Closing Date, (ii) if the Exchange Offer Registration
Statement is not declared effective by the Commission on or prior to the 150th
day after the Closing Date, (iii) the Exchange Offer is not consummated on or
before the 30th business day after the Exchange Offer Registration Statement is
declared effective, (iv) if obligated to file the Shelf Registration Statement
and SH Group fails to file the Shelf Registration Statement with the Commission
on or prior to the 30th business day after such filing obligation arises, (v) if
obligated to file a Shelf Registration Statement and the Shelf Registration
Statement is not declared effective on or prior to the 90th day after the
obligation to file a Shelf Registration Statement arises or (vi) if the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, is declared effective but thereafter ceases to be effective or useable
in connection with resales of the Transfer Restricted Securities, such time of
non-effectiveness or non-useability (each, a "Registration Default"), SH Group
agrees to pay to each Holder of Transfer Restricted Securities affected thereby
liquidated damages ("Liquidated Damages") in an amount equal to $0.05 per week
per $1,000 in principal amount of Transfer Restricted Securities held by such
Holder for each week or portion thereof that the Registration Default continues
for the first 90-day period immediately following the occurrence of such
Registration Default. The amount of the Liquidated Damages shall increase by an
additional $0.05 per week per $1,000 in principal amount of 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 $0.50
per week, per $1,000 in principal amount of Transfer Restricted Securities. SH
Group shall not be required to pay Liquidated Damages for more than one
Registration Default at any given time. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.
76
<PAGE> 82
All accrued Liquidated Damages shall be paid by SH Group to Holders
entitled thereto in the same manner as interest payments on the Debentures on
semi-annual damages payment dates which correspond to interest payment dates for
the Debentures.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The Debentures sold to Qualified Institutional Buyers initially will be in
the form of one or more registered global notes without interest coupons
(collectively, the "U.S. Global Notes"). Upon issuance, the U.S. Global Notes
will be deposited with the Trustee, as custodian for DTC, in New York, New York,
and registered in the name of DTC or its nominee, in each case for credit to the
accounts of DTC's Direct and Indirect Participants (as defined below). The
Debentures being offered and sold in offshore transactions in reliance on
Regulation S, if any, initially will be in the form of one or more temporary,
registered, global book-entry notes without interest coupons (the "Reg S
Temporary Global Notes"). The Reg S Temporary Global Notes will be deposited
with the Trustee, as custodian for the DTC, in New York, New York, and
registered in the name of a nominee of DTC (a "Nominee") for credit to the
accounts of Indirect Participants at the Euroclear System ("Euroclear") and
Cedel Bank, societe anonyme ("CEDEL"). During the 40-day period commencing on
the day after the later of the Offering or the original Issue Date (as defined
herein) of the Debentures (the "40-Day Restricted Period"), beneficial interests
in the Reg S Temporary Global Note may be held only through Euroclear or CEDEL,
and, pursuant to DTC's procedures, Indirect Participants that hold a beneficial
interest in the Reg S Temporary Global Note will not be able to transfer such
interest to a person that takes delivery thereof in the form of an interest in
the U.S. Global Notes. Within a reasonable time after the expiration of the
40-Day Restricted Period, the Reg S Temporary Global Notes will be exchanged for
one or more permanent global notes (the "Reg S Permanent Global Notes";
collectively with the Reg S Temporary Global Notes, the "Reg S Global Notes")
upon delivery to DTC of certification of compliance with the transfer
restrictions applicable to the Debentures and pursuant to Regulation S as
provided in the Indenture. After the 40-Day Restricted Period, (i) beneficial
interests in the Reg S Permanent Global Notes may be transferred to a person
that takes delivery in the form of an interest in the U.S. Global Notes and (ii)
beneficial interests in the U.S. Global Notes may be transferred to a person
that takes delivery in the form of an interest in the Reg S Permanent Global
Notes, provided, in each case, that the certification requirements described
below are complied with. See "--Transfers of Interests in One Global Note for
Interests in Another Global Note." All registered global notes are referred to
herein collectively "Global Notes."
Beneficial interests in all Global Notes and all Certificated Notes, if
any, will be subject to certain restrictions on transfer and will bear a
restrictive legend. In addition, transfer of beneficial interests in any Global
Notes will be subject to the applicable rules and procedures of DTC and its
Direct or Indirect Participants (including, if applicable, those of Euroclear
and CEDEL), which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for Debentures in certificated form in certain limited circumstances. See
"--Transfers of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The
Debentures may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITARY PROCEDURES
DTC has advised SH Group that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations, including
Euroclear and CEDEL. Access to DTC's system is also available to other entities
that clear through or maintain a direct or indirect, custodial relationship with
a Direct Participant (collectively, the "Indirect
77
<PAGE> 83
Participants"). DTC may hold securities beneficially owned by other persons only
through the Direct Participants or Indirect Participants and such other persons'
ownership interest and transfer of ownership interest will be recorded only on
the records of the Direct Participant and/or Indirect Participant, and not on
the records maintained by DTC.
DTC has also advised SH Group that, pursuant to DTC's procedures, (i) upon
deposit of the Global Notes, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchaser with portions of the principal
amount of the Global Notes allocated by the Initial Purchaser to such Direct
Participants, and (ii) DTC will maintain records of the ownership interests of
such Direct Participants in the Global Notes and the transfer of ownership
interests by and between Direct Participants. DTC will not maintain records of
the ownership interests of, or the transfer of ownership interests by and
between, Indirect Participants or other owners of beneficial interests in the
Global Notes. Direct Participants and Indirect Participants must maintain their
own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the Global Notes.
Investors in the U.S. Global Notes may hold their interests therein
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC. Investors in the Reg
S Temporary Global Notes may hold their interests therein directly through
Euroclear or CEDEL or indirectly through organizations that are participants in
Euroclear or CEDEL. After the expiration of the 40-Day Restricted Period (but
not earlier), investors may also hold interests in the Reg S Permanent Global
Notes through organizations other than Euroclear and CEDEL that are Direct
Participants in the DTC system. Morgan Guaranty Trust Company of New York,
Brussels office, is the operator and depository of Euroclear and Citibank, N.A.
is the depository of CEDEL (each a "Nominee" of Euroclear and CEDEL,
respectively). Therefore, they will each be recorded on DTC's records as the
holders of all ownership interests held by them on behalf of Euroclear and
CEDEL, respectively. Euroclear and CEDEL will maintain on their records the
ownership interests, and transfers of ownership interests by and between, their
own customer's securities accounts. DTC will not maintain records of the
ownership interests of, or the transfer of ownership interests by and between,
customers of Euroclear or CEDEL. All ownership interests in any Global Notes,
including those of customers' securities accounts held through Euroclear or
CEDEL, may be subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a Global Note to such
persons. Because DTC can act only on behalf of Direct Participants, which in
turn act on behalf of Indirect Participants and others, the ability of a person
having a beneficial interest in a Global Note to pledge such interest to persons
or entities that are not Direct Participants in DTC, or to otherwise take
actions in respect of such interests, may be affected by the lack of physical
certificates evidencing such interests. For certain other restrictions on the
transferability of the Debentures see "--Reg S Temporary and Reg S Permanent
Global Notes" and "--Transfers of Interests in Global Notes for Certificated
Notes."
EXCEPT AS DESCRIBED IN "TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE DEBENTURES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
DEBENTURES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS
OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, SH Group and the Trustee will treat the
persons in whose names the Debentures are registered (including Debentures
represented by Global Notes) as the owners thereof for the purpose of receiving
payments and for any and all other purposes whatsoever. Payments in respect of
the principal, premium, Liquidated Damages, if any, and interest on Global Notes
registered in the name of DTC or its nominee will be payable by the Trustee to
DTC or its nominee as the registered holder under the Indenture. Consequently,
neither SH Group, the Trustee nor any agent of SH Group or the Trustee has or
will have any responsibility or liability for (i) any aspect of DTC's records or
any Direct Participant's or Indirect Participant's records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect
78
<PAGE> 84
Participant's records relating to the beneficial ownership interests in any
Global Note or (ii) any other matter relating to the actions and practices of
DTC or any of its Direct Participants or Indirect Participants.
DTC has advised SH Group that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the
Debentures is to credit the accounts of the relevant Direct Participants with
such payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the Debentures will be governed by standing instructions
and customary practices between them and will not be the responsibility of DTC,
the Trustee or the Company. Neither the Company nor the Trustee will be liable
for any delay by DTC or its Direct Participants or Indirect Participants in
identifying the beneficial owners of the Debentures, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the Debentures
for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect Participants
who hold an interest in the Debentures through Euroclear or CEDEL) who hold an
interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but generally will settle in immediately
available funds. Transfers between and among Indirect Participants who hold
interests in the Debentures through Euroclear and CEDEL will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Debentures described herein, crossmarket transfers between Direct Participants
in DTC, on the one hand, and Indirect Participants who hold interests in the
Notes through Euroclear or CEDEL, on the other hand, will be effected by
Euroclear or CEDEL's respective Nominee through DTC in accordance with DTC's
rules on behalf of Euroclear or CEDEL; however, delivery of instructions
relating to crossmarket transactions must be made directly to Euroclear or
CEDEL, as the case may be, by the counterparty in accordance with the rules and
procedures of Euroclear or CEDEL and within their established deadlines
(Brussels time for Euroclear and United Kingdom time for CEDEL). Indirect
Participants who hold interest in the Notes through Euroclear and CEDEL may not
deliver instructions directly to Euroclear's or CEDEL's Nominee. Euroclear or
CEDEL will, if the transaction meets its settlement requirements, deliver
instructions to its respective Nominee to deliver or receive interests on
Euroclear's or CEDEL's behalf in the relevant Global Note in DTC, and make or
receive payment in accordance with normal procedures for same-day fund
settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the Debentures through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or CEDEL, during
the European business day immediately following the settlement date of DTC in
New York. Although recorded in DTC's accounting records as of DTC's settlement
date in New York. Euroclear and CEDEL customers will not have access to the cash
amount credited to their accounts as a result of a sale of an interest in a Reg
S Permanent Global Note to a DTC Participant until the European business day for
Euroclear or CEDEL immediately following DTC's settlement date.
DTC has advised SH Group that it will take any action permitted to be taken
by a Holder of Debentures only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the
Debentures as to which such Direct Participant or Direct Participants has or
have given direction. However, if there is an Event of Default under the
Debentures, DTC reserves the right to exchange Global Notes (without the
direction of one or more of its Direct Participants) for legended Notes in
certificated form, and to distribute such certificated forms of Notes to its
Direct Participants. See "--Transfers of Interests in Global Notes for
Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the Reg S Permanent Global Notes and in
the U.S. Global Notes among Direct Participants,
79
<PAGE> 85
Euroclear and CEDEL, they are under no obligation to perform or to continue to
perform such procedures, and such procedures may be discontinued at any time.
None of the Company, the Initial Purchaser or the Trustee will have any
responsibility for the performance by DTC, Euroclear or CEDEL or their
respective Direct and Indirect Participants of their respective obligations
under the rules and procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
REG S TEMPORARY AND REG S PERMANENT GLOBAL NOTES
An Indirect Participant who holds an interest in the Reg S Temporary Global
Notes through Euroclear or CEDEL must provide Euroclear or CEDEL, as the case
may be, with a certificate in the form required by the Indenture certifying that
such Indirect Participant is either not a U.S. Person (as defined below) or has
purchased such interests in a transaction that is exempt from the registration
requirements under the Securities Act, and Euroclear or CEDEL, as the case may
be, must provide to the Trustee (or the Paying Agent, if other than the Trustee)
a certificate in the form required by the Indenture prior to (i) the payment of
interest or principal with respect to such Indirect Participant's beneficial
interests in such Reg S Temporary Global Notes or (ii) any exchange of such
beneficial interests for beneficial interests in Reg S Permanent Global Notes.
"U.S. Person" means (i) any individual resident in the United States, (ii)
any partnership or corporation organized or incorporated under the laws of the
United States, (iii) any estate of which an executor or administrator is a U.S.
Person (other than an estate governed by foreign law and of which at least one
executor or administrator is a non-U.S. Person who has sole or shared investment
discretion with respect to its assets), (iv) any trust of which any trustee is a
U.S. Person (other than a trust of which at least one trustee is a non-U.S.
Person who has sole or shared investment discretion with respect to its assets
and no beneficiary of the trust (and no settlor, if the trust is revocable) is a
U.S. Person), (v) any agency or branch of a foreign entity located in the United
States, (vi) any non-discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a U.S.
Person, (vii) any discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated or (if an
individual) resident in the United States (other than such an account held for
the benefit or account of a non-U.S. Person), (viii) any partnership or
corporation organized or incorporated under the laws of a foreign jurisdiction
and formed by a U.S. Person principally for the purpose of investing in
securities not registered under the Securities Act (unless it is organized or
incorporated and owned, by "accredited investors" within the meaning of Rule 501
(a) under the Securities Act who are not natural persons, estates or trusts);
provided however that the term "U.S. Person" shall not include (A) a branch or
agency of a U.S. Person that is located and operating outside the United States
for valid business purposes as a locally regulated branch or agency engaged in
the banking or insurance business, (B) any employee benefit plan established and
administered in accordance with the law, customary practices and documentation
of a foreign country and (C) the international organizations set forth in
Section 902(o)(vii) of Regulation S under the Securities Act and any other
similar international organizations, and their agencies, affiliates and pension
plans.
TRANSFERS OF INTERESTS IN ONE GLOBAL NOTE FOR INTERESTS IN ANOTHER GLOBAL NOTE
Prior to the expiration of the 40-Day Restricted Period, an Indirect
Participant who holds an interest in the Reg S Temporary Global Note through
Euroclear or CEDEL will not be permitted to transfer its interest to a U.S.
Person who takes delivery in the form of an interest in U.S. Global Notes. After
the expiration of the 40-Day Restricted Period, an Indirect Participant who
holds an interest in Reg S Permanent Global Notes will be permitted to transfer
its interest to a U.S. Person who takes delivery in the form of an interest in
U.S. Global Notes only upon receipt by the Trustee of a written certification
from the transferor to the effect that such transfer is being made in accordance
with the restrictions on transfer set forth in the legend printed on the Reg S
Permanent Global Notes.
80
<PAGE> 86
Prior to the expiration of the 40-Day Restricted Period, a Direct or
Indirect Participant who holds an interest in the U.S. Global Note will not be
permitted to transfer its interests to any person that takes delivery thereof in
the form of an interest in the Reg S Temporary Global Notes. After the
expiration of the 40-Day Restricted Period, a Direct or Indirect Participant who
holds an interest in U.S. Global Notes may transfer its interests to a person
who takes delivery in the form of an interest in Reg S Permanent Global Notes
only upon receipt by the Trustee of a written certification from the transferor
to the effect that such transfer is being made in accordance with Rule 904 of
Regulation S.
Transfers involving an exchange of a beneficial interest in Reg S Global
Notes for a beneficial interest in U.S. Global Notes or vice versa will be
effected by DTC by means of an instruction originated by the Trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection with
such transfer, appropriate adjustments will be made to reflect a decrease in the
principal amount of the one Global Note and a corresponding increase in the
principal amount of the other Global Note, as applicable. Any beneficial
interest in the one Global Note that is transferred to a person who takes
delivery in the form of the other Global Note will, upon transfer, cease to be
an interest in such first Global Note and become an interest in such other
Global Note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
other Global Note for as long as it remains such an interest.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive Debentures in
registered, certificated form without interest coupons ("Certificated Notes") if
(i) DTC (x) notifies SH Group that it is unwilling or unable to continue as
depositary for the Global Notes and SH Group thereupon fails to appoint a
successor depositary within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) SH Group, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Certificated Notes or
(iii) there shall have occurred and be continuing a Default or an Event of
Default with respect to the Notes. In any such case, SH Group will notify the
Trustee in writing that, upon surrender by the Direct and Indirect Participants
of their interest in such Global Note, Certificated Notes will be issued to each
person that such Direct or Indirect Participants and the DTC identify as being
the beneficial owner of the related Debentures.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
In all cases described herein, such Certificated Notes will bear a
restrictive legend unless SH Group determines otherwise in compliance with
applicable law.
Neither SH Group, nor the Trustee will be liable for any delay by the
holder of the Global Notes or DTC in identifying the beneficial owners of Notes,
and SH Group and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the holder of the Global Note or DTC for all
purposes.
TRANSFERS OF CERTIFICATED NOTES FOR INTERESTS IN GLOBAL NOTES
Certificated Notes may only be transferred if the transferor first delivers
to the Trustee a written certificate (and in certain circumstances, an opinion
of counsel) confirming that, in connection with such transfer, it has complied
with the restrictions on transfer required by applicable law.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Debentures
represented by the Global Notes (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of
81
<PAGE> 87
immediately available same day funds to the accounts specified by the holder of
interests in such Global Note. With respect to Certificated Notes, SH Group will
make all payments of principal, premium, if any, interest and Liquidated
Damages, if any, by wire transfer of immediately available same day funds to the
accounts specified by the holders thereof or, if no such account is specified,
by mailing a check to each such holder's registered address. SH Group expects
that secondary trading in the Certificated Notes will also be settled in
immediately available funds.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Debentures were originally sold by SH Group on May 26, 1998 to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently resold the Old Debentures to qualified institutional buyers in
reliance on Rule 144A under the Securities Act. As a condition to the Purchase
Agreement, SH Group entered into the Registration Rights Agreement with the
Initial Purchaser pursuant to which SH Group agreed, for the benefit of the
holders of the Old Debentures, to, among other things, (i) file with the
Commission the Exchange Offer Registration Statement within 75 days after the
Closing Date of the Exchange Offer and (ii) cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
150 days after the Closing Date. SH Group will keep the Exchange Offer open for
not less than 20 business days (or longer if required by applicable law) after
the date on which notice of the Exchange Offer is mailed to the holders of the
Old Debentures. For each Old Debenture surrendered to SH Group pursuant to the
Exchange Offer, the holder of such Old Debenture will receive a New Debenture
having a principal amount equal to that of the surrendered Old Debenture.
Interest on each New Debenture will accrue from the date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Debentures would in general
be freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any purchaser of Old Debentures who is an
"affiliate" of SH Group or who intends to participate in the Exchange Offer for
the purpose of distributing the New Debentures (i) will not be able to rely on
the interpretation of the staff of the Commission, (ii) will not be able to
tender its Old Debentures in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Old Debentures, unless such sale or
transfer is made pursuant to an exemption from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
SH Group in the Letter of Transmittal that (i) the New Debentures are to be
acquired by the holder or the person receiving such New Debentures, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the New Debentures, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the New Debentures, (iv) neither the holder nor any such other
person is an "affiliate" of SH Group within the meaning of Rule 405 under the
Securities Act and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the New Debentures it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the New Debentures and cannot rely on such no-action letters. As
indicated above, each Participating Broker-Dealer that receives a New Debenture
for its own account in exchange for Old Debentures must acknowledge that it (i)
acquired the Old Debentures for its own account as a result of market-making
activities or other trading activities, (ii) has not entered into any
arrangement or understanding with SH Group or any "affiliate" of SH Group
(within the meaning of Rule 405 under the Securities Act) to distribute the New
Debentures to be received in the Exchange Offer and (iii) will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Debentures. For a description of the procedures for such
resales by Participating Broker-Dealers, see "Plan of Distribution."
82
<PAGE> 88
In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit SH Group to effect such an Exchange
Offer, or if for any other reason the Exchange Offer is not consummated or if
any holder of the Old Debentures (other than an "affiliate" of SH Group or the
Initial Purchaser) is not eligible to participate in the Exchange Offer, SH
Group will (a) file the Shelf Registration Statement covering resales of the Old
Debentures, (b) use its reasonable best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act and (c) use its
reasonable best efforts to keep effective the Shelf Registration Statement until
the earlier of two years after its effective date and such time as all of the
applicable Old Debentures have been sold thereunder. SH Group will, in the event
of the filing of the Shelf Registration Statement, provide to each applicable
holder of the Old Debentures copies of the prospectus which is a part of the
Shelf Registration Statement, 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 the Old Debentures. A holder of
Old Debentures that sells such Old Debentures pursuant to the Shelf Registration
Statement generally will be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers, 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 a holder (including
certain indemnification obligations). In addition, each holder of the Old
Debentures will be required to deliver information to be used in connection with
the Shelf Registration Statement and to provide comments on the Shelf
Registration Statement within the time periods set forth in the Registration
Rights Agreement in order to have their Old Debentures included in the Shelf
Registration Statement and to benefit from the provisions set forth in the
following paragraph.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which is filed as an exhibit to the Exchange Offer Registration Statement of
which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old
Debentures who were eligible to participate in the Exchange Offer but who did
not tender their Old Debentures will not have any further registration rights
and such Old Debentures will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Old Debentures could
be adversely affected.
TERMS OF THE EXCHANGE
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, SH Group will accept any and all Old
Debentures validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. SH Group will issue $1,000 principal amount of New
Debentures in exchange for each $1,000 principal amount of outstanding Old
Debentures accepted in the Exchange Offer. Holders may tender some or all of
their Old Debentures pursuant to the Exchange Offer. However, Old Debentures may
be tendered only in integral multiples of $1,000.
The form and terms of the New Debentures are the same as the form and terms
of the Old Debentures except that (i) the New Debentures bear a Series B
designation and a different CUSIP Number from the Old Debentures, (ii) the New
Debentures have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the New
Debentures will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Debentures in certain circumstances relating to the timing of
the Exchange Offer, all of which rights will terminate when the Exchange Offer
is terminated. The New Debentures will evidence the same debt as the Old
Debentures and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $29,250,000 aggregate principal amount
at maturity of Old Debentures were outstanding. This Prospectus and the Letter
of Transmittal will be mailed initially to the holders of record of the Old
Debentures as of the close of business on , 1998.
Holders of Old Debentures do not have any appraisal or dissenters' rights
under the General Corporation Law of Delaware or the Indenture in connection
with the Exchange Offer. SH Group intends to conduct the
83
<PAGE> 89
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
SH Group shall be deemed to have accepted validly tendered Old Debentures
when, as and if SH Group has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Debentures from SH Group.
If any tendered Old Debentures are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Debentures will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Debentures 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 Old
Debentures pursuant to the Exchange Offer. SH Group will pay all charges and
expenses, other than transfer taxes in certain circumstances, 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 SH Group, 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, SH Group will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
SH Group reserves the right, in its sole discretion, (i) to delay accepting
any Old Debentures, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, 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 oral or written notice
thereof to the registered holders.
YIELD AND INTEREST ON THE NEW DEBENTURES
The yield and interest on the New Debentures is 13 3/4% (computed on a
semi-annual bond equivalent basis) calculated from May 26, 1998. The New
Debentures will accrete at a rate of 13 3/4% compounded semi-annually, to an
aggregate principal amount of $29,250,000 on June 1, 2003. Cash interest will
not accrue on the New Debentures prior to June 1, 2003. Commencing June 1, 2003,
cash interest on the New Debentures will accrue and be payable, at a rate of
13 3/4% per annum, semi-annually in arrears on each June 1 and December 1.
PROCEDURES FOR TENDERING
Only a holder of Old Debentures may tender such Old Debentures in the
Exchange Offer. To tender in the Exchange Offer, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantee, or (in the case of a book-entry transfer), an Agent's
Message in lieu of the Letter of Transmittal, and any 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.
In addition, prior to 5:00 p.m. New York City time, on the Expiration Date
either (a) certificates for tendered Old Debentures must be received by the
Exchange Agent at such address or (b) such Old Debentures must be transferred
pursuant to the procedures for book-entry transfer described below (and a
confirmation of such tender received by the Exchange Agent, including an Agent's
Message if the tendering holder has not delivered a Letter of Transmittal).
84
<PAGE> 90
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the confirmation of a book-entry
transfer, which states that DTC has received an express acknowledgment from the
participant in DTC tendering Old Debentures which are the subject of such book-
entry confirmation, that such participant has received and agrees to be bound by
the terms of the Letter of Transmittal and that SH Group may enforce such
agreement against such participant. In the case of an Agent's Message relating
to guaranteed delivery, the term means a message transmitted by DTC and received
by the Exchange Agent, which states that DTC has received an express
acknowledgment from the participant in DTC tendering Old Debentures that such
participant has received and agrees to be bound by the Notice of Guaranteed
Delivery.
By executing the Letter of Transmittal, each holder will make to SH Group
the representations set forth above in the third paragraph under the heading
"-- Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by SH Group will
constitute agreement between such holder and SH Group in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD DEBENTURES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER 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 OLD DEBENTURES SHOULD BE SENT TO SH GROUP.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Debentures 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. See "Instruction
to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included 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 a member firm of the Medallion System (an
"Eligible Institution") unless the Old Debentures tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal or (ii) 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, such guarantee must be by an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Debentures listed therein, such Old Debentures must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old
Debentures with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Debentures 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 evidence
satisfactory to SH Group of their authority to so act must be submitted with the
Letter of Transmittal.
SH Group understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the Old
Debentures at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Debentures by causing such Book-Entry
Transfer Facility to transfer such Old Debentures into the Exchange Agent's
account with respect to the Old Debentures in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of the Old
Debentures may be effected through book-entry transfer into the Exchange Agent's
85
<PAGE> 91
account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee, or (in the case of a book-entry transfer) an Agent's Message in lieu
of the Letter of Transmittal, and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange Offer
by causing DTC to transfer Old Debentures to the Exchange Agent in accordance
with DTC's ATOP procedures for transfer. DTC will then send an Agent's Message
to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Debentures and withdrawal of tendered Old
Debentures will be determined by SH Group in its sole discretion, which
determination will be final and binding. SH Group reserves the absolute right to
reject any and all Old Debentures not properly tendered or any Old Debentures SH
Group's acceptance of which would, in the opinion of counsel for SH Group, be
unlawful. SH Group also reserves the right in its sole discretion to waive any
defects, irregularities or conditions of tender as to particular Old Debentures.
SH Group's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Debentures must be cured within such time as SH
Group shall determine. Although SH Group intends to notify holders of defects or
irregularities with respect to tenders of Old Debentures, neither SH Group, the
Exchange Agent nor any other person shall incur any liability for failure to
waive such notification. Tenders of Old Debentures will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Old Debentures 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 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.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Debentures and (i) whose Old
Debentures are not immediately available, (ii) who cannot deliver their Old
Debentures, the Letter of Transmittal or any other required documents to the
Exchange Agent or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is 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 number(s)
of such Old Debentures and the principal amount of Old Debentures tendered,
stating that the tender is being made thereby and guaranteeing that, within
five New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Old Debentures (or a confirmation of
book-entry transfer of such Old Debentures into the Exchange Agent's
account at the Book-Entry Transfer Facility), 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), as well as the certificate(s) representing all tendered
Old Debentures in proper form for transfer (or a confirmation of book-entry
transfer of such Old Debentures into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
86
<PAGE> 92
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Debentures according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Debentures 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 Old Debentures in the Exchange Offer, a telegram,
telex, letter 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 Old Debentures to be
withdrawn (the "Depositor"), (ii) identify the Old Debentures to be withdrawn
(including the certificate number(s) and principal amount of such Old
Debentures, or, in the case of Old Debentures transferred by book-entry
transfer, the name and number of the account at the Book-Entry Transfer Facility
to be credited), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Debentures
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Debentures register the transfer of such Old Debentures into the name of the
person withdrawing the tender and (iv) specify the name in which any such Old
Debentures are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by SH Group whose determination shall be
final and binding on all parties. Any Old Debentures so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no New
Debentures will be issued with respect thereto unless the Old Debentures so
withdrawn are validly retendered. Any Old Debentures which have been tendered
but which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old
Debentures may be retendered by following one of the procedures described above
under "--Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, SH Group shall not be
required to accept for exchange, or exchange New Debentures for, any Old
Debentures, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Debentures, 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 SH Group, might materially impair the
ability of SH Group to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to SH Group or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of SH Group, might materially impair the ability of SH Group to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to SH Group; or
(c) any governmental approval has not been obtained, which approval SH
Group shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If SH Group determines in its reasonable judgment that any of the
conditions are not satisfied, SH Group may (i) refuse to accept any Old
Debentures and return all tendered Old Debentures to the tendering holders, (ii)
extend the Exchange Offer and retain Old Debentures tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Old Debentures (see "--Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Debentures which have not been withdrawn.
87
<PAGE> 93
EXCHANGE AGENT
The United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Mail: By Overnight Courier:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 844 Cooper Station 700 Broadway, 13th Floor
New York, New York 10276-0844 Corporate Trust Operations Department
(registered or certified mail recommended) New York, New York 10003
By Hand: By Facsimile Transmission:
United States Trust Company of New York (212) 780-0592
111 Broadway, Lower Level (for Eligible Institutions Only)
New York, New York 10006 For Information or Confirmation by Telephone:
Attn: Corporate Trust Services (800) 548-6565
</TABLE>
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by SH Group. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telecopy, telephone or in person by officers and regular employees
of SH Group and its affiliates.
SH Group has not retained any dealer-manager in connection with the
Exchange Officer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. SH Group, 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 SH Group. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Debentures will be recorded at the same carrying value as the Old
Debentures, which is face value, as reflected in SH Group's accounting records
on the date of exchange. Accordingly, no gain or loss for accounting purposes
will be recognized by SH Group. The expenses of the Exchange Offer will be
expensed over the term of the New Debentures.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Debentures that are not exchanged for New Debentures pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Old
Debentures may be resold only (i) to SH Group (upon redemption thereof or
otherwise), (ii) so long as the Old Debentures are eligible for resale pursuant
to Rule 144A, to a person inside the United States whom the seller reasonably
believes is a qualified institutional buyer within the meaning of Rule 144A
under the Securities Act in meeting the requirements of Rule 144A, in accordance
with Rule 144 under the Securities Act, or pursuant to another exemption from
the registration requirements of the Securities Act (and based upon an opinion
of counsel reasonably acceptable to SH Group), (iii) outside the United States
to a foreign person in a transaction meeting the requirements of Rule 904 under
the Securities Act, or (iv) pursuant to an effective registration statement
under the Securities Act, in each case in accordance with any applicable
securities laws of any state of the United States.
88
<PAGE> 94
RESALE OF THE NEW DEBENTURES
With respect to resales of New Debentures, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
SH Group believes that a holder or other person who receives New Debentures,
whether or not such person is the holder (other than a person that is an
"affiliate" of SH Group within the meaning of Rule 405 under the Securities Act)
who receives New Debentures in exchange for Old Debentures in the ordinary
course of business and who is not participating, does not intend to participate,
and has no arrangement or understanding with any person to participate, in the
distribution of the New Debentures, will be allowed to resell the New Debentures
to the public without further registration under the Securities Act and without
delivering to the purchasers of the New Debentures a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires New Debentures in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Debentures, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives New
Debentures for its own account in exchange for Old Debentures, where such Old
Debentures were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Debentures.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
SH Group in the Letter of Transmittal that (i) the New Debentures are to be
acquired by the holder or the person receiving such New Debentures, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the New Debentures, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the New Debentures, (iv) neither the holder nor any such other
person is an "affiliate" of SH Group within the meaning of Rule 405 under the
Securities Act and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the New Debentures it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the New Debentures and cannot rely on such no-action letters. As
indicated above, each Participating Broker-Dealer that receives a New Debenture
for its own account in exchange for Old Debentures must acknowledge that it (i)
acquired the Old Debentures for its own account as a result of market-making
activities or other trading activities, (ii) has not entered into any
arrangement with SH Group (within the meaning of Rule 405 under the Securities
Act or understanding with SH Group or any "affiliate" of the Securities Act) to
distribute the New Debentures to be received in the Exchange Offer and (iii)
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Debentures. For a description of the
procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
89
<PAGE> 95
DESCRIPTION OF OTHER INDEBTEDNESS
THE NOTES
The Old Notes were issued in an aggregate principal amount of $100 million
and will mature on June 1, 2008. The Old Notes were issued pursuant to the
Indenture (the "Note Indenture"), and are senior, subordinated, unsecured,
general obligations of the Company. Interest on the Notes will accrue at the
rate of 10 5/8% per annum from the issue date and will be payable semi-annually
in arrears on each June 1 and December 1, commencing December 1, 1998, to the
holders of record on the immediately preceding May 15 and November 15,
respectively.
At any time on or after June 1, 2003, the Notes may be redeemed at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages,
if any, thereon to the applicable redemption date if redeemed during the
twelve-month period commencing on June 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 105.313%
2004........................................................ 103.542%
2005........................................................ 101.771%
2006 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to June 1, 2001, the
Company may (but shall not have the obligation to) redeem up to 35% of the
original aggregate principal amount of the Notes at a redemption price of
110.625% of the principal amount thereof in each case plus accrued and unpaid
interest and Liquidated Damages, if any, to the redemption date with Net Cash
Proceeds received by the Company from one or more Equity Offerings; provided,
however, that, in each case at least 65% of the aggregate principal amount of
the Notes originally issued remain outstanding immediately after the occurrence
of such redemption; and provided further, that such redemption shall occur
within 60 days of the date of the closing of each such Equity Offerings.
In the event of a Change of Control (as defined in the Note Indenture),
each holder of Notes will have the right to require the Company to repurchase
such holder's Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the purchase date.
The Note Indenture contains certain covenants that limit, among other
things, the ability of the Company to enter into certain mergers or
consolidations, incur additional indebtedness or issue certain preferred equity
interests, pay dividends, redeem capital stock or make certain other restricted
payments and engage in certain transactions with affiliates or related persons.
Under certain circumstances the Company will be required to make an offer to
purchase Notes at a price equal to 100% of the principal amount thereof, plus
accrued interest at the date of purchase with the proceeds of certain Asset
Sales (as defined therein). The Note Indenture contains certain customary events
of default, which include the failure to pay interest and principal, the failure
to comply with certain covenants in the Notes or the Note Indenture, a default
under certain indebtedness, the imposition of certain final judgments or
warrants of attachment and certain events occurring under bankruptcy laws. See
"Risk Factors -- Limitation on Access to Cash Flow of Subsidiaries, Holding
Company Structure."
90
<PAGE> 96
NEW CREDIT AGREEMENT
The Company entered into the New Credit Agreement among the Company, SH
Group, the domestic subsidiaries of SH Group from time to time parties thereto,
the several lenders from time to time parties thereto (collectively, the
"Lenders"), NationsBank, N.A. as administrative agent (the "Administrative
Agent") and DLJ Capital Funding, Inc. as syndication agent (collectively, the
"Agents"). The following is a summary description of the principal terms of the
New Credit Agreement and the other loan documents. The description set forth
below does not purport to be complete and is qualified in its entirety by
reference to certain agreements setting forth the principal terms and conditions
of the New Credit Agreement, which are available upon request from the Company.
The Company's obligations under the New Credit Agreement constitute Senior
Indebtedness with respect to the Notes.
Structure. The Lenders committed to provide the Company with (i) senior
secured term loan facilities (the "Term Loan Facility") of up to $30.0 million
and (ii) a senior secured revolving credit facility (the "Revolving Credit
Facility") of up to $20.0 million (including letters of credit).
The Company borrowed the full amount of Term Loan Facility and
approximately $3.6 million of Revolving Credit Facility on the closing date
under the New Credit Agreement (i) to partially finance the Acquisition, (ii) to
repay certain existing outstanding indebtedness of the Company and (iii) to pay
certain fees and expenses related to the Acquisition. See "Use of Proceeds."
Thereafter, the New Credit Agreement may be utilized to fund the Company's
working capital requirements, including issuance of stand-by and trade letters
of credit and for other general corporate purposes.
The Term Loan Facility is a single tranche term facility of $30.0 million
which has a maturity of six years, subject to quarterly amortization commencing
in the thirteenth month after the Closing Date, in the following aggregate
annual amounts for the fiscal years ending in: 1999--$3.0 million; 2000--$4.75
million; 2001--$5.75 million; 2002--$6.75 million; 2003--$7.75 million and
2004--$2.0 million. Loans and letters of credit under the Revolving Credit
Facility are available at any time during its six-year term subject to the
fulfillment of customary conditions precedent including the absence of a default
under the New Credit Agreement.
Security; Guaranty. The Company's obligations under the New Credit
Agreement are guaranteed by each of the Company's direct and indirect domestic
subsidiaries. The New Credit Agreement and the guarantees thereof are secured by
a perfected first priority security interest in substantially all assets of the
Company and its direct and indirect domestic subsidiaries including: (i) all
real property; (ii) all accounts receivable, inventory and intangibles; and
(iii) all of the capital stock of the Company and its direct and indirect
domestic and, to the extent no adverse tax consequences would result, foreign
subsidiaries.
Interest, Maturity. Borrowings under the New Credit Agreement bear interest
at a rate per annum equal (at the Company's option) to: (i) the Administrative
Agent's reserve-adjusted LIBOR rate ("LIBOR") plus an applicable margin or (ii)
an alternate base rate equal to the highest of the Administrative Agent's prime
rate, plus an applicable margin. Initially, the applicable margin for the Term
Loan Facility and the Revolving Credit Facility is 2.25% per annum for LIBOR
loans and 1.00% per annum for alternate base rate loans and after the first six
months will be tied to a grid based on the Company's leverage ratio.
Fees. The Company is required to pay the Lenders, on a quarterly basis, a
commitment fee on the undrawn portion of the Revolving Credit Facility at a rate
equal to 0.50%. The Company is also obligated to pay (i) certain letter of
credit fees on the aggregate amount of outstanding letters of credit; (ii) a
fronting bank fee for the letter of credit issuing bank; and (iii) customary
agent, arrangement and other similar fees.
Covenants. The New Credit Agreement contains a number of covenants that,
among other things, restrict the ability of SH Group, the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, prepay other
indebtedness or amend certain debt instruments (including the Indenture), pay
dividends, create liens on assets, enter into sale and leaseback transactions,
make investments, loans or advances, make acquisitions, engage in mergers or
consolidations, make capital expenditures, change the business conducted by the
Company or its subsidiaries or engage in certain transactions with affiliates
and otherwise restrict certain corporate activities. In addition, under the New
Credit Agreement, the Company is
91
<PAGE> 97
required to maintain specified financial ratios and tests, including leverage
ratios below a specified maximum and minimum interest coverage levels. See "Risk
Factors--Restrictive Debt Covenants."
Events of Default. The New Credit Agreement contains customary events of
default, including nonpayment of principal, interest or fees, material
inaccuracy of representations and warranties, violation of covenants,
cross-default and cross-acceleration to certain other indebtedness, certain
events of bankruptcy and insolvency, material judgments against the Company,
invalidity of any guarantee or security interest and a change of control of the
Company in certain circumstances as set forth therein.
92
<PAGE> 98
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion (including the opinion of special counsel
described below) is based upon current provisions of the Internal Revenue Code
of 1986, as amended, applicable Treasury regulations, judicial authority and
administrative rulings and practice. There can be no assurance that the Internal
Revenue Service (the "Service") will not take a contrary view, and no ruling
from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. SH Group recommends that
each holder consult such holder's own tax advisor as to the particular tax
consequences of exchanging such holder's Old Debentures for New Debentures,
including the applicability and effect of any state, local or foreign tax laws.
Kirkland & Ellis, special counsel to SH Group, has advised SH Group that in
its opinion, the exchange of the Old Debentures for New Debentures pursuant to
the Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the New Debentures will not be considered to differ materially
in kind or extent from the Old Debentures. Rather, the New Debentures received
by a holder will be treated as a continuation of the Old Debentures in the hands
of such holder. As a result, there will be no federal income tax consequences to
holders exchanging Old Debentures for New Debentures pursuant to the Exchange
Offer.
93
<PAGE> 99
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Debentures for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Debentures. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of New Debentures
received in exchange for Old Debentures where such Old Debentures were acquired
as a result of market-making activities or other trading activities. SH Group
has agreed that for a period of one year after the thirtieth business day
following the Expiration Date (or such shorter period as will terminate when all
of the Old Debentures offered for exchange hereby have been sold), it will make
this prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale.
SH Group will not receive any proceeds from any sales of the New Debentures
by Participating Broker-Dealers. New Debentures 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 New Debentures or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchaser 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 New Debentures. Any Participating Broker-Dealer that resells the New
Debentures that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of New
Debentures may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Debentures and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
The validity of the issuance of the New Debentures offered hereby will be
passed upon for the Company by Kirkland & Ellis, Washington, D.C.
EXPERTS
The balance sheet of SH Group as of May 4, 1998 included in this Prospectus
has been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein and elsewhere in the Registration Statement, and
is included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The consolidated financial statements of the Company at January 3, 1998 and
December 28, 1996, and for each of the three years in the period ended January
3, 1998, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
CHANGE IN ACCOUNTANTS
On May 26, 1998, the Company dismissed its certified public accountants,
Ernst & Young LLP, and replaced them with Deloitte & Touche LLP. The report of
Ernst & Young LLP dated January 28, 1998, except for Note 11 as to which the
date is May 26, 1998, on the Company's financial statements as of and for the
two fiscal years in the period ended January 3, 1998 did not contain an adverse
opinion or a disclaimer opinion; further the Company had no disagreements with
Ernst & Young LLP during that time period. The change in accountants was
recommended by the Board of Directors of the Company.
94
<PAGE> 100
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
STEEL HEDDLE GROUP, INC.
REPORT OF INDEPENDENT AUDITORS.............................. F-2
Balance Sheet as of May 4, 1998............................. F-3
Notes to Balance Sheet...................................... F-4
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS.............................. F-5
CONSOLIDATED FINANCIAL STATEMENTS AS OF JANUARY 3, 1998 AND
DECEMBER 28, 1996 AND FOR EACH OF THE THREE FISCAL YEARS
IN THE PERIOD ENDED JANUARY 3, 1998:
Consolidated Balance Sheets as of January 3, 1998 and
December 28, 1996...................................... F-6
Consolidated Statements of Operations for the Years Ended
January 3, 1998, December 28, 1996 and December 30,
1995................................................... F-7
Consolidated Statements of Shareholders' Equity for the
Years Ended January 3, 1998, December 28, 1996 and
December 30, 1995...................................... F-8
Consolidated Statements of Cash Flows for the Years Ended
January 3, 1998, December 28, 1996 and December 30,
1995................................................... F-9
Notes to Consolidated Financial Statements................ F-10
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF
APRIL 4, 1998 AND JANUARY 3, 1998:
Consolidated Balance Sheets as of April 4, 1998 and
January 3, 1998........................................ F-26
Consolidated Statements of Operations for the Fiscal
Quarter Ended April 4, 1998 and April 5, 1997.......... F-27
Consolidated Statements of Cash Flows for the Fiscal
Quarter Ended April 4, 1998 and April 5, 1997.......... F-28
Notes to Unaudited Condensed Consolidated Financial
Statements............................................. F-29
</TABLE>
F-1
<PAGE> 101
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholder of
Steel Heddle Group, Inc.
We have audited the accompanying balance sheet of Steel Heddle Group, Inc.
(the "Company") as of May 4, 1998. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement 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 balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company as of May 4, 1998 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
May 4, 1998
F-2
<PAGE> 102
STEEL HEDDLE GROUP, INC.
BALANCE SHEET
MAY 4, 1998
<TABLE>
<S> <C>
ASSETS
Total assets................................................ $ --
=========
STOCKHOLDER'S EQUITY
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 1,000 shares; authorized
issued and outstanding.................................... $ 10
Additional paid-in-capital.................................. 99,990
---------
100,000
Less subscription receivable................................ (100,000)
---------
Total stockholder's equity.................................. $ --
=========
</TABLE>
See notes to balance sheet.
F-3
<PAGE> 103
STEEL HEDDLE GROUP, INC.
NOTES TO BALANCE SHEET
MAY 4, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
Steel Heddle Group, Inc. ("SH Group") was incorporated under the laws of
the State of Delaware in April 1998. SH Group is a wholly-owned subsidiary of
American Industrial Partners Capital Fund II L.P. ("AIP") and was organized to
effectuate the acquisition of all of the outstanding common stock of SH Holdings
Corp. ("Old Holdings").
SH Group is organized as a holding company and owns the outstanding common
stock of Steel Heddle Mfg. Co. (the "Company"), a company that, through its
subsidiaries, manufactures loom accessories used by textile mills and other
metal products used in the electronics, automotive and solar power industries.
On May 1, 1998, SH Group entered into an agreement to purchase all of the
outstanding common stock of Old Holdings for approximately $173.9 million
(including repayment of certain indebtedness of Old Holdings and estimated
transaction fees and expenses of approximately $8.5 million) subject to
post-closing adjustments. The acquisition will be financed with (i) $25 million
in cash contributed by AIP and certain members of management of the Company in
exchange for common equity of SH Group, including management's rollover of an
estimated $1.8 million of securities of Old Holdings, (ii) proceeds from the
issuance of $15 million of Senior Discount Debentures, (iii) proceeds from the
issuance of $100 million of Senior Subordinated Notes to be issued by the
Company, (iv) proceeds of $33.6 million from borrowings under a $30 million term
loan and a $20 million revolving loan entered into by the Company, and (v)
existing cash of the Company of $0.3 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Statement 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 disclosures of contingent assets and liabilities at the date of
the financial statements and the amounts of revenues and expenses during the
period reported. Actual results could differ from those estimates.
3. STOCK SUBSCRIPTION
On May 4, 1998, SH Group executed a stock subscription agreement with AIP
whereby AIP agreed to purchase 1,000 shares of SH Group common stock at a price
of $100 per share. The amount due from AIP for the stock subscription is
reflected as a deduction from stockholder's equity in the accompanying balance
sheet.
F-4
<PAGE> 104
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Steel Heddle Mfg. Co.
We have audited the accompanying consolidated balance sheets of Steel
Heddle Mfg. Co. and subsidiaries as of January 3, 1998 and December 28, 1996 and
the related consolidated statements of operations, shareholders'
equity/(deficit) and cash flows for each of the three years in the period ended
January 3, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Steel Heddle
Mfg. Co. and subsidiaries at January 3, 1998 and December 28, 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 3, 1998 in conformity with generally
accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements, in 1995
the Company changed its method of accounting for postretirement benefits other
than pensions.
Ernst & Young LLP
Greenville, SC
January 28, 1998, except for Note 11,
as to which the date
is May 26, 1998
F-5
<PAGE> 105
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 379 $ 4,645
Accounts receivable....................................... 9,290 8,862
Inventories............................................... 14,030 12,970
Prepaid expenses.......................................... 99 108
-------- --------
Total current assets................................... 23,798 26,585
Property, plant and equipment:
Cost...................................................... 52,561 50,781
Less accumulated depreciation............................. 35,876 33,025
-------- --------
16,685 17,756
Other assets and deferred charges:
Prepaid pension costs..................................... 546 952
Goodwill, net............................................. 22,537 23,266
Sundry.................................................... 774 157
-------- --------
23,857 24,375
-------- --------
Total Assets........................................... $ 64,340 $ 68,716
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 2,166 $ 2,334
Accrued and sundry liabilities............................ 5,313 8,208
Deferred income taxes..................................... 670 802
Income taxes.............................................. 302 361
Current portion of long-term debt......................... 6,500 6,500
-------- --------
Total current liabilities.............................. 14,951 18,205
Long-term debt, less current portion........................ 46,300 43,500
Retirement benefits payable................................. 5,126 5,372
Deferred income taxes....................................... 1,120 1,598
Redeemable Common Stock:
Parent company class A, $.01 par value per
share--authorized 2,000,000 shares, issued and
outstanding 91,080 shares in 1997 and 90,000 shares in
1996--Note 7........................................... 1,366 1,350
Shareholders' equity/(deficit):
Common Stock par value $1.00 per share--authorized
1,500,000 shares, issued and outstanding 10 shares..... -- --
Additional paid-in capital................................ 13,689 13,689
Foreign currency translation adjustment................... (48) (49)
(Deficit)................................................. (18,164) (14,949)
-------- --------
(4,523) (1,309)
-------- --------
Total liabilities and shareholders' equity (deficit)... $ 64,340 $ 68,716
======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 106
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
---------- ------------ ------------
<S> <C> <C> <C>
Net sales............................................. $72,983 $64,484 $68,118
Cost of goods sold.................................... 46,448 44,074 47,706
------- ------- -------
Gross profit.......................................... 26,535 20,410 20,412
Selling, general and administrative costs............. 8,489 8,875 8,667
Management fees....................................... 475 725 275
Amortization of goodwill.............................. 729 729 729
Restructuring charges................................. -- -- 821
------- ------- -------
Operating income...................................... 16,842 10,081 9,920
Other income (expense):
Interest income..................................... 136 110 128
Interest expense, including amortization of deferred
financing costs.................................. (5,284) (5,954) (6,435)
Other financing expenses.............................. (212) -- --
------- ------- -------
Income before income taxes, extraordinary item and
cumulative effect of accounting change.............. 11,482 4,237 3,613
Income tax expense.................................... 4,015 1,638 1,628
------- ------- -------
Income before extraordinary item and cumulative effect
of accounting change................................ 7,467 2,599 1,985
Extraordinary (loss) on the early extinguishment of
debt,
net of income taxes of $1,688....................... (2,753) -- --
------- ------- -------
Income before cumulative effect of accounting
change.............................................. 4,714 2,599 1,985
Cumulative effect of change in method of accounting
for postretirement benefits net of taxes of $570.... -- -- 855
------- ------- -------
Net income............................................ $ 4,714 $ 2,599 $ 1,130
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 107
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON FOREIGN
STOCK-- ADDITIONAL RETAINED CURRENCY
$1.00 PAID-IN (DEFICIT) TRANSLATION
PAR VALUE CAPITAL EARNINGS ADJUSTMENTS TOTAL
--------- ---------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994............... $-- $13,689 $(18,678) $(35) $(5,024)
Foreign currency translation
adjustments........................... -- -- -- (17) (17)
Net income............................... -- -- 1,130 -- 1,130
------- ------- -------- ---- -------
Balance at December 30, 1995............... -- 13,689 (17,548) (52) (3,911)
Foreign currency translation
adjustments........................... -- -- -- 3 3
Net income............................... -- -- 2,599 -- 2,599
------- ------- -------- ---- -------
Balance at December 28, 1996............... -- 13,689 (14,949) (49) (1,309)
Foreign currency translation
adjustments........................... 1 1
Dividends paid........................... -- -- (7,929) -- (7,929)
Net income............................... -- -- 4,714 -- 4,714
------- ------- -------- ---- -------
Balance at January 3, 1998................. $-- $13,689 $(18,164) $(48) $(4,523)
======= ======= ======== ==== =======
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 108
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
---------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 4,714 $ 2,599 $ 1,130
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 4,409 6,019 6,096
Loss on disposal of property, plant and equipment....... 50 -- --
Provision for deferred income taxes..................... (610) (600) (1,200)
Accrued retirement benefit costs........................ 160 (220) 150
Extraordinary item...................................... 4,441 -- --
Cumulative effect of accounting changes................. -- -- 1,425
Changes in operating assets and liabilities:
Accounts receivable.................................. (428) (548) 408
Inventories.......................................... (1,060) 1,018 (818)
Prepaid expenses..................................... 8 14 27
Accounts payable..................................... (167) 303 553
Accrued and sundry liabilities....................... (1,498) 2,489 241
Income taxes payable................................. (59) 162 (400)
-------- ------- -------
Net cash provided by operating activities................. 9,960 11,236 7,612
INVESTING ACTIVITIES:
Purchase of property, plant and equipment............... (2,558) (2,809) (3,455)
Proceeds on disposals of property, plant and equipment,
net.................................................. 29 42 98
-------- ------- -------
Net cash used in investing activities..................... (2,529) (2,767) (3,357)
FINANCING ACTIVITIES:
Issuance of parent company common stock................. 16 -- --
Prepayment of debt, including penalty................... (55,690) -- --
Proceeds from debt...................................... 66,500 -- --
Payments of debt........................................ (13,700) (2,700) (7,000)
Dividends paid.......................................... (7,929) -- --
Short-term borrowings................................... -- (2,000) 2,000
Loan acquisition costs.................................. (894) -- --
-------- ------- -------
Net cash used in financing activities................... (11,697) (4,700) (5,000)
-------- ------- -------
(Decrease) increase in cash and cash equivalents.......... (4,266) 3,769 (745)
Cash and cash equivalents at beginning of year............ 4,645 876 1,621
-------- ------- -------
Cash and cash equivalents at end of year.................. $ 379 $ 4,645 $ 876
======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 109
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization--Steel Heddle Mfg. Co. ("Steel Heddle") is a wholly-owned
subsidiary of SH Intermediate Corp. ("Intermediate"). Intermediate is a
wholly-owned subsidiary of SH Holdings Corp. ("Holdings" or "Parent Company").
In accordance with Securities Exchange Commission Staff Accounting Bulletin No.
55, these financial statements include balances for debt and redeemable common
stock that are held at the Intermediate and Holdings level. Related interest
expense has also been reflected in these financial statements. Holdings,
Intermediate, Steel Heddle and Steel Heddle subsidiaries are collectively
referred to hereinafter as "the Company".
Operations -- Steel Heddle manufactures products and loom accessories used by
textile mills which accounted for approximately 85%, 88% and 87% of its sales in
1997, 1996 and 1995, respectively. It also processes and sells metal products
from its wire rolling facilities to industrial users. Steel Heddle sells to
foreign and domestic companies, with foreign sales making up approximately 22%,
24% and 22% of its sales in 1997, 1996 and 1995, respectively. The Company
generally does not require collateral for its domestic receivables. A majority
of the related foreign receivables are insured or secured by letters of credit.
Principles of Consolidation -- All subsidiaries are wholly-owned, and their
accounts are included in the consolidated financial statements. All significant
intercompany items and transactions have been eliminated in consolidation.
Fiscal Year--The Company's fiscal year ends on the Saturday closest to December
31. The years ended January 3, 1998, December 28, 1996 and December 30, 1995 are
53-weeks, 52-weeks and 52-week periods, respectively.
Foreign Currency--Assets and liabilities of the Company's foreign subsidiaries
are translated into United States dollars at current exchange rates. Income and
expense accounts of these operations are translated at the average of exchange
rates during the period.
Effective December 29, 1996, the Company changed the functional currency for its
Mexican subsidiary from the Mexican peso to the United States dollar because the
cumulative inflation index in Mexico has been approximately 100% over a three
year period ended December 28, 1996. In accordance with FAS 52, the cumulative
translation adjustment at December 28, 1996, accumulated in shareholders' equity
prior to this change in functional currency, remains as a separate component of
shareholders' equity.
Cash Equivalents--The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents. Included
in cash equivalents at January 3, 1998 is approximately $757, which approximates
fair value invested in an overnight investment fund with a bank.
Inventories--Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method, average cost method or
last-in, first-out (LIFO) method.
Property, Plant and Equipment--Property, plant and equipment is stated at cost.
Depreciation is computed by straight-line and accelerated methods based on
estimated useful lives of the assets. Depreciation expense for 1997, 1996 and
1995 was approximately $3,500, $5,100 and $5,100, respectively.
Other Assets and Deferred Charges--Deferred debt expense, included in sundry
other assets, is being amortized over the lives of the related debt. Goodwill
resulting from the purchase of Steel Heddle is being amortized over forty years
on the straight-line method.
Income Taxes--The Company accounts for income taxes under Statement of
Accounting Standards No. 109, "Accounting for Income Taxes".
F-10
<PAGE> 110
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Fair Value of Financial Statements--The carrying value of cash and cash
equivalents, accounts receivable, accounts payable, accrued and sundry
liabilities and long-term debt approximate their fair values.
Pension Costs--The Company's funding policy is to contribute amounts to its
formal funded plans sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974, plus such
additional amounts as the Company may determine to be appropriate from time to
time.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
New Accounting Standards--In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." Both are
required for financial statements in fiscal years beginning after December 15,
1997.
SFAS No. 130 requires comprehensive income to be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Adoption of this statement is expected to have no impact on the
Company's consolidated financial position, results of operations or cash flows.
SFAS No. 131 requires entities to disclose financial and detailed
information about its operating segments in a manner consistent with internal
segment reporting used by the Company to allocate resources and assess financial
performance. The Company has not completed the analyses required to determine
the additional disclosures requirements, if any, for the adoption of SFAS No.
131, but the adoption of the statement will not affect results of operations or
financial position. It will affect the disclosure of segment reporting. The
Company will adopt this statement retroactively during the fiscal year ending
January 2, 1999.
2. INVENTORIES
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials and component parts........................... $ 6,312 $ 6,276
Work in process and finished goods.......................... 7,718 6,694
------- -------
$14,030 $12,970
======= =======
</TABLE>
Inventories priced by the LIFO method were approximately $11,100 at January 3,
1998, and $10,000 at December 28, 1996. If all inventories had been priced by
the FIFO or average cost method, they would have been higher than the amounts
reported by approximately $600 in 1997 and $1,700 in 1996.
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land........................................................ $ 855 $ 855
Buildings and improvements.................................. 10,692 10,449
Machinery and equipment..................................... 32,362 31,205
Furniture and fixtures...................................... 7,640 6,636
Automotive equipment........................................ 827 817
Construction in progress.................................... 185 819
------- -------
$52,561 $50,781
======= =======
</TABLE>
F-11
<PAGE> 111
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ACCRUED AND SUNDRY LIABILITIES
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Wages, salaries and other compensation...................... $3,006 $2,776
Accrual for hazardous waste site maintenance................ 269 276
Interest.................................................... 709 3,336
Group insurance............................................. 475 505
Other....................................................... 854 1,315
------ ------
$5,313 $8,208
====== ======
</TABLE>
The Company has included in accrued and sundry liabilities an accrual for
hazardous waste site maintenance for the estimated total cost over an initial
period of thirty years to close out and monitor its inactive hazardous waste
site. Payment is secured by a standby letter of credit of approximately $700.
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Senior Notes, due in 28 quarterly installments beginning in
March 1997 and ranging from $1,600 to $2,400 plus interest
payable as described below................................ $46,000 $ --
Revolving Line of Credit, interest payable quarterly, due in
February 2002............................................. 6,800 --
Senior Notes, plus interest, payable quarterly at 10%....... -- 24,900
Subordinated Notes, plus interest payable quarterly at
12.75%.................................................... -- 25,100
------- -------
52,800 50,000
Less current portion........................................ 6,500 6,500
------- -------
$46,300 $43,500
======= =======
</TABLE>
The $24,900 of Senior Notes and the Subordinated Notes were issued pursuant to
certain recapitalization and refinancing transactions and were payable to
shareholders who collectively own 100% of the Company's outstanding Class B
Common Stock.
On February 21, 1997, the Company entered into a credit arrangement with a bank
group consisting of a Term Loan Facility of $52,500 and a $15,000 Revolving Line
of Credit. The Company utilized proceeds of the Term Loan and the Revolving Line
of Credit to repay its senior notes with principal amount of $24,900 plus
penalty of $2,500 and to repay its subordinated notes with principal amount of
$25,100 plus penalty of $3,200. The total penalty net of other losses and gains
on the refinancing is reported as an extraordinary item, net of taxes of
approximately $1,700. Included in the net extraordinary loss is a reversal of
accrued interest of approximately $1,400. This reversal resulted from the
difference between the stated rate of interest and the effective rate of
interest.
The Term Loan and the Revolving Line of Credit bear interest at the bank's prime
rate plus 0.5% or at Eurodollar rates plus 1.5% per annum, at the Company's
option. Interest based on prime is payable quarterly; interest based on
Eurodollars is payable at the end of the elected interest period, but not less
often than the end of a three-month period. The weighted average interest rate
in effect at January 3, 1998 was 7.4%.
The agreement contains certain restrictive covenants which, among other matters,
require fixed charge coverage, interest coverage, and leverage coverage ratio
tests as defined in the agreement and limits payment of dividends. The agreement
also restricts change in control of the Company and requires mandatory principal
F-12
<PAGE> 112
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT--(CONTINUED)
prepayments annually based on excess cash flow, as defined. Substantially all of
the Company's assets are pledged as collateral under the new debt agreement.
Future annual principal payments are due as follows:
<TABLE>
<S> <C>
1998........................................................ $ 6,500
1999........................................................ 6,500
2000........................................................ 7,000
2001........................................................ 8,000
2002........................................................ 15,300
Thereafter.................................................. 9,500
-------
$52,800
=======
</TABLE>
Interest paid totaled approximately $7,800, $4,700 and $5,800 for 1997, 1996 and
1995, respectively.
The carrying amount of the Company's borrowings under its short-term revolving
credit agreement approximates fair value. The fair value of the Company's
long-term debt is estimated based on the quoted market prices for the same or
similar issues or on the current notes offered to the Company for the debt of
the same remaining maturities. The carrying value of the debt approximates
market value at January 3, 1998.
6. RETIREMENT PLANS AND DEFERRED COMPENSATION AGREEMENTS
The Company has a funded defined benefit noncontributory pension plan for
employees meeting certain eligibility requirements and an unfunded Supplemental
Pension Plan which is a nonqualified plan under which direct payments are made
to certain retired personnel based on years of service and compensation.
A summary of the components of the net pension cost for the funded defined
benefit plan for 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost........................................ $ 642 $ 337 $ 138
Interest cost on projected benefit obligation....... 1,271 1,239 1,202
Return on plan assets............................... (1,433) (1,415) (3,562)
Net amortization.................................... (74) (74) 2,240
------- ------- -------
$ 406 $ 87 $ 18
======= ======= =======
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.75% in 1997 and 7.50% in 1996.
The rate of increase in compensation was 4.75% for each year and the expected
long-term rate of return on assets was 8% in each year.
F-13
<PAGE> 113
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RETIREMENT PLANS AND DEFERRED COMPENSATION AGREEMENTS--(CONTINUED)
Accumulated plan benefits and projected benefit obligations, as estimated by
consulting actuaries, and plan net assets and funded status for the funded
defined benefit plan as of January 3, 1998 and December 28, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $17,316 $16,870
Nonvested benefit obligation.............................. 114 107
------- -------
Accumulated benefit obligation............................ $17,430 $16,977
======= =======
Projected benefit obligation................................ $17,430 $16,977
Plan assets at fair value................................... 20,113 18,744
------- -------
Funded status--projected benefit obligation less than plan
assets.................................................... $ 2,683 $ 1,767
======= =======
Comprised of:
Prepaid pension cost...................................... $ 546 $ 952
Unrecognized net gain..................................... 1,597 815
Unrecognized prior service cost........................... 540 --
------- -------
$ 2,683 $ 1,767
======= =======
</TABLE>
Plan assets are invested in fixed income securities, equities and money market
securities.
At January 3, 1998 and December 28, 1996, the projected benefit obligation (all
of which is vested) for the unfunded plan totaled approximately $778 and $809,
respectively, and is included in retirement benefits payable in the accompanying
consolidated balance sheet.
The Company has an employee savings and investment plan qualified under Section
401(k) of the Internal Revenue Code. This plan is funded in part from member
voluntary contributions, with the Company's contribution equal to 65% of the
amount of member basic contributions, but limited to 3.9% of the total
compensation of the members. The plan provides for additional member voluntary
contributions of up to 10% of member's total compensation.
The Company has an informal arrangement under which it provides certain life
insurance benefits for retired hourly and salary employees. No separate funding
is provided under this arrangement. Expense under the life insurance plan is
recognized by an annual computation of the present value of the Company's
liability for future payments for active and retired employees and a charge to
operations for the current year portion of the computed liability.
In addition to the above plan, the Company has an informal arrangement under
which it provides certain health care benefits for retired employees. No
separate funding is provided under this arrangement. Only those active employees
born before January 1, 1935 who have worked at least five years for the Company
may become eligible for these benefits. Prior to 1995, expense under the health
care plan was recognized by an annual computation of the present value of the
Company's liability for future payments based on current retirees only and a
charge to operations for the current portion of the computed liability.
Effective January 1, 1995, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" whereby the cost of
providing the benefits is accrued during the employees' working years. The
Company elected to immediately recognize this obligation, resulting in a charge
of $1,425 ($855 after-tax) to 1995 operations.
F-14
<PAGE> 114
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RETIREMENT PLANS AND DEFERRED COMPENSATION AGREEMENTS--(CONTINUED)
Components of postretirement expense for the years ended January 3, 1998,
December 28, 1996 and December 30, 1995 included the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ------
<S> <C> <C> <C>
Service cost.............................................. $ 4 $ 5 $ 6
Interest cost on accumulated postretirement benefit
obligation.............................................. 307 326 342
Transition obligation..................................... -- -- 1,424
---- ---- ------
$311 $331 $1,772
==== ==== ======
</TABLE>
The following schedule reconciles the status of the Company's plans with the
unfunded postretirement benefit obligation included in its balance sheets at
January 3, 1998 and December 28, 1996:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
MEDICAL LIFE MEDICAL LIFE
<S> <C> <C> <C> <C>
Retirees......................................... $3,649 $205 $3,680 $167
Fully eligible active plan participants.......... 239 171 517 198
------ ---- ------ ----
Accrued postretirement benefit obligation........ $3,888 $376 $4,197 $365
====== ==== ====== ====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9.5% in 1997, gradually declining to 5.5%
in the year 2005 and remaining at that level thereafter. A discount rate of
7.75% was used in determining the postretirement expense at December 28, 1996. A
discount rate of 7.75% was used to determine the postretirement benefit
obligation at January 3, 1998. A 1% increase in the per capita cost of health
care benefits results in a $25 increase in the accrued postretirement benefit
obligation and a $2 increase in postretirement benefit expense.
The Company's total expense under all retirement benefit plans was approximately
$1,200, $863 and $2,753 in 1997, 1996 and 1995, respectively.
7. SHAREHOLDERS' EQUITY
Upon the death of a holder of class A common stock of Parent Company, the estate
of such holder can require Parent Company to redeem such shares. This redemption
feature is not within the control of Parent Company; accordingly, all of the
class A common stock of Parent Company is presented outside the shareholders'
equity section of the balance sheet. There were 1,080 shares of Parent Company
class A common stock issued during the year ended January 3, 1998.
The holders of the class A and class B common stock of Parent Company are
entitled to the same powers, rights and privileges, except that with regards to
the election of the Board of Directors, the holders of class A stock are
entitled to elect two directors and the holders of class B stock are entitled to
elect four directors.
In connection with the debt refinancing completed in February 1997, the Board
reviewed the terms of the 1992 Stockholders Agreement and the options granted to
certain employee shareholders. The Board concluded that the Unallocated Shares
as described in the 1992 Stockholders Agreement should remain available for
issuance at $15.00 per share and that new employee options should be issued in
exchange for the employee stock options issued in 1992.
Accordingly, in September 1997 the Board issued rights to the 10,000 previously
Unallocated Shares to certain officers and members of management. At January 3,
1998, 1,080 of these shares had been exercised and 8,920 remained exercisable.
F-15
<PAGE> 115
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. SHAREHOLDERS' EQUITY--(CONTINUED)
In addition, the 1997 Stock Option Agreement canceled the outstanding options
under the 1992 Agreement and granted certain officers and members of management
options to purchase shares of Parent Company's class A common stock at an
exercise price of $15.00 per share. All options under the 1997 Agreement are
immediately exercisable and terminate February 20, 2002.
A summary of the Parent Company's stock option activity, including the
previously Unallocated Shares, and related information for the years ended
January 3, 1998, December 28, 1996 and December 30, 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning of year........ 24,620 $15 24,620 $15 24,620 $15
Canceled............................ (24,620) 15
Granted............................. 26,310 15 -- -- -- --
Exercised........................... (1,080) -- -- -- -- --
Retired............................. (2,204) 15
------- --- ------ --- ------ ---
Outstanding at end of year............ 23,026 $15 24,620 $15 24,620 $15
======= === ====== === ====== ===
Exercisable at end of year............ 23,026 $15 -- $-- -- $--
</TABLE>
Exercise price of all options outstanding as of January 3, 1998 is $15. The
weighted-average remaining contractual life of those options is 4 years.
In addition, the Parent Company has outstanding warrants to purchase 30,928
shares of class A common stock of Parent Company at $15 per share. At January 3,
1998, 32,100 shares of class A common stock of Parent Company were reserved for
issuance under these warrants.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, whenever the exercise price of the Company's employee stock options
equals or exceeds the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
The Company used the minimum value method to develop the pro-forma income
effect. Assumptions used in valuing stock options include a risk free rate of
6%, dividend yield of 0.0% and an expected life of 4 years. The difference
between pro-forma net income and reported earnings is not material.
The Company paid a dividend of $7,929 to shareholders on February 26, 1997.
F-16
<PAGE> 116
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
Deferred tax liabilities:
Funded pension........................................... $ 219 $ 381
LIFO..................................................... 1,317 1,410
Tax over book depreciation............................... 3,385 3,610
Other.................................................... 37 237
------ ------
4,958 5,638
Deferred tax assets:
Unfunded pension......................................... 2,017 2,149
Vacation accrual......................................... 436 430
Healthcare accrual....................................... 190 202
Hazardous waste accrual.................................. 107 110
Inventory obsolescence................................... 276 186
Other.................................................... 142 161
------ ------
3,168 3,238
------ ------
$1,790 $2,400
====== ======
</TABLE>
Significant components of the provision for income taxes, including the tax
provision for extraordinary items and cumulative effects of change in method of
accounting are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Current:
Federal............................................. $2,964 $2,024 $ 1,998
State............................................... (27) 214 260
------ ------ -------
2,937 2,238 2,258
Deferred:
Federal............................................. (521) (512) (1,025)
State............................................... (89) (88) (175)
------ ------ -------
(610) (600) (1,200)
------ ------ -------
$2,327 $1,638 $ 1,058
====== ====== =======
</TABLE>
F-17
<PAGE> 117
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES--(CONTINUED)
The reconciliation of income tax attributable to continuing operations computed
at the U.S. statutory rate to income tax expense is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory
rates..................... $2,394 34.0% $1,440 34.0% $ 744 34.0%
State income tax (benefit),
net of federal tax
effect.................... (77) (1.1) 83 2.0 56 2.6
Goodwill amortization....... 248 3.5 248 5.9 248 11.3
Meals and entertainment..... 38 0.5 33 0.8 27 1.3
Benefit of foreign
subsidiary................ (140) (2.0) (110) (2.6) (84) (3.8)
Other, net.................. (136) (1.9) (56) (1.4) 67 2.9
------ ---- ------ ---- ------ ----
$2,327 33.0% $1,638 38.7% $1,058 48.3%
====== ==== ====== ==== ====== ====
</TABLE>
Income taxes paid in excess of tax refunds in 1997, 1996 and 1995 were $2,954,
$2,105 and $2,660, respectively.
9. BUSINESS SEGMENTS
The Company manufactures and sell products and loom accessories used by textile
mills. In addition, the Company processes and sells rolled products from its
wire, foundry and metal fabricating facilities to industrial users. Export sales
were approximately $16,031, $15,218 and $14,911 in 1997, 1996 and 1995,
respectively. Foreign operations are not significant.
F-18
<PAGE> 118
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. BUSINESS SEGMENTS--(CONTINUED)
The information required by Statement of Financial Standards No. 14 is shown
below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Net sales and other income
Textile mill accessories................................. $ 63,127 $56,588 $58,943
Metal products
Unaffiliated customers................................ 9,856 7,896 9,175
Intersegment (1)...................................... 7,393 6,023 6,990
Eliminations--intersegment sales(1)...................... (7,393) (6,023) (6,990)
-------- ------- -------
Total net sales and other income.................... $ 72,983 $64,484 $68,118
======== ======= =======
Operating profit (loss)
Textile mill accessories................................. $ 15,979 $11,861 $ 9,755
Metal products........................................... 3,885 2,289 2,671
-------- ------- -------
Total operating profit.............................. 19,864 14,150 12,426
General corporate expenses................................. (3,234) (4,069) (2,506)
Net interest (expense) income.............................. (5,148) (5,844) (6,307)
-------- ------- -------
Earnings before income taxes............................... $ 11,482 $ 4,237 $ 3,613
======== ======= =======
Identifiable assets
Textile mill accessories................................. $ 49,307 $50,469 $52,263
Metal products........................................... 12,770 12,163 13,660
Corporate assets(2)...................................... 2,263 6,084 2,848
-------- ------- -------
Total assets........................................ $ 64,340 $68,716 $68,771
======== ======= =======
Depreciation and amortization
Textile mill accessories................................. $ 3,220 $ 4,404 $ 4,388
Metal products........................................... 863 1,309 1,353
Corporate................................................ 326 306 355
-------- ------- -------
Total depreciation and amortization................. $ 4,409 $ 6,019 $ 6,096
======== ======= =======
Capital expenditures
Textile mill accessories................................. $ 1,329 $ 1,717 $ 2,108
Metal products........................................... 342 637 741
Corporate................................................ 887 455 606
-------- ------- -------
Total capital expenditures.......................... $ 2,558 $ 2,809 $ 3,455
======== ======= =======
</TABLE>
- ---------------
(1) Intersegment sales are accounted for substantially at cost and have been
eliminated in consolidation.
(2) Corporate assets shown are principally cash, short-term investments and
other assets and deferred charges.
10. RESTRUCTURING
During the fourth quarter of 1995, the Company initiated a restructuring program
which resulted in a one-time pretax expense of approximately $821. This program
includes the closing of the Company's Canadian operation, the write down of
certain assets to be disposed of and a reduction in work force in the Company's
domestic operations. Severance costs included in the one-time charge totaled
approximately $561.
11. SUBSEQUENT EVENT
On May 26, 1998, the Company and its subsidiaries were acquired in a purchase
transaction by Steel Heddle Group, Inc., a corporation formed in contemplation
of the purchase transaction. To partially fund the costs of
F-19
<PAGE> 119
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the acquisition, the Company issued 10 5/8% Senior Subordinated Notes due 2008
in the principal amount of $100,000,000.
Payment of the Company's Senior Subordinated Notes is unconditionally
guaranteed, jointly and severally, on a senior subordinated basis by certain of
the Company's wholly-owned subsidiaries. Management has determined that separate
complete financial statements of the guarantor entities would not be material to
readers of the financial statements; therefore, the following sets forth
condensed consolidating financial statements (dollars in thousands):
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 3, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents........ $ 16 $ 96 $ 267 $ $ 379
Accounts receivable.............. 212 294 8,784 9,290
Inventories...................... 315 13,715 14,030
Prepaid expenses................. 5 94 99
------- ------ -------- --------- -------
Total current assets... 228 710 22,860 23,798
Due from affiliates.............. 3,348 (3,348)
Notes receivable from
affiliates..................... 69,443 (69,443)
Investments in subsidiaries...... 176 71,029 (71,205)
Property, plant & equipment,
net............................ 334 16,351 16,685
Other assets and deferred
charges, net................... 7 23,850 23,857
------- ------ -------- --------- -------
Total assets........... $69,847 $4,399 $134,090 $(143,996) $64,340
======= ====== ======== ========= =======
Liabilities and shareholders'
equity:
Accounts payable and accrued and
sundry liabilities............. $ 23 $ 7,456 $ $ 7,479
Due to affiliates, net........... 3,018 330 (3,348)
Deferred income taxes............ 670 670
Income taxes..................... 302 302
Current portion of long-term
debt........................... 6,500 6,500
------- ------ -------- --------- -------
Total current
liabilities.......... 3,018 23 15,258 (3,348) 14,951
Long-term debt, less current
portion........................ 115,743 (69,443) 46,300
Retirement benefits payable...... 5,126 5,126
Deferred income taxes............ 1,120 1,120
Redeemable common stock.......... 1,366 1,366
Shareholders' equity (deficit)... 66,829 4,376 (4,523) (71,205) (4,523)
------- ------ -------- --------- -------
Total liabilities and
shareholders'
equity............... $69,847 $4,399 $134,090 $(143,996) $64,340
======= ====== ======== ========= =======
</TABLE>
F-20
<PAGE> 120
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 28, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents......... $ $ 105 $ 4,540 $ $ 4,645
Accounts receivable............... 164 8,698 8,862
Inventories....................... 234 12,736 12,970
Prepaid expenses.................. 10 98 108
----- ------ ------- ------- -------
Total current assets.... 513 26,072 26,585
Due from affiliates............... 2,907 (2,907)
Investments in subsidiaries....... 149 0 3,273 (3,422)
Property, plant & equipment,
net............................. 377 17,379 17,756
Other assets and deferred charges,
net............................. 10 24,365 24,375
----- ------ ------- ------- -------
Total assets............ $ 149 $3,807 $71,089 $(6,329) $68,716
===== ====== ======= ======= =======
Liabilities and shareholders'
equity:
Accounts payable and accrued and
sundry liabilities.............. $ 14 $10,528 $ $10,542
Due to affiliates, net............ 520 2,387 (2,907)
Deferred income taxes............. 802 802
Income taxes...................... 361 361
Current portion of long-term
debt............................ 6,500 6,500
----- ------ ------- ------- -------
Total current
liabilities........... 520 14 20,578 (2,907) 18,205
Long-term debt, less current
portion......................... 43,500 43,500
Retirement benefits payable....... 5,372 5,372
Deferred income taxes............. 1,598 1,598
Redeemable common stock........... 1,350 1,350
Shareholders' equity (deficit).... (371) 3,793 (1,309) (3,422) (1,309)
----- ------ ------- ------- -------
Total liabilities and
shareholders'
equity................ $(149) $3,807 $71,089 $(6,329) $68,716
===== ====== ======= ======= =======
</TABLE>
F-21
<PAGE> 121
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales........................ $ $1,601 $ 72,017 $ (635) $72,983
Cost of goods sold............... 927 45,521 46,448
------ ------ -------- ------- -------
Gross profit..................... 674 26,496 (635) 26,535
Selling, general and
administrative costs........... 4 18 9,102 (635) 8,489
Other operating expenses......... 1,204 1,204
------ ------ -------- ------- -------
Operating income (loss).......... (4) 656 16,190 16,842
Other income (expense)........... 7,145 (12,505) (5,360)
Income before income taxes and
extraordinary item............. 7,141 656 3,685 11,482
------ ------ -------- ------- -------
Income tax expense............... 2,500 74 1,441 4,015
------ ------ -------- ------- -------
Income before extraordinary
item........................... 4,641 582 2,244 7,467
Extraordinary (loss) on the early
extinquishment of debt, net of
income taxes................... (2,753) (2,753)
Equity in earnings of
subsidiaries................... 26 5,223 (5,249)
------ ------ -------- ------- -------
Net income (loss)................ $4,667 $ 582 $ 4,714 $(5,249) $ 4,714
====== ====== ======== ======= =======
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales......................... $ $645 $63,839 $ $64,484
Cost of goods sold................ 598 43,476 44,074
--- ---- ------- ----- -------
Gross profit...................... 47 20,363 20,410
Selling, general and
administrative costs............ 10 8,865 8,875
Other operating expenses.......... 1,454 1,454
--- ---- ------- ----- -------
Operating income.................. 37 10,044 10,081
Other income (expense)............ 453 (6,297) (5,844)
--- ---- ------- ----- -------
Income before income taxes........ 490 3,747 4,237
Income tax expense................ (52) (1,586) (1,638)
Equity in earnings of
subsidiaries.................... 45 438 (483)
--- ---- ------- ----- -------
Net income (loss)................. $45 $438 $ 2,599 $(483) $ 2,599
=== ==== ======= ===== =======
</TABLE>
F-22
<PAGE> 122
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 1995
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales......................... $ $625 $67,815 $(322) $68,118
Cost of goods sold................ 310 47,396 47,706
---- ---- ------- ----- -------
Gross profit...................... 315 20,419 (322) 20,412
Selling, general and
administrative costs............ 80 8,909 $(322) 8,667
Other operating expenses.......... 1,825 1,825
---- ---- ------- ----- -------
Operating income.................. 235 9,685 9,920
Other income (expense)............ (68) (6,239) (6,307)
Income before income taxes, and
cumulative effect of accounting
change.......................... 167 3,446 3,613
---- ---- ------- ----- -------
Income tax expense................ 18 1,610 1,628
---- ---- ------- ----- -------
Income before cumulative effect of
accounting change............... 149 1,836 1,985
Cumulative effect of change in
method of accounting for
postretirement benefits net of
taxes of $570................... (855) (855)
Equity in earnings (loss) of
subsidiaries.................... (81) 149 (68)
---- ---- ------- ----- -------
Net income (loss)............... $(81) $149 $ 1,130 $ (68) $ 1,130
==== ==== ======= ===== =======
</TABLE>
F-23
<PAGE> 123
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 3, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities..................... $ 4,431 $ 439 $ 5,090 $ $ 9,960
Investing activities:
Purchases of property, plant
and equipment............... (7) (2,522) (2,529)
Advances to subsidiaries....... (69,443) 69,443
-------- ----- -------- -------- --------
Net cash provided by (used in)
investing activities........ (69,443) (7) (2,522) 69,443 (2,529)
Financing activities:
Prepayment of debt, including
penalty..................... (55,690) (55,690)
Proceeds from debt............. 135,943 (69,443) 66,500
Payments of debt............... (13,700) (13,700)
Dividends paid................. (7,929) (7,929)
Intercompany transactions,
net......................... 2,498 (441) (2,057)
Capital contributions.......... 62,530 (62,530)
Other.......................... (878) (878)
-------- ----- -------- -------- --------
Net cash used in financing
activities..................... 65,028 (441) (6,841) (69,443) (11,697)
-------- ----- -------- -------- --------
Net increase (decrease) in cash
and equivalents................ 16 (9) (4,273) (4,266)
Cash and equivalents at beginning
of year........................ 105 4,540 4,645
-------- ----- -------- -------- --------
Cash and equivalents at end of
year........................... $ 16 $ 96 $ 267 $ $ 379
======== ===== ======== ======== ========
</TABLE>
F-24
<PAGE> 124
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities...................... $ 28 $ 414 $10,794 $ $11,236
Net cash used in investing
activities...................... (4) (2,763) (2,767)
Financing activities:
Payments of debt............. (2,700) (2,700)
Short-term borrowings........ (2,000) (2,000)
Intercompany transactions,
net........................ 30 (377) 347
Capital accounts............. (58) 10 48
Other........................
---- ----- ------- ----- -------
Net cash used in financing
activities................. (28) (367) (4,305) (4,700)
---- ----- ------- ----- -------
Net increase (decrease) in cash
and equivalents................. 43 3,726 3,769
Cash and equivalents at beginning
of year......................... 62 814 876
---- ----- ------- ----- -------
Cash and equivalents at end of
year............................ $ $ 105 $ 4,540 $ $ 4,645
==== ===== ======= ===== =======
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 30, 1995
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by
operating activities............. $(508) $ 508 $ 7,612 $ $ 7,612
Net cash used in investing
activities....................... (340) (3,017) (3,357)
Financing activities:
Payments of debt................. (7,000) (7,000)
Short-term borrowings............ 2,000 2,000
Intercompany transactions, net... 508 (169) (339)
Other............................
----- ----- ------- ----- -------
Net cash used in financing
activities.................... 508 (169) (5,339) (5,000)
----- ----- ------- ----- -------
Net increase (decrease) in cash and
equivalents...................... (1) (744) (745)
Cash and equivalents at beginning
of year.......................... 63 1,558 1,621
----- ----- ------- ----- -------
Cash and equivalents at end of
year............................. $ $ 62 $ 814 $ $ 876
===== ===== ======= ===== =======
</TABLE>
F-25
<PAGE> 125
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 4, JANUARY 3,
1998 1998
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 276 $ 379
Accounts receivable....................................... 11,115 9,290
Inventories............................................... 15,071 14,030
Prepaid expenses.......................................... 50 99
-------- --------
Total current assets........................................ 26,512 23,798
Property, plant and equipment:
Cost...................................................... 52,368 52,561
Less accumulated depreciation............................. (36,070) (35,876)
-------- --------
16,298 16,685
Other assets and deferred charges:
Prepaid pension costs..................................... 488 546
Goodwill, net............................................. 22,355 22,537
Sundry.................................................... 741 774
-------- --------
23,584 23,857
-------- --------
Total Assets...................................... $ 66,394 $ 64,340
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 2,194 $ 2,166
Accrued and sundry liabilities............................ 3,130 5,313
Deferred income taxes..................................... 670 670
Income taxes.............................................. 1,289 302
Current portion of long-term debt......................... 6,500 6,500
-------- --------
Total current liabilities................................... 13,783 14,951
Long-term debt, less current portion........................ 46,992 46,300
Retirement benefits payable................................. 5,141 5,126
Deferred income taxes....................................... 1,120 1,120
Redeemable common stock:
Parent company class A, $.01 par value per
share -- authorized 2,000,000 shares, issued and
outstanding 91,080 shares in 1997 and 90,000 in 1996... 1,366 1,366
Shareholders' equity/(deficit):
Common Stock par value $1 per share -- authorized
1,500,000 shares, issued and outstanding 10 shares..... -- --
Additional paid-in capital................................ 13,689 13,689
Foreign currently translation adjustment.................. (34) (48)
(Deficit)................................................. (15,663) (18,164)
-------- --------
(2,008) (4,523)
-------- --------
Total liabilities and shareholders' equity
(deficit)....................................... $ 66,394 $ 64,340
======== ========
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE> 126
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
--------------------
APRIL 4, APRIL 5,
1998 1997
-------- --------
<S> <C> <C>
Net sales................................................... $19,266 $18,606
Cost of goods sold.......................................... 11,930 12,081
------- -------
Gross profit................................................ 7,336 6,525
Selling, general and administrative costs................... 2,178 2,231
Management fees............................................. 68 268
Amortization of goodwill.................................... 182 182
------- -------
Operating income............................................ 4,908 3,844
Other income (expense):
Interest income........................................... 17 44
Interest expense, including amortization of deferred
financing costs........................................ (1,027) (1,503)
Other financing expense................................... (50) (175)
------- -------
Income before income taxes, extraordinary item and
cumulative effect
of accounting change...................................... 3,848 2,210
Income tax expense.......................................... 1,347 773
------- -------
Income before extraordinary item............................ 2,501 1,437
Extraordinary (loss) on the early extinguishment of debt,
net of income taxes of $1,688............................. -- (2,753)
------- -------
Net income (loss)........................................... $ 2,501 $(1,316)
======= =======
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE> 127
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
--------------------
APRIL 4, APRIL 5,
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 2,501 $ (1,316)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 924 943
Amortization.............................................. 215 394
Loss on disposal of property, plant and equipment......... -- --
Provision for deferred income taxes....................... -- --
Accrued retirement benefit costs.......................... 73 48
Extraordinary item........................................ -- 4,441
Changes in operating assets and liabilities:
Accounts receivable.................................... (1,825) (379)
Inventories............................................ (1,041) (327)
Prepaid expenses....................................... 49 86
Accounts payable....................................... 28 (421)
Accrued and sundry liabilities......................... (2,169) (3,696)
Income taxes payable................................... 987 (1,118)
------- --------
Net cash used in operating activities....................... (258) (1,345)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment................. (618) (416)
Proceeds on disposals of property, plant and equipment,
net.................................................... 81 --
------- --------
Net cash used in investing activities....................... (537) (416)
FINANCING ACTIVITIES:
Prepayments of debt, including penalty.................... -- (56,315)
Proceeds from debt........................................ 692 62,500
Dividends paid............................................ -- (7,929)
Loan acquisition costs.................................... -- (793)
------- --------
Net cash provided by (used in) financing activities....... 692 (2,537)
------- --------
(Decrease) increase in cash and cash equivalents............ (103) (4,298)
Cash and cash equivalents at beginning of period............ 379 4,645
------- --------
Cash and cash equivalents at end of period.................. $ 276 $ 347
======= ========
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE> 128
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Steel Heddle Mfg. Co. ("Steel Heddle" or the "Company") manufactures
products and loom accessories used by textile mills. It also processes and sells
metal products from its wire rolling facilities to industrial users. The Company
sells to foreign and domestic companies.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the management of Steel
Heddle, these unaudited consolidated financial statements contain all of the
adjustments of a normal recurring nature necessary for fair presentation.
Operating results for the fiscal quarter ended April 4, 1998 are not necessarily
indicative of the results that may be expected for fiscal 1998. Certain amounts
previously presented in the consolidated financial statements for prior periods
have been reclassified to conform to current classification. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of revenues and expense during the reporting period. Actual results
could differ from those estimates.
During the quarter ended April 4, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income," which requires comprehensive income to be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Adoption of this statement did not have any impact
on the Company's consolidated financial position, results of operations or cash
flows.
2. EXTRAORDINARY ITEM
On February 21, 1997, the Company entered into a credit arrangement with a
bank group consisting of a Term Loan Facility of $52,500 and a $15,000 Revolving
Line of Credit. The Company utilized proceeds of the Term Loan and the Revolving
Credit Facility to repay its senior notes in the principal amount of $24,900
plus a penalty of $2,500 and to repay its subordinated notes in the principal
amount of $25,100 plus a penalty of $3,200. The total penalty net of other
losses and gains on the refinancing is reported as an extraordinary item, net of
taxes of approximately $1,700. Included in the net extraordinary loss is a
reversal of accrued interest of approximately $1,400. This reversal resulted
from the difference between the stated rate of interest and the effective rate
of interest.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 4, JANUARY 3,
1998 1998
----------- ----------
(UNAUDITED)
<S> <C> <C>
Raw materials and component parts........................... $ 6,148 $ 6,312
Work in process and finished goods.......................... 8,923 7,718
------- -------
$15,071 $14,030
======= =======
</TABLE>
If all inventories had been priced by FIFO or average cost method, they
would have been higher than the amounts reported by approximately $725 at April
4, 1998 and $627 at January 3, 1998.
F-29
<PAGE> 129
4. SUBSEQUENT EVENT
On May 26, 1998, the Company and its subsidiaries were acquired in a
purchase transaction by Steel Heddle Group, Inc., a corporation formed in
contemplation of the purchase transaction. To partially fund the costs of the
acquisition, the Company issued 10 5/8% Senior Subordinated Notes due 2008 in
the principal amount of $100,000,000.
Payment of the Company's Senior Subordinated Notes is unconditionally
guaranteed, jointly and severally, on a senior subordinated basis by certain of
the Company's wholly-owned subsidiaries. Management has determined that separate
complete financial statements of the guarantor entities would not be material to
users of the financial statements; therefore, the following sets forth condensed
consolidating financial statements (in thousands):
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF APRIL 4, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents........ $ 17 $ 34 $ 225 $ $ 276
Accounts receivable.............. 240 265 10,610 11,115
Inventories...................... 351 14,720 15,071
Prepaid expenses................. 31 19 50
------- ------ -------- --------- -------
Total current assets... 257 681 25,574 26,512
Due from affiliates.............. 3,361 (3,361) --
Notes receivable from
affiliates..................... 69,443 (69,443) --
Investments in subsidiaries...... 163 72,371 (72,534) --
Property, plant & equipment,
net............................ 322 15,976 16,298
Other assets and deferred
charges, net................... 7 23,577 23,584
------- ------ -------- --------- -------
Total assets........... $69,863 $4,371 $137,498 $(145,338) $66,394
======= ====== ======== ========= =======
Liabilities and shareholders'
equity:
Accounts payable and accrued and
sundry liabilities............. $ $ 32 $ 5,292 $ $ 5,324
Due to affiliates, net........... 853 2,508 (3,361) --
Deferred income taxes............ 670 670
Income taxes..................... 834 (19) 474 1,289
Current portion of long-term
debt........................... 6,500 6,500
------- ------ -------- --------- -------
Total current
liabilities.......... 1,687 13 15,444 (3,361) 13,783
Long-term debt, less current
portion........................ 116,435 (69,443) 46,992
Retirement benefits payable...... 5,141 5,141
Deferred income taxes............ 1,120 1,120
Redeemable common stock.......... 1,366 1,366
Shareholders' equity (deficit)... 68,176 4,358 (2,008) (72,534) (2,008)
------- ------ -------- --------- -------
Total liabilities and
shareholders'
equity............... $69,863 $4,371 $137,498 $(145,338) $66,394
======= ====== ======== ========= =======
</TABLE>
F-30
<PAGE> 130
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE FISCAL QUARTER ENDED APRIL 4, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales......................... $ $230 $19,036 $ $19,266
Cost of goods sold................ 251 11,678 11,930
------ ---- ------- ------- -------
Gross profit...................... (21) 7,357 7,336
Selling, general and
administrative costs............ 5 2,173 2,178
Other operating expenses.......... 250 250
------ ---- ------- ------- -------
Operating income (loss)........... (26) 4,934 4,908
Other income (expense)............ 2,194 (3,254) (1,060)
------ ---- ------- ------- -------
Income (loss) before income
taxes........................... 2,194 (26) 1,680 3,848
Income tax (expense) benefit...... (834) 9 (522) (1,347)
Equity in earnings of
subsidiaries.................... 1,343 (1,343) --
------ ---- ------- ------- -------
Net income........................ $1,360 $(17) $ 2,501 $(1,343) $ 2,501
====== ==== ======= ======= =======
</TABLE>
F-31
<PAGE> 131
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE FISCAL QUARTER ENDED APRIL 5, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales......................... $ $201 $18,405 $ $10,606
Cost of goods sold................ 174 11,907 12,081
---- ---- ------- ----- -------
Gross profit...................... 27 6,498 6,525
Selling, general and
administrative costs............ 5 2,226 2,231
Other operating expenses.......... 450 450
---- ---- ------- ----- -------
Operating income.................. 22 3,822 3,844
Other income (expense)............ 922 (2,556) (1,634)
---- ---- ------- ----- -------
Income before income taxes and
extraordinary item.............. 922 22 1,266 2,210
Income tax expense................ 351 8 414 773
---- ---- ------- ----- -------
Income before extraordinary
item............................ 571 14 852 1,437
Extraordinary (loss)on early
extinguishment of debt, net of
income taxes.................... (2,753) (2,753)
Equity in earnings of
subsidiaries.................... 17 585 (602) 3
---- ---- ------- ----- -------
Net income (loss)................. $588 $ 14 $(1,316) $(602) $(1,316)
==== ==== ======= ===== =======
</TABLE>
F-32
<PAGE> 132
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE FISCAL QUARTER ENDED APRIL 4, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities...................... $ 2,166 $(49) $(2,375) $ $(258)
Net cash used in investing
activities...................... (537) (537)
Financing activities:
Proceeds from debt.............. 692 692
Dividends paid.................. --
Intercompany transactions,
net.......................... (2,165) (13) 2,178
Other........................... --
------- ---- ------- --------- -----
Net cash used in financing
activities...................... (2,165) (13) 2,870 692
------- ---- ------- --------- -----
Net increase (decrease) in cash
and equivalents................. 1 (62) (42) (103)
Cash and equivalents at beginning
of year......................... 16 96 267 379
------- ---- ------- --------- -----
Cash and equivalents at end of
year............................ $ 17 $ 34 $ 225 $ $ 276
======= ==== ======= ========= =====
</TABLE>
F-33
<PAGE> 133
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE FISCAL QUARTER ENDED APRIL 5, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities..................... $ 706 $ 55 $ (2,106) $ $ (1,345)
Investing activities:............
Purchases of property, plant
and equipment............. (416) (416)
Advances to subsidiaries.... (63,220) 63,220
-------- ---- -------- -------- --------
Net cash used in investing
activities................ (63,220) (416) 63,220 416
Financing activities:............
Dividends paid.............. (7,929) (7,929)
Pre-payments of debt,
including penalty......... (56,315) (56,315)
Proceeds from debt.......... 125,720 (63,220) 62,500
Intercompany transactions,
net....................... (3) (2) 5
Capital accounts............ 62,531 (62,531)
Other....................... (793) (793)
-------- ---- -------- -------- --------
Net cash used in financing
activities................ 62,528 (2) (1,843) (63,220) (2,537)
-------- ---- -------- -------- --------
Net increase (decrease) in cash
and equivalents................ 14 53 (4,365) (4,298)
Cash and equivalents at beginning
of year........................ 105 4,540 4,645
-------- ---- -------- -------- --------
Cash and equivalents at end of
year........................ $ 14 $158 $ 175 $ $ 347
======== ==== ======== ======== ========
</TABLE>
F-34
<PAGE> 134
[This page intentionally left blank]
<PAGE> 135
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING NOT
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SH GROUP OR
THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF SH GROUP SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information.................. i
Summary................................ 1
Risk Factors........................... 13
Acquisition Transactions............... 20
Use of Proceeds........................ 21
Capitalization......................... 22
Unaudited Pro Forma Condensed
Consolidated Financial Data.......... 23
Selected Consolidated Historical
Financial Data....................... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 32
Business............................... 38
Management............................. 47
Certain Relationships and Related
Transactions......................... 51
Description of SH Group Common Stock... 52
Security Ownership..................... 52
Description of Debentures.............. 53
The Exchange Offer..................... 82
Description of Other Indebtedness...... 90
Certain Federal Income Tax
Considerations....................... 93
Plan of Distribution................... 94
Legal Matters.......................... 94
Experts................................ 94
Change in Accountants.................. 94
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
PROSPECTUS
$29,250,000
[STEEL HEDDLE LOGO]
STEEL HEDDLE GROUP, INC.
OFFER TO EXCHANGE $1,000 PRINCIPAL
AMOUNT OF ITS 13 3/4% SERIES B
SENIOR DISCOUNT DEBENTURES DUE 2009
WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT
FOR EACH $1,000 PRINCIPAL AMOUNT
OF ITS OUTSTANDING 13 3/4% SERIES A
SENIOR DISCOUNT DEBENTURES DUE 2009
,1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 136
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
SH Group is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware, inter alia,
("Section 145") provides that a Delaware corporation may indemnify any persons
who were, are or are threatened to be made, parties 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 an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer employee or agent of another corporation or
enterprise. The indemnity may include 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, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
SH Group's Certificate of Incorporation and By-laws provides for the
indemnification of directors and officers of SH Group to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as it
currently exists or may hereafter be amended.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
SH Group maintains and has in effect insurance policies covering all of SH
Group's directors and officers against certain liabilities for actions taken in
such capacities, including liabilities under the Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<C> <C> <S>
3.1 -- Certificate of Amended and Restated Certificate of
Incorporation of SH Group.
3.2 -- By-laws of SH Group.
4.1 -- Indenture, dated as of May 26, 1998, among SH Group and
United States Trust Company of New York, as Trustee.
4.2 -- Purchase Agreement, dated as of May 21, 1998, between SH
Group and Donaldson, Lufkin & Jenrette Securities
Corporation.
4.3 -- Registration Rights Agreement, dated as of May 26, 1998
between SH Group and Donaldson, Lufkin & Jenrette Securities
Corporation.
4.4 -- Stockholders Agreement, dated as of May 26, 1998, among SH
Group and its stockholders.
</TABLE>
II-1
<PAGE> 137
<TABLE>
<C> <C> <S>
5.1 -- Opinion of Kirkland & Ellis.
10.1 -- Pledge Agreement, dated as of May 26, 1998, among the
Company, SH Group, Steel Heddle International, Inc. and
Heddle Capital Corp. and NationsBank, N.A., as
administrative agent and documentation agent.
10.2 -- Stock Purchase Agreement, dated as of May 1, 1998, by and
among SH Holdings Corp., Butler Capital Corporation, SH
Group and the stockholders of SH Holdings Corp.
10.3 -- Management Services Agreement, dated as of May 26, 1998, by
and among the Company, Steel Heddle International, Inc.,
Heddle Capital Corp., SH Group, Steel Heddle International
Ltd., Steel Heddle (Canada) LTEE/LTD and American Industrial
Partners Corporation.
10.4 -- Management Stock Option Plan adopted by the Board of
Directors of SH Group as of May 26, 1998.
12.1 -- Computation of earnings to fixed charges.*
21.1 -- Subsidiaries of SH Group.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 -- Power of Attorney (included in signature page).
25.1 -- Statement of Eligibility of Trustee on Form T-1.*
27.1 -- Financial Data Schedule.*
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Tender Instructions.
</TABLE>
- ------------------
* to be filed by amendment
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE> 138
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by sec.210.3-19 of this chapter at the start
of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, provided, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or sec.210.3-19 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form F-3.
(5) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(6) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 20 or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 139
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF GREENVILLE, STATE OF
SOUTH CAROLINA, ON AUGUST 7, 1998.
STEEL HEDDLE GROUP, INC.
By: /s/ JERRY B. MILLER
------------------------------------
Name: Jerry B. Miller
Title: Vice President--Finance and
Secretary
------------------------
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jerry B. Miller, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (including
his capacity as a director and/or officer of Steel Heddle Group, Inc. ), to sign
any or all amendments (including post-effective amendments) to this registration
statement and any subsequent registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ BENJAMIN G. TEAM President, Chief Executive August 7, 1998
- ----------------------------------------------------- Officer and Director
BENJAMIN G. TEAM (principal executive officer)
/s/ JERRY B. MILLER Vice President--Finance and August 7, 1998
- ----------------------------------------------------- Secretary (principal financial
JERRY B. MILLER and accounting officer)
/s/ ROBERT W. DILLON Executive Vice President and August 7, 1998
- ----------------------------------------------------- Director
ROBERT W. DILLON
/s/ NATHAN L. BELDEN Director August 7, 1998
- -----------------------------------------------------
NATHAN L. BELDEN
/s/ ROBERT J. KLEIN Director August 7, 1998
- -----------------------------------------------------
ROBERT J. KLEIN
/s/ KIM A. MARVIN Director August 7, 1998
- -----------------------------------------------------
KIM A. MARVIN
/s/ ROBERT L. PURDUM Director August 7, 1998
- -----------------------------------------------------
ROBERT L. PURDUM
/s/ THEODORE C. ROGERS Director August 7, 1998
- -----------------------------------------------------
THEODORE C. ROGERS
</TABLE>
II-4
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION
OF
STEEL HEDDLE GROUP, INC.
The undersigned, being the duly elected Vice President and Secretary of
Steel Heddle Group, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware ("DGCL"), hereby declares and certifies the following:
1. That the Corporation filed its original Certificate of Incorporation
with the Secretary of State of the State of Delaware on April 14, 1998 (the
"Certificate of Incorporation") under the name of Steel Heddle, Inc.
2. That the present name of the Corporation is Steel Heddle Group, Inc.
3. That the Board of Directors of the Corporation, pursuant to Sections
141, 242 and 245 of the DGCL, have adopted resolutions authorizing the
Corporation to amend, integrate and restate the Certificate of Incorporation of
the Corporation in its entirety to read as set forth in Exhibit A attached
hereto and made a part hereof (the "Amended and Restated Certificate").
IN WITNESS WHEREOF, the undersigned has executed this certificate in
the name and on behalf of the Corporation as of this 8th day of May, 1998.
By:/s/ Nate Belden
---------------------------------------
Name: Nathan L. Belden
Title: Vice President and Secretary
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
STEEL HEDDLE GROUP, INC.
ARTICLE FIRST
The name of the corporation is Steel Heddle Group, Inc. (hereinafter
called the "Corporation")
ARTICLE SECOND
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is Corporation Service Company.
ARTICLE THIRD
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOURTH
The total number of shares of stock which the Corporation has authority
to issue is 300,000 (three hundred thousand) SHARES of Common Stock, with a par
value of $0.01 per share.
<PAGE> 3
ARTICLE FIFTH
The name and mailing address of the sole incorporator are as follows:
NAME MAILING ADDRESS
---- ---------------
Amy Gottesmann c/o Kirkland & Ellis
655 Fifteenth Street, N.W.
11th Floor
Washington, D.C. 20005
ARTICLE SIXTH
The Corporation is to have perpetual existence.
ARTICLE SEVENTH
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, alter or repeal the by-laws of the Corporation.
ARTICLE EIGHTH
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places
as may be designated from time to time by the board of directors or in the
by-laws of the Corporation. Election of directors need not be by written ballot
unless the by-laws of the Corporation so provide.
ARTICLE NINTH
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended, a director of
this Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director. Any repeal or
modification of this ARTICLE NINTH shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
-2-
<PAGE> 4
ARTICLE TENTH
The Corporation expressly elects not to be governed by Section 203 of
the General Corporation Law of the State of Delaware.
ARTICLE ELEVENTH
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation in the manner now
or hereafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
-3-
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
STEEL HEDDLE GROUP, INC.,
A DELAWARE CORPORATION
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
corporation in the State of Delaware shall be located at 1013 Centre Road, in
the City of Wilmington, County of New Castle. The name of the corporation's
registered agent at such address shall be Corporation Service Company. The
registered office and/or registered agent of the corporation may be changed from
time to time by action of the board of directors.
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 Time of Meetings. An annual meeting of the
stockholders shall be held each year for the purpose of electing directors and
conducting such other proper business as may come before the meeting. The date,
time and place of the annual meeting may be determined by resolution of the
board of directors or as set by the president of the corporation.
Section 2. Special Meetings. Special meetings of stockholders may be
called for any purpose (including, without limitation, the filling of board
vacancies and newly created directorships), and may be held at such time and
place, within or without the State of Delaware, as shall be stated in a notice
of meeting or in a duly executed waiver of notice thereof. Such meetings may be
called at any time by two or more members of the board of directors or the
president and shall be called by the president upon the written request of
holders of shares entitled to cast not less than fifty percent (50%) of the
outstanding shares of any series or class of the corporation's Capital Stock.
<PAGE> 2
Section 3. Place of Meetings. The board of directors may designate
any place, either within or without the State of Delaware, as the place of
meeting for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted
to take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting. All such
notices shall be delivered, either personally or by mail, by or at the direction
of the board of directors, the president or the secretary, and if mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its address as the
same appears on the records of the corporation. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 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 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. Quorum. Except as otherwise provided by applicable law or
by the Certificate of Incorporation, a majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time in accordance with Section
7 of this Article, until a quorum shall be present or represented.
Section 7. Adjourned Meetings. When a meeting is adjourned to
another time and place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject
- 2 -
<PAGE> 3
matter shall be the act of the stockholders, unless the question is one upon
which by express provisions of an applicable law or of the certificate of
incorporation a different vote is required, in which case such express provision
shall govern and control the decision of such question. Where a separate vote by
class is required, the affirmative vote of the majority of shares of such class
present in person or represented by proxy at the meeting shall be the act of
such class.
Section 9. Voting Rights. Except as otherwise provided by the
General Corporation Law of the State of Delaware or by the certificate of
incorporation of the corporation or any amendments thereto and subject to
Section 3 of Article VI hereof, every stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
common stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him, her or
it by proxy. Every proxy must be signed by the stockholder granting the proxy or
by his, her or its attorney-in-fact. No proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally.
Section 11. Action by Written Consent. Unless otherwise provided in
the certificate of incorporation, any action required to be taken at any annual
or special meeting of stockholders of the corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than a majority of
the shares entitled to vote, or, if greater, 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 and shall be
delivered to the corporation by delivery to its registered office in the state
of Delaware, or the corporation's principal place of business, or an officer or
agent of the corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested provided, however, that no consent or consents
delivered by certified or registered mail shall be deemed delivered until such
consent or consents are actually received at the registered office. All consents
properly delivered in accordance with this section shall be deemed to be
recorded when so delivered. No written consent shall be effective to take the
corporate action referred to therein unless, within sixty days of the earliest
dated consent delivered to the corporation as required by this section, written
consents signed by the holders of a sufficient number of shares to take such
corporate action are so recorded. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing. Any action taken
pursuant to such written consent or consents of the stockholders shall have the
same force and effect as if taken by the stockholders at a meeting thereof.
- 3 -
<PAGE> 4
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the
corporation shall be managed by or under the direction of the board of
directors.
Section 2. Number, Election and Term of Office. The number of
directors which shall constitute the first board shall be 2 (two). Thereafter,
the number of directors shall be established from time to time by resolution of
the board. The directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote in the election of directors. The directors shall be elected in this manner
at the annual meeting of the stockholders, except as provided in Section 4 of
this Article III. Each director elected shall hold office until a successor is
duly elected and qualified or until his or her earlier death, resignation or
removal as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board
of directors may be removed at any time, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause or a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Any director may resign at any time upon written
notice to the corporation.
Section 4. Vacancies. Except as otherwise provided by the
Certificate of Incorporation of the corporation or any amendments thereto,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority vote of the holders
of the corporation's outstanding stock entitled to vote thereon. Each director
so chosen shall hold office until a successor is duly elected and qualified or
until his or her earlier death, resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected
board of directors shall be held without other notice than this by-law
immediately after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than
the annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the president or vice president on at least 24 hours notice to each
director, either personally, by telephone, by mail, or by telegraph; in like
manner and on like notice the president must call a special meeting on the
written request of at least a majority of the directors.
Section 7. Quorum, Required Vote and Adjournment. A majority of the
total number of directors shall constitute a quorum for the transaction of
business. The vote of a majority of
- 4 -
<PAGE> 5
directors present at a meeting at which a quorum is present shall be the act of
the board of directors. 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 8. Committees. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation, which
to the extent provided in such resolution or these by-laws shall have and may
exercise the powers of the board of directors in the management and affairs of
the corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 9. Committee Rules. Each committee of the board of directors
may fix its own rules of procedure and shall hold its meetings as provided by
such rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of
directors or any committee thereof may participate in and act at any meeting of
such board or committee through the use of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member
of the board of directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
- 5 -
<PAGE> 6
Section 12. Action by Written Consent. Unless otherwise restricted
by the certificate of incorporation, 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 all members of the board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be elected
by the board of directors and shall consist of a chairman, if any is elected, a
president, one or more vice presidents, a secretary, a treasurer, and such other
officers and assistant officers as may be deemed necessary or desirable by the
board of directors. Any number of offices may be held by the same person, except
that no person may simultaneously hold the office of president and secretary. In
its discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable.
Section 2. Election and Term of Office. The officers of the
corporation shall be elected annually by the board of directors at its first
meeting held after each annual meeting of stockholders or as soon thereafter as
conveniently may be. The president shall appoint other officers to serve for
such terms as he or she deems desirable. Vacancies may be filled or new offices
created and filled at any meeting of the board of directors. Each officer shall
hold office until a successor is duly elected and qualified or until his or her
earlier death, resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term by the board of
directors then in office.
Section 5. Compensation. Compensation of all officers shall be
fixed by the board of directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a director of
the corporation.
Section 6. The Chairman of the Board. The Chairman of the Board, if
one shall have been elected, shall be a member of the board, an officer of the
Corporation, and, if present, shall preside at each meeting of the board of
directors or shareholders. The Chairman of the Board shall, in the absence or
disability of the president, act with all of the powers and be subject to all
the restrictions of the president. He shall advise the president, and in the
president's absence, other officers of the Corporation, and shall perform such
other duties as may from time to time be assigned to him by the board of
directors.
- 6 -
<PAGE> 7
Section 7. The President. The president shall be the chief executive
officer of the corporation. In the absence of the Chairman of the Board or if a
Chairman of the Board shall have not been elected, the president shall preside
at all meetings of the stockholders and board of directors at which he or she is
present; subject to the powers of the board of directors, shall have general
charge of the business, affairs and property of the corporation, and control
over its officers, agents and employees; and shall see that all orders and
resolutions of the board of directors are carried into effect. The president
shall have such other powers and perform such other duties as may be prescribed
by the board of directors or as may be provided in these by-laws.
Section 8. Vice-presidents. The vice-president, if any, or if there
shall be more than one, the vice-presidents in the order determined by the board
of directors shall, in the absence or disability of the president, act with all
of the powers and be subject to all the restrictions of the president. The
vice-presidents shall also perform such other duties and have such other powers
as the board of directors, the president or these by-laws may, from time to
time, prescribe.
Section 9. The Secretary and Assistant Secretaries. The secretary
shall attend all meetings of the board of directors, all meetings of the
committees thereof and all meetings of the stockholders and record all the
proceedings of the meetings in a book or books to be kept for that purpose.
Under the president's supervision, the secretary shall give, or cause to be
given, all notices required to be given by these by-laws or by law; shall have
such powers and perform such duties as the board of directors, the president or
these by-laws may, from time to time, prescribe; and shall have custody of the
corporate seal of the corporation. The secretary, or an assistant secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his or her signature. The assistant secretary, or if
there be more than one, the assistant secretaries in the order determined by the
board of directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors, the
president, or secretary may, from time to time, prescribe.
Section 10. The Treasurer and Assistant Treasurer. The treasurer
shall have the custody of the corporate funds and securities; shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the board of directors;
shall cause the funds of the corporation to be disbursed when such disbursements
have been duly authorized, taking proper vouchers for such disbursements; and
shall render to the president and the board of directors, at its regular meeting
or when the board of directors so requires, an account of the corporation; shall
have such powers and perform such duties as the board of directors, the
president or these by-laws may, from time to time, prescribe. If required by the
board of directors, the treasurer shall give the corporation a bond (which shall
be rendered every six years) in such sums and with such surety or sureties as
shall be satisfactory to the board of directors for the faithful performance of
the duties of the office of treasurer and for the restoration to the
corporation, in case of death, resignation, retirement, or removal from office,
of all books, papers, vouchers, money, and other property of whatever kind in
the possession or under the control of the treasurer belonging to
- 7 -
<PAGE> 8
the corporation. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors,
shall in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer. The assistant treasurers shall perform
such other duties and have such other powers as the board of directors, the
president or treasurer may, from time to time, prescribe.
Section 11. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 12. Absence or Disability of Officers. In the case of the
absence or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 1. Nature of Indemnity. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or a person of whom
he is the legal representative, is or was a director or officer, of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee,
fiduciary or agent or in any other capacity while serving as a director,
officer, employee, fiduciary or agent, shall be indemnified and held harmless by
the corporation to the fullest extent which it is empowered to do so by the
General Corporation Law of the State of Delaware, 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 said law permitted the corporation to provide prior to such
amendment) against all expense, liability and loss (including attorneys' fees
actually and reasonably incurred by such person in connection with such
proceeding and such indemnification shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, except as provided
in Section 2 hereof, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding initiated by such person only if
such proceeding was authorized by the board of directors of the corporation. The
right to indemnification conferred in this Article V shall be a contract right
and, subject to Sections 2 and 5 hereof, shall include the right to be paid by
the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition. The corporation may, by action of its board of
directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
- 8 -
<PAGE> 9
Section 2. Procedure for Indemnification of Directors and Officers.
Any indemnification of a director or officer of the corporation under Section 1
of this Article V or advance of expenses under Section 5 of this Article V shall
be made promptly, and in any event within 30 days, upon the written request of
the director or officer. If a determination by the corporation that the director
or officer is entitled to indemnification pursuant to this Article V is
required, and the corporation fails to respond within sixty days to a written
request for indemnity, the corporation shall be deemed to have approved the
request. If the corporation denies a written request for indemnification or
advancing of expenses, in whole or in part, or if payment in full pursuant to
such request is not made within 30 days, the right to indemnification or
advances as granted by this Article V shall be enforceable by the director or
officer in any court of competent jurisdiction. Such person's costs and expenses
incurred in connection with successfully establishing his or her right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the corporation. 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, has been tendered to the corporation) that the claimant has not met the
standards of conduct which make it permissible under the General Corporation Law
of the State of Delaware for the corporation to indemnify the claimant for the
amount claimed, but the burden of such defense shall be on the corporation.
Neither the failure of the corporation (including its board of directors,
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 General Corporation Law of the State of Delaware, nor
an actual determination by the corporation (including its board of directors,
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.
Section 3. Nonexclusivity of Article V. The rights to
indemnification and the payment of expenses incurred in defending a proceeding
in advance of its final disposition conferred in this Article V shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the certificate of incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 4. Insurance. The corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the corporation or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, whether or not the corporation would have the power
to indemnify such person against such liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in
Section 1 of this Article V in defending a proceeding shall be paid by the
corporation in advance of such proceeding's final disposition unless otherwise
determined by the board of directors in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation. Such expenses
- 9 -
<PAGE> 10
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall
be deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of this
Article V or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
the chairman of the board, the president or a vice-president and the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by such holder in the corporation. If such a certificate is countersigned
(1) by a transfer agent or an assistant transfer agent other than the
corporation or its employee or (2) by a registrar, other than the corporation or
its employee, the signature of any such chairman of the board, president,
vice-president, secretary, or assistant secretary may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation whether because of death, resignation or
otherwise before such certificate or certificates have been delivered by the
corporation, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the
- 10 -
<PAGE> 11
corporation. All certificates for shares shall be consecutively numbered or
otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the books of the corporation. Shares of stock of the corporation
shall only be transferred on the books of the corporation by the holder of
record thereof or by such holder's attorney duly authorized in writing, upon
surrender to the corporation of the certificate or certificates for such shares
endorsed by the appropriate person or persons, with such evidence of the
authenticity of such endorsement, transfer, authorization, and other matters as
the corporation may reasonably require, and accompanied by all necessary stock
transfer stamps. In that event, it shall be the duty of the corporation to issue
a new certificate to the person entitled thereto, cancel the old certificate or
certificates, and record the transaction on its books. The board of directors
may appoint a bank or trust company organized under the laws of the United
States or any state thereof to act as its transfer agent or registrar, or both
in connection with the transfer of any class or series of securities of the
corporation.
Section 2. Lost Certificates. The board of directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order
that the corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the board of
directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. 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 4. Fixing a Record Date for Action by Written Consent. In
order that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date
- 11 -
<PAGE> 12
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the board of directors and prior
action by the board of directors is required by statute, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
board of directors adopts the resolution taking such prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment or any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purposes of any other lawful action,
the board of directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
Section 6. Subscriptions for Stock. Unless otherwise provided for in
the subscription agreement, subscriptions for shares shall be paid in full at
such time, or in such installments and at such times, as shall be determined by
the board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the corporation may proceed to collect the
amount due in the same manner as any debt due the corporation.
ARTICLE VII
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, subject to the provisions of the certificate of
incorporation. 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, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or any other purpose
and the directors may modify or abolish any such reserve in the manner in which
it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other
orders for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name
- 12 -
<PAGE> 13
of the corporation shall be signed by such officer or officers, agent or agents
of the corporation, and in such manner, as shall be determined by resolution of
the board of directors or a duly authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any
officer or officers, or any agent or agents, of the corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The corporation may lend money to, or guarantee
any obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall
be fixed by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors may provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities
in any other corporation held by the corporation shall be voted by the
president, unless the board of directors specifically confers authority to vote
with respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder of
record, in person or by attorney or other agent, shall, upon written demand
under oath stating the purpose thereof, have the right during the usual hours
for business to inspect for any proper purpose the corporation's stock ledger, a
list of its stockholders, and its other books and records, and to make copies or
extracts therefrom. A proper purpose shall mean any purpose reasonably related
to such person's interest as a stockholder. In every instance where an attorney
or other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at its
registered office in the State of Delaware or at its principal place of
business.
- 13 -
<PAGE> 14
Section 9. Section Headings. Section headings in these by-laws
are for convenience of reference only and shall not be given any substantive
effect in limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision
of these by-laws is or becomes inconsistent with any provision of the
certificate of incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these by-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VIII
AMENDMENTS
These by-laws may be amended, altered, or repealed and new by-laws
adopted at any meeting of the board of directors by a majority vote. The fact
that the power to adopt, amend, alter, or repeal the by-laws has been conferred
upon the board of directors shall not divest the stockholders of the same
powers.
- 14 -
<PAGE> 1
Exhibit 4.1
Steel Heddle Group, Inc.
as Issuer
$29,250,000
13.750% Senior Discount Debentures
due June 1, 2009
-------------
INDENTURE
Dated as of May 26, 1998
-------------
United States Trust Company of New York
Trustee
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE .......................................................... 1
1.01 Definitions ................................................ 1
1.02 Other Definitions .......................................... 15
1.03 Incorporation by Reference of Trust Indenture Act .......... 15
1.04 Rules of Construction ...................................... 16
ARTICLE 2
THE DEBENTURES ........................................................ 16
2.01 Form and Dating ............................................ 16
2.02 Execution and Authentication ............................... 17
2.03 Registrar and Paying Agent ................................. 17
2.04 Paying Agent to Hold Money in Trust ........................ 18
2.05 Holder Lists ............................................... 18
2.06 Transfer and Exchange ...................................... 18
2.07 Replacement Debentures ..................................... 24
2.08 Outstanding Debentures ..................................... 24
2.09 Treasury Debentures ........................................ 25
2.10 Temporary Debentures ....................................... 25
2.11 Cancellation ............................................... 25
2.12 Defaulted Interest ......................................... 26
ARTICLE 3
REDEMPTION AND PREPAYMENT ............................................. 26
3.01 Notices to Trustee ......................................... 26
3.02 Selection of Debentures to Be Redeemed ..................... 26
3.03 Notice of Redemption ....................................... 27
3.04 Effect of Notice of Redemption ............................. 27
3.05 Deposit of Redemption Price ................................ 28
3.06 Debentures Redeemed in Part ................................ 28
3.07 Optional Redemption ........................................ 28
3.08 No Mandatory Redemption .................................... 29
ARTICLE 4
COVENANTS ............................................................. 29
4.01 Payment of Debentures ...................................... 29
4.02 Maintenance of Office or Agency ............................ 30
4.03 Reports .................................................... 30
4.04 Compliance Certificate ..................................... 31
4.05 Taxes ...................................................... 31
4.06 Stay, Extension and Usury Laws ............................. 31
4.07 Change of Control .......................................... 32
4.08 Asset Sales ................................................ 33
4.09 Restricted Payments ........................................ 36
4.10 Incurrence of Indebtedness and Issuance of Preferred Stock . 38
4.11 Liens ...................................................... 41
4.12 Dividend and Other Payment Restrictions Affecting
Subsidiaries ............................................... 41
4.13 transactions with affiliates ............................... 42
4.14 Line of business ........................................... 43
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.15 Corporate Existence ........................................ 43
4.16 Status as an investment company ............................ 43
ARTICLE 5
SUCCESSORS ............................................................ 43
5.01 Merger, Consolidation, or Sale of Assets ................... 43
5.02 Successor Corporation Substituted .......................... 44
ARTICLE 6
DEFAULTS AND REMEDIES ................................................. 44
6.01 Events of Default .......................................... 44
6.02 Acceleration ............................................... 46
6.03 Other Remedies ............................................. 46
6.04 Waiver of Past Defaults .................................... 47
6.05 Control by Majority ........................................ 47
6.06 Limitation on Suits ........................................ 47
6.07 Rights of Holders of Debentures to Receive Payment ......... 48
6.08 Collection Suit by Trustee ................................. 48
6.09 Trustee May File Proofs of Claim ........................... 48
6.10 Priorities ................................................. 49
6.11 Undertaking for Costs ...................................... 49
6.12 Restoration of Rights and Remedies ......................... 49
ARTICLE 7
TRUSTEE ............................................................... 50
7.01 Duties of Trustee .......................................... 50
7.02 Rights of Trustee .......................................... 51
7.03 Individual Rights of Trustee ............................... 52
7.04 Trustee's Disclaimer ....................................... 52
7.05 Notice of Defaults ......................................... 52
7.06 Reports by Trustee to Holders of the Debentures ............ 52
7.07 Compensation and Indemnity ................................. 53
7.08 Replacement of Trustee ..................................... 53
7.09 Successor Trustee by Merger, etc. .......................... 55
7.10 Eligibility; Disqualification .............................. 55
7.11 Preferential Collection of Claims Against Company .......... 55
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE .............................. 55
8.01 Option to Effect Legal Defeasance or Covenant Defeasance ... 55
8.02 Legal Defeasance and Discharge ............................. 55
8.03 Covenant Defeasance ........................................ 56
8.04 Conditions to Legal or Covenant Defeasance ................. 56
8.05 Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions ...................... 58
8.06 Repayment to Company ....................................... 58
8.07 Reinstatement .............................................. 59
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER ...................................... 59
9.01 Without Consent of Holders of Debentures ................... 59
9.02 With Consent of Holders of Notes ........................... 60
9.03 Compliance with Trust Indenture Act ........................ 61
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
9.04 Revocation and Effect of Consents .......................... 61
9.05 Notation on or Exchange of Debentures ...................... 61
9.06 Trustee to Sign Amendments, etc. ........................... 62
ARTICLE 10
MISCELLANEOUS ......................................................... 62
10.01 Trust Indenture Act Controls ................................ 62
10.02 Notices ..................................................... 62
10.03 Communication by Holders of Debentures with Other
Holders of Debentures ....................................... 63
10.04 Certificate and Opinion as to Conditions Precedent .......... 63
10.05 Statements Required in Certificate or Opinion ............... 64
10.06 Rules by Trustee and Agents ................................. 64
10.07 No Personal Liability of Directors, Officers,
Employees and Stockholders .................................. 64
10.08 Governing Law ............................................... 64
10.09 No Adverse Interpretation of Other Agreements ............... 65
10.10 Successors .................................................. 65
10.11 Severability ................................................ 65
10.12 Counterpart Originals ....................................... 65
10.13 Table of Contents, Headings, etc. ........................... 65
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A FORM OF NOTE A-1
Exhibit B CERTIFICATE OF TRANSFEROR C-1
</TABLE>
iii
<PAGE> 5
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
-------------- -----------------
<S> <C> <C>
310(a)(1)
7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.08; 7.10; 10.02
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.05
(b) 10.03
(c) 10.03
313(a) 7.06
(b)(1) N.A.
(b)(2) 7.06
(c) 7.06; 10.02
(d) 7.06
314(a) 4.09; 10.02
(b) N.A.
(c)(1) 10.04
(c)(2) 7.02; 10.04
(c)(3) N.A.
(d) N.A.
(e) 10.05
(f) N.A.
315(a) 7.01(2)
(b) 7.05; 10.02
(c) 7.01(1)
(d) 7.01(3)
(e) 6.11
316(a)(last sentence)
2.09
(a)(1)(A)
6.05
(a)(1)(B) 6.04
(a)(2) N.A.
(b) 6.07
317(a)(1) 6.08
(a)(2) 6.09
(b) 2.04
318(a) 10.01
- ---------------------
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
1
<PAGE> 6
INDENTURE dated as of May 26, 1998, among Steel Heddle Group,
Inc., a Delaware corporation ("SH Group") and United States Trust Company of
New York, as trustee (the "Trustee").
Each party agrees as follows for the benefit of each other and
for the equal and ratable benefit of the Holders of the 13.750% Series A Senior
Discount Debentures due 2009 (the "Series A Debentures") and the 13.750% Series
B Senior Discount Debentures due 2009 (the "Series B Debentures" and, together
with the Series A Debentures, the "Debentures"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01 DEFINITIONS
"Accreted Value" means, as of any date of determination, the
sum (rounded to the nearest whole dollar) of (a) the initial offering price of
each $1,000 in principal amount at maturity of Debentures and (b) the portion
of the excess of the principal amount of Debentures over such initial offering
price which shall have been accreted thereon through such date, such amount to
be so accreted on a daily basis at the rate of 13.750% per annum compounded
semi-annually on each June 1 and December 1 from the date of issuance of the
Debentures through the date of determination. On or after June 1, 2003, the
Accreted Value of each Debenture shall be equal to its principal amount at
maturity.
"Acquired Indebtedness" means, with respect to any specified
Person, (i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Acquisition Transactions" means, the series of transactions
whereby pursuant to a Stock Purchase Agreement dated May 1, 1998 AIP will
purchase (the "Stock Purchase") from Butler Capital Corporation and certain
other persons all of the issued and outstanding shares of capital stock of SH
Holdings Corp., a Pennsylvania corporation ("Old Holdings"). Pursuant to the
Stock Purchase and certain related transactions that will be consummated
substantially simultaneously, (i) AIP and certain management investors will
purchase common equity of SH Group, (ii) Steel Heddle Mfg. Co. will issue and
sell the Senior Subordinated Notes, together with the guarantee thereof of the
Guarantors, (iii) Steel Heddle Mfg. Co. will enter into a Credit Agreement with
the lenders and administrative and collateral agents named therein pursuant to
which it will borrow $30,000,000 in term loans and approximately $3,600,000 in
revolving loans, (iv) Steel Heddle Mfg. Co. will advance $63,000,000 to SH
Group in the form of an intercompany note, and (v) SH Group will purchase the
issued and outstanding capital stock of Old Holdings. Immediately upon the
consummation of the Stock Purchase, (a) SH Intermediate Corp., a Delaware
corporation and wholly owned subsidiary of Old Holdings will merge with and
into its wholly owned subsidiary, Steel Heddle Mfg. Co., with Steel Heddle Mfg.
Co. being the surviving corporation, (b) Old Holdings will merge with and into
1
<PAGE> 7
Steel Heddle Mfg. Co., with Steel Heddle Mfg. Co. being the surviving
corporation, and (c) SH-AIP Acquisition Corporation, a Delaware corporation and
wholly owned subsidiary of SH Group will merge with and into Steel Heddle Mfg.
Co., with Steel Heddle Mfg. Co. being the surviving corporation.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control. Notwithstanding the foregoing, the
limited partners in AIP shall not be deemed to be Affiliates of AIP solely by
reason of their investment in such funds.
"Agent" means any Registrar, Paying Agent or co-registrar.
"AIP" means, collectively, American Industrial Partners
Capital Fund, L.P., a Delaware limited partnership, and American Industrial
Partners Capital Fund II, L.P., a Delaware limited partnership.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition that does not constitute a Restricted Payment or an Investment by
such person of any of its non-cash assets (including, without limitation, by
way of a sale and leaseback and including the issuance, sale or other transfer
of any of the capital stock of any Subsidiary of such person but excluding Cash
Equivalents liquidated in the ordinary course of business) other than to SH
Group or to any of its Wholly Owned Subsidiaries (including the receipt of
proceeds of insurance paid on account of the loss of or damage to any asset and
awards of compensation for any asset taken by condemnation, eminent domain or
similar proceeding, and including the receipt of proceeds of business
interruption insurance); and (ii) the issuance of Equity Interests in any
Subsidiaries or the sale of any Equity Interests in any Subsidiaries, in each
case, in one or a series of related transactions, provided, that
notwithstanding the foregoing, the term "Asset Sale" shall not include: (a)
the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of SH Group, as permitted pursuant to Section
5.01 hereof, (b) the sale or lease of equipment, inventory, accounts receivable
or other assets in the ordinary course of business consistent with past
practice, (c) the sale or disposal of damaged, worn out or other obsolete
personal property in the ordinary course of business so long as such property
is no longer necessary for the proper conduct of the business of SH Group or
such Subsidiary, as applicable; (d) a transfer of assets by SH Group to a
Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to SH Group or to
another Wholly Owned Subsidiary, (e) an issuance of Equity Interests by a
Wholly Owned Subsidiary to SH Group or to another Wholly Owned Subsidiary, (f)
the surrender or waiver of contract rights or the settlement, release or
surrender of contract, tort or other claims of any kind, (g) the grant in the
ordinary course of business of any non-exclusive license of patents,
trademarks, registrations therefor and other similar intellectual property, or
(h) Permitted Investments.
2
<PAGE> 8
"Board of Directors" means the Board of Directors of SH Group,
or any authorized committee of the Board of Directors.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in New York are
authorized or obligated by law or executive order to close.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of
a Capital Lease that would at such time be required to be capitalized on a
balance sheet in accordance with GAAP.
"Capital Contribution" means any contribution to the equity of
SH Group for which no consideration is given other than common stock with no
redemption rights and no special privileges, preferences, or special voting
rights.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (a) securities 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 is pledged in support thereof) having maturities not more than twelve
months from the date of acquisition, (b) U.S. dollar denominated (or foreign
currency fully hedged) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit of (i) any domestic commercial
bank of recognized standing having capital and surplus in excess of
$100,000,000 or (ii) any bank whose short-term commercial paper rating from S&P
is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or
the equivalent thereof (any such bank being an "Approved Lender"), in each case
with maturities of not more than twelve months from the date of acquisition,
(c) commercial paper and variable or fixed rate notes issued by any Approved
Lender (or by the parent company thereof) or any variable rate notes issued by,
or guaranteed by, any domestic corporation rated A-2 (or the equivalent
thereof) or better by S&P or P- 2 (or the equivalent thereof) or better by
Moody's and maturing within twelve months of the date of acquisition, (d)
repurchase agreements with a bank or trust company or recognized securities
dealer having capital and surplus in excess of $100,000,000 for direct
obligations issued by or fully guaranteed by the United States of America in
which SH Group shall have a perfected first priority security interest (subject
to no other Liens) and having, on the date of purchase thereof, a fair market
value of at least 100% of the amount of repurchase obligations, and (e)
interests in money market mutual funds which invest solely in assets or
securities of the type described in subparagraphs (a), (b), (c) or (d) hereof.
"Change of Control" means such time as (i) prior to the
initial public offering by SH Group of any shares of its common stock (other
than a public offering pursuant to a registration statement on Form S-8), AIP
and its Affiliates (collectively, the "Initial Investors") cease to be,
3
<PAGE> 9
directly or indirectly, the beneficial owners, in the aggregate of at least 51%
of the voting power of the voting common stock of SH Group or (ii) after the
initial public offering by SH Group of any shares of its common stock (other
than a public offering pursuant to a registration statement on Form S-8), (A)
any Schedule 13D, Form 13F or Schedule 13G under the Exchange Act, or any
amendment to such Schedule or Form, is received by SH Group which indicates
that, or SH Group otherwise becomes aware that, a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) has become,
directly or indirectly, the "beneficial owner", by way of merger, consolidation
or otherwise, of 35% or more of the voting power of the voting capital stock of
SH Group and (B) any such person or group has become, directly or indirectly,
the beneficial owner of a greater percentage of the voting capital stock of SH
Group than is beneficially owned by the Initial Investors, or (iii) the sale,
lease or transfer of all or substantially all of the assets of SH Group to any
person or group (other than the Initial Investors or their Related Parties (as
defined below)), or (iv) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted the Board of
Directors of SH Group (together with any Continuing Directors) cease for any
reason to constitute a majority of the directors of SH Group then in office.
"Related Party" with respect to any Initial Investor means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse, or immediate family
member (in the case of any individual) of such Initial Investor or (B) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons beneficially holding an 80% or more
controlling interest of which consist of such Initial Investor and/or such
other persons referred to in the immediately preceding clause (A).
"Consolidated EBITDA" means, with respect to SH Group and its
Subsidiaries for any period, the sum of, without duplication, (i) the
Consolidated Net Income for such period, plus (ii) the Fixed Charges for such
period, plus (iii) provision for taxes based on income or profits for such
period (to the extent such income or profits were included in computing
Consolidated Net Income for such period), plus (iv) consolidated depreciation,
amortization and other non-cash charges of SH Group and its Subsidiaries
required to be reflected as expenses on the books and records of SH Group,
minus (v) cash payments with respect to any non-recurring, non-cash charges
previously added back pursuant to clause (iv), and (vi) excluding the impact of
foreign currency translations. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and other non-cash charges of, a Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent (and
in the same proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be paid
as a dividend to SH Group by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that
is not a Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Subsidiary
thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
4
<PAGE> 10
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded, (v)
the Net Income of, or any dividends or other distributions from, any
Unrestricted Subsidiary, to the extent otherwise included, shall be excluded,
whether or not distributed to SH Group or one of its Subsidiaries, and (vi) all
other extraordinary gains and extraordinary losses shall be excluded.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of SH Group who (i) was a member of such
Board of Directors on the Issue Date, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election or (iii) was appointed by AIP pursuant to the
Shareholders Agreements.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 10.02 hereof or such other address
as to which the Trustee may give notice to SH Group.
"Credit Agreement" means that certain Credit Agreement, dated
as of the date of this Indenture, by and among Steel Heddle Mfg. Co. and
NationsBank, N.A., as administrative agent and the lenders parties thereto,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced, extended, restated or refinanced from
time to time, including any agreement restructuring or adding SH Group or any
of its Subsidiaries as additional borrowers or guarantors thereunder and
whether by the same or any other agent, lender or group of lenders; provided
that the total amount of Indebtedness is not thereby increased beyond the
amount that may then be incurred at such time pursuant to the covenant
described in Section 4.10.
"Debenture Custodian" means the Trustee when serving as
custodian for the Depositary with respect to the Debentures in global form, or
any successor entity thereto.
"Default" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Definitive Debentures" means Debentures that are in the form
of the Debentures attached hereto as Exhibit A, that do not include the
information called for by footnotes 1 and 2 thereof.
"Depository" means, with respect to the Debentures issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depository with respect to the Debentures, until a successor
shall have been appointed and become such Depository pursuant to the applicable
provision of this Indenture, and, thereafter, "Depository" shall mean or
include such successor.
5
<PAGE> 11
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the Holder thereof, in whole or in part, on or
prior to the date on which the Debentures mature.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an underwritten public offering of
Equity Interests of SH Group, other than Disqualified Stock, pursuant to a
registration statement filed with the SEC in accordance with the Securities
Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" means the offer that may be made by SH Group
pursuant to the Registration Rights Agreement to exchange the Series B
Debentures for the Series A Debentures.
"Existing Indebtedness" means the Indebtedness of SH Group and
its Subsidiaries (other than Indebtedness under the Credit Agreement) in
existence on the date of this Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of original issue discount,
amortization of deferred financing fees, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), (ii) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period, (iii) any interest
expense on Indebtedness of another Person that is Guaranteed by such Person or
one of its Subsidiaries or secured by a Lien on assets of such Person or one of
its Subsidiaries (whether or not such Guarantee or Lien is called upon) and
(iv) the product of (a) all cash dividend payments (and non-cash dividend
payments in the case of a Person that is a Subsidiary) on any series of
preferred stock of such Person payable to a party other than SH Group or a
Wholly Owned Subsidiary, times (b) 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, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any
Person for any period, the ratio of the Consolidated EBITDA of such Person and
its Subsidiaries for such period to the Fixed Charges of such Person and its
Subsidiaries for such period. In the event that SH Group or any of its
Subsidiaries incurs, assumes, retires, Guarantees or redeems any Indebtedness
(other than revolving credit borrowings) or issues preferred stock subsequent
to the commencement of the four-quarter reference period for which the Fixed
Charge Coverage Ratio is being calculated but on or prior to the
6
<PAGE> 12
date on which the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
retirement, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. For purposes of making the
computation referred to above, (i) acquisitions that have been made by SH Group
or any of its Subsidiaries, including through mergers or consolidations and
including any related financing and refinancing transactions, during the
four-quarter reference period subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period, and (ii) the Consolidated EBITDA
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of on or prior to the Calculation Date,
shall be excluded, and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of on or prior to the Calculation Date, shall be excluded, but only to
the extent that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Subsidiaries following the
Calculation Date.
"Foreign Subsidiary" means any Wholly Owned Subsidiary
organized and incorporated in a jurisdiction outside of 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 have been approved by a significant segment
of the accounting profession, which are in effect on the date of this
Indenture.
"Global Note" means a Note that contains the paragraph
referred to in footnote 1 and the additional schedule referred to in footnote 2
to the form of the Debenture attached hereto as Exhibit A.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of the United States
is pledged.
"Guarantee" means any obligation, contingent or otherwise, of
any person directly or indirectly guaranteeing any Indebtedness of any Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such Person (whether arising by virtue of agreements
to keep well, to purchase assets, goods, letters of credit, reimbursement
agreements, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has corresponding meaning.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) currency exchange or interest rate swap
agreements, interest rate cap agreements and
7
<PAGE> 13
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in interest rates or
currency exchange rates.
"Holder" means a Person in whose name a Debenture is
registered on the Registrar's books.
"Indebtedness" means, with respect to any Person, any (i)
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable incurred in the ordinary course of business, but only (other than
with respect to, letters of credit and Hedging Obligations) if and to the
extent any of the foregoing indebtedness would appear as a liability upon a
consolidated balance sheet of such Person prepared in accordance with GAAP,
(ii) all Obligations of such Person with respect to any conditional sale or
title retention agreement, (iii) the amount of all Obligations of such Person
with respect to redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any Subsidiary of such Person, any preferred stock,
(iv) all indebtedness of others secured by a Lien on any asset of such Person
(whether or not such indebtedness is assumed by such Person) and, (v) to the
extent not otherwise included, the Guarantee by such Person of any indebtedness
of any other Person.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations, but excluding guarantees of Indebtedness of SH Group or any Wholly
Owned Subsidiary to the extent such guarantee is permitted in Section 4.10),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
transfers of assets outside the ordinary course of business other than Asset
Sales, purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified, as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
SH Group for consideration consisting of common equity securities of SH Group
shall not be deemed to be an Investment.
"Issue Date" means the date of first issuance of the
Debentures under this Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
8
<PAGE> 14
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means, the amounts payable by SH Group,
if any, pursuant to Section 5 of the Registration Rights Agreement.
"Net Cash Proceeds" means the aggregate amount of cash or Cash
Equivalents received by SH Group in the case of a sale or equity contribution
in respect of Qualified Capital Stock plus, in the case of an issuance of
Qualified Capital Stock upon any exercise, exchange or conversion of securities
(including options, warrants, rights and convertible or exchangeable debt) of
SH Group that were issued for cash after the Issue Date, the amount of cash
originally received by SH Group upon the issuance of such securities (including
options, warrants, rights and convertible or exchangeable debt) less, the sum
of all payments, fees, commissions, and customary and reasonable expenses
(including, without limitation, the fees and expenses of legal counsel and
investment banking fees and expenses) incurred in connection with such sale or
equity contribution in respect of Qualified Capital Stock.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions)
or (b) the disposition of any securities by such Person or any of its
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not
loss), together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash and Cash Equivalents
received by SH Group or any of its Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any noncash consideration received in any Asset Sale) and, with
respect to Section 4.09 hereof, by SH Group or any Subsidiary in respect of the
sale of an Unrestricted Subsidiary and the sale, liquidation or repayment for
cash of a Restricted Investment, in each case, net of the direct costs relating
thereto (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax-sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
9
<PAGE> 15
"Non-Recourse Debt" means Indebtedness (i) as to which neither
SH Group nor any Subsidiary of SH Group (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), or (b) is directly or indirectly liable (as a guarantor or
otherwise), and (ii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of SH Group or any
Subsidiary of SH Group, including the stock of any Unrestricted Subsidiary.
"Note Custodian" means the Trustee, as custodian with respect
to the Global Notes representing the Senior Subordinated Notes, or any
successor entity thereto.
"Note Indenture" means the Indenture governing the Senior
Subordinated Notes.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the Offering of the Debentures by SH Group.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf
of SH Group by two Officers of SH Group, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of SH Group, that meets the requirements of
Section 10.05 hereof.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee, that meets the
requirements of Section 10.05 hereof. The counsel may be an employee of or
counsel to SH Group, any Subsidiary of SH Group or the Trustee.
"Permitted Investments" means (a) any Investments in any of
the Senior Subordinated Notes, (b) any investments in SH Group or in a Wholly
Owned Subsidiary of SH Group and that is engaged in one or more Related
Businesses, (c) any Investments in Cash Equivalents; (d) Investments by SH
Group or any Subsidiary of SH Group in a Person if as a result of such
Investment (i) such Person becomes a Wholly Owned Subsidiary of SH Group that
is engaged in one or more Related Businesses or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, SH Group or a Wholly Owned
Subsidiary of SH Group and that is engaged in one or more Related Businesses;
(e) Investments made as a result of the receipt of non-cash consideration from
an Asset Sale that was made pursuant to and in compliance with Section 4.08;
(f) Investments outstanding as of the date of this Indenture; (g) Investments
in the form of promissory notes of members of SH Group's management in
consideration of the purchase by such members of Equity Interests (other than
Disqualified Stock) in SH Group; (h) Investments which constitute Existing
Indebtedness of SH Group or any of its Subsidiaries; (i) accounts receivable,
endorsements for collection or deposits arising in the ordinary course of
10
<PAGE> 16
business; and (j) other Investments in any Person or persons that do not in the
aggregate exceed $10,000,000 at any time outstanding; provided, however, that
to the extent there would be, and to avoid, any duplication in determining the
amounts of investments outstanding under this clause (j), any amounts which
were credited under clause (c) of Section 4.09 hereof shall reduce the amounts
outstanding under this clause (j).
"Permitted Liens" means (i) Liens securing Indebtedness
outstanding under the Credit Agreement in an aggregate principal amount at any
time outstanding not to exceed amounts permitted under Section 4.10 hereof;
(ii) Liens in favor of SH Group or a Subsidiary of SH Group; (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with SH Group or any Subsidiary of SH Group including Liens
securing any Permitted Refinancing Indebtedness with respect thereto; provided
that such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with SH Group; (iv) Liens on property existing at
the time of acquisition thereof by SH Group or any Subsidiary of SH Group,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens existing on the date of
this Indenture; (vii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (viii) Liens incurred in
the ordinary course of business of SH Group or any Subsidiary of SH Group with
respect to obligations that do not exceed in the aggregate $5,000,000 at any
one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by SH Group or such Subsidiary; (ix) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (x) easements, rights-of- way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of SH Group or any of its
Subsidiaries; (xi) Purchase Money Liens (including extensions and renewals
thereof); (xii) Liens securing reimbursement obligations with respect to
letters of credit which encumber only documents and other property relating to
such letters of credit and the products and proceeds thereof; (xiii) judgment
and attachment Liens not giving rise to an Event of Default; (xiv) Liens
encumbering deposits made to secure obligations arising from statutory,
regulatory, contractual or warranty requirements; (xv) Liens arising out of
consignment or similar arrangements for the sale of goods; (xvi) any interest
or title of a lessor in property subject to any capital lease obligation or
operating lease; (xvii) Liens on assets of Subsidiaries with respect to
Acquired Indebtedness (including Permitted Refinancing Indebtedness with
respect thereto); provided, such Liens are only on assets or property acquired
with such Acquired Indebtedness and that such Liens were not created in
contemplation of or in connection with such Acquisition; and (xviii) Liens
granted by a Foreign Subsidiary to secure Indebtedness of such Foreign
Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of
SH Group or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance,
11
<PAGE> 17
renew, replace, defease or refund other Indebtedness of SH Group or any of its
Subsidiaries; provided that: (a) the principal amount of such Permitted
Refinancing Indebtedness does not exceed (after deduction of reasonable and
customary fees and expenses incurred in connection with such refinancing and
the amount of any premium or prepayment penalty paid in connection with such
refinancing transaction to the extent in accordance with the terms of the
document governing such Indebtedness (except for any modification to any such
document made in connection with or in contemplation of such refinancing) the
lesser of (i) the principal amount of the Indebtedness so extended refinanced,
renewed, replaced, defeased or refunded; and (ii) if such Indebtedness being
refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such
refinancing, plus, in each case accrued interest on such Indebtedness being
refinanced; (b) such Permitted Refinancing Indebtedness has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (c) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Debentures, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Debentures on terms at least as favorable to the Holders of Debentures
as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (d) such
Indebtedness is incurred either by SH Group or by the Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or agency or political subdivision thereof (including any
subdivision or ongoing business of any such entity or substantially all of the
assets of any such entity, subdivision or business).
"Purchase Money Lien" means a Lien granted on an asset or
property to secure a Purchase Money Obligation permitted to be incurred under
this Indenture and incurred solely to finance the acquisition, including, in
the case of a Capital Lease, the lease, of such asset or property; provided,
however, that such Lien encumbers only such asset or property and is granted
within 180 days of such acquisition.
"Purchase Money Obligations" of any person means any
obligations of such person to any seller or any other person incurred or
assumed to finance solely the acquisition, including, in the case of a Capital
Lease, the lease, of real or personal property to be used in the business of
such person or any of its Subsidiaries in an amount that is not more than 100%
of the cost of such property, and incurred within 180 days after the date of
such acquisition (excluding accounts payable to trade creditors incurred in the
ordinary course of business).
"Qualified Capital Stock" means any Capital Stock of SH Group
that is not Disqualified Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Indenture, by and among SH Group and
the other parties named on the signature pages thereof, as such agreement may
be amended, modified or supplemented from time to time.
12
<PAGE> 18
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Related Business" means the business conducted (or proposed
to be conducted) by SH Group and its Subsidiaries as of the Issue Date and any
and all businesses that in the good faith judgment of the Board of Directors of
SH Group are materially related businesses, including reasonable extensions or
expansions thereof.
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Department of the Trustee (or any
successor group of the Trustee) 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" means an Investment other than a
Permitted Investment.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"SEC" means the United States Securities and Exchange
Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Bank Debt" means all Obligations in respect of the
Indebtedness (including, without limitation, interest accruing after filing of
a petition in bankruptcy, whether or not such interest is an allowable claim in
such proceeding) outstanding under the Credit Agreement.
"Senior Revolving Debt" means revolving credit borrowings and
letters of credit under the Credit Agreement and/or any successor facility or
facilities.
"Senior Subordinated Notes" means the 10.625% Senior
Subordinated Notes due 2008 of Steel Heddle Mfg. Co.
"Shareholders Agreement" means the shareholders agreement by
and between SH Group and certain of its shareholders.
"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 Exchange Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" when used with respect to any Debenture,
means June 1, 2009.
"Steel Heddle Mfg. Co." means Steel Heddle Mfg. Co., a
Pennsylvania corporation.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
13
<PAGE> 19
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or of
one or more Subsidiaries of such Person (or any combination thereof).
Unrestricted Subsidiaries shall not be included in the definition of Subsidiary
for any purposes of this Indenture (except, as the context may otherwise
require, for purposes of the definition of "Unrestricted Subsidiary").
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"Transfer Restricted Notes" means Debentures that bear or are
required to bear the legend set forth in Section 2.06 hereof.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with SH Group or any Subsidiary of SH
Group unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to SH Group or such Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of SH
Group; (c) is a Person with respect to which neither SH Group nor any of its
Subsidiaries has any direct or indirect obligation to subscribe for additional
Equity Interests or maintain or preserve such Person's financial condition or
to cause such Person to achieve any specified levels of operating results; and
(d) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of SH Group or any of its Subsidiaries and (ii)
any Subsidiary of any Unrestricted Subsidiary. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by Section 4.09 hereof. If, at any
time, any Unrestricted Subsidiary would fail to meet the foregoing requirements
as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Subsidiary of SH Group as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under Section 4.10 hereof, SH Group shall be in default of such covenant).
The Board of Directors of SH Group may at any time designate any Unrestricted
Subsidiary to be a Subsidiary; provided, that such designation shall be deemed
to be an incurrence of Indebtedness by a Subsidiary of SH Group of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under Section
4.10 hereof, and (ii) no Default or Event of Default would be in existence
following such designation.
14
<PAGE> 20
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each of the remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twentieth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned
by such Person or by one or more Wholly Owned Subsidiaries of such Person.
Unrestricted Subsidiaries shall not be included in the definition of Wholly
Owned Subsidiary for any purposes of this Indenture (except, as the context may
otherwise require, for purposes of the definition of "Unrestricted
Subsidiary.")
SECTION 1.02 OTHER DEFINITIONS
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Acceleration Notice" 6.02
"Affiliate Transaction" 4.14
"Asset Sale Offer" 4.08
"Bankruptcy Law" 6.01
"Change of Control Offer" 4.07
"Change of Control Payment" 4.07
"Change of Control Payment Date" 4.07
"Covenant Defeasance" 8.03
"DTC" 2.03
"Event of Default" 6.01
"Excess Proceeds" 4.08
"incur" 4.10
"Legal Defeasance" 8.02
"Offer Amount" 4.08
"Offer Period" 4.08
"Paying Agent" 2.03
"Purchase Date" 4.08
"Registrar" 2.03
"Restricted Payments" 4.09
</TABLE>
SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Debentures;
15
<PAGE> 21
"indenture security Holder" means a Holder of a Debenture;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Debentures means SH Group, and any successor
obligor upon the Debentures.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by the SEC rule
under the TIA have the meanings so assigned to them.
SECTION 1.04 RULES OF CONSTRUCTION
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute,
replacement of successor sections or rules adopted by
the SEC from time to time.
ARTICLE 2
THE DEBENTURES
SECTION 2.01 FORM AND DATING
The Debentures and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Debentures may
have notations, legends or endorsements required by law, stock exchange rule or
usage. Each Debenture shall be dated the date of its authentication. The
Debentures shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Debentures shall
constitute, and are hereby expressly made, a part of this Indenture and SH
Group and the Trustee, by their execution and
16
<PAGE> 22
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby. In the event of a conflict, the terms of this Indenture
shall control.
Global Notes shall be substantially in the form of Exhibit A
attached hereto (including the text referred to in footnotes 1 and 2 thereto).
Debentures issued in definitive form shall be substantially in the form of
Exhibit A attached hereto (but without including the text referred to in
footnotes 1 and 2 thereto). Each Global Note shall represent such of the
outstanding Debentures as shall be specified therein and each shall provide
that it shall represent the aggregate amount of outstanding Debentures from
time to time endorsed thereon and that the aggregate amount of outstanding
Debentures represented thereby may from time to time be reduced or increased,
as appropriate, to reflect exchanges and redemptions. Any endorsement of a
Global Note to reflect the amount of any increase or decrease in the amount of
outstanding Debentures represented thereby shall be made by the Trustee or the
Debenture Custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.06 hereof.
SECTION 2.02 EXECUTION AND AUTHENTICATION
Two Officers shall sign the Debentures for SH Group by manual
or facsimile signature. SH Group's seal shall be reproduced on the Debentures
and may be in facsimile form.
If an Officer whose signature is on a Debenture no longer
holds that office at the time a Debenture is authenticated, the Debenture shall
nevertheless be valid.
A Debenture shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be conclusive evidence
that the Debenture has been authenticated under this Indenture.
The Trustee or an authenticating agent shall, upon a written
order of SH Group signed by two Officers, authenticate Debentures for original
issue up to the aggregate principal amount at maturity of Debentures stated in
paragraph 4 of the Debentures. The aggregate principal amount at maturity of
Debentures outstanding at any time may not exceed such amount except as
provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent reasonably
acceptable to SH Group to authenticate Debentures. An authenticating agent may
authenticate Debentures whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with SH
Group or an Affiliate of SH Group.
SECTION 2.03 REGISTRAR AND PAYING AGENT
SH Group shall maintain an office or agency where Debentures
may be presented for registration of transfer or for exchange ("Registrar") and
an office or agency where Debentures may be presented for payment ("Paying
Agent"). The Registrar shall keep a register of the Debentures and of their
transfer and exchange. SH Group may appoint one or more co-registrars and one
or more additional paying agents. The term "Registrar" includes any
co-registrar and the term "Paying
17
<PAGE> 23
Agent" includes any additional paying agent. SH Group may change any Paying
Agent or Registrar without notice to any Holder. SH Group shall notify the
Trustee in writing of the name and address of any Agent not a party to this
Indenture. If SH Group fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. SH Group or any of
its Subsidiaries may act as Paying Agent or Registrar.
SH Group initially appoints The Depository Trust Company
("DTC") to act as Depository with respect to the Global Notes.
SH Group initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Debenture Custodian with respect to
the Global Notes.
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST
SH Group shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Debentures, and the Company and the Paying Agent will notify the Trustee of any
default by SH Group in making any such payment. While any such default
continues, the Trustee may require a Paying Agent to pay all money held by it
to the Trustee. SH Group at any time may require a Paying Agent to pay all
money held by it to the Trustee and account for any funds disbursed, and the
Trustee may at any time during the continuance of any default in the payment of
principal of, premium, if any, or accrued interest or Liquidated Damages, if
any, on the Debentures pursuant to Section 6.01(1) and 6.01(2) hereof, upon
written request to a Paying Agent, require such Paying Agent to pay all money
held by it to the Trustee and to account for all funds disbursed. Upon payment
over to the Trustee, the Paying Agent (if other than SH Group or a Subsidiary)
shall have no further liability for the money. If SH Group or a Subsidiary
acts as Paying Agent, it shall segregate and hold in a separate trust fund for
the benefit of the Holders all money held by it as Paying Agent. Upon any
bankruptcy or reorganization proceedings relating to SH Group, the Trustee
shall serve as Paying Agent for the Debentures.
SECTION 2.05 HOLDER LISTS
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA Section 312(a).
If the Trustee is not the Registrar, SH Group shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of the
Holders of Debentures and SH Group shall otherwise comply with TIA Section
312(a).
SECTION 2.06 TRANSFER AND EXCHANGE
(a) Transfer and Exchange of Definitive Debentures.
When Definitive Debentures are presented by a Holder to the Registrar with a
request: (x) to register the transfer of the Definitive Debentures; or (y) to
exchange such Definitive Debentures for an equal principal amount of Definitive
Debentures of other authorized denominations, the Registrar shall register the
18
<PAGE> 24
transfer or make the exchange as requested if its requirements for such
transactions are met; provided, however, that the Definitive Debentures
presented or surrendered for register of transfer or exchange: (i) shall be
duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar duly executed by such Holder or by his attorney,
duly authorized in writing; and (ii) in the case of a Definitive Debenture that
is a Transfer Restricted Note, such request shall be accompanied by the
following additional information and documents, as applicable: (A) if such
Transfer Restricted Note is being delivered to the Registrar by a Holder for
registration in the name of such Holder, without transfer, a certification to
that effect from such Holder (in substantially the form of Exhibit B hereto);
or (B) if such Transfer Restricted Note is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act or pursuant to an exemption
from registration in accordance with Rule 144 or Rule 904 under the Securities
Act or pursuant to an effective registration statement under the Securities
Act, a certification to that effect from such Holder (in substantially the form
of Exhibit B hereto); or (C) if such Transfer Restricted Note is being
transferred in reliance on another exemption from the registration requirements
of the Securities Act, a certification to that effect from such Holder (in
substantially the form of Exhibit B hereto) and an Opinion of Counsel from such
Holder or the transferee reasonably acceptable to SH Group and to the Registrar
to the effect that such transfer is in compliance with the Securities Act.
(b) Transfer of a Definitive Debenture for a Beneficial
Interest in a Global Note. A Definitive Debenture may not be exchanged for a
beneficial interest in a Global Note except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive
Debenture, duly endorsed or accompanied by appropriate instruments of transfer,
in form satisfactory to the Trustee, together with: (i) if such Definitive
Debenture is a Transfer Restricted Note, a certification from the Holder
thereof (in substantially the form of Exhibit B hereto) to the effect that such
Definitive Debenture is being transferred by such Holder to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act; and (ii) whether or not
such Definitive Debenture is a Transfer Restricted Note, written instructions
from the Holder thereof directing the Trustee to make, or to direct the
Debenture Custodian to make, an endorsement on the Global Note to reflect an
increase in the aggregate principal amount of the Debentures represented by the
Global Note, in which case the Trustee shall cancel such Definitive Debenture
in accordance with Section 2.11 hereof and cause, or direct the Debenture
Custodian to cause, in accordance with the standing instructions and procedures
existing between the Depository and the Debenture Custodian, the aggregate
principal amount of Debentures represented by the Global Note to be increased
accordingly. If no Global Notes are then outstanding, SH Group shall issue
and, upon receipt of an authentication order in accordance with Section 2.02
hereof, the Trustee shall authenticate a new Global Note in the appropriate
principal amount.
(c) Transfer and Exchange of Global Notes. The transfer
and exchange of Global Notes or beneficial interests therein shall be effected
through the Depository, in accordance with this Indenture and the procedures of
the Depository therefor, which shall include restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act.
19
<PAGE> 25
(d) Transfer of a Beneficial Interest in a Global Note
for a Definitive Debenture.
(i) Any Person having a beneficial interest in a
Global Note may upon request exchange such beneficial interest for a Definitive
Debenture. Upon receipt by the Trustee of written instructions or such other
form of instructions as is customary for the Depository, from the Depository or
its nominee on behalf of any Person having a beneficial interest in a Global
Note, and, in the case of a Transfer Restricted Note, the following additional
information and documents (all of which may be submitted by facsimile): (A) if
such beneficial interest is being transferred to the Person designated by the
Depository as being the beneficial owner, a certification to that effect from
such Person (in substantially the form of Exhibit B hereto); or (B) if such
beneficial interest is being transferred to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act) in accordance with Rule 144A
under the Securities Act or pursuant to an exemption from registration in
accordance with Rule 144 or Rule 904 under the Securities Act or pursuant to an
effective registration statement under the Securities Act, a certification to
that effect from the transferor (in substantially the form of Exhibit B
hereto); or (C) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the Securities Act, a
certification to that effect from the transferor (in substantially the form of
Exhibit B hereto) and an Opinion of Counsel from the transferee or transferor
reasonably acceptable to SH Group and to the Registrar to the effect that such
transfer is in compliance with the Securities Act, in which case the Trustee or
the Debenture Custodian, at the direction of the Trustee, shall, in accordance
with the standing instructions and procedures existing between the Depository
and the Debenture Custodian, cause the aggregate principal amount of Global
Notes to be reduced accordingly and, following such reduction, SH Group shall
execute and, upon receipt of an authentication order in accordance with Section
2.02 hereof, the Trustee shall authenticate and deliver to the transferee a
Definitive Debenture in the appropriate principal amount.
(ii) Definitive Debentures issued in exchange for
a beneficial interest in a Global Note pursuant to this Section 2.06(d) shall
be registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect participants
or otherwise, shall instruct the Trustee. The Trustee shall deliver such
Definitive Debentures to the Persons in whose names such Debentures are so
registered.
(e) Restrictions on Transfer and Exchange of Global
Notes. Notwithstanding any other provision of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.06), a Global Note may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Authentication of Definitive Debentures in Absence of
Depository. If at any time: (i) the Depository for the Debentures notifies SH
Group that the Depository is unwilling or unable to continue as Depository for
the Global Notes and a successor Depository for the Global Notes is not
appointed by SH Group within 90 days after delivery of such notice; or (ii) SH
Group, at its sole discretion, notifies the Trustee in writing that it elects
to cause the issuance of Definitive Debentures under this Indenture, then SH
Group shall execute, and the Trustee shall, upon receipt of an authentication
order in accordance with Section 2.02 hereof, authenticate and deliver,
Definitive
20
<PAGE> 26
Debentures in an aggregate principal amount equal to the principal amount of
the Global Notes in exchange for such Global Notes.
(g) Legends.
(i) Except as permitted by the following
paragraphs (ii) and (iii), each Debenture certificate evidencing Global Notes
and Definitive Debentures (and all Debentures issued in exchange therefor or
substitution thereof) shall bear legends in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A NOMINEE OR A DEPOSITORY OR A SUCCESSOR DEPOSITORY. UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR DEBENTURES IN DEFINITIVE FORM, THIS DEBENTURE
MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
"THIS DEBENTURE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT
AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (As defined in Rule 144A under the Securities
Act) (A "QIB") OR (B) IT HAS ACQUIRED THIS DEBENTURE
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER
THIS DEBENTURE EXCEPT (A) TO SH GROUP OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR
21
<PAGE> 27
THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR
904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO SH GROUP) OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE,
IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS DEBENTURE OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS
A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING."
(ii) Upon any sale or transfer of a Transfer
Restricted Note (including any Transfer Restricted Note represented by a Global
Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective
registration statement under the Securities Act: (A) in the case of any
Transfer Restricted Note that is a Definitive Debenture, the Registrar shall
permit the Holder thereof to exchange such Transfer Restricted Note for a
Definitive Debenture that does not bear the first legend set forth in (i) above
and rescind any restriction on the transfer of such Transfer Restricted Note;
and (B) in the case of any Transfer Restricted Note represented by a Global
Note, such Transfer Restricted Note shall not be required to bear the first
legend set forth in (i) above, but shall continue to be subject to the
provisions of Section 2.06(c) hereof; provided, however, that with respect to
any request for an exchange of a Transfer Restricted Note that is represented
by a Global Note for a Definitive Debenture that does not bear the first legend
set forth in (i) above, which request is made in reliance upon Rule 144, the
Holder thereof shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certification to be substantially in the
form of Exhibit B hereto).
(iii) Notwithstanding the foregoing, upon
consummation of the Exchange Offer, SH Group shall issue and, upon receipt of
an authentication order in accordance with Section 2.02 hereof, the Trustee
shall authenticate the Series B Debentures in exchange for Series A Debentures
accepted for exchange in the Exchange Offer, which Series B Debentures shall
not bear the first legend set forth in (i) above, and the Registrar shall
rescind any restriction on the transfer of such Debentures, in each case unless
the Holder of such Series A Debentures is either (A) a broker-
22
<PAGE> 28
dealer, (B) a Person participating in the distribution of the Series A
Debentures or (C) a Person who is an affiliate (as defined in Rule 144A) of SH
Group.
(h) Cancellation and/or Adjustment of Global Notes. At
such time as all beneficial interests in Global Notes have been exchanged for
Definitive Debentures, redeemed, repurchased or cancelled, all Global Notes
shall be returned to or retained and cancelled by the Trustee in accordance
with Section 2.11 hereof. At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for Definitive Debentures,
redeemed, repurchased or cancelled, the principal amount of Debentures
represented by such Global Note shall be reduced accordingly and an endorsement
shall be made on such Global Note, by the Trustee or the Debenture Custodian,
at the direction of the Trustee, to reflect such reduction.
(i) General Provisions Relating to Transfers and
Exchanges.
(i) To permit registrations of transfers and
exchanges, SH Group shall execute and the Trustee shall authenticate Definitive
Debentures and Global Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder
for any registration of transfer or exchange, but SH Group may require payment
of a sum sufficient to cover any transfer tax or similar governmental charge
payable in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to Sections 4.07
and 4.08 hereto).
(iii) The Registrar shall not be required to
register the transfer of or exchange any Debenture selected for redemption in
whole or in part, except the unredeemed portion of any Debenture being redeemed
in part.
(iv) All Definitive Debentures and Global Notes
issued upon any registration of transfer or exchange of Definitive Debentures
or Global Notes shall be the valid obligations of SH Group, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Definitive
Debentures or Global Notes surrendered upon such registration of transfer or
exchange.
(v) SH Group shall not be required: (A) to issue,
to register the transfer of or to exchange Debentures during a period beginning
at the opening of business 15 days before the day of any selection of
Debentures for redemption under Section 3.02 hereof and ending at the close of
business on the day of selection; or (B) to register the transfer of or to
exchange any Debenture so selected for redemption in whole or in part, except
the unredeemed portion of any Debenture being redeemed in part; or (C) to
register the transfer of or to exchange a Debenture between a record date and
the next succeeding interest payment date.
(vi) Prior to due presentment for the registration
of a transfer of any Debenture, the Trustee, any Agent and SH Group may deem
and treat the Person in whose name any Debenture is registered as the absolute
owner of such Debenture for the purpose of receiving payment
23
<PAGE> 29
of principal of and interest on such Debentures, and neither the Trustee, any
Agent nor SH Group shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Definitive
Debentures and Global Notes in accordance with the provisions of Section 2.02
hereof.
(j) Original Issue Discount Legend. Each
Debenture shall bear a legend in substantially the following form:
"FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING
ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL
AMOUNT OF THIS SECURITY, THE ISSUE PRICE IS $513.37, THE
AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $486.63, THE ISSUE DATE
IS MAY 26, 1998 AND THE YIELD TO MATURITY IS 13.750% PER
ANNUM.
SECTION 2.07 REPLACEMENT DEBENTURES
If any mutilated Debenture is surrendered to the Trustee, or
SH Group and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Debenture, SH Group shall issue and the
Trustee, upon the written order of SH Group signed by two Officers of SH Group,
shall authenticate a replacement Debenture if the Trustee's requirements are
met. If required by the Trustee or SH Group, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and SH
Group to protect SH Group, the Trustee, any Agent and any authenticating agent
from any loss that any of them may suffer if a Debenture is replaced. SH Group
may charge for its expenses in replacing a Debenture.
Every replacement Debenture is an additional obligation of SH
Group and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Debentures duly issued hereunder.
SECTION 2.08 OUTSTANDING DEBENTURES
The Debentures outstanding at any time are all the Debentures
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Note
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. Except as set forth in Section
2.09 hereof, a Debenture does not cease to be outstanding because SH Group or
an Affiliate of SH Group holds the Debenture.
If a Debenture is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Debenture is held by a bona fide purchaser.
24
<PAGE> 30
If the principal amount of any Debenture is considered paid
under Section 4.01 hereof, it ceases to be outstanding and interest on it
ceases to accrue.
If the Paying Agent (other than SH Group, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Debentures payable on that date, then on and after that date
such Debentures shall be deemed to be no longer outstanding and shall cease to
accrue interest.
SECTION 2.09 TREASURY DEBENTURES
In determining whether the Holders of the required principal
amount of Debentures have concurred in any direction, amendment, supplement,
waiver or consent, Debentures owned by SH Group, or by any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with SH Group, shall be considered as though not outstanding, except
that for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, amendment, supplement, waiver or consent, only
Debentures that the Trustee knows are so owned shall be so disregarded. SH
Group shall notify the Trustee, in writing when it or any Affiliate of the
Company repurchases or otherwise acquires Debentures and of the aggregate
principal amount of such Debentures so repurchased or otherwise acquired.
SECTION 2.10 TEMPORARY DEBENTURES
Until definitive Debentures are ready for delivery, SH Group
may prepare and the Trustee shall authenticate temporary Debentures upon a
written order of SH Group signed by two Officers of SH Group. Temporary
Debentures shall be substantially in the form of definitive Debentures but may
have variations that SH Group considers appropriate for temporary Debentures
and as shall be reasonably acceptable to the Trustee. Without unreasonable
delay, SH Group shall prepare and the Trustee shall authenticate definitive
Debentures in exchange for temporary Debentures.
Holders of temporary Debentures shall be entitled to all of
the benefits of this Indenture.
SECTION 2.11 CANCELLATION
SH Group at any time may deliver Debentures to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Debentures surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Debentures surrendered
for registration of transfer, exchange, payment, replacement or cancellation
and shall destroy cancelled Debentures (subject to the record retention
requirement of the Exchange Act). Certification of the destruction of all
cancelled Debentures shall be delivered to SH Group. SH Group may not issue
new Debentures to replace Debentures that it has paid or that have been
delivered to the Trustee for cancellation.
25
<PAGE> 31
SECTION 2.12 DEFAULTED INTEREST
If SH Group defaults in a payment of interest on the
Debentures, it shall pay the defaulted interest in any lawful manner plus, to
the extent lawful, interest payable on the defaulted interest, to the Persons
who are Holders on a subsequent special record date, in each case at the rate
provided in the Debentures and in Section 4.01 hereof. SH Group shall notify
the Trustee in writing of the amount of defaulted interest proposed to be paid
on each Debenture and the date of the proposed payment. SH Group shall fix or
cause to be fixed each such special record date and payment date, provided that
no such special record date shall be less than 10 days prior to the related
payment date for such defaulted interest. At least 15 days before the special
record date, SH Group (or, upon the written request of SH Group, the Trustee in
the name and at the expense of SH Group) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01 NOTICES TO TRUSTEE
If SH Group elects to redeem Debentures pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall furnish to the
Trustee, at least 30 days (unless a shorter period is consented to in writing
by the Trustee) but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant
to which the redemption shall occur, (ii) the redemption date, (iii) the
principal amount of Debentures to be redeemed and (iv) the redemption price.
SECTION 3.02 SELECTION OF DEBENTURES TO BE REDEEMED
If less than all of the Debentures are to be redeemed at any
time, the Trustee shall select the Debentures to be redeemed among the Holders
of the Debentures in compliance with the requirements of the principal national
securities exchange, if any, on which the Debentures are listed or, if the
Debentures are not so listed, on a pro rata basis, by lot or in accordance with
any other method the Trustee considers fair and appropriate. In the event of
partial redemption by lot, the particular Debentures to be redeemed shall be
selected, unless otherwise provided herein, not less than 30 nor more than 60
days prior to the redemption date by the Trustee from the outstanding
Debentures not previously called for redemption.
The Trustee shall promptly notify SH Group in writing of the
Debentures selected for redemption and, in the case of any Debenture selected
for partial redemption, the principal amount thereof to be redeemed.
Debentures and portions of Debentures selected shall be in amounts of $1,000 or
integral multiples of $1,000; except that if all of the Debentures of a Holder
are to be redeemed, the entire outstanding amount of Debentures held by such
Holder, even if not an integral multiple of $1,000, shall be redeemed. Except
as provided in the preceding sentence, provisions of this Indenture that apply
to Debentures called for redemption also apply to portions of Debentures called
for redemption.
26
<PAGE> 32
SECTION 3.03 NOTICE OF REDEMPTION
Subject to the provisions of Section 3.07 hereof, at least 30
days but not more than 60 days before a redemption date, SH Group shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
whose Debentures are to be redeemed at its registered address.
The notice shall identify the Debentures to be redeemed and
shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Debenture is being redeemed in part, the
portion of the principal amount of such Debenture to be redeemed and
that, after the redemption date upon surrender of such Debenture, a
new Debenture or Debentures in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original
Debenture;
(d) the name and address of the Paying Agent;
(e) that Debentures called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(f) that, unless SH Group defaults in making such
redemption payment, interest on Debentures called for redemption
ceases to accrue on and after the redemption date;
(g) the paragraph of the Debentures and/or Section of
this Indenture pursuant to which the Debentures called for redemption
are being redeemed; and
(h) that no representation is made as to the correctness
or accuracy of the CUSIP number, if any, listed in such notice or
printed on the Debentures.
At SH Group's request, the Trustee shall give the notice of
redemption in SH Group's name and at its expense; provided, however, that SH
Group shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as
provided in the preceding paragraph.
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed in accordance with Section
3.03 hereof, Debentures called for redemption become irrevocably due and
payable on the redemption date at the redemption price. A notice of redemption
may not be conditional.
27
<PAGE> 33
SECTION 3.05 DEPOSIT OF REDEMPTION PRICE
One Business Day prior to the redemption date, SH Group shall
deposit with the Trustee or with the Paying Agent in immediately available
funds money sufficient to pay the redemption price of and accrued interest on
all Debentures to be redeemed on that date. The Trustee or the Paying Agent
shall promptly return to SH Group any money deposited with the Trustee or the
Paying Agent by SH Group in excess of the amounts necessary to pay the
redemption price of, and accrued interest and Liquidated Damages, if any, on,
all Debentures to be redeemed.
If SH Group complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Debentures or the portions of Debentures called for redemption unless SH
Group defaults in such payments due on the redemption date. If a Debenture is
redeemed on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest shall be paid to
the Person in whose name such Debenture was registered at the close of business
on such record date. If any Debenture called for redemption shall not be so
paid upon surrender for redemption because of the failure of SH Group to comply
with the preceding paragraph, interest shall be paid on the unpaid principal,
from the redemption date until such principal is paid, and to the extent lawful
on any interest not paid on such unpaid principal, in each case at the rate
provided in the Debentures and in Section 4.01 hereof.
SECTION 3.06 DEBENTURES REDEEMED IN PART
Upon surrender of a Debenture that is redeemed in part, SH
Group shall issue and, upon SH Group's written request, the Trustee shall
authenticate for the Holder at the expense of SH Group a new Debenture equal in
principal amount to the unredeemed portion of the Debenture surrendered.
SECTION 3.07 OPTIONAL REDEMPTION
(a) Except as set forth in clause (b) of this Section 3.07,
SH Group shall not have the option to redeem the Debentures pursuant to this
Section 3.07 prior to June 1, 2003. Thereafter, SH Group shall have the option
to redeem the Debentures, in whole or in part, upon not less than 30 nor more
than 60 days' notice to the Holders, at the redemption prices (expressed as
percentages of Accreted Value) set forth below plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the applicable redemption date if
redeemed during the twelve-month period beginning on June 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . 106.875%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . 104.583%
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 102.292%
2006 and thereafter . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
28
<PAGE> 34
(b) Notwithstanding the provisions of clause (a) of this
Section 3.07, at any time prior to June 1, 2001, SH Group may (but shall not
have the obligation to) redeem up to 35% of the original aggregate principal
amount of Debentures at a redemption price equal to 113.750% of Accreted Value
thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the redemption date, with the Net Cash Proceeds received by SH Group
from one or more Equity Offerings; provided that, in each case at least 65% of
the aggregate principal amount of the Debentures originally issued remain
outstanding immediately after the occurrence of such redemption; and provided
further, that such redemption shall occur within 60 days of the date of the
closing of such Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be
made pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08 NO MANDATORY REDEMPTION
SH Group shall not be required to make mandatory redemption or
sinking fund payments with respect to the Debentures.
ARTICLE 4
COVENANTS
SECTION 4.01 PAYMENT OF DEBENTURES
SH Group shall pay or cause to be paid the principal of,
premium, if any, and interest on the Debentures on the dates and in the manner
provided in the Debentures. Principal, premium, if any, and interest shall be
considered paid on the date due if the Trustee or Paying Agent, if other than
SH Group or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the
due date money deposited by SH Group in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, and
interest then due. SH Group shall pay all Liquidated Damages, if any, in the
same manner on the dates and in the amounts set forth in the Registration
Rights Agreement. SH Group shall notify the Trustee of the amount of
Liquidated Damages, if any, within one day of any payment date. In the absence
of such notice, the Trustee is conclusively entitled to assume that no
Liquidated Damages are payable under the Registration Rights Agreement.
SH Group shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal at the rate
equal to 1% per annum in excess of the then applicable interest rate on the
Debentures to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace period)
at the same rate to the extent lawful.
29
<PAGE> 35
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY
SH Group shall maintain in the Borough of Manhattan, the City
of New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Debentures may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon SH Group in respect of the Debentures and this Indenture may
be served. SH Group shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time SH Group 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.
SH Group may also from time to time designate one or more
other offices or agencies where the Debentures may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve SH Group of its obligation to maintain an office or
agency in the Borough of Manhattan, the City of New York for such purposes. SH
Group shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
SH Group hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of SH Group in accordance with Section
2.03 hereof.
SECTION 4.03 REPORTS
(a) Whether or not required by the rules and regulations of
the SEC, so long as any Debentures are outstanding, SH Group shall furnish to
all Holders (i) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if SH
Group 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 SH Group's
certified independent accountants and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if SH Group were required to file
such reports. In addition, whether or not required by the rules and
regulations of the SEC, at any time after the effectiveness of a registration
statement with respect to the Exchange Offer, SH Group shall file a copy of all
such information and reports with the SEC for public availability (unless the
SEC will not accept such a filing) and shall promptly make such information
available to all securities analysts and prospective investors upon request.
(b) For so long as any Debentures remain outstanding, SH
Group shall furnish to all Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
30
<PAGE> 36
SECTION 4.04 COMPLIANCE CERTIFICATE
(a) SH Group shall deliver to the Trustee, within 90 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of SH Group and its Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing Officers with a
view to determining whether SH Group has kept, observed, performed and
fulfilled its obligations under this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of his or her knowledge
SH Group has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action SH Group is taking or proposes to take with respect thereto) and that to
the best of his or her knowledge no event has occurred and remains in existence
by reason of which payments on account of the principal of or interest, if any,
on the Debentures is prohibited or if such event has occurred, a description of
the event and what action SH Group is taking or proposes to take with respect
thereto.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.03(a) hereof
shall be accompanied by a written statement of SH Group's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial
statements, nothing has come to their attention that would lead them to believe
that SH Group has violated any provisions of Article 4 or Article 5 hereof or,
if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be
liable directly or indirectly to any Person for any failure to obtain knowledge
of any such violation.
(c) SH Group shall, so long as any of the Debentures are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action SH Group is taking or proposes to
take with respect thereto.
SECTION 4.05 TAXES
SH Group shall pay, and shall cause each of its Subsidiaries
to pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate
proceedings or where the failure to effect such payment is not adverse in any
material respect to the Holders of the Debentures.
SECTION 4.06 STAY, EXTENSION AND USURY LAWS
SH Group covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and SH Group (to the extent
that it may lawfully do so), hereby expressly waives all benefit or advantage
of any such law, and covenants that it shall
31
<PAGE> 37
not, by resort to any such law, hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law has been enacted.
SECTION 4.07 CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of
Debentures shall have the right to require SH Group to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Debentures pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase or, in the case of repurchase of Debentures
prior to June 1, 2003 at a purchase price equal to 101% of the Accreted Value
thereof as of the date of repurchase plus Liquidated Damages thereon, if any,
to the date of purchase (the "Change of Control Payment") on a date (the
"Change of Control Payment Date") no later than 60 Business Days after the
occurrence of the Change of Control. Within 35 days following any Change of
Control, SH Group shall mail a notice to each Holder, with a copy to the
Trustee, describing the transaction or transactions that constitute the Change
of Control and offering to repurchase Debentures pursuant to the procedures
required by this Indenture and described in such notice, which offer shall
remain open for at least 20 Business Days following its commencement, but in
any event no longer than 30 Business Days. SH Group shall comply with the
requirements of 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 connection with the repurchase of the Debentures as a result of a
Change of Control. To the extent that the provisions of any such securities
laws or regulations conflict with the provisions of this Section 4.07,
compliance by SH Group with such laws and regulations shall not in and of
itself cause a breach of its obligations under this Section 4.07.
On the Change of Control Payment Date, SH Group shall, to the
extent lawful, (1) accept for payment all Debentures or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of all
Debentures or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Debentures so accepted together with an Officers'
Certificate stating the aggregate principal amount of Debentures or portions
thereof being purchased by SH Group. The Paying Agent shall promptly mail to
each Holder of Debentures so tendered the Change of Control Payment for such
Debentures, and the Trustee shall promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a new Debenture equal in principal
amount to any unpurchased portion of the Debentures surrendered, if any;
provided that each such new Debenture will be in a principal amount of $1,000
or an integral multiple thereof. SH Group shall publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
Prior to complying with the provisions of this covenant, but
in any event within 30 days following a Change of Control, SH Group will either
repay all outstanding Indebtedness of its Subsidiaries (including Steel Heddle
Mfg. Co.) or obtain the requisite consents, if any, under such Indebtedness
(including Indebtedness under the Credit Agreement and the Senior Subordinated
Notes) to permit the repurchase of Debentures required by this Section 4.07.
SH Group will not be required to purchase any Debentures until it has complied
with the preceding sentence, but SH Group's failure
32
<PAGE> 38
to make a Change of Control Offer when required or to purchase tendered
Debentures when tendered shall constitute an Event of Default under this
Indenture.
If the Change of Control Payment Date hereunder is on or after
an interest payment Record Date and on or before the associated Interest
Payment Date, any accrued and unpaid interest (and Liquidated Damages, if any),
due on such Interest Payment Date will be paid to the person in whose name a
Debenture is registered at the close of business on such Record Date, and such
interest (and Liquidated Damages, if applicable) will not be payable to Holders
who tender the Debentures pursuant to the Change of Control Offer.
SECTION 4.08 ASSET SALES
SH Group shall not, and shall not permit any of its
Subsidiaries to, engage in an Asset Sale in excess of $1,000,000 unless (i) SH
Group (or the Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value, of the assets
or Equity Interests sold or otherwise disposed of or, in the case of a lease of
assets, a lease providing for rent and other conditions which are no less
favorable to SH Group (or such Subsidiary, as the case may be) in any material
respect than the then prevailing market conditions (evidenced in each case by a
resolution of the Board of Directors of such entity set forth in an Officers'
Certificate delivered to the Trustee) and (ii) at least 75% (100% in the case
of lease payments) of the consideration therefor received by SH Group or such
Subsidiary is in the form of cash or Cash Equivalents; provided that the amount
of (x) any liabilities (as shown on SH Group's or such Subsidiary's most recent
balance sheet or in the notes thereto, but excluding contingent liabilities and
trade payables) of SH Group or any Subsidiary (other than liabilities that are
by their terms subordinated to the Debentures) that are assumed by the
transferee of any such assets and from which SH Group or such Subsidiary are
released and (y) any notes or other obligations received by SH Group or any
such Subsidiary from such transferee that are promptly, but in no event more
than 30 days after receipt, converted by SH Group or such Subsidiary into cash
(to the extent of the cash received) shall be deemed to be cash for purposes of
this provision and the receipt of such cash shall be treated as cash received
from the Asset Sale for which such notes or obligations were received.
SH Group or any of its Subsidiaries may apply the Net Proceeds
from each Asset Sale, at its option, within 395 days after the consummation of
such Asset Sale, (a) to permanently reduce any Indebtedness of any Subsidiary
of SH Group (and in the case of any senior revolving indebtedness to
correspondingly permanently reduce commitments with respect thereto), (b) to
make capital expenditures, for the acquisition of another business or the
acquisition of other long-term assets, in each case, in the same or a Related
Business, or (c) to reimburse SH Group or its Subsidiaries for expenditures
made, and costs incurred, to repair, rebuild, replace or restore property
subject to loss, damage or taking to the extent that the Net Proceeds consist
of insurance proceeds received on account of such loss, damage or taking.
Pending the final application of any such Net Proceeds, SH Group may
temporarily reduce any Senior Revolving Debt or otherwise invest any Net
Proceeds in any manner that is not prohibited by this Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph shall be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5,000,000, SH
Group shall be required to make an offer to all Holders of Debentures (an
"Asset Sale Offer") and to holders of other Indebtedness of SH Group
outstanding ranking on a parity with the Debentures
33
<PAGE> 39
with similar provisions requiring SH Group to make a similar offer with
proceeds from asset sales, pro rata in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an original
issue discount) of the Debentures and such other Indebtedness then outstanding,
to purchase the maximum principal amount (or accreted value, as applicable) of
Debentures and such other Indebtedness, if any, that may be purchased out of
the Excess Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount (or accreted value, as applicable) thereof plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase, or, in the case of repurchases of Debentures prior to June 1, 2003 at
a purchase price equal to 100% of the Accreted Value thereof plus Liquidated
Damages, if any, as of the date of repurchase in accordance with the procedures
set forth in this Indenture. If the aggregate principal amount at maturity, or
Accreted Value, as the case may be, of Debentures and such Indebtedness
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Debentures and such Indebtedness to be purchased on a
pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.
Any Asset Sale Offer shall remain open for at least 20
Business Days, but in any event no longer than 30 Business Days, except to the
extent that a longer period is required by applicable law (the "Offer Period").
No later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), SH Group shall purchase the principal amount of Debentures
required to be purchased pursuant to this Section 4.08 (the "Offer Amount") or,
if less than the Offer Amount has been tendered, all Debentures tendered in
response to the Asset Sale Offer. Payment for any Debentures so purchased
shall be made in the same manner as interest payments are made. Any Asset Sale
Offer shall be made in compliance with all applicable laws, rules, and
regulations, including, if applicable, Regulation 14E of the Exchange Act and
the rules and regulations thereunder and all other applicable Federal and state
securities laws. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this Section 4.08, compliance by SH
Group or any of its subsidiaries with such laws and regulations shall not in
and of itself cause a breach of its obligations under this Section 4.08.
If the payment date in connection with an Asset Sale Offer
hereunder is on or after an interest payment Record Date and on or before the
associated Interest Payment Date, any accrued and unpaid interest (and
Liquidated Damages, if any, due on such Interest Payment Date) will be paid to
the person in whose name a Debenture is registered at the close of business on
such Record Date, and such interest (or Liquidated Damages, if applicable) will
not be payable to Holders who tender Debentures pursuant to such Asset Sale
Offer.
Upon the commencement of an Asset Sale Offer, SH Group shall
send, by first class mail, a notice to each of the Holders, with a copy to the
Trustee. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Debentures pursuant to the Asset Sale Offer. The
Asset Sale Offer shall be made to all Holders. The notice, which shall govern
the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to
this Section 4.08 and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price and the Purchase
Date;
34
<PAGE> 40
(c) that any Debenture not tendered or accepted for
payment shall continue to accrete or accrue interest;
(d) that, unless SH Group defaults in making such
payment, any Debenture accepted for payment pursuant to the Asset Sale
Offer shall cease to accrete or accrue interest on and after the
Purchase Date;
(e) that Holders electing to have a Debenture purchased
pursuant to an Asset Sale Offer may only elect to have all of such
Debenture purchased and may not elect to have only a portion of such
Debenture purchased;
(f) that Holders electing to have a Debenture purchased
pursuant to any Asset Sale Offer shall be required to surrender the
Debenture, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Debenture completed, or transfer by book- entry
transfer, to SH Group, a Depositary, if appointed by SH Group, or a
Paying Agent at the address specified in the notice at least three
days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their
election if SH Group, the Depositary or the Paying Agent, as the case
may be, receives, not later than the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Debenture the Holder
delivered for purchase and a statement that such Holder is withdrawing
his election to have such Debenture purchased;
(h) that, if the aggregate principal amount of Debentures
surrendered by Holders exceeds the Offer Amount, SH Group shall select
the Debentures to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by SH Group so that only
Debentures in denominations of $1,000, or integral multiples thereof,
shall be purchased); and
(i) that Holders whose Debentures were purchased only in
part shall be issued new Debentures equal in principal amount to the
unpurchased portion of the Debentures surrendered (or transferred by
book-entry transfer).
On or before the Purchase Date, SH Group shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Debentures or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered, all Debentures
tendered, and shall deliver to the Trustee an Officers' Certificate stating
that such Debentures or portions thereof were accepted for payment by SH Group
in accordance with the terms of this Section 4.08. SH Group, the Depository or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering
Holder an amount equal to the purchase price of the Debentures tendered by such
Holder and accepted by SH Group for purchase, and SH Group shall promptly issue
a new Debenture, and the Trustee, upon written request from SH Group shall
authenticate and mail or deliver such new Debenture to such Holder, in a
principal amount equal to any unpurchased portion of the Debenture surrendered.
Any Debenture not so accepted shall be promptly mailed or delivered by SH Group
to the Holder thereof. SH Group shall publicly announce the results of the
Asset Sale Offer on the Purchase Date.
35
<PAGE> 41
SECTION 4.09 RESTRICTED PAYMENTS
SH Group shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any distribution on account of SH Group or any of its Subsidiaries' or
direct or indirect parent's Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation involving SH Group)
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of SH Group or dividends or distributions payable to SH
Group or any Subsidiary of SH Group); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of SH Group or any direct or
indirect parent of SH Group or other Affiliate or Subsidiary of SH Group (other
than any such Equity Interests owned by SH Group or any Wholly Owned Subsidiary
of SH Group); (iii) make any principal payment on or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is subordinated
to or pari passu (unless, in the case of pari passu Indebtedness only, such
purchase, redemption, defeasance, acquisition, or retirement is made, or
offered (if applicable), pro rata with the Debentures) with the Debentures (and
other than Debentures), except for any scheduled repayment or at the final
maturity thereof; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof;
(b) SH Group would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.10 hereof; and
(c) such Restricted Payment, together with the aggregate
of all other Restricted Payments made by SH Group and its Subsidiaries
after the Issue Date (including Restricted Payments permitted by
clauses (i), (vi), (vii), (viii) and (ix), but excluding Restricted
Payments permitted by clauses (ii), (iii), (iv), and (v) of the next
succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income (adjusted to exclude any amounts that are
otherwise included in this clause (c) to the extent there would be,
and to avoid, any duplication in the crediting of any such amounts) of
SH Group for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the Issue Date
to the end of SH Group's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate Net Proceeds received by SH Group after the Issue Date from
a Capital Contribution or from the issue or sale of Equity Interests
of SH Group or of debt securities of SH Group that have been converted
into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary or an Unrestricted
Subsidiary of SH Group and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock), plus
(iii) 100% of any cash dividends received by SH Group or any of its
Wholly Owned Subsidiaries after the Issue Date from an Unrestricted
Subsidiary of SH
36
<PAGE> 42
Group, plus (iv) 100% of the Net Proceeds realized by SH Group or a
Wholly Owned Subsidiary of SH Group upon the sale of any Unrestricted
Subsidiary (less the amount of any reserve established for purchase
price adjustments and less the maximum amount of any indemnification
or similar contingent obligation for the benefit of the purchaser, any
of its Affiliates or any other third party in such sale, in each case
as adjusted for any permanent reduction in any such amount on or after
the date of such sale, other than by virtue of a payment made to such
person) following the Issue Date, plus (v) to the extent that any
Restricted Investment that was made after the Issue Date is sold for
cash or otherwise liquidated or repaid for cash, the amount of Net
Proceeds received by SH Group or any of its Subsidiaries with respect
to such Restricted Investment.
Notwithstanding the foregoing, SH Group's Subsidiaries will be
permitted to make any Restricted Payment not prohibited by the Note Indenture
as in effect on the Issue Date, so long as any Senior Subordinated Notes remain
outstanding and Steel Heddle Mfg. Co. is a consolidated Subsidiary of SH Group.
The foregoing provisions will not prohibit (i) 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
this Indenture; (ii) the payment of a fee to AIP or its designee on the date of
this Indenture in an aggregate amount, together with any fees paid by any
Subsidiary of SH Group on the date of this Indenture, not to exceed $2,000,000
for certain investment banking, advisory and management services rendered to SH
Group and its Subsidiaries in connection with the Acquisition Transactions and
if no Default or Event of Default shall have occurred and be continuing (and
shall not have been waived) or shall occur as a consequence thereof, the
payment by SH Group (either directly or indirectly, e.g. through the Parent) of
a management fee to AIP in an aggregate amount, together with any management
fees paid to AIP by any Subsidiary of SH Group during or in respect of such
period, not to exceed $895,000 in any year plus an additional amount in such
year (not to exceed $895,000) to the extent such management fee was not payable
by reason of this clause (ii) in any prior fiscal year and the reimbursement by
SH Group of AIP's reasonable out-of-pocket expenses incurred in connection with
the rendering of management services to or on behalf of SH Group; provided,
however, that the obligation of SH Group to pay such management fee will be
subordinated to the payment of all Obligations with respect to the Debentures;
(iii) the making of any Restricted Investment, directly or indirectly in
exchange for, or out of the Net Cash Proceeds received by SH Group after the
Issue Date from a substantially concurrent Capital Contribution or sale (other
than to a Subsidiary of SH Group) of Equity Interests of SH Group (other than
Disqualified Stock); provided, that any Net Cash Proceeds that are utilized for
any such Restricted Investment, shall be excluded from clauses (c)(i) and
(c)(ii) of the preceding paragraph; (iv) the redemption, repurchase, retirement
or other acquisition of any Equity Interests of SH Group in exchange for, or
out of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of SH Group) of other Equity Interests of SH Group (other than any
Disqualified Stock); provided that any Net Cash Proceeds that are utilized for
any such redemption, repurchase, retirement or other acquisition shall be
excluded from clauses (c)(i) and (c)(ii) of the preceding paragraph; (v) the
defeasance, redemption, repurchase, acquisition or other retirement of pari
passu or subordinated Indebtedness with the Net Cash Proceeds from an
incurrence of Permitted Refinancing Indebtedness or, in exchange for, or out of
the Net Cash Proceeds of, the substantially concurrent sale (other than to a
Subsidiary of SH Group) of Equity Interests of SH Group (other than
Disqualified Stock);
37
<PAGE> 43
provided, that any Net Cash Proceeds that are utilized for any such defeasance,
redemption, repurchase shall be excluded from clauses (c)(i) and (c)(ii) of the
preceding paragraph; (vi) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of SH Group or any Subsidiary of
SH Group held by any member of SH Group's (or any Subsidiaries') management
pursuant to any management agreement or stock option agreement; provided that
the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $5,000,000 in the aggregate (net of
the Net Cash Proceeds received by SH Group from subsequent reissuances of such
Equity Interests to new members of management), and no Default or Event of
Default shall have occurred and be continuing immediately after such
transaction; (vii) so long as no Default or Event of Default shall have
occurred and is continuing, Restricted Payments in an aggregate amount not to
exceed $1,000,000; (viii) pro rata dividends and other distributions on the
Capital Stock of any Subsidiary of SH Group by such Subsidiary; (ix) payments
in lieu of fractional shares in an amount not to exceed $250,000 in the
aggregate.
The Board of Directors may designate any Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by SH Group
and its Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this Section 4.09. All such outstanding Investments
will be deemed to constitute Investments in an amount equal to the greatest of
(x) the net book value of such Investments at the time of such designation, (y)
the fair market value of such Investments at the time of such designation and
(z) the original fair market value of such Investments at the time they were
made. Such designation will only be permitted if such Restricted Payment would
be permitted at such time and if such Subsidiary otherwise meets the definition
of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall
be the fair market value (evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee) on the date of
the Restricted Payment of the asset(s) proposed to be transferred by SH Group
or such Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, SH Group shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this Section 4.09 were computed, which calculations may be based
upon SH Group's latest available financial statements.
SECTION 4.10 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
SH Group shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Indebtedness) and that SH Group will not issue any Disqualified Stock and will
not permit any of its Subsidiaries to issue any shares of preferred stock or
Disqualified Stock; provided, however, that SH Group may incur Indebtedness
(including Acquired Indebtedness) or issue shares of Disqualified Stock and SH
Group's Subsidiaries may incur Indebtedness and issue preferred stock or
Disqualified Stock, if: (i) the Fixed Charge Coverage Ratio for SH Group's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
38
<PAGE> 44
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period; and (ii) no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence thereof; provided,
that no Guarantee may be incurred pursuant to this paragraph, unless the
guaranteed Indebtedness is incurred by SH Group or a Subsidiary of SH Group
pursuant to this paragraph.
The foregoing provisions will not apply to:
(i) the incurrence of Indebtedness by SH Group or its
Subsidiaries 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 potential liability of SH
Group and its Subsidiaries thereunder) not to exceed an amount
(including any Indebtedness incurred to refinance, retire, renew,
defease, refund or otherwise replace any such Indebtedness) equal to
$70,000,000, less (i) an amount equal to the cumulative mandatory
amortization payments required under the Credit Agreement in existence
as of the Issue Date (irrespective of whether any such payments are
actually made or whether the Credit Agreement remains in existence)
and (ii) the aggregate amount of all Net Proceeds of Asset Sales
applied to permanently reduce the outstanding amount or, as applicable
the commitments with respect to such Indebtedness pursuant to Section
4.08 hereof;
(ii) the Existing Indebtedness;
(iii) the incurrence by SH Group of Indebtedness represented
by the Debentures and the incurrence by Steel Heddle Mfg. Co. and its
Subsidiaries of Indebtedness represented by the Senior Subordinated
Notes and any Guarantee thereof;
(iv) the incurrence by SH Group or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or Purchase Money Obligations, in each case incurred for
the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property used in the business of SH
Group or such Subsidiary, in an aggregate principal amount not to
exceed $10,000,000 at any time outstanding (including any Indebtedness
incurred to refinance, retire, renew, defease, refund or otherwise
replace any such Indebtedness);
(v) the incurrence by SH Group or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted to be incurred by
this Indenture or by the Note Indenture, including the Senior
Subordinated Notes and any Guarantees thereof, or was outstanding on
the Issue Date, after giving effect to the Acquisition Transactions;
(vi) the incurrence by SH Group or any of its Wholly Owned
Subsidiaries of intercompany Indebtedness between or among SH Group
and any of its Wholly Owned
39
<PAGE> 45
Subsidiaries or between or among any Wholly Owned Subsidiaries;
provided, however, that (i) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than a Wholly Owned Subsidiary and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either SH
Group or a Wholly Owned Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by SH Group or such
Subsidiary, as the case may be;
(vii) the incurrence by SH Group or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by this Indenture to be incurred;
(viii) the incurrence by SH Group or any of its Subsidiaries
of Indebtedness in an aggregate principal amount at any time
outstanding (including any Indebtedness incurred to refinance, retire,
renew, defease, refund or otherwise replace any such Indebtedness) not
to exceed $10,000,000;
(ix) the incurrence by SH Group or any Subsidiary of
Indebtedness in respect of judgment, appeal, surety, performance and
other like bonds, bankers acceptance and letters of credit provided by
SH Group and its Subsidiaries in the ordinary course of business in an
aggregate amount outstanding (including any indebtedness incurred to
refinance, retire, renew, defease, refund or otherwise replace any
such indebtedness) at any time of not more than $500,000; and
(x) Indebtedness incurred by SH Group or any of its
Subsidiaries arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from
guarantees of letters of credit, surety bonds or performance bonds
securing the performance of SH Group or any of its Subsidiaries to any
person acquiring all or a portion of such business, or assets of a
Subsidiary of SH Group for the purpose of financing such acquisition,
in a principal amount not to exceed 25% of the gross proceeds (with
proceeds other than cash or Cash Equivalents being valued at the fair
market value thereof as determined by the Board of Directors of SH
Group in good faith) actually received by SH Group or any of its
Subsidiaries in connection with such disposition.
Notwithstanding any other provision of this Section 4.10, a
Guarantee by a Subsidiary of Indebtedness of SH Group or a Wholly Owned
Subsidiary of SH Group permitted by the terms of this Indenture at the time
such Indebtedness was incurred will not constitute a separate incurrence of
Indebtedness.
SH Group will not incur any Indebtedness that is contractually
subordinated to any Indebtedness unless it is subordinated to the Debentures at
least to the same extent as it is to such other Indebtedness.
Notwithstanding the foregoing, (i) SH Group's Subsidiaries
will be permitted to incur any Indebtedness to the extent such incurrence is
not prohibited by the Note Indenture, as in effect on the Issue Date, so long
as any Senior Subordinated Notes remain outstanding, and (ii) SH Group may
incur Indebtedness to the extent such incurrence would not be prohibited if
incurred by SH Group's
40
<PAGE> 46
Subsidiaries under the Debt Incurrence Ratio in the first paragraph of Section
4.10 in the Note Indenture, as in effect on the Issue Date, so long as any
Senior Subordinated Notes remain outstanding (for the purposes of this clause
(ii) only, any debt incurred pursuant to this clause shall be deemed to have
been incurred under the Note Indenture for the purposes of determining whether
any additional Indebtedness may be incurred pursuant to this clause (ii).)
Indebtedness or Disqualified Stock of any person which is
outstanding at the time such Person becomes a Subsidiary of SH Group (including
upon designation of any subsidiary or other person as a Subsidiary) or is
merged with or into or consolidated with SH Group or a Subsidiary of SH Group
shall be deemed to have been incurred at the time such Person becomes such a
Subsidiary of SH Group or is merged with or into or consolidated with SH Group
or a Subsidiary of SH Group, as applicable.
SECTION 4.11 LIENS
SH Group shall not, and shall not permit any of its
Subsidiaries to directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens, unless the Debentures are secured by such Lien on an
equal and ratable basis; provided, that if the Obligation secured by any Lien
is subordinate or junior in right of payment to the Debentures, the Lien
securing such Obligation shall be subordinate and junior to the Lien securing
the Debentures with the same or lesser relative priority as such Obligation
shall have been with respect to the Debentures.
SECTION 4.12 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
SH Group shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary to (i)(a) pay dividends or make any other distributions to SH Group
or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay any
indebtedness owed to SH Group or any of its Subsidiaries, (ii) make loans or
advances to SH Group or any of its Subsidiaries or (iii) transfer any of its
properties or assets to SH Group or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of this Indenture, (b) the Credit
Agreement and the Note Indenture, in each case as in effect as of the date of
this Indenture, and, with respect to any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof; provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings may be no more restrictive with respect to such dividend and other
payment restrictions than the most restrictive of those contained in the Credit
Agreement or the Note Indenture, in each case as in effect on the date of this
Indenture, (c) this Indenture and the Debentures or Indebtedness permitted to
be incurred pursuant to the Indenture and ranking pari passu with the
Debentures, as applicable, to the extent such restrictions are no more
restrictive than those of the Indenture, (d) applicable law, (e) any instrument
governing Acquired Indebtedness or Capital Stock of a Person acquired by SH
Group or any of its Subsidiaries as in effect at the time of such acquisition
(except to the extent such Acquired Indebtedness was incurred in connection
with or in contemplation of such
41
<PAGE> 47
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, (f) by reason of customary
non-assignment provisions in leases and licenses entered into in the ordinary
course of business and consistent with past practices, (g) Purchase Money
Obligations or Capital Lease Obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above only on the property so acquired, (h) agreements relating to the
financing of the acquisition of real or tangible personal property acquired
after the date of this Indenture, provided, that such encumbrance or
restriction relates only to the property which is acquired and in the case of
any encumbrance or restriction that constitutes a Lien, such Lien constitutes a
Permitted Lien as set forth in clause (xi) of the definition of "Permitted
Lien," (i) any restriction or encumbrance contained in contracts for sale of
assets permitted by this Indenture in respect of the assets being sold pursuant
to such contract, (j) Indebtedness permitted to be incurred under this
Indenture and incurred on or after the date of this Indenture, provided, that
such encumbrances or restrictions in such Indebtedness are no more onerous than
the most restrictive of those contained in the Credit Agreement or the Note
Indenture, in each case as in effect on the date of this Indenture, or (k)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
SECTION 4.13 TRANSACTIONS WITH AFFILIATES
SH Group shall not, and shall not permit any of its
Subsidiaries to enter into any transaction (including the sale, lease,
exchange, transfer or other disposition of any of its properties or assets or
services, or the purchase of any property, assets or services), or enter into
or make any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to SH Group or the relevant Subsidiary than those
that would have been obtained in a comparable transaction by SH Group or such
Subsidiary with an unrelated Person and (ii) SH Group delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions entered into after the date of this Indenture involving aggregate
consideration in excess of $5,000,000, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate
Transactions comply with clause (i) above and that such Affiliate Transactions
have been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transactions or series of
related Affiliate Transactions involving aggregate consideration in excess of
$10,000,000, a favorable written opinion as to the fairness to SH Group or such
Subsidiary of such Affiliate Transactions from a financial point of view issued
by an investment banking firm of national standing in the United States, or in
the event such transaction is a type that investment bankers do not generally
render fairness opinions, a valuation or appraisal firm of national standing;
provided, that, the following shall not be deemed to be Affiliate Transactions:
(w) the provision of administrative or management services by SH Group or any
of its officers to any of its Subsidiaries in the ordinary course of business
consistent with past practice, (x) any employment agreement entered into by SH
Group or any of its Subsidiaries in the ordinary course of business and
consistent with the past practice of SH Group or such Subsidiary, (y)
transactions between or among SH Group and/or its Wholly Owned Subsidiaries and
(z) transactions permitted by Section 4.09 hereof. In addition, none of the
Acquisition Transactions shall be deemed to be Affiliate Transactions.
42
<PAGE> 48
SECTION 4.14 LINE OF BUSINESS
Neither SH Group nor any of its Subsidiaries shall directly or
indirectly engage to any substantial extent in any line or lines of business
activity other than that which, in the reasonable good faith judgment of the
Board of Directors of SH Group, is a Related Business.
SECTION 4.15 CORPORATE EXISTENCE
Subject to Article 5 hereof, SH Group shall do or cause to be
done all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organ izational
documents (as the same may be amended from time to time) of SH Group or any
such Subsidiary and (ii) the rights (charter and statutory), licenses and
franchises of SH Group and its Subsidiaries; provided, however, that SH Group
shall not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of SH Group and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Debentures.
SECTION 4.16 STATUS AS AN INVESTMENT COMPANY
SH Group and its Subsidiaries are not required to register as
an "investment company" (as that term is defined in the Investment Company Act
of 1940, as amended), or otherwise become subject to regulation under the
Investment Company Act.
ARTICLE 5
SUCCESSORS
SECTION 5.01 MERGER, CONSOLIDATION, OR SALE OF ASSETS
SH Group will not in a single transaction or series of related
transactions consolidate or merge with or into (whether or not SH Group is the
surviving corporation), or directly or indirectly sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) SH Group is the surviving corporation
or the entity or the Person formed by or surviving any such consolidation or
merger (if other than SH Group) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the entity or Person formed by or surviving any
such consolidation or merger (if other than SH Group) or the entity or Person
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of SH Group, as
the case may be under the Debentures and this Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; (iv)
SH Group or the entity or Person formed by or surviving any such consolidation
or merger (if other than SH Group), or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall
43
<PAGE> 49
have been made will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph in Section 4.10 hereof; and (v) SH Group shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture. Notwithstanding the
foregoing, the transactions comprising the Acquisition Transactions shall be
deemed to be expressly permitted under the Indenture and shall not require the
execution and delivery of a supplemental indenture.
SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of SH Group in accordance with Section 5.01
hereof, the successor corporation formed by such consolidation or into or with
which SH Group is merged or to which such transfer is made shall succeed to,
and (except in the case of a lease) be substituted for and may exercise every
right and power of SH Group under this Indenture with the same effect as if
such successor corporation had been named therein as SH Group, and (except in
the case of a lease) SH Group shall be released from the obligations under the
Debentures and the Indenture except with respect to any obligations that arise
from, or are related to, such transaction.
For the purposes of this Article 5, the transfer (by lease,
assignment, sale or otherwise) of all or substantially all of the properties
and assets of one or more Subsidiaries of SH Group, SH Group's interest in
which constitutes all or substantially all of the properties and assets of SH
Group shall be deemed to be the transfer of all or substantially all of the
properties and assets of SH Group.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01 EVENTS OF DEFAULT
An "Event of Default" occurs if:
(1) SH Group defaults in the payment of interest, or
Liquidated Damages, if any, on any Debenture when the same becomes due
and payable and the Default continues for a period of 30 days;
(2) SH Group defaults in the payment of the principal of
or premium, if any, on any Debenture when the same becomes due and
payable at maturity, upon redemption or otherwise;
(3) SH Group fails to observe or perform any covenant,
condition or agreement on the part of SH Group to be observed or
performed pursuant to Sections 4.07 or 4.08 hereof, which failure
remains uncured for 30 days;
44
<PAGE> 50
(4) SH Group fails to comply with any of its other
agreements or covenants in, or provisions of, the Debentures or this
Indenture;
(5) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by SH Group
or any of its Subsidiaries (or the payment of which is Guaranteed by
SH Group or any of its Subsidiaries), whether such Indebtedness or
Guarantee now exists or shall be created hereafter, which default (a)
is caused by a failure to pay principal of or premium on such
Indebtedness when due (after giving effect to any applicable grace
period provided in such Indebtedness) or (b) results in the
acceleration of such Indebtedness prior to its express maturity and,
in each case, together with the principal amount of any such
Indebtedness under which there has been such payment default or the
maturity of which has been so accelerated, aggregates $5,000,000 or
more;
(6) one or more nonappealable final judgments for the
payment of money (not fully covered by insurance) are entered by a
court or courts of competent jurisdiction against SH Group or any of
its Significant Subsidiaries and such judgment or judgments are not
paid, bonded, discharged or stayed within a period (during which
execution shall not be effectively stayed) of 60 days, provided that
the aggregate of all such undischarged judgments exceeds $5,000,000;
(7) SH Group or any of its Significant Subsidiaries
pursuant to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief
against it in an involuntary case,
(c) consents to the appointment of a Custodian of
it or for all or substantially all of its property,
(d) makes a general assignment for the benefit of
its creditors, or
(e) generally is not paying its debts as they
become due; or
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(a) is for relief against SH Group or any
Subsidiary in an involuntary case,
(b) appoints a Custodian of SH Group or any
Subsidiary or for all or substantially all of the property of
SH Group or any Subsidiary, or
(c) orders the liquidation of SH Group or any
Subsidiary,
45
<PAGE> 51
and the order or decree remains unstayed and in effect for 60
consecutive days.
The term "Bankruptcy Law" means title 11, U.S. Code or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
An Event of Default shall not be deemed to have occurred under
clause (3), (5) or (6) until the Trustee shall have received written notice
from SH Group or any of the Holders or unless a Responsible Officer shall have
knowledge of such Event of Default. A Default under clause (4) is not an Event
of Default until the Trustee notifies SH Group, or the Holders of at least 25%
in principal amount of the then outstanding Notes notify SH Group and the
Trustee, of the Default and SH Group does not cure the Default within 60 days
after receipt of the notice. The notice must specify the Default, demand that
it be remedied and state that the notice is a "Notice of Default."
SECTION 6.02 ACCELERATION
If an Event of Default (other than an Event of Default
specified in clauses (7) and (8) of Section 6.01 relating to SH Group, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary) occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of the then
outstanding Debentures may declare all the Debentures to be due and payable
immediately by notice in writing to SH Group (and to the Trustee if given by
the Holders) and the representative of holders of Indebtedness under the Credit
Agreement, if any amounts are outstanding thereunder (an "Acceleration
Notice"). If an Event of Default specified in clause (8) or (9) of Section
6.01 relating to SH Group, any Significant Subsidiary or any group of
Subsidiaries that, taken together, would constitute a Significant Subsidiary
occurs all outstanding Debentures will become due and payable without further
action or notice. Upon any acceleration of maturity of the Debentures, all
principal of an accrued interest and Liquidated Damages, if any, on (if
subsequent to June 1, 2003) or Accreted Value of and Liquidated Damages, if
any, on (if prior to June 1, 2003) the Debentures shall be due and payable
immediately. The Holders of a majority in aggregate principal amount of the
then outstanding Debentures by written notice to the Trustee may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal or interest that has become due solely because of the acceleration)
have been cured or waived.
SECTION 6.03 OTHER REMEDIES
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect
the payment of principal, premium or Liquidated Damages, if any, and interest
on the Debentures or to enforce the performance of any provision of the
Debentures or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Debentures or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Holder of a Debenture in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
46
<PAGE> 52
SECTION 6.04 WAIVER OF PAST DEFAULTS
Holders of not less than a majority in aggregate principal
amount of the then outstanding Debentures by written notice to the Trustee may
on behalf of the Holders of all of the Debentures waive an existing Default or
Event of Default and its consequences hereunder, except a continuing Default or
Event of Default in the payment of the principal of, premium and Liquidated
Damages, if any, or interest on, the Debentures (including in connection with
an offer to purchase) (provided, however, that the Holders of a majority in
aggregate principal amount of the then outstanding Debentures may rescind an
acceleration and its consequences, including any related payment default that
resulted from such acceleration). 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 impair any right consequent
thereon.
SECTION 6.05 CONTROL BY MAJORITY
Holders of a majority in principal amount of the then
outstanding Debentures may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee, in its
sole discretion, determines may be unduly prejudicial to the rights of other
Holders of Debentures, that may involve the Trustee in personal liability or if
the Trustee determines that it does not have adequate indemnification against
any loss or expense; provided, that the Trustee may take any other action
deemed proper by the Trustee which is not inconsistent with such direction.
This Section 6.05 shall be in lieu of TIA Section 315(d)(3).
SECTION 6.06 LIMITATION ON SUITS
A Holder of a Debenture may pursue a remedy with respect to
this Indenture or the Debentures only if:
(a) the Holder of a Debenture gives to the Trustee
written notice of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of
the then outstanding Debentures make a written request to the Trustee
to pursue the remedy;
(c) such Holder of a Debenture or Holders of Debentures
offer and, if requested, provide to the Trustee indemnity satisfactory
to the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within
60 days after receipt of the request and the offer and, if requested,
the provision of indemnity; and
47
<PAGE> 53
(e) during such 60-day period the Holders of a majority
in aggregate principal amount of the then outstanding Debentures do
not give the Trustee a direction which, in the opinion of the Trustee,
is inconsistent with the request.
A Holder of a Debenture may not use this Indenture to prejudice the rights of
another Holder of a Debenture or to obtain a preference or priority over
another Holder of a Debenture.
SECTION 6.07 RIGHTS OF HOLDERS OF DEBENTURES TO RECEIVE PAYMENT
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Debenture to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Debenture, on or after the
respective due dates expressed in the Debenture (including in connection with
an offer to purchase), or to bring suit for the enforcement of any such payment
on or after such respective dates, shall not be impaired or affected without
the consent of such Holder.
SECTION 6.08 COLLECTION SUIT BY TRUSTEE
If an Event of Default specified in Section 6.01 occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against SH Group for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Debentures and interest on overdue principal and, to the extent
lawful, interest and such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel and
any other amounts due to the Trustee pursuant to Section 7.07.
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Debentures allowed in any judicial proceedings relative
to SH Group (or any other obligor upon the Debentures), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian 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 to the
Trustee any amount due to 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 7.07 hereof. To the extent that
the payment of any such compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 7.07 hereof out of the estate in any such proceeding, shall be
denied for any reason, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties that the Holders may be entitled to receive in such
proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Debentures or the rights of
48
<PAGE> 54
any Holder, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10 PRIORITIES
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Debentures for amounts due and unpaid
on the Debentures for principal and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Debentures for principal, premium and Liquidated
Damages, if any and interest, respectively; and
Third: to SH Group or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Debentures pursuant to this Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Debenture pursuant to Section 6.07 hereof, or a suit by Holders of
more than 10% in principal amount of the then outstanding Debentures.
SECTION 6.12 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 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.
49
<PAGE> 55
ARTICLE 7
TRUSTEE
SECTION 7.01 DUTIES OF TRUSTEE
(a) If an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in its
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely
by the express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, in the case of an Officer's Certificate
or Opinion of Counsel, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture. This subparagraph (b)(ii) shall be in lieu of TIA
Section 315(d)(3) and said TIA section is hereby expressly excluded
from this Indenture, as permitted by the TIA.
(c) The Trustee may not be relieved from liabilities for
its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b), and (c) of this Section; provided, that the standard of
liability of the Trustee under this Indenture shall be interpreted in
accordance with New York law.
(e) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or incur any liability. The Trustee
shall be under no obligation to exercise any of its
50
<PAGE> 56
rights and powers under this Indenture at the request of the Company or any
Holders, unless the Company or such Holder, as the case may be, shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree in writing with SH Group.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02 RIGHTS OF TRUSTEE
(a) The Trustee may conclusively rely upon any document
believed by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of Counsel or both, which
shall conform to Section 10.5 hereof. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel. The Trustee may consult with counsel and
the written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection from liability in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith that it believes to be authorized or
within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this
Indenture, any demand, request, direction or notice from SH Group shall be
sufficient if signed by two Officers of SH Group.
(f) 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 unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
(g) Except with respect to Section 4.01 herein, the
Trustee shall have no duty to inquire as to the performance of SH Group's
covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to
have knowledge of any Default or Event of Default except (i) any Event of
Default occurring pursuant to Sections 6.01(1), 6.01(2) and 4.01 or (ii) any
Default or Event of Default of which the Trustee shall have received written
notification or obtained actual knowledge.
51
<PAGE> 57
SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE
The Trustee in its individual or any other capacity may become
the owner or pledgee of Debentures and may otherwise deal with SH Group or any
Affiliate of SH Group with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
SECTION 7.04 TRUSTEE'S DISCLAIMER
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the
Debentures, it shall not be accountable for SH Group's use of the proceeds from
the Debentures or any money paid to SH Group or upon SH Group's direction under
any provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Debentures or any other document in connection with the sale
of the Debentures or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05 NOTICE OF DEFAULTS
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Holders of Debentures
a notice of the Default or Event of Default within 90 days after it occurs.
Except in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Debenture, the Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of
the Debentures. The second sentence of this Section 7.05 shall be in lieu of
the proviso to TIA Section 315(b) and said TIA section is hereby expressly
excluded from this Indenture, as permitted by the TIA.
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE DEBENTURES
Within 60 days after each December 1 beginning with the
December 1 following the date of this Indenture, and for so long as Debentures
remain outstanding, the Trustee shall mail to the Holders of the Debentures a
brief report dated as of such reporting date that complies with TIA Section
313(a) (but if no event described in TIA Section 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted).
The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall
also transmit by mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the
Holders of Debentures shall be mailed to SH Group and filed with the SEC and
each stock exchange on which the Debentures are listed in accordance with TIA
Section 313(d). SH Group shall promptly notify the Trustee when the Debentures
are listed on any stock exchange.
52
<PAGE> 58
SECTION 7.07 COMPENSATION AND INDEMNITY
SH Group shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. SH Group shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred
or made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents, accountants, experts and counsel.
SH Group shall indemnify the Trustee for, and hold the Trustee
harmless against, any and all losses, liabilities or expenses (including,
without limitation, reasonable attorneys' fees and expenses) incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, including the costs and expenses of enforcing this
Indenture against SH Group (including this Section 7.07) and defending itself
against any claim (whether asserted by SH Group or any Holder or any other
person) or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except to the extent any such loss, liability
or expense may be attributable to its negligence or bad faith. The Trustee
shall notify SH Group promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify SH Group shall not relieve SH Group of its
obligations hereunder. SH Group shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and SH Group
shall pay the reasonable fees and expenses of such counsel. SH Group need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The obligations of SH Group under this Section 7.07 shall
survive the resignation or removal of the Trustee and/or the satisfaction and
discharge of this Indenture.
To secure SH Group's payment obligations in this Section, the
Trustee shall have a Lien prior to the Debentures on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Debentures. Such Lien shall survive the satisfaction
and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(8) or (9) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
SECTION 7.08 REPLACEMENT OF TRUSTEE
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
53
<PAGE> 59
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying SH Group. The Holders
of Debentures of a majority in principal amount of the then outstanding
Debentures may remove the Trustee by so notifying the Trustee and SH Group in
writing, and may appoint a successor Trustee with SH Group's consent. SH Group
may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or
an order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, SH Group shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in aggregate principal amount of the then outstanding
Debentures may appoint a successor Trustee to replace the successor Trustee
appointed by SH Group.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, SH
Group, or the Holders of Debentures of at least 10% in aggregate principal
amount of the then outstanding Debentures may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a
Debenture who has been a Holder of a Note for at least six months, fails to
comply with Section 7.10, such Holder of a Note may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder
of a Debenture may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to SH Group. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Debentures. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, SH Group's obligations under Section
7.07 hereof shall continue for the benefit of the retiring Trustee.
54
<PAGE> 60
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC.
Subject to Section 7.10, if the Trustee consolidates, merges
or converts into, or transfers all or substantially all of its corporate trust
business to, another corporation, the successor corporation without any further
act shall be the successor Trustee.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $50,000,000 as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b). The provisions of TIA Section 310 shall apply to the
Company as obligor on the Debentures.
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein. The provisions of TIA Section 311 shall apply to the Company as
obligor on the Debentures.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE
SH Group may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Debentures upon compliance with the conditions set forth below in this Article
8.
SECTION 8.02 LEGAL DEFEASANCE AND DISCHARGE
Upon SH Group's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, SH Group shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to
have been discharged from its obligations with respect to all outstanding
Debentures on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means
that SH Group shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Debentures, which shall thereafter
be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and
the other Sections of this Indenture referred to in (a) and (b) below, and to
have satisfied all its other obligations under
55
<PAGE> 61
such Debentures and this Indenture (and the Trustee, on demand of and at the
expense of SH Group, shall execute proper instruments acknowledging the same),
except for the following provisions which shall survive until otherwise
terminated or discharged hereunder: (a) the rights of Holders of outstanding
Debentures to receive solely from the trust fund described in Section 8.04
hereof, and as more fully set forth in such Section, payments in respect of the
principal at maturity or Accreted Value, as applicable, premium, if any, and
interest and Liquidated Damages, if any, on such Debentures when such payments
are due, (b) SH Group's obligations with respect to such Debentures under
Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and SH Group's obligations in connection
therewith including, without limitation, Section 7.07 hereof, and (d) this
Article 8. SH Group may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 hereof.
SECTION 8.03 COVENANT DEFEASANCE
Upon SH Group's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, SH Group shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be released
from its obligations under the covenants contained in Sections 4.07, 4.08,
4.09, 4.10, 4.11, 4.12, 4.13 and 4.14 hereof with respect to the outstanding
Debentures on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Debentures shall thereafter be
deemed not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Debentures
shall not be deemed outstanding for accounting purposes). For this purpose,
Covenant Defeasance means that, with respect to the outstanding Debentures, SH
Group 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 Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Debentures
shall be unaffected thereby. In addition, upon SH Group's exercise under
Section 8.01 hereof of the option applicable to this Section 8.03 hereof,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
Sections 6.01(5) through 6.01(7) hereof shall not constitute Events of Default.
SECTION 8.04 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Debentures:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) SH Group must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Debentures, cash in
United States dollars, non-callable Government Securities, 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, interest and
Liquidated Damages on the outstanding Debentures on the
56
<PAGE> 62
stated maturity or on the applicable redemption date, as the case may
be, and SH Group must specify whether the Debentures are being
defeased to maturity or to a particular redemption date;
(b) in the case of Legal Defeasance, SH Group shall deliver to
the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that (A) SH Group has received
from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm
that, the Holders of the outstanding Debentures will not recognize
income, gain or loss for federal income tax purposes as a result of
such Legal 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 had not occurred;
(c) in the case of Covenants Defeasance, SH Group shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of
the outstanding Debentures will not recognize income, gain or loss for
federal income tax purposes as a result of such 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
Covenant Defeasance had not occurred;
(d) no Event of Default or Default shall have occurred and be
continuing on the date of such deposit (other than an Event of Default
or Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Sections 6.01(8) or 6.01(9) hereof is
concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than this Indenture) to which
SH Group or any of its Subsidiaries is a party or by which SH Group or
any of its Subsidiaries is bound;
(f) SH Group must have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) SH Group must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by SH Group with the
intent of preferring the Holders of Debentures over the other
creditors of SH Group with the intent of defeating, hindering,
delaying or defrauding creditors of SH Group or others; and
(h) SH Group must deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for, in the case of the Officers'
Certificate, (a) through (g) and, in the case of the Opinion of
Counsel, clauses (a) (with respect to the validity and perfection of
the security interest), (b), (c) and (e) of this paragraph
57
<PAGE> 63
relating to the Legal Defeasance or the Covenant Defeasance, as
applicable, have been complied with.
SECTION 8.05 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee satisfactory to SH Group and the Trustee,
collectively for purposes of this Section 8.05, the "Trustee") pursuant to
Section 8.04 hereof in respect of the outstanding Debentures shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Debentures and this Indenture, to the payment, either directly or through any
Paying Agent (including SH Group acting as Paying Agent) as the Trustee may
determine, to the Holders of such Debentures of all sums due and to become due
thereon in respect of principal, premium, if any, and interest, but such money
need not be segregated from other funds except to the extent required by law.
SH Group shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof 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 Debentures.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to SH Group from time to time upon the request
of SH Group any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06 REPAYMENT TO COMPANY
Any money deposited with the Trustee or any Paying Agent, or
then held by SH Group, in trust for the payment of the principal of, premium,
if any, Liquidated Damages, or interest on any Debenture and remaining
unclaimed for two years after such principal, and premium, if any, Liquidated
Damages or interest has become due and payable shall be paid to SH Group on its
request or (if then held by SH Group) shall be discharged from such trust; and
the Holder of such Note shall thereafter, as a secured creditor, look only to
SH Group for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of SH Group 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 SH Group cause to be published once, in the New York Times and The
Wall Street Journal (national edition), 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 notification or publication, any unclaimed
balance of such money then remaining will be repaid to SH Group.
58
<PAGE> 64
SECTION 8.07 REINSTATEMENT
If the Trustee or Paying Agent is unable to apply any United
States dollars or non- callable Government Securities in accordance with
Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then SH Group's obligations under this
Indenture and the Debentures shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as
the Trustee or Paying Agent is permitted to apply all such money in accordance
with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that,
if SH Group makes any payment of principal of, premium, if any, Liquidated
Damages, if any, or interest on any Debenture following the reinstatement of
its obligations, SH Group shall be subrogated to the rights of the Holders of
such Debentures to receive such payment from the money held by the Trustee or
Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01 WITHOUT CONSENT OF HOLDERS OF DEBENTURES
Notwithstanding Section 9.02 of this Indenture, SH Group and
the Trustee may amend or supplement this Indenture or the Debentures without
the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Debentures in addition
to or in place of certificated Debentures;
(c) to provide for the assumption of SH Group's
obligations to the Holders of the Debentures in the case of a merger
or consolidation pursuant to Article 5 hereof;
(d) to make any change that would provide any additional
rights or benefits to the Holders of the Debentures or that does not
adversely affect the legal rights hereunder of any Holder of the
Debenture;
(e) to comply with requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;
or
(f) to evidence, and provide for acceptance of, the
appointment of a successor Trustee hereunder.
Upon the request of SH Group accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, states that the execution of such amended or
supplemental Indenture is authorized or permitted by this Indenture, the
Trustee shall join with SH Group in the execution of any amended or
supplemental Indenture authorized or permitted by the
59
<PAGE> 65
terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02 WITH CONSENT OF HOLDERS OF NOTES
Except as provided below in this Section 9.02, SH Group and
the Trustee may amend or supplement this Indenture (including Sections 4.07 and
4.08 hereof) and the Debentures may be amended or supplemented with the consent
of the Holders of a majority in aggregate principal amount of the Debentures
then outstanding (including consents obtained in connection with a tender offer
or exchange offer for the Debentures), and, subject to Sections 6.04 and 6.07
hereof, any existing Default or Event of Default (other than a Default or Event
of Default in the payment of the principal of, premium, if any, Liquidated
Damages, if any, or interest on the Debentures, except a payment default
resulting from an acceleration that has been rescinded) or compliance with any
provision of this Indenture or the Debentures may be waived with the consent of
the Holders of a majority in aggregate principal amount of the then outstanding
Debentures (including consents obtained in connection with a tender offer or
exchange offer for the Debentures).
Upon the request of SH Group accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Debentures as
aforesaid, and upon receipt by the Trustee of the documents described in
Section 9.06 hereof, the Trustee shall join with SH Group in the execution of
such amended or supplemental Indenture unless such amended or supplemental
Indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its sole discretion,
but shall not be obligated to, enter into such amended or supplemental
Indenture.
It shall not be necessary for the consent of the Holders of
Debentures under this Section 9.02 to approve the particular form of any
proposed amendment or waiver, but it shall be sufficient if such consent
approves the substance thereof. The calculation of Holders of Debentures so
consenting shall be made pursuant to Section 2.09 hereof.
After an amendment, supplement or waiver under this Section
becomes effective, SH Group shall mail to the Holders of Debentures affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of SH Group to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof,
the Holders of a majority in aggregate principal amount of the Debentures then
outstanding may waive compliance in a particular instance by SH Group with any
provision of this Indenture or the Debentures. However, without the consent of
each Holder affected, an amendment or waiver may not (with respect to any
Debentures held by a non-consenting Holder):
(a) reduce the aggregate principal amount of Debentures whose
Holders must consent to an amendment, supplement or waiver;
60
<PAGE> 66
(b) reduce the principal of or change the fixed maturity of
any Debenture or alter the provisions with respect to the redemption
of the Debentures, except as provided above with respect to Sections
4.07 and 4.08 hereof;
(c) reduce the rate of or change the time for payment of
interest, including default interest, on any Debenture;
(d) waive a Default or Event of Default in the payment of
Liquidated Damages, or principal of, or premium, if any, Liquidated
Damages, if any, or interest on the Debentures (except a rescission of
acceleration of the Debentures by the Holders of a majority in
aggregate principal amount of the then outstanding Debentures and a
waiver of the payment default that resulted from such acceleration);
(e) make any Debenture payable in money other than that stated
in the Debentures;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of
Debentures to receive payments of principal of or premium, if any, or
interest on the Debentures;
(g) waive a redemption payment with respect to any Debenture
(other than a payment required by Section 4.07 or 4.08 hereof); or
(h) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions.
SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT
Every amendment or supplement to this Indenture or the
Debentures shall be set forth in a amended or supplemental Indenture that
complies with the TIA as then in effect.
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Debenture is a continuing consent by the Holder
of a Debenture and every subsequent Holder of a Debenture or portion of a
Debenture that evidences the same debt as the consenting Holder's Debenture,
even if notation of the consent is not made on any Debenture. However, any
such Holder of a Debenture or subsequent Holder of a Debenture may revoke the
consent as to its Debenture if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05 NOTATION ON OR EXCHANGE OF DEBENTURES
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Debenture thereafter authenticated. SH
Group in exchange for all Debentures may
61
<PAGE> 67
issue and the Trustee shall authenticate new Debentures that reflect the
amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new
Debenture shall not affect the validity and effect of such amendment,
supplement or waiver.
SECTION 9.06 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
SH Group may not sign an amendment or supplemental Indenture until the Board of
Directors approves it. In executing any amended or supplemental indenture, the
Trustee shall be entitled to receive and (subject to Section 7.01) shall be
fully protected in relying upon, an Officer's Certificate and an Opinion of
Counsel stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture and that such supplemental indenture
and this Indenture, as so amended or supplemented, constitute the valid and
binding obligations of the SH Group, enforceable against each of them in
accordance with their respective terms (subject to customary and necessary
exceptions) and all conditions precedent have been complied with.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01 TRUST INDENTURE ACT CONTROLS
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA Section 318(c), the imposed duties
shall control.
SECTION 10.02 NOTICES
Any notice or communication by SH Group or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to SH Group:
Steel Heddle Group, Inc.
1801 Rutherford Road
Greenville, South Carolina 29607
Telecopier No.: (864) 244-4110
Attention: Chief Financial Officer
62
<PAGE> 68
If to the Trustee:
United States Trust Company
of New York
114 West 47th Street
New York, New York 10036
Telephone No.: (212) 852-1000
Telecopier No.: (212) 852-1626
Attention: Corporate Trust Department
SH Group or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on
the register kept by the Registrar. Any notice or communication shall also be
so mailed to any Person described in TIA Section 313(c), to the extent required
by the TIA. Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If SH Group mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 10.03 COMMUNICATION BY HOLDERS OF DEBENTURES WITH OTHER HOLDERS OF
DEBENTURES
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the
Debentures. SH Group, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 10.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT
Upon any request or application by SH Group to the Trustee to
take any action under this Indenture, SH Group shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance
reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 10.05 hereof) stating that, in
63
<PAGE> 69
the opinion of the signers, all conditions precedent and covenants, if
any, provided for in this Indenture relating to the proposed action
have been satisfied; and
(b) an Opinion of Counsel in form and substance
reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 10.05 hereof) stating that, in the
opinion of such counsel, all such conditions precedent and covenants
have been satisfied.
SECTION 10.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of
TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate
or opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he
or she 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 satisfied; and
(d) a statement as to whether or not, in the opinion of
such Person, such condition or covenant has been satisfied.
SECTION 10.06 RULES BY TRUSTEE AND AGENTS
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules
and set reasonable requirements for its functions.
SECTION 10.07 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No past, present or future director, officer, employee,
incorporator or stockholder of SH Group, as such, shall have any liability for
any obligations of SH Group under the Debentures, this Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Debenture waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Debentures.
SECTION 10.08 GOVERNING LAW
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE DEBENTURES WITHOUT REGARD TO THE CONFLICTS
OF LAWS PROVISIONS THEREOF TO THE EXTENT THAT THE APPLICATION OF THE LAW OF
ANOTHER JURISDICTION WOULD BE REQUIRED
64
<PAGE> 70
THEREBY. IF ANY ACTION OR PROCEEDING SHALL BE BROUGHT BY A HOLDER OF ANY OF
THE DEBENTURES OR BY THE TRUSTEE IN ORDER TO ENFORCE ANY RIGHT OR REMEDY UNDER
THIS INDENTURE OR UNDER THE NOTES, THE ISSUER HEREBY CONSENTS AND WILL SUBMIT
TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN THE CITY
OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE CITY OF NEW YORK. THE ISSUER
HEREBY AGREES TO ACCEPT SERVICE OF PROCESS BY NOTICE GIVEN TO IT PURSUANT TO
THE PROVISIONS OF SECTION 10.02.
SECTION 10.09 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of SH Group or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 10.10 SUCCESSORS
All agreements of SH Group in this Indenture and the
Debentures shall bind its successors. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 10.11 SEVERABILITY
In case any provision in this Indenture or in the Debentures
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 10.12 COUNTERPART ORIGINALS
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 10.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
65
<PAGE> 71
IN WITNESS WHEREOF, the parties have executed this Indenture
as of the dates set forth opposite each signature block below.
<TABLE>
<S> <C>
Dated as of May 26, 1998 STEEL HEDDLE GROUP, INC.
By: /s/ Robert J. Klein
------------------------------------
Robert J. Klein
President
Attest:
Name:
Title:
Dated as of May 26, 1998 UNITED STATES TRUST COMPANY OF NEW YORK
By: /s/ Christine C. Collins
---------------------------------------
Name: Christine C. Collins
Title: Assistant Vice President
</TABLE>
66
<PAGE> 72
Exhibit A
(Face of Debenture)
13.750% [Series A] [Series B] Senior Discount Debentures due 2009
No. $__________
STEEL HEDDLE GROUP, INC.
promises to pay to Cede & Co. or registered assigns, the principal sum of
______________________________________________ Dollars on June 1, 2009
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
Dated: ____________
STEEL HEDDLE GROUP, INC.
By:
--------------------------
Name:
Title:
By:
--------------------------
Name:
Title:
(SEAL)
This is one of the 13.750% Senior Discount Debentures
referred to in the within-mentioned Indenture:
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
By:
------------------------------
A-1
<PAGE> 73
(Back of Debenture)
13.750% [Series A] [Series B] Senior Discount Debentures due 2009
[THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A NOMINEE OR A DEPOSITORY OR A SUCCESSOR DEPOSITORY. UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR DEBENTURES IN DEFINITIVE FORM, THIS DEBENTURE
MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.](1)
THIS DEBENTURE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT
SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST
HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (As defined in Rule 144A under the Securities
Act) (A "QIB") OR (B) IT HAS ACQUIRED THIS DEBENTURE
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO SH GROUP OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A
- ----------------------
(1) This legend is to be included in any global security.
A-2
<PAGE> 74
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES
ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (E) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO SH GROUP) OR (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND,
IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR
ANY OTHER APPLICABLE JURISDICTION AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS DEBENTURE OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS
A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS DEBENTURE IN VIOLATION OF THE FOREGOING.
FOR PURPOSES OF SECTION 1272, 1273 AND 1275 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING
ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL
AMOUNT OF THIS SECURITY, THE ISSUE PRICE IS $513.37, THE
AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $486.63, THE ISSUE DATE
IS MAY 26, 1998 AND THE YIELD TO MATURITY IS 13.750% PER
ANNUM.
Capitalized terms used herein shall have the meanings assigned
to them in this Indenture referred to below unless otherwise indicated.
1. Interest. Steel Heddle Group, Inc., a Delaware
corporation ("SH Group"), promises to pay interest on the principal amount of
this Debenture at 13.750% per annum from June 1, 2003 until maturity and shall
pay the Liquidated Damages, if any, payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. SH Group will pay interest
and Liquidated Damages semi-annually on June 1 and December 1 of each year, or
if any such day is not a Business Day, on the next succeeding Business Day
(each an "Interest Payment Date"). Interest on the Debentures will accrue from
the most recent date to which interest has been paid or, if no interest has
been paid, from the date of issuance; provided that if there is no existing
Default in the payment of interest, and if this Debenture is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding
A-3
<PAGE> 75
Interest Payment Date; provided, further, that the first Interest Payment Date
shall be December 1, 2003. SH Group shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
principal and premium, if any, from time to time on demand at a rate that is 1%
per annum in excess of the rate then in effect; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest and Liquidated Damages (without regard to
any applicable grace periods) from time to time on demand at the same rate to
the extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment. SH Group will pay interest on the
Debentures (except defaulted interest) and Liquidated Damages, if any, to the
Persons who are registered Holders of Debentures at the close of business on
the May 15 or December 15 next preceding the Interest Payment Date, even if
such Debentures are cancelled after such record date and on or before such
Interest Payment Date, except as provided in Section 2.12 of the Indenture with
respect to defaulted interest. The Debentures will be payable as to principal,
premium, interest and Liquidated Damages, if any, at the office or agency of SH
Group maintained for such purpose within or without the City and State of New
York, or, at the option of SH Group, payment of interest and Liquidated
Damages, if any, may be made by check mailed to the Holders at their addresses
set forth in the register of Holders, and provided that payment by wire
transfer of immediately available funds will be required with respect to
principal of, interest, premium and Liquidated Damages, if any, on all Global
Notes and all other Debentures the Holders of which shall have provided wire
transfer instructions to SH Group or the Paying Agent. Such payment shall be
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, United States
Trust Company of New York, the Trustee under the Indenture, will act as Paying
Agent and Registrar. SH Group may change any Paying Agent or Registrar without
notice to any Holder. SH Group or any of its Subsidiaries may act in any such
capacity.
4. Indenture. SH Group issued the Debentures under an
Indenture dated as of May 26, 1998 ("Indenture") between SH Group and the
Trustee. The terms of the Debentures include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Debentures are
subject to all such terms, and Holders are referred to the Indenture and such
Act for a statement of such terms. The Debentures are unsecured obligations of
SH Group limited to $29,250,000 in aggregate principal amount at maturity.
5. Optional Redemption.
(a) Except as set forth in clause (b) of this
Section of this Debenture, SH Group shall not have the option to redeem the
Debentures prior to June 1, 2003. Thereafter, SH Group shall have the option
to redeem the Notes, in whole or in part, at the redemption prices (expressed
as percentages of Accreted Value set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon, to the applicable redemption
date, if redeemed during the twelve-month period beginning on June 1 of the
years indicated below:
A-4
<PAGE> 76
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . . . . 106.875%
2004 . . . . . . . . . . . . . . . . . . . . . . 104.583%
2005 . . . . . . . . . . . . . . . . . . . . . . . 102.292%
2006 and thereafter . . . . . . . . . . . . . . . 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of
this Section of the Debentures, at any time prior to June 1, 2001, SH Group may
(but shall not have the obligation to) redeem up to 35% of the original
aggregate principal amount at maturity of the Debentures at a redemption price
equal to 113.750% of Accreted Value thereof plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the redemption date, with the Net
Cash Proceeds received by SH Group from one or more of Equity Offerings;
provided that at least 65% of the aggregate principal amount at maturity of
Debentures originally issued remain outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption
shall occur within 60 days of the date of the closing of such Equity Offering.
(c) Notice of redemption will be mailed by first
class mail at least 30 days but not more than 60 days before the redemption
date to each Holder of Debentures whose Debentures are to be redeemed at its
registered address. If any Debenture is to be redeemed in part only, the
notice of redemption that relates to such Debenture shall state the portion of
the principal amount thereof to be redeemed. A new Debenture in principal
amount equal to the unredeemed portion thereof will be issued in the name of
the Holder thereof upon cancellation of the original Debenture. Debentures in
denominations larger than $1,000 may be redeemed in part but only in integral
multiples of $1,000, unless all of the Debentures held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on
Debentures or portions thereof called for redemption unless SH Group defaults
in such payments due on the redemption date.
6. Mandatory Redemption.
SH Group shall not be required to make mandatory redemption
payments with respect to the Debentures.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control,
each Holder of Debentures will have the right to require SH Group to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Debentures pursuant to the offer described below (the "Change of
Control Offer") at an offer price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase or, in the case of repurchase
of Debentures prior to June 1, 2003 at a purchase price equal to 101% of the
Accreted Value thereof as of the date of repurchase plus Liquidated Damages, if
any thereon to the date of purchase (the "Change of Control Payment") on a date
(the "Change of Control Payment Date") no later than 60 Business Days after the
occurrence of the Change of Control. Within 35 days following any Change of
Control, SH Group will mail a notice to each Holder
A-5
<PAGE> 77
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Debentures pursuant to the procedures
required by the Indenture and described in such notice, which offer shall
remain open for at least 20 Business Days following its commencement, but in
any event no longer than 30 Business Days. SH Group will comply with the
requirements of 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 connection with the repurchase of the Debentures as a result of a
Change of Control. To the extent that the provisions of any such securities
laws or regulations conflict with the provisions of this paragraph, compliance
by SH Group with such laws and regulations shall not in and of itself cause a
breach of its obligations under such covenant.
On the Change of Control Payment Date, SH Group will, to the
extent lawful, (1) accept for payment all Debentures or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of all
Debentures or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Debentures so accepted together with an Officers'
Certificate stating the aggregate principal amount of Debentures or portions
thereof being purchased by SH Group. The Paying Agent will promptly mail to
each Holder of Debentures so tendered the Change of Control Payment for such
Debentures, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Debenture equal in principal
amount to any unpurchased portion of the Debentures surrendered, if any;
provided that each such new Debenture will be in a principal amount of $1,000
or an integral multiple thereof. Prior to complying with the provisions of
this covenant, but in any event within 30 days following a Change of Control,
SH Group will either repay all outstanding Indebtedness of its Subsidiaries
(including SH Group) or obtain the requisite consents, if any, under such
Indebtedness (including Indebtedness under the Credit Agreement and the Senior
Subordinated Notes) to permit the repurchase of Debentures required by this
covenant. SH Group will not be required to purchase any Debentures until it
has complied with the preceding sentence, but SH Group's failure to make a
Change of Control Offer when required or to purchase tendered Debentures when
tendered shall constitute an Event of Default. SH Group will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
(b) SH Group will not, and will not permit any of
its Subsidiaries to, engage in an Asset Sale in excess of $1,000,000 unless (i)
SH Group (or the Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value of the assets
or Equity Interest sold or otherwise disposed of and, in the case of a lease of
assets, a lease providing for rent and other conditions which are no less
favorable to SH Group (or the Subsidiary, as the case may be) in any material
respect than the then prevailing market conditions (evidenced in each case by a
resolution of the Board of Directors of such entity set forth in an Officers'
Certificate delivered to the Trustee) of the assets or Equity Interests sold or
otherwise disposed of, and (ii) at least 75% (100% in the case of lease
payments) of the consideration therefor received by SH Group or such Subsidiary
is in the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on SH Group's or such Subsidiary's most recent balance
sheet or in the notes thereto, but excluding contingent liabilities and trade
payables) of SH Group or any Subsidiary (other than liabilities that are by
their terms subordinated to the Debentures) that are assumed by the transferee
of any such assets and from which SH Group or such Subsidiary are released and
(y) any notes or other obligations received by SH Group or any such Subsidiary
from such transferee that are
A-6
<PAGE> 78
promptly, but in no event more than 30 days after receipt, converted by SH
Group or such Subsidiary into cash shall (to the extent of the cash received)
be deemed to be cash for purposes of this provision and the receipt of such
cash shall be treated as cash received from the Asset Sale for which such notes
or obligations were received.
SH Group or any of its Subsidiaries may apply the Net Proceeds
from each Asset Sale, at its option within 395 days after the consummation of
such Asset Sale, (a) to permanently reduce any Indebtedness of any Subsidiary
of SH Group (and in the case of any senior revolving indebtedness to
correspondingly permanently reduce commitments with respect thereto), (b) to
make capital expenditures, to commit to the acquisition of another business or
the acquisition of other long- term assets, in each case, in the same or a
Related Business, or (c) to reimburse SH Group or its Subsidiaries for
expenditures made, and costs incurred, to repair, rebuild, replace or restore
property subject to loss, damage or taking to the extent that the Net Proceeds
consist of insurance proceeds received on account of such loss, damage or
taking. Pending the final application of any such Net Proceeds, SH Group may
temporarily reduce Senior Revolving Debt or otherwise invest such Net Proceeds
in any manner that is not prohibited by the Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5,000,000, SH Group will be
required to make an offer to all Holders of Debentures (an "Asset Sale Offer")
and to holders of other Indebtedness of SH Group outstanding ranking on a
parity with the Debentures with similar provisions requiring SH Group to make a
similar offer with proceeds from asset sales, pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Debentures and such other
Indebtedness then outstanding, to purchase the maximum principal amount (or
accreted value, as applicable) of Debentures and such other Indebtedness, if
any, that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount thereof plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase or, in the case of repurchases of Debentures price to June 1, 2003, at
a purchase price equal to 100% of the Accreted Value thereof plus Liquidated
Damages, if any, as of the date of repurchase, in accordance with the
procedures set forth in the Indenture. If the aggregate principal amount at
maturity, or Accreted Value, as the case may be (or accreted value, as
applicable) of Debentures and such Indebtedness surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Debentures
and such Indebtedness to be purchased on a pro rata basis. Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset at zero.
8. Denominations, Transfer, Exchange. The Debentures are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Debentures may be registered and
Debentures may be exchanged as provided in the Indenture. The Registrar and
the Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and SH Group may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. SH Group
need not exchange or register the transfer of any Debenture or portion of a
Debenture selected for redemption, except for the unredeemed portion of any
Debenture being redeemed in part. Also, it need not exchange or register the
transfer of any Debentures for a period of 15 days before a selection of
Debentures to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
A-7
<PAGE> 79
9. Persons Deemed Owners. The registered Holder of a
Debenture may be treated as its owner for all purposes.
10. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture or the Debentures may be amended or supplemented with
the consent of the Holders of a majority in aggregate principal amount of the
then outstanding Debentures, and any existing default or compliance with any
provision of the Indenture or the Debentures may be waived with the consent of
the Holders of a majority in aggregate principal amount of the then outstanding
Debentures. Without the consent of any Holder of a Note, the Indenture or the
Debentures may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Debentures in addition to or in
place of certificated Debentures, to provide for the assumption of SH Group's
obligations to Holders of the Debentures in case of a merger or consolidation,
to make any change that would provide any additional rights or benefits to the
Holders of the Debentures or that does not adversely affect the legal rights
under the Indenture of any such Holder, to comply with the requirements of the
SEC in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act or to evidence and provide for acceptance of, the
appointment of a successor Trustee.
11. Defaults and Remedies. Events of Default include: (i)
default for 30 days in the payment when due of interest on or Liquidated
Damages, if any, with respect to the Debentures; (ii) default in payment when
due of principal of or premium, if any, on the Debentures when the same becomes
due and payable at maturity, upon redemption (including in connection with an
offer to purchase) or otherwise; (iii) failure by SH Group to comply with
Sections 4.07 and 4.08 of the Indenture, which failure remains uncured for 30
days; (iv) failure by SH Group for 60 days after notice to SH Group by the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Debentures then outstanding to comply with certain other agreements in the
Indenture or the Debentures; (v) default under certain other agreements
relating to Indebtedness of SH Group which default results in the acceleration
of such Indebtedness prior to its express maturity; (vi) certain nonappealable
final judgments for the payment of money that remain undischarged for a period
of 60 days; (vii) certain events of bankruptcy or insolvency with respect to SH
Group or any of its Significant Subsidiaries. If any Event of Default occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of the then outstanding Debentures may declare all the Notes
to be due and payable immediately by notice in writing to SH Group (and to the
Trustee if given by the Holders). Notwithstanding the foregoing, in the case
of an Event of Default arising from certain events of bankruptcy or insolvency,
all outstanding Debentures will become due and payable without further action
or notice. Upon any acceleration of maturity of the Debentures, all principal
of and accrued interest and Liquidated Damages, if any, on (if subsequent to
June 1, 2003) or Accreted Value of and Liquidated Damages, if any, on (if
subsequent to June 1, 2003) the Debentures shall be due and payable
immediately. Holders may not enforce the Indenture or the Debentures except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in aggregate principal amount of the then outstanding Debentures may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Debentures notice of any continuing Default or
Event
A-8
<PAGE> 80
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the
Debentures then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Debentures waive any existing Default or Event of Default
and its consequences under the Indenture except a continuing Default or Event
of Default in the payment of interest on, or the principal of, the Debentures.
SH Group is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and SH Group is required upon becoming aware of
any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
12. Trustee Dealings with Company. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for SH Group or its Affiliates, and may otherwise deal with SH
Group or its Affiliates, as if it were not the Trustee.
13. No Recourse Against Others. A director, officer,
employee, incorporator or stockholder, of SH Group, as such, shall not have any
liability for any obligations of SH Group under the Debentures or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Debenture waives and releases all
such liability. The waiver and release are part of the consideration for the
issuance of the Debentures.
14. Authentication. This Debenture shall not be valid until
7authenticated by the manual signature of the Trustee or an authenticating
agent.
15. 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).
16. Additional Rights of Holders of Transfer Restricted
Notes. In addition to the rights provided to Holders of Debentures under the
Indenture, Holders of Transfer Restricted Notes shall have all the rights set
forth in the Registration Rights Agreement dated as of the date of the
Indenture, between SH Group and the parties named on the signature pages
thereof (the "Registration Rights Agreement").
17. CUSIP Numbers. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, SH Group has
caused CUSIP numbers to be printed on the Debentures and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Debentures or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
SH Group will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Steel Heddle Group, Inc.
1801 Rutherford Road
Greenville, South Carolina 29607
Telecopier No.: (864) 268-3823
Attention: Chief Financial Officer
A-9
<PAGE> 81
SCHEDULE OF EXCHANGES OF DEFINITIVE DEBENTURE
The following exchanges of a part of this Global Note for
Definitive Debentures have been made:
<TABLE>
<CAPTION>
Principal Amount of
this Signature of
Amount of decrease in Amount of increase in Global Note following authorized officer of
Principal Amount of Principal Amount of such decrease Trustee or Debenture
Date of Exchange this Global Note this Global Note (or increase) Custodian
---------------- -------------------- --------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
A-10
<PAGE> 82
Assignment Form
To assign this Debenture, fill in the form below: (I) or (we) assign
and transfer this Debenture to
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
to transfer this Debenture on the books of SH Group. The agent may substitute
another to act for him.
Date:
<TABLE>
<S> <C>
Your Signature:
-----------------------------------------------------------------
(Sign exactly as your name appears on the face of this Debenture)
</TABLE>
Signature Guarantee.
- --------------------
* Check applicable box.
B-1
<PAGE> 83
Option of Holder to Elect Purchase
If you want to elect to have this Debenture purchased by SH
Group pursuant to Section 4.07 or 4.08 of the Indenture, check the box below:
[ ] Section 4.07 [ ] Section 4.08
If you want to elect to have only part of the Debenture
purchased by SH Group pursuant to Section 4.07 or Section 4.08 of the
Indenture, state the amount you elect to have purchased: $___________
<TABLE>
<S> <C>
Date: Your Signature:
----------------- -----------------------------------------------------
(Sign exactly as your name appears on the Debenture)
</TABLE>
<TABLE>
<S> <C>
Tax Identification No.:
----------------------------------------
</TABLE>
Signature Guarantee.
- --------------------
* Check applicable box.
B-2
<PAGE> 84
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
DEBENTURES
Re: 13.750% Senior Discount Debentures due 2009
This Certificate relates to $______________ principal amount
of Debentures held in * ________ book-entry or *_______ definitive form
by ________________ (the "Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver in
exchange for its beneficial interest in the Global Note held by the
Depository a Debenture or Debentures in definitive, registered form of
authorized denominations in an aggregate principal amount equal to its
beneficial interest in such Global Note (or the portion thereof
indicated above); or
[ ] has requested the Trustee by written order to exchange or
register the transfer of a Debenture or Debentures.
[ ] In connection with such request and in respect of each such
Debenture, the Transferor does hereby certify that Transferor is
familiar with the Indenture relating to the above captioned Debentures
and as provided in Section 2.06 of such Indenture, the transfer of this
Debenture does not require registration under the Securities Act (as
defined below) because:*
[ ] Such Debenture is being acquired for the Transferor's own
account, without transfer (in satisfaction of Section 2.06(a)(ii)(A)
or Section 2.06(d)(i)(A) of the Indenture).
[ ] Such Debenture is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act
of 1933, as amended (the "Securities Act")) in reliance on Rule 144A
(in satisfaction of Section 2.06(a)(ii)(B), Section 2.06(b)(i) or
Section 2.06(d)(i)(B) of the Indenture) or pursuant to an exemption
from registration in accordance with Rule 904 under the Securities Act
(in satisfaction of Section 2.06(a)(ii)(B) or Section 2.06(d)(i)(B)
of the Indenture.)
[ ] Such Debenture is being transferred in accordance with Rule
144 under the Securities Act, or pursuant to an effective registration
statement under the Securities Act (in satisfaction of Section
2.06(a)(ii)(B) or Section 2.06(d)(i)(B) of the Indenture).
- --------------------
* Check applicable box.
B-3
<PAGE> 85
[ ] Such Debenture is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the
Securities Act, other than Rule 144A, 144 or Rule 904 under the
Securities Act. An Opinion of Counsel to the effect that such
transfer does not require registration under the Securities Act
accompanies this Certificate (in satisfaction of Section 2.06(a)(ii)(C)
or Section 2.06(d)(i)(C) of the Indenture).
[INSERT NAME OF TRANSFEROR]
By:
-----------------------------
Date:
---------------------------
- ---------------------
* Check applicable box.
B-4
<PAGE> 1
Exhibit 4.2
STEEL HEDDLE GROUP, INC.
as Issuer
$29,250,000
13 3/4% Senior Discount Debentures due 2009
Purchase Agreement
May 21, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE> 2
STEEL HEDDLE GROUP, INC.
$29,250,000
13 3/4% Senior Discount Debentures due 2009
Purchase Agreement
May 21, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
Dear Sirs:
Steel Heddle Group, Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell to Donaldson, Lufkin & Jenrette Securities
Corporation (the "INITIAL PURCHASER") an aggregate of $29,250,000 in principal
amount of its 13 3/4% Series A Senior Discount Debentures due 2009 (the "SERIES
A DEBENTURES), subject to the terms and conditions set forth herein. The Series
A Debentures are to be issued pursuant to the provisions of an indenture (the
"INDENTURE"), to be dated as of the Closing Date (as defined below), between the
Company and U.S. Trust Company of New York as trustee (the "TRUSTEE"). The
Series A Debentures and the Series B Debentures (as defined below) issuable in
exchange therefore are collectively referred to herein as the "DEBENTURES."
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Indenture, except where noted otherwise.
The Debentures are being issued and sold in connection with the purchase
by the Company pursuant to a Stock Purchase Agreement dated May 1, 1998 (the
"STOCK PURCHASE AGREEMENT"), from Butler Capital Corporation and certain other
stockholders of all of the issued and outstanding shares of capital stock (the
"ACQUISITION") of SH Holding Corp., a Pennsylvania corporation ("OLD HOLDINGS")
and the indirect parent of Steel Heddle Mfg. Co., a Pennsylvania corporation
("STEEL HEDDLE"). Immediately following consummation of the Acquisition, (i) SH
Intermediate Corp., a South Carolina corporation and Old Holdings' direct
subsidiary ("INTERMEDIATE"), will be merged with and into Steel Heddle,
Intermediate's direct subsidiary, with Steel Heddle being the surviving
corporation ("MERGER I"), (ii) Old Holdings will be merged with and into Steel
Heddle, with Steel Heddle being the Surviving Corporation ("MERGER II") and
(iii) SH-AIP Acquisition Corp., a Delaware Corporation and wholly owned
subsidiary of the Company ("ACQUISITION CORP."),
-1-
<PAGE> 3
will be merged with and into Steel Heddle, with Steel Heddle being the surviving
corporation ("MERGER III" and, together with Merger I and Merger II,
collectively, the "MERGERS").
In order to finance the Acquisition and substantially simultaneously
therewith, (i) AIP and certain members of management will contribute $25 million
in exchange for common equity of the Company, including management's investment
of $2.0 million of securities of Old Holdings as part of the Acquisition (the
"COMMON EQUITY CONTRIBUTION"), (ii) the Company will contribute the proceeds of
$15 million from the issuance and sale of the Series A Debentures, (iii) Steel
Heddle will enter into syndicated senior secured loan facilities providing for
term loan borrowings in the aggregate principal amount of $30 million and
revolving loan borrowings of up to $20 million (the "NEW CREDIT AGREEMENT") and
will borrow $30 million in term loans and approximately $3.6 million of
revolving loans, (iv) Steel Heddle will issue and sell (the "STEEL HEDDLE NOTE
OFFERING") $100 million aggregate principle amount of 10 5/8% Senior
Subordinated Notes due 2009 (the "STEEL HEDDLE NOTES") and (v) Steel Heddle will
(a) loan to the Company approximately $63 million pursuant to an intercompany
note to pay part of the purchase price of the Acquisition and (b) use the
remaining net proceeds from the Steel Heddle Notes Offering together with the
proceeds of the borrowings under the New Credit Agreement to repay certain
outstanding indebtedness of Steel Heddle and related transaction expenses.
As used in this Agreement, (I) the term "ACQUISITION TRANSACTIONS" shall
mean, collectively, the Acquisition, the Mergers and all of the transactions
described in the immediately foregoing paragraph; (II) the term "ACQUISITION
DOCUMENTS" shall mean, collectively, the Stock Purchase Agreement and all
related acquisition agreements and documentation (including without limitation
all documentation relating to or providing for the Mergers), (III) the term
"BANK AGREEMENTS" shall mean, collectively, the New Credit Agreement and all
related agreements creating security interests in the assets of Steel Heddle and
the Company for the benefit of the holders of indebtedness arising under the New
Credit Agreement, and (IV) the term "TRANSACTION DOCUMENTS" shall mean,
collectively, the Acquisition Documents, the Bank Agreements, this Agreement,
the Debentures and the Indenture.
1. OFFERING MEMORANDUM. The Series A Debentures will be offered and
sold to the Initial Purchaser pursuant to one or more exemptions from the
registration requirements under the Securities Act of 1933, as amended (the
"ACT"). The Company has prepared a preliminary offering memorandum, dated May 7,
1998 (the "PRELIMINARY OFFERING MEMORANDUM") and a final offering memorandum,
dated May 21, 1998 (the "OFFERING MEMORANDUM"), relating to the Series A
Debentures.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Series A Debentures (and all
securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
-2-
<PAGE> 4
"THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE.
BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (i) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE ACT)(a "QIB") OR (ii) IT HAS ACQUIRED
THIS DEBENTURE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION
S UNDER THE ACT,
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS DEBENTURE
EXCEPT (i) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (ii) TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (iii) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE ACT, (iv) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE ACT, (v) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT
(AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (vi)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION, AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS DEBENTURE OR
AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS DEBENTURE IN VIOLATION OF THE FOREGOING."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the
-3-
<PAGE> 5
terms and conditions contained herein, the Company agrees to issue and sell to
the Initial Purchaser, and the Initial Purchaser agrees, to purchase from the
Company, an aggregate principal amount of $29,250,000 of Series A Debentures at
a purchase price equal to 49.797% of the principal amount thereof (the "PURCHASE
PRICE").
3. TERMS OF OFFERING. The Initial Purchaser has advised the Company
that the Initial Purchaser will make offers (the "EXEMPT RESALES") of the Series
A Debentures purchased hereunder on the terms set forth in the Offering
Memorandum, as amended or supplemented, solely to (i) persons whom the Initial
Purchaser reasonably believes to be "qualified institutional buyers" as defined
in Rule 144A under the Act ("QIBS") and (ii) to persons permitted to purchase
the Debentures in offshore transactions in reliance upon Regulation S under the
Act (each, a "REGULATION S PURCHASERS") (such persons specified in clauses (i)
and (ii) being referred to herein as the "ELIGIBLE PURCHASER"). The Initial
Purchaser will offer the Series A Debentures to Eligible Purchasers initially at
a price equal to 51.337% of the principal amount thereof. Such price may be
changed at any time without notice.
Holders (including subsequent transferees) of the Series A Debentures
will have the registration rights set forth in the registration rights agreement
(the "REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date, in
substantially the form of Exhibit A hereto, for so long as such Series A
Debentures constitute "TRANSFER RESTRICTED SECURITIES" (as defined in the
Registration Rights Agreement). Pursuant to the Registration Rights Agreement,
the Company will agree to file with the Securities and Exchange Commission (the
"COMMISSION") under the circumstances set forth therein, (i) a registration
statement under the Act (the EXCHANGE OFFER REGISTRATION STATEMENT") relating to
the Company's 13 3/4% Series B Senior Discount Debentures (the "SERIES B
DEBENTURES"), to be offered in exchange for the Series A Debentures (such offer
to exchange being referred to as the "EXCHANGE OFFER") and (ii) a shelf
registration statement pursuant to Rule 415 under the Act (the "SHELF
REGISTRATION STATEMENT" and, together with the Exchange Offer Registration
Statement, the "REGISTRATION STATEMENTS") relating to the resale by certain
holders of the Series A Debentures and to use its best efforts to cause such
Registration Statements to be declared and remain effective and usable for the
periods specified in the Registration Rights Agreement and to consummate the
Exchange Offer. This Agreement, the Indenture, the Debentures, and the
Registration Rights Agreement are hereinafter sometimes referred to collectively
as the "OPERATIVE DOCUMENTS."
-4-
<PAGE> 6
4. DELIVERY AND PAYMENT.
(a) Delivery of, and payment of the Purchase Price for, the
Series A Debentures shall be made at the offices of Kirkland & Ellis, New York,
New York, or such other location as may be mutually acceptable. Such delivery
and payment shall be made at 9:00 a.m. New York City time, on May 26, 1998 or at
such other time on the same date or such other date as shall be agreed upon by
the Initial Purchaser and the Company in writing. The time and date of such
delivery and the payment for the Debentures are herein called the "CLOSING
DATE."
(b) One or more of the Debentures in definitive global form,
registered in the name of Cede & Co., as nominee of the Depository Trust Company
("DTC"), having an aggregate principal amount corresponding to the aggregate
principal amount of the Debentures (collectively, the "GLOBAL DEBENTURE"), shall
be delivered by the Company to the Initial Purchaser (or as the Initial
Purchaser directs) in each case with any transfer taxes thereon duly paid by the
Company against payment by the Initial Purchaser of the Purchase Price thereof
by wire transfer in same day funds to the order of the Company. The Global
Debenture shall be made available to the Initial Purchaser for inspection not
later than 9:30 a.m., New York City time, on the business day immediately
preceding the Closing Date.
5. AGREEMENTS OF ACQUISITION CORP. The Company hereby agrees with
the Initial Purchaser as follows:
(a) To advise the Initial Purchaser promptly and, if
requested by the Initial Purchaser, confirm such advice in writing, (i) of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Series A Debentures for
offering or sale in any jurisdiction designated by the Initial Purchaser
pursuant to Section 5(e) hereof, or the initiation of any proceeding by any
state securities commission or any other federal or state regulatory authority
for such purpose and (ii) of the happening of any event during the period
referred to in Section 5(c) below that makes any statement of a material fact
made in the Preliminary Offering Memorandum or the Offering Memorandum untrue or
that requires any additions to or changes in the Preliminary Offering Memorandum
or the Offering Memorandum in order to make the statements therein not
misleading. The Company shall use its best efforts to prevent the issuance of
any stop order or order suspending the qualification or exemption of any Series
A Debentures under any state securities or Blue Sky laws and, if at any time any
state securities commission or other federal or state regulatory authority shall
issue an order suspending the qualification or exemption of any Series A
Debentures under any state securities or Blue Sky laws, the Company shall use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
-5-
<PAGE> 7
(b) To furnish the Initial Purchaser and those persons
identified by the Initial Purchaser to the Company as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
or supplements thereto, as the Initial Purchaser may reasonably request for the
time period specified in Section 5(c). Subject to the Initial Purchaser's
compliance with its representations and warranties and agreements set forth in
Section 7 hereof, the Company consents to the use of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments and supplements
thereto required pursuant hereto, by the Initial Purchaser in connection with
Exempt Resales.
(c) During such period as in the opinion of counsel for the
Initial Purchaser an Offering Memorandum is required by law to be delivered in
connection with Exempt Resales by the Initial Purchaser and in connection with
market-making activities of the Initial Purchaser for so long as any Series A
Debentures are outstanding, (i) not to make any amendment or supplement to the
Offering Memorandum of which the Initial Purchaser shall not previously have
been advised or to which the Initial Purchaser shall reasonably object after
being so advised and (ii) to prepare promptly upon the Initial Purchaser's
reasonable request, any amendment or supplement to the Offering Memorandum which
may be necessary or advisable in connection with such Exempt Resales or such
market-making activities.
(d) If, during the period referred to in Section 5(c) above,
any event shall occur or condition shall exist as a result of which, in the
opinion of counsel to the Initial Purchaser, it becomes necessary to amend or
supplement the Offering Memorandum in order to make the statements therein, in
the light of the circumstances when such Offering Memorandum is delivered to an
Eligible Purchaser, not misleading, or if, in the opinion of counsel to the
Initial Purchaser, it is necessary to amend or supplement the Offering
Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of the
circumstances when it is so delivered, be misleading, or so that such Offering
Memorandum will comply with applicable law, and to furnish to the Initial
Purchaser and such other persons as the Initial Purchaser may designate such
number of copies thereof as the Initial Purchaser may reasonably request.
(e) Prior to the sale of all Series A Debentures pursuant to
Exempt Resales as contemplated hereby, to cooperate with the Initial Purchaser
and counsel to the Initial Purchaser in connection with the registration or
qualification of the Series A Debentures for offer and sale to the Initial
Purchaser and pursuant to Exempt Resales under the securities or Blue Sky laws
of such jurisdictions as the Initial Purchaser may request and to continue such
registration or qualification in effect so long as required for Exempt Resales
and to file such consents to service of process or other documents as may be
necessary in order to effect such registration or qualification; provided,
however, that Company shall not be required in connection therewith to qualify
as a foreign corporation in any jurisdiction in which it is not now so qualified
or to take any action that would subject it to general consent
-6-
<PAGE> 8
to service of process or taxation other than as to matters and transactions
relating to the Preliminary Offering Memorandum, the Offering Memorandum or
Exempt Resales, in any jurisdiction in which it is not now so subject.
(f) So long as the Debentures are outstanding, (i) to mail
and make generally available as soon as practicable after the end of each fiscal
year to the record holders of the Debentures a financial report of the Company
and its subsidiaries on a consolidated basis (and a similar financial report of
all unconsolidated subsidiaries, if any), all such financial reports to include
a consolidated balance sheet, a consolidated statement of operations, a
consolidated statement of cash flows and a consolidated statement of
shareholders' equity as of the end of and for such fiscal year, together with
comparable information as of the end of and for the preceding year, certified by
the Company's independent public accountants and (ii) to mail and make generally
available as soon as practicable after the end of each quarterly period (except
for the last quarterly period of each fiscal year) to such holders, a
consolidated balance sheet, a consolidated statement of operations and a
consolidated statement of cash flows (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such period, and
for the period from the beginning of such year to the close of such quarterly
period, together with comparable information for the corresponding periods of
the preceding year.
(g) So long as the Debentures are outstanding, to furnish to
the Initial Purchaser as soon as available copies of all reports or other
communications furnished by the Company to its security holders or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and/or its subsidiaries as the Initial
Purchaser may reasonably request.
(h) So long as any of the Series A Debentures remain
outstanding and during any period in which the Company is not subject to Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), to make available to any holder of Series A Debentures in connection with
any sale thereof and any prospective purchaser of such Series A Debentures from
such holder, the information ("RULE 144A INFORMATION") required by Rule
144A(d)(4) under the Act.
(i) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of the obligations of the Company
under this Agreement, including: (i) the fees, disbursements and expenses of
counsel to the Company and accountants of the Company in connection with the
sale and delivery of the Series A Debentures to the Initial Purchaser and
pursuant to Exempt Resales, and all other fees and expenses in connection with
the preparation, printing, filing and distribution of the Preliminary Offering
Memorandum, the Offering Memorandum and all amendments and supplements to any of
the foregoing (including financial statements), including the mailing and
delivering of copies thereof to the Initial Purchaser and persons designated by
the Initial
-7-
<PAGE> 9
Purchaser in the quantities specified herein, (ii) all fees and expenses
incurred by the Company, AIP, Acquisition Corp. or Steel Heddle in connection
with the roadshow; provided, however, that the Initial Purchaser shall pay, in
addition to their own fees and expenses incurred in connection with the
roadshow, 50% of the costs and expenses related to the services of the airplane
used for such roadshow, (iii) all costs and expenses related to the transfer and
delivery of the Series A Debentures to the Initial Purchaser and pursuant to
Exempt Resales, including any transfer or other taxes payable thereon, (iv) all
costs of printing or producing this Agreement, the other Operative Documents and
any other agreements or documents in connection with the offering, purchase,
sale or delivery of the Series A Debentures, (v) all expenses in connection with
the registration or qualification of the Series A Debentures for offer and sale
under the securities or Blue Sky laws of the several states and all costs of
printing or producing any preliminary and supplemental Blue Sky memoranda in
connection therewith (including the filing fees and fees and disbursements of
counsel for the Initial Purchaser in connection with such registration or
qualification and memoranda relating thereto), (vi) the cost of printing
certificates representing the Series A Debentures (vii) all expenses and listing
fees in connection with the application for quotation of the Series A Debentures
in the National Association of Securities Dealers, Inc. ("NASD") Automated
Quotation System - PORTAL ("PORTAL"), (viii) the fees and expenses of the
Trustee and the Trustee's counsel in connection with the Indenture and the
Debentures, (ix) the costs and charges of any transfer agent, registrar and/or
depositary (including DTC), (x) any fees charged by rating agencies for the
rating of the Debentures, (xi) all costs and expenses of the Exchange Offer and
any Registration Statement, as set forth in the Registration Rights Agreement,
and (xii) and all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section.
(j) To use its best efforts to effect the inclusion of the
Series A Debentures in PORTAL and to maintain the listing of the Series A
Debentures on PORTAL for so long as the Series A Debentures are outstanding.
(k) To obtain the approval of DTC for "book-entry" transfer
of the Debentures, and to comply with all of its agreements set forth in the
representation letters of the Company to DTC relating to the approval of the
Debentures by DTC for "book-entry" transfer.
(l) During the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell, contract to
sell or otherwise transfer or dispose of any debt securities of the Company or
any warrants, rights or options to purchase or otherwise acquire debt securities
of the Company substantially similar to the Debentures (other than (i) the
Debentures and (ii) commercial paper issued in the ordinary course of business),
without the prior written consent of the Initial Purchaser.
(m) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the
-8-
<PAGE> 10
sale of the Series A Debentures to the Initial Purchaser or pursuant to Exempt
Resales in a manner that would require the registration of any such sale of the
Series A Debentures under the Act.
(n) Not to voluntarily claim, and to actively resist any
attempts to claim, the benefit of any usury laws against the holders of any
Debentures.
(o) To cause the Exchange Offer to be made in the
appropriate form to permit Series B Debentures registered pursuant to the Act to
be offered in exchange for the Series A Debentures and to comply with all
applicable federal and state securities laws in connection with the Exchange
Offer.
(p) To comply with all of its agreements set forth in the
Registration Rights Agreement.
(q) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by it prior
to the Closing Date and to satisfy all conditions precedent to the delivery of
the Series A Debentures.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. As of
the date hereof, the Company represents and warrants to, and agrees with, the
Initial Purchaser that:
(a) Each of the parties to each of the Transaction Documents
have all requisite corporate power and authority to execute, deliver and perform
their respective obligations under each of the Transaction Documents to which it
is and will be a party; each of the Transaction Documents, and the transactions
contemplated thereby, has been and upon completion of the Acquisition
Transactions, will be duly and validly authorized, executed and delivered by
each party thereto, and each constitutes a valid and legally binding agreement
of such party enforceable against each such party in accordance with its terms
except that enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity); except as set forth in the Offering Memorandum, no consent, approval,
authorization or order of any court or governmental agency or body is required
for the performance of any of the Transaction Documents by or the consummation
by any party thereto of any of the transactions contemplated thereby, except
such as may be required and have been obtained, or upon effectiveness of the
Registration Statements, will have been obtained, under the Act, the Trust
Indenture Act or state securities or "Blue Sky" laws in connection with the
purchase and distribution of the Debentures by the Initial Purchaser; and no
party to any of the Transaction Documents is (i) in violation of its certificate
of incorporation or bylaws, (ii) in violation of any statute, judgment, decree,
order, rule or regulation applicable to any of them or any of their respective
properties or assets, which violation would have a Material Adverse Effect (as
-9-
<PAGE> 11
defined below), or (iii) in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any of the Transaction
Documents or any other contract, indenture, mortgage, deed of trust, loan
agreement, note, lease, license, franchise agreement, permit, certificate or
agreement or instrument to which any of them is a party or to which any of them
is subject, which default would have a Material Adverse Effect.
(b) The execution, delivery and performance of each of the
Transaction Documents, and the consummation of the transactions contemplated
thereby, will not violate, conflict with or constitute or result in a breach of
or a default under (or an event which, with notice or lapse of time, or both,
would constitute a breach of or a default under) any of (i) the terms or
provisions of any of the Transaction Documents or any other indenture, mortgage,
deed of trust, loan agreement, note, lease, license, franchise agreement, or
agreement or instrument to which any party to any of the Transaction Documents
is a party or to which any of their respective properties or assets are subject,
which violation, conflict, breach or default would have a Material Adverse
Effect, (ii) the certificate of incorporation or bylaws of any such party, or
(iii) (assuming compliance with all applicable state securities and "Blue Sky"
laws) any statute, judgment, decree, order, rule or regulation of any court or
governmental agency or other body applicable to any such party, or any of their
respective properties or assets, which violation, conflict, breach or default
would have a Material Adverse Effect.
(c) Immediately after the consummation of the Acquisition
Transactions, the fair value and present fair saleable value of the assets of
the Company will exceed the sum of its respective stated liabilities and
identified contingent liabilities; the Company will not be, after giving effect
to the execution, delivery and performance of the Transaction Documents, to the
extent it is a party thereto, and the consummation of the transactions
contemplated thereby, (i) left with unreasonably small capital with which to
carry on its business as it is proposed to be conducted, (ii) unable to pay its
debts (contingent or otherwise) as they mature or (iii) otherwise insolvent.
(d) The Company has delivered to the Initial Purchaser a
true and correct copy of each of the Transaction Documents that have been
executed and delivered prior to the date of this Agreement and each other
Transaction Document in the form substantially as it will be executed and
delivered on or prior to the Closing Date, together with all related agreements
and all schedules and exhibits thereto, and there have been no amendments,
alterations, modifications or waivers of any of the provisions of any of the
Transaction Documents since their date of execution or from the form in which it
has been delivered to the Initial Purchaser; there exists as of the date hereof
(after giving effect to the transactions contemplated by each of the Transaction
Documents) no event or condition which would constitute a default or an event of
default (in each case as defined in each of the Transaction Documents) under any
of the Transaction Documents which would result in a Material Adverse Effect or
materially adversely affect the ability of the parties to the
-10-
<PAGE> 12
Transaction Documents to consummate the Acquisition Transactions and the
transactions contemplated by the Transaction Documents.
(e) The Preliminary Offering Memorandum and the Offering
Memorandum do not, and any supplement or amendment to them 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, except that the
representations and warranties contained in this paragraph shall not apply to
statements in or omissions from the Preliminary Offering Memorandum or the
Offering Memorandum (or any supplement or amendment thereto) based upon
information relating to the Initial Purchaser furnished to the Company in
writing by the Initial Purchaser expressly for use therein. No stop order
preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment or supplement thereto, or any order asserting that
any of the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(f) Each of the Company and Steel Heddle and their
respective subsidiaries has been duly incorporated, is validly existing as a
corporation in good standing under the laws of its jurisdiction of incorporation
and has the corporate power and authority to carry on its business as described
in the Preliminary Offering Memorandum and the Offering Memorandum and to own,
lease and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company, Steel Heddle and their
respective subsidiaries, taken as a whole or draw into question the validity of
this Agreement or the other Operative Documents (a "MATERIAL ADVERSE EFFECT").
(g) All outstanding shares of capital stock of each of the
Company, Acquisition Corp. and Steel Heddle have been duly authorized and
validly issued and are fully paid, non-assessable and not subject to any
preemptive or similar rights. After giving effect to the Acquisition
Transactions, all of the outstanding shares of capital stock of Steel Heddle
will be owned by the Company, and all of the outstanding shares of capital stock
of the Company will be owned by AIP and management investors, in each case free
and clear of any security interest, claim, lien, pledge, encumbrance or adverse
interest of any nature (each, a "LIEN") (except as may arise pursuant to (i) the
Bank Agreements and (ii) the pledge of shares of common stock of the Company to
be purchased by Messrs. Boggs, Connor, Treglia and Wright in order to secure
payment of the purchase price of such shares), and except as set forth in the
Offering Memorandum there are no, and at the Closing Date there will not be, any
outstanding rights (including without limitation preemptive rights, warrants or
options to acquire, or instruments convertible into or exchangeable for, any
shares of capital stock or other equity interest in the Company or Steel Heddle
or any of their direct or indirect subsidiaries, or any contract, commitment,
agreement, understanding or arrangement
-11-
<PAGE> 13
of any kind relating to the issuance of any capital stock of the Company or
Steel Heddle or any such subsidiary, any such convertible or exchangeable
securities or any such rights, warrants or options.
(h) The entities listed on Schedule A hereto are the only
subsidiaries, direct or indirect, of the Company. All of the outstanding shares
of capital stock of each of the Company's subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable, and are owned by the
Company, directly or indirectly through one or more subsidiaries, free and clear
of any Lien except for Liens under the Bank Agreements.
(i) This Agreement has been duly authorized, executed and
delivered by the Company.
(j) The Indenture has been duly authorized by the Company
and, on the Closing Date, will have been validly executed and delivered by the
Company. When the Indenture has been duly executed and delivered by the Company,
and assuming the due authorization, execution and delivery of the Indenture by
the Trustee, the Indenture will be a valid and binding agreement, enforceable
against the Company in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. On the Closing Date, the Indenture will conform in all
material respects to the requirements of the Trust Indenture Act of 1939, as
amended (the "TIA" or "TRUST INDENTURE ACT"), and the rules and regulations of
the Commission applicable to an indenture which is qualified thereunder.
(k) The Series A Debentures have been duly authorized and,
on the Closing Date, will have been validly executed and delivered by the
Company. When the Series A Debentures have been issued, executed and
authenticated in accordance with the provisions of the Indenture and delivered
to and paid for by the Initial Purchaser in accordance with the terms of this
Agreement, the Series A Debentures will be entitled to the benefits of the
Indenture and will be valid and binding obligations of the Company, enforceable
in accordance with their terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors= rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability. On the
Closing Date, the Series A Debentures will conform as to legal matters to the
description thereof contained in the Offering Memorandum.
(l) On the Closing Date, the Series B Debentures will have
been duly authorized by the Company. When the Series B Debentures are issued,
executed and authenticated in accordance with the terms of the Exchange Offer
and the Indenture, the Series B Debentures will be entitled to the benefits of
the Indenture and will be the valid and
-12-
<PAGE> 14
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
(m) The Registration Rights Agreement has been duly
authorized by the Company and, on the Closing Date, will have been duly executed
and delivered by the Company. When the Registration Rights Agreement has been
duly executed and delivered, the Registration Rights Agreement will be a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability. On the
Closing Date, the Registration Rights Agreement will conform as to legal matters
to the description thereof in the Offering Memorandum.
(n) Neither the Company, Steel Heddle nor any of their
respective subsidiaries is in violation of its respective charter or by-laws or
in default in the performance of any obligation, agreement, covenant or
condition contained in any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company, Steel Heddle and their
respective subsidiaries, taken as a whole, to which the Company, Steel Heddle or
any of their respective subsidiaries is a party or by which the Company, Steel
Heddle or any of their respective subsidiaries or their respective property is
bound.
(o) The execution, delivery and performance of this
Agreement by the Company, compliance by the Company with all provisions hereof
and the consummation of the transactions contemplated hereby will not (i)
require any consent, approval, authorization or other order of, or qualification
with, any court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (ii) conflict with
or constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company, Steel Heddle or any of their respective
subsidiaries or any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company, Steel Heddle or any of
their respective subsidiaries, taken as a whole, to which the Company, Steel
Heddle or any of their respective subsidiaries is a party or by which the
Company, Steel Heddle or any of their respective subsidiaries or their
respective property is bound, (iii) violate or conflict with any applicable law
or any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over the Company, Steel Heddle,
any of their respective subsidiaries or their respective property, (iv) result
in the imposition or creation of (or the obligation to create or impose) a Lien
under, any agreement or instrument to which the Company, Steel Heddle or any of
their subsidiaries is a party or by which the Company, Steel Heddle or any of
their respective subsidiaries or their respective property is
-13-
<PAGE> 15
bound, or (v) result in the termination, suspension or revocation of any
Authorization (as defined below) of the Company, Steel Heddle or any of their
respective subsidiaries or result in any other impairment of the rights of the
holder of any such Authorization except, in each case, as would not have a
Material Adverse Effect.
(p) There are no legal or governmental proceedings pending
or threatened to which the Company, Steel Heddle or any of their respective
subsidiaries is or could be a party or to which any of their respective property
is or could be subject, which would reasonably be expected to result, singly or
in the aggregate, in a Material Adverse Effect.
(q) Neither the Company, Steel Heddle nor any of their
respective subsidiaries has violated any material foreign, federal, state or
local law or regulation relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), any material provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
(r) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(s) All material tax returns required to be filed by the
Company, Steel Heddle and any of their respective subsidiaries in any
jurisdiction have been filed, other than those filings being contested in good
faith, and all material taxes, including withholding taxes, penalties and
interest, assessments, fees and other charges due pursuant to such returns or
pursuant to any assessment received by the Company, Steel Heddle or any of their
respective subsidiaries have been paid, other than those being contested in good
faith and for which adequate reserves have been provided.
(t) The Company, Steel Heddle and their respective
subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them which is
material to the business of the Company, Steel Heddle and their respective
subsidiaries, in each case free and clear of all Liens and defects, except such
as are described in the Offering Memorandum or such as do not materially affect
the value of such property and do not interfere with the use made and proposed
to be made of such property by the Company, Steel Heddle and their respective
subsidiaries; and any real property and buildings held under lease by the
Company, Steel Heddle and their respective subsidiaries are held by them under
valid, subsisting and
-14-
<PAGE> 16
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company, Steel Heddle and their respective subsidiaries, in each case except as
described in the Offering Memorandum.
(u) The assets of the Company, Steel Heddle and their
respective subsidiaries include all of the assets and properties used by the
Company, Steel Heddle and their respective subsidiaries in, and material to, the
conduct of the businesses of the Company, Steel Heddle and their respective
subsidiaries as currently conducted, and such assets are in working condition,
except where the failure of such assets to be in working condition will not be
reasonably expected to have a Material Adverse Effect.
(v) The Company, Steel Heddle and their respective
subsidiaries own or possess, or can acquire on reasonable terms, all patents,
patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade names
("INTELLECTUAL PROPERTY") currently employed by them in connection with the
business now operated by them except where the failure to own or possess or
otherwise be able to acquire such intellectual property would not, singly or in
the aggregate, have a Material Adverse Effect; and neither the Company, Steel
Heddle nor any of their respective subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of such intellectual property which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
(w) Each of the Company, Steel Heddle and their respective
subsidiaries has such permits, licenses, consents, exemptions, franchises,
authorizations and other approvals (each, an "AUTHORIZATION") of, and has made
all filings with and notices to, all governmental or regulatory authorities and
self-regulatory organizations and all courts and other tribunals, including
without limitation, under any applicable Environmental Laws, as are necessary to
own, lease, license and operate its respective properties and to conduct its
business, except where the failure to have any such Authorization or to make any
such filing or notice would not, singly or in the aggregate, have a Material
Adverse Effect. Each such Authorization is valid and in full force and effect
and each of the Company, Steel Heddle and their respective subsidiaries is in
compliance with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having jurisdiction with
respect thereto; and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which allows or,
after notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or results or, after notice or lapse of
time or both, would result in any other impairment of the rights of the holder
of any such Authorization; and such Authorizations contain no restrictions that
are burdensome to the Company, Steel Heddle or any of their respective
subsidiaries; except where such failure to be valid and in full force and effect
or to be in
-15-
<PAGE> 17
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(x) The accountants, Ernst & Young LLP, that have certified
the financial statements and supporting schedules included in the Preliminary
Offering Memorandum and the Offering Memorandum are independent public
accountants with respect to the Company and Steel Heddle, as required by the Act
and the Exchange Act. The historical financial statements, together with related
schedules and notes, set forth in the Preliminary Offering Memorandum and the
Offering Memorandum comply as to form in all material respects with the
requirements applicable to registration statements on Form S-1 under the Act.
(y) The historical financial statements, together with
related schedules and notes forming part of the Offering Memorandum (and any
amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of Steel
Heddle and its subsidiaries on the basis stated in the Offering Memorandum at
the respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial and
statistical information and data set forth in the Offering Memorandum (and any
amendment or supplement thereto) are, in all material respects, accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of Steel Heddle.
(z) The pro forma financial statements and the related notes
thereto included in the Preliminary Offering Memorandum and the Offering
Memorandum (and in each case any amendment or supplement thereto) have been
prepared on a basis consistent with the historical financial statements and
related notes thereto of Steel Heddle and its subsidiaries except as
specifically referred to therein or in the notes thereto and give effect to
assumptions used in the preparation thereof on a reasonable basis and in good
faith and present fairly the historical and proposed transactions contemplated
by the Preliminary Offering Memorandum and the Offering Memorandum; and such pro
forma financial statements comply as to form in all material respects with the
requirements applicable to pro forma financial statements included in
registration statements on Form S-1 under the Act. The other pro forma financial
and statistical information and data included in the Offering Memorandum are, in
all material respects, accurately presented and prepared on a basis consistent
with the pro forma financial statements.
(aa) The Company, Steel Heddle and each of their respective
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance with
-16-
<PAGE> 18
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(bb) The Company, Steel Heddle and each of their respective
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary
in the businesses in which they are engaged; and neither the Company, Steel
Heddle nor any of their respective subsidiaries (i) has received notice from any
insurer or agent of such insurer that substantial capital improvements or other
material expenditures will have to be made in order to continue such insurance
or (ii) has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers at a cost that would not have a Material Adverse
Effect.
(cc) Neither the Company nor Steel Heddle is and, after
giving effect to the offering and sale of the Series A Debentures and the
application of the net proceeds thereof as described in the Offering Memorandum,
neither the Company nor Steel Heddle will be, an "investment company," as such
term is defined in the Investment Company Act of 1940, as amended.
(dd) Except for the Registration Rights Agreement (attached
hereto as Exhibit A), there are no contracts, agreements or understandings
between the Company, Steel Heddle and any person granting such person the right
to require the Company or Steel Heddle to file a registration statement under
the Act with respect to any securities of the Company or Steel Heddle or to
require the Company or Steel Heddle to include such securities with the
Debentures registered pursuant to any Registration Statement.
(ee) Neither the Company, Steel Heddle, nor any of their
respective subsidiaries nor any agent thereof acting on the behalf of them has
taken, and none of them will take, any action that might cause this Agreement,
the Bank Agreements or the issuance or sale of the Series A Debentures to
violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220),
Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the
Board of Governors of the Federal Reserve System.
(ff) No "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act (i) has imposed (or has informed the Company that it is considering
imposing) any condition (financial or otherwise) on any such Person's retaining
any rating assigned to the Company or any securities of the Company or (ii) has
indicated to the Company that it is considering (a) the downgrading, suspension,
or withdrawal of, or any review for a possible change that does not indicate the
direction of the possible change in, any rating so assigned or (b) any change in
the outlook for any rating of the Company or any securities of the Company.
-17-
<PAGE> 19
(gg) Since the respective dates as of which information is
given in the Offering Memorandum other than as set forth in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there has not occurred any material adverse change
or any development involving a prospective material adverse change in the
condition, financial or otherwise, or the earnings, business, management or
operations of the Company, Steel Heddle and their respective subsidiaries, taken
as a whole, (ii) there has not been any material adverse change or any
development involving a prospective material adverse change in the capital stock
or in the long-term debt of the Company, Steel Heddle or any of their respective
subsidiaries and (iii) neither the Company, Steel Heddle nor any of their
respective subsidiaries has incurred any material liability or obligation,
direct or contingent.
(hh) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, contains all the information specified in,
and meeting the requirements of, Rule 144A(d)(4) under the Act.
(ii) When the Series A Debentures are issued and delivered
pursuant to this Agreement, the Series A Debentures will not be of the same
class (within the meaning of Rule 144A under the Act) as any security of any of
the Company that is listed on a national securities exchange registered under
Section 6 of the Exchange Act or that is quoted in a United States automated
inter-dealer quotation system.
(jj) No form of general solicitation or general advertising
(as defined in Regulation D under the Act) was used by the Company, Steel
Heddle, or any of their respective representatives (other than the Initial
Purchaser, as to whom the Company makes no representation) in connection with
the offer and sale of the Debentures contemplated hereby, including, but not
limited to, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. No securities of the same class as the
Debentures have been issued and sold by the Company or Steel Heddle within the
six-month period immediately prior to the date hereof.
(kk) Except as disclosed in the Offering Memorandum, no
relationship, direct or indirect, exists between or among the Company, Steel
Heddle or any of their respective subsidiaries on the one hand, and the
directors, officers, stockholders, customers or suppliers of the Company, Steel
Heddle or any of their respective subsidiaries on the other hand, which would be
required by the Act to be described in the Offering Memorandum if the Offering
Memorandum were a prospectus included in a registration statement on Form S-1
filed with the Commission.
(ll) No action has been taken and no law, statute, rule or
regulation or order has been enacted, adopted or issued by any governmental
agency or body which prevents the execution, delivery and performance of any of
the Operative Documents, the
-18-
<PAGE> 20
issuance of the Series A Debentures, or suspends the sale of the Series A
Debentures in any jurisdiction referred to in Section 4(e); and no injunction,
restraining order or other order or relief of any nature by a federal or state
court or other tribunal of competent jurisdiction has been issued with respect
to the Company, Steel Heddle or any of their respective subsidiaries which would
prevent or suspend the issuance or sale of the Debentures in any jurisdiction
referred to in Section 4(e).
(mm) There is no (i) significant unfair labor practice
complaint, grievance or arbitration proceeding pending or threatened against the
Company, Steel Heddle or any of their respective subsidiaries before the
National Labor Relations Board or any state or local labor relations board, (ii)
strike, labor dispute, slowdown or stoppage pending or threatened against the
Company, Steel Heddle or any of their respective subsidiaries or (iii) union
representation question existing with respect to the employees of the Company,
Steel Heddle or any of their respective subsidiaries, except in the case of
clauses (i), (ii) and (iii) for such actions which, singly or in the aggregate,
would not have a Material Adverse Effect.
(nn) Prior to the effectiveness of any Registration
Statement, the Indenture is not required to be qualified under the TIA.
(oo) None of the Company, Steel Heddle nor any of their
respective affiliates or any person acting on its or their behalf (other than
the Initial Purchaser, as to whom the Company makes no representation) has
engaged or will engage in any directed selling efforts within the meaning of
Regulation S under the Act ("REGULATION S") with respect to the Debentures.
(pp) The Series A Debentures offered and sold in reliance on
Regulation S have been and will be offered and sold only in offshore
transactions.
(qq) The sale of the Series A Debentures pursuant to
Regulation S is not part of a plan or scheme to evade the registration
provisions of the Act.
(rr) No registration under the Act of the Series A Debentures
is required for the sale of the Series A Debentures to the Initial Purchaser as
contemplated hereby or for the Exempt Resales assuming the accuracy of the
Initial Purchaser's representations and warranties and agreements set forth in
Section 7 hereof.
(ss) The Company, Steel Heddle and their respective
affiliates and all persons acting on their behalf (other than the Initial
Purchaser, as to whom the Company makes no representation) have complied with
and will comply with the offering restrictions requirements of Regulation S in
connection with the offering of the Series A Debentures outside the United
States and, in connection therewith, the Offering memorandum will contain the
disclosure required by Rule 902(h).
-19-
<PAGE> 21
(tt) The Series A Debentures sold in reliance on Regulation S
will be represented upon issuance by a temporary global security that may not be
exchanged for definitive securities until the expiration of the 40-day
restricted period referred to in Rule 903(c)(3) of the Act and only upon
certification of beneficial ownership of such Series A Debentures by non-U.S.
persons or U.S. persons who purchased such Series A Debentures in transactions
that were exempt from the registration requirements of the Act.
(uu) Each certificate signed by any officer of the Company
and delivered to the Initial Purchaser or counsel for the Initial Purchaser
shall be deemed to be a representation and warranty by the Company to the
Initial Purchaser as to the matters covered thereby.
The Company acknowledges that the Initial Purchaser and, for purposes of
the opinions to be delivered to the Initial Purchaser pursuant to Section 9
hereof, counsel to the Company and counsel to the Initial Purchaser will rely
upon the accuracy and truth of the foregoing representations and hereby consents
to such reliance.
7. INITIAL PURCHASER'S REPRESENTATIONS AND WARRANTIES. The Initial
Purchaser represents and warrants to, and agrees with the Company that:
(a) Such Initial Purchaser is a QIB with such knowledge and
experience in financial and business matters as is necessary in order to
evaluate the merits and risks of an investment in the Series A Debentures.
(b) Such Initial Purchaser (A) is not acquiring the Series A
Debentures with a view to any distribution thereof or with any present intention
of offering or selling any of the Series A Debentures in a transaction that
would violate the Act or the securities laws of any state of the United States
or any other applicable jurisdiction and (B) will be reoffering and reselling
the Series A Debentures only to (x) QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A and (y) in offshore
transactions in reliance upon Regulation S under the Act.
(c) Such Initial Purchaser agrees that no form of general
solicitation or general advertising (within the meaning of Regulation D under
the Act) has been or will be used by such Initial Purchaser in connection with
the offer and sale of the Series A Debentures pursuant hereto, including, but
not limited to, articles, notices or other communications published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(d) Such Initial Purchaser agrees that, in connection with
Exempt Resales, such Initial Purchaser will solicit offers to buy the Series A
Debentures only from, and will offer to sell the Series A Debentures only to,
Eligible Purchasers. The Initial Purchaser further agrees that it will offer to
sell the Series A Debentures only to, and will
-20-
<PAGE> 22
solicit offers to buy the Series A Debentures only from (A) Eligible Purchasers
that the Initial Purchaser reasonably believes are QIBs, and (B) Regulation S
Purchasers, in each case, that agree that (x) the Series A Debentures purchased
by them may be resold, pledged or otherwise transferred within the time period
referred to under Rule 144(k) (taking into account the provisions of Rule 144(d)
under the Act, if applicable) under the Act, as in effect on the date of the
transfer of such Series A Debentures, only (I) to the Company or any of its
subsidiaries, (II) to a person whom the seller reasonably believes is a QIB
purchasing for its own account or for the account of a QIB in a transaction
meeting the requirements of Rule 144A under the Act, (III) in an offshore
transaction (as defined in Rule 902 under the Act) meeting the requirements of
Rule 904 of the Act, (IV) in a transaction meeting the requirements of Rule 144
under the Act, (V) in accordance with another exemption from the registration
requirements of the Act (and based upon an opinion of counsel acceptable to the
Company) or (VI) pursuant to an effective registration statement and, in each
case, in accordance with the applicable securities laws of any state of the
United States or any other applicable jurisdiction and (y) they will deliver to
each person to whom such Series A Debentures or an interest therein is
transferred a notice substantially to the effect of the foregoing.
(e) Such Initial Purchaser and its affiliates or any person
acting on its or their behalf have not engaged or will not engage in any
directed selling efforts within the meaning of Regulation S with respect to the
Series A Debentures.
(f) The Series A Debentures offered and sold by such Initial
Purchaser pursuant hereto in reliance on Regulation S have been and will be
offered and sold only in offshore transactions.
(g) The sale of the Series A Debentures offered and sold by
such Initial Purchaser pursuant hereto in reliance on Regulation S is not part
of a plan or scheme to evade the registration provisions of the Act.
(h) Such Initial Purchaser agrees that it has not offered or
sold and will not offer or sell the Series A Debentures in the United States or
to, or for the benefit or account of, a U.S. Person (other than a distributor),
in each case, as defined in Rule 902 under the Act (i) as part of its
distribution at any time and (ii) otherwise until 40 days after the later of the
commencement of the offering of the Series A Debentures pursuant hereto and the
Closing Date, other than in accordance with Regulation S of the Act or another
exemption from the registration requirements of the Act. Such Initial Purchaser
agrees that, during such 40-day restricted period, it will not cause any
advertisement with respect to the Series A Debentures (including any "tombstone"
advertisement) to be published in any newspaper or periodical or posted in any
public place and will not issue any circular relating to the Series A
Debentures, except such advertisements as permitted by and include the
statements required by Regulation S.
-21-
<PAGE> 23
(i) Such Initial Purchaser agrees that, at or prior to
confirmation of a sale of Series A Debentures by it to any distributor, dealer
or person receiving a selling concession, fee or other remuneration during the
40-day restricted period referred to in Rule 903(c)(3) under the Act, it will
send to such distributor, dealer or person receiving a selling concession, fee
or other remuneration a confirmation or notice to substantially the following
effect:
"The Series A Debentures covered hereby have not been registered under
the U.S. Securities Act of 1933, as amended (the "Securities Act"), and
may not be offered and sold within the United States or to, or for the
account or benefit of, U.S. persons (i) as part of your distribution at
any time or (ii) otherwise until 40 days after the later of the
commencement of the Offering and the Closing Date, except in either case
in accordance with Regulation S under the Securities Act (or Rule 144A
under the Securities Act), and in connection with any subsequent sale by
you of the Series A Debentures covered hereby in reliance on Regulation
S during the period referred to above to any distributor, dealer or
person receiving a selling concession, fee or other remuneration, you
must deliver a notice to substantially the foregoing effect. Terms used
above have the meanings assigned to them in Regulation S."
(j) Such Initial Purchaser agrees that the Series A
Debentures offered and sold in reliance on Regulation S will be represented upon
issuance by a global security that may not be exchanged for definitive
securities until the expiration of the 40-day restricted period referred to in
Rule 903(c)(3) of the Act and only upon certification of beneficial ownership of
such Series A Debentures by non-U.S. persons or U.S. persons who purchased such
Series A Debentures in transactions that were exempt from the registration
requirements of the Act.
Such Initial Purchaser acknowledges that the Company and, for
purposes of the opinions to be delivered to the Initial Purchaser pursuant to
Section 9 hereof, counsel to the Company and counsel to the Initial Purchaser
will rely upon the accuracy and truth of the foregoing representations and such
Initial Purchaser hereby consents to such reliance.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the
Initial Purchaser, its directors, its officers and each person, if any, who
controls such Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with investigating or defending any
matter, including any action, that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Offering Memorandum (or any
amendment or supplement
-22-
<PAGE> 24
thereto), the Preliminary Offering Memorandum or any Rule 144A Information
provided by the Company to any holder or prospective purchaser of Series A
Debentures pursuant to Section 5(h) or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to the Initial Purchaser furnished in writing to the
Company by such Initial Purchaser; provided, however, that the foregoing
indemnity agreement with respect to any Preliminary Offering Memorandum shall
not inure to the benefit of any Initial Purchaser who failed to deliver a Final
Offering Memorandum (as then amended or supplemented, provided by the Company to
the Initial Purchaser in the requisite quantity and on a timely basis to permit
proper delivery on or prior to the Closing Date) to the person asserting any
losses, claims, damages and liabilities and judgements caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Offering Memorandum, or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such material misstatement or
omission or alleged material misstatement or omission was cured in the Final
Offering Memorandum.
(b) The Initial Purchaser agrees to indemnify and hold
harmless the Company and its directors and officers and each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Company, to the same extent as the foregoing indemnity from
the Company to such Initial Purchaser but only with reference to information
relating to such Initial Purchaser furnished in writing to the Company by such
Initial Purchaser expressly for use in the Preliminary Offering Memorandum or
the Offering Memorandum.
(c) In case any action shall be commenced involving any
person in respect of which indemnity may be sought pursuant to Section 8(a) or
8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), the Initial Purchaser shall not
be required to assume the defense of such action pursuant to this Section 8(c),
but may employ separate counsel and participate in the defense thereof, but the
fees and expenses of such counsel, except as provided below, shall be at the
expense of the Initial Purchaser). Any indemnified party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded
-23-
<PAGE> 25
parties) include both the indemnified party and the indemnifying party, and the
indemnified party shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to the indemnifying party (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all such fees and expenses shall be reimbursed as they are incurred. Such
firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation, in the case of the parties indemnified pursuant to Section 8(a),
and by the Company, in the case of parties indemnified pursuant to Section 8(b).
The indemnifying party shall indemnify and hold harmless the indemnified party
from and against any and all losses, claims, damages, liabilities and judgments
by reason of any settlement of any action (i) effected with its written consent
or (ii) effected without its written consent if the settlement is entered into
more than twenty business days after the indemnifying party shall have received
a request from the indemnified party for reimbursement for the fees and expenses
of counsel (in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party or insufficient in respect of
any losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand, and the Initial Purchaser on the other hand from the
offering of the Debentures or (ii) if the allocation provided by clause 8(d)(i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause 8(d)(i) above
but also the relative fault of the Company, on the one hand, and the Initial
Purchaser, on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The relative benefits
received by the Company, on the one hand and the Initial Purchaser, on the other
hand, shall be deemed to be in the same proportion as
-24-
<PAGE> 26
the total net proceeds from the offering of the Series A Debentures (after
underwriting discounts and commissions, but before deducting expenses) received
by the Company, and the total discounts and commissions received by the Initial
Purchaser bear to the total price to investors of the Series A Debentures, in
each case as set forth in the table on the cover page of the Offering
Memorandum. The relative fault of the Company, on the one hand, and the Initial
Purchaser, 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, on the one hand, or the Initial Purchaser, on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Initial Purchaser agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, the Initial
Purchaser shall not be required to contribute any amount in excess of the amount
by which the total discounts and commissions received by such Initial Purchaser
exceeds the amount of any damages which such Initial Purchaser has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
9. CONDITIONS OF INITIAL PURCHASER'S OBLIGATIONS. The obligations
of the Initial Purchaser to purchase the Debentures under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) There have been no amendments, alterations,
modifications, or waivers of any provisions of the Transaction Documents, except
such amendments, alterations, modifications or waivers which, in the judgment of
the Company, as evidenced by a certificate signed by the Chairman of the Board,
the President, an Executive Vice President, Vice President or Secretary of the
Company were necessitated by a materially adverse change in the business,
operations or financial condition of the Company, Steel Heddle or their
respective subsidiaries, and do not modify the maturities of or security
arrangements for other indebtedness being incurred to consummate the
transactions
-25-
<PAGE> 27
contemplated by the Transaction Documents. You shall have received a certificate
dated the Closing Date and signed by the Chairman of the Board, the President,
an Executive Vice President, Vice President or Secretary of the Company to such
effect.
(b) The following events shall have taken place at the time
of the purchase of the Series A Debentures by the Initial Purchaser (i)
Intermediate will have merged with and into Steel Heddle, which will be the
surviving corporation of such merger, (ii) Old Holdings will have merged with
and into Steel Heddle, which will be the surviving corporation of such merger,
and (iii) Acquisition Corp. will have merged with and into Steel Heddle, which
will be the surviving corporation of such merger.
(c) On or before the Closing Date, the Initial Purchaser and
Milbank Tweed Hadley & McCloy, counsel for the Initial Purchaser, shall have
received such further documents, opinions, certificates and schedules or
instruments relating to the business, corporate, legal and financial affairs of
the Company, Steel Heddle and their respective subsidiaries as each of them
shall have requested.
(d) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date.
(e) On or after the date hereof, (i) there shall not have
occurred any downgrading, suspension or withdrawal of, nor shall any notice have
been given of any potential or intended downgrading, suspension or withdrawal
of, or of any review (or of any potential or intended review) for a possible
change that does not indicate the direction of the possible change in, any
rating of the Company or the Debentures (including, without limitation, the
placing of any of the foregoing ratings on credit watch with negative or
developing implications or under review with an uncertain direction) by any
"nationally recognized statistical rating organization" as such term is defined
for purposes of Rule 436(g)(2) under the Act, (ii) there shall not have occurred
any change, nor shall any notice have been given of any potential or intended
change, in the outlook for any rating of the Company or the Debentures by any
such rating organization and (iii) no such rating organization shall have given
notice that it has assigned (or is considering assigning) a lower rating to the
Debentures than that on which the Debentures were marketed.
(f) Since the respective dates as of which information is
given in the Offering Memorandum other than as set forth in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there shall not have occurred any change or any
development involving a prospective change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Company
and Steel Heddle and their respective subsidiaries, taken as a whole, (ii) there
shall not have been any change or any development involving a prospective change
in the capital stock or in the long-term debt of the Company, Steel Heddle or
any of their respective
-26-
<PAGE> 28
subsidiaries and (iii) neither the Company, Steel Heddle nor any of their
respective subsidiaries shall have incurred any liability or obligation, direct
or contingent, the effect of which, in any such case described in clause
9(f)(i), 9(f)(ii) or 9(f)(iii), in your judgment, is material and adverse and,
in your judgment, makes it impracticable to market the Series A Debentures on
the terms and in the manner contemplated in the Offering Memorandum.
(g) You shall have received on the Closing Date a
certificate dated the Closing Date, signed by the President and the Chief
Financial Officer of the Company confirming the matters set forth in Sections
6(gg), 9(d) and 9(e) and stating that the Company has complied with all the
agreements and satisfied all of the conditions herein contained and required to
be complied with or satisfied on or prior to the Closing Date.
(h) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Initial Purchaser), dated the Closing
Date, of Kirkland & Ellis, counsel for the Company substantially in the form of
Exhibit B hereto.
(i) The Initial Purchaser shall have received on the closing
date opinions, each dated the Closing Date and in form and substance
satisfactory to the Initial Purchasers, of Pennsylvania counsel and South
Carolina counsel with respect to Steel Heddle and its domestic subsidiaries.
(j) The Initial Purchaser shall have received on the Closing
Date an opinion, dated the Closing Date, of Milbank Tweed Hadley & McCloy,
counsel for the Initial Purchaser, in form and substance reasonably satisfactory
to the Initial Purchaser.
(k) The Initial Purchaser shall have received, at the time
this Agreement is executed and at the Closing Date, letters dated the date
hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchaser from Ernst & Young LLP, independent public
accountants, containing the information and statements of the type ordinarily
included in accountants' "comfort letters" to the Initial Purchaser with respect
to the financial statements and certain financial information contained in the
Offering Memorandum.
(l) The Series A Debentures shall have been approved by the
NASD for trading and duly listed in PORTAL.
(m) The Initial Purchaser shall have received a counterpart,
conformed as executed, of the Indenture which shall have been entered into by
the Company and the Trustee.
(n) The Company shall have executed the Registration Rights
Agreement and the Initial Purchaser shall have received an original copy
thereof, duly executed by the Company.
-27-
<PAGE> 29
(o) The Initial Purchaser shall have received from Valuation
Research Corporation an opinion in form and substance satisfactory to the
Initial Purchaser regarding the solvency of the Company following the issuance
and sale of the Series A Debentures hereunder and consummation of the
Acquisition Transactions.
(p) Steel Heddle shall have paid, or shall have authorized
payment out of the proceeds of the Steel Heddle Note Offering of, the commitment
fee of $1,000,000 due to DLJ Bridge Finance, Inc. and NationsBridge, L.L.C. (the
"BRIDGE LENDERS") pursuant to the Fee Letter Agreement dated April 28, 1998
between the Bridge Lenders and AIP.
(q) Steel Heddle shall have consummated the Steel Heddle
Note Offering.
(r) The Company shall not have failed at or prior to the
Closing Date to perform or comply with any of the agreements herein contained
and required to be performed or complied with by the Company at or prior to the
Closing Date.
10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement shall
become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by the Initial Purchaser by written notice to the Company if any of the
following has occurred: (i) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions or
in the financial markets of the United States or elsewhere that, in the Initial
Purchaser's judgment, is material and adverse and, in the Initial Purchaser's
judgment, makes it impracticable to market the Series A Debentures on the terms
and in the manner contemplated in the Offering Memorandum, (ii) the suspension
or material limitation of trading in securities or other instruments on the New
York Stock Exchange, the American Stock Exchange, the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or the
Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company, Steel
Heddle and their respective subsidiaries, taken as a whole, (v) the declaration
of a banking moratorium by either federal or New York State authorities or (vi)
the taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in your opinion has a material
adverse effect on the financial markets in the United States.
-28-
<PAGE> 30
11. MISCELLANEOUS. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company, to Steel Heddle
Group, Inc., 1801 Rutherford Road, Greenville, South Carolina, 29607, Attention:
Chief Financial Officer, (864) 244-4110 and (ii) if to the Initial Purchaser,
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the Initial Purchaser set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Series A
Debentures, regardless of (i) any investigation, or statement as to the results
thereof, made by or on behalf of the Initial Purchaser, the officers or
directors of the Initial Purchaser, any person controlling the Initial
Purchaser, the Company, the officers or directors of the Company, or any person
controlling the Company, (ii) acceptance of the Series A Debentures and payment
for them hereunder and (iii) termination of this Agreement.
If for any reason the Series A Debentures are not delivered by or on
behalf of the Company as provided herein (other than as a result of any
termination of this Agreement pursuant to Section 10), the Company agrees to
reimburse the Initial Purchaser for all out-of-pocket expenses (including the
fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(i) hereof. The Company also
agrees to reimburse the Initial Purchaser and its officers, directors and each
person, if any, who controls such Initial Purchaser within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act for any and all fees and
expenses (including without limitation the fees and expenses of counsel)
incurred by them in connection with enforcing their rights under this Agreement
(including without limitation its rights under Section 8).
The statements set forth in the last paragraph on the cover page and the
first four paragraphs and the ninth paragraph under the caption "Plan of
Distribution" in the Offering Memorandum constitute the written information
furnished by or on behalf of the Initial Purchaser referred to in Sections 6(e),
8(a), 8(b) and 8(d).
-29-
<PAGE> 31
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Initial Purchaser,
the Initial Purchaser's directors and officers, any controlling persons referred
to herein, the directors of the Company and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include a purchaser of any of the Series
A Debentures from the Initial Purchaser merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the Initial Purchaser.
Very truly yours,
STEEL HEDDLE GROUP, INC.
By: /s/ Robert J. Klein
--------------------------------------
Robert Klein
President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ William Baumgart
--------------------------------------
William Baumgart
Vice President
-30-
<PAGE> 32
SCHEDULE
SUBSIDIARIES ( )
SH-AIP Acquisition Corp., a Delaware corporation.
-31-
<PAGE> 33
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
A-1
<PAGE> 34
EXHIBIT B
FORM OF KIRKLAND & ELLIS OPINION
<PAGE> 1
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
Dated as of May 26, 1998
by and among
STEEL HEDDLE GROUP, INC.
as Issuer
and
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
as Initial Purchaser
1
<PAGE> 2
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of May 26, 1998, by and among Steel Heddle Group, Inc., a
Delaware corporation ("SH Group") and Donaldson, Lufkin & Jenrette Securities
Corporation (the "INITIAL PURCHASER") who has agreed to purchase SH Group's
13.750% Senior Discount Debentures due 2009 (the "SERIES A DEBENTURES")
pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated May
21, 1998 (the "PURCHASE AGREEMENT"), by and among SH Group and the Initial
Purchaser. In order to induce the Initial Purchaser to purchase the Series A
Debentures, SH Group has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchaser set forth in Section 9 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them in the Indenture, dated May 26, 1998, between SH
Group and United States Trust Company of New York, as Trustee, relating to the
Series A Debentures and the Series B Debentures (the "INDENTURE").
The parties 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.
AFFILIATE: As defined in Rule 144 of the Act.
BROKER-DEALER: Any broker or dealer registered under the Exchange
Act.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the
Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Debentures to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously
effective and the keeping of the Exchange Offer open for a period not less than
the period required pursuant to Section 3(b) hereof, (c) the
1
<PAGE> 3
delivery by SH Group to the Trustee under the Indenture of Series B Debentures
in the same aggregate principal amount as the aggregate principal amount of
Series A Debentures tendered by Holders thereof pursuant to the Exchange Offer,
and (d) the authentication and delivery by the Trustee of such Series B
Debentures to such tendering Holders pursuant to the Exchange Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
EFFECTIVENESS DEADLINE: As defined in Section 3(a) and 4(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The exchange and issuance by SH Group of a
principal amount of the Series B Debentures (which shall be registered pursuant
to the Exchange Offer Registration Statement) equal to the outstanding
principal amount of Series A Debentures that are tendered by such Holders in
connection with such exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchaser
proposes to sell the Series A Debentures to certain "qualified institutional
buyers," as such term is defined in Rule 144A under the Act and pursuant to
Regulation S under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
HOLDERS: As defined in Section 2 hereof.
INDENTURE: The Indenture, dated as of the date hereof, by and among
SH Group and United States Trust Company of New York, as trustee, pursuant to
which the Notes are being issued, as amended or supplemented from time to time
in accordance with the terms thereof.
PROSPECTUS: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
2
<PAGE> 4
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of SH Group
relating to (a) an offering of Series B Debentures pursuant to the Exchange
Offer or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, in each case, (i) that is filed
pursuant to the provisions of this Agreement and (ii) including the Prospectus
included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
REGULATION S: Regulation S promulgated under the Act.
RESTRICTED BROKER-DEALER: Any Broker-Dealer that holds Series B
Debentures that were acquired in the Exchange Offer in exchange for Series A
Debentures that such Broker-Dealer acquired for its own account as a result of
market making activities or other trading activities (other than Series A
Debentures acquired directly from SH Group or any of its affiliates).
RULE 144: Rule 144 promulgated under the Act.
SERIES B DEBENTURES: SH Group's 13.750% Series B Senior Discount
Debentures due 2009 to be issued pursuant to the Indenture: (i) in the
Exchange Offer or (ii) as contemplated by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Series A Debenture, until the
earliest of the date on which (i) such Series A Debenture is exchanged in the
Exchange Offer for a Series B Debenture that is entitled to be resold to the
public by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (ii) such Series A Debenture has been disposed of in
accordance with the Shelf Registration Statement, (iii) such Series A Debenture
is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution"
contemplated by the Exchange Offer Registration Statement (including delivery
of the Prospectus contained therein) or (iv) such Series A Debenture is
distributed to the public pursuant to Rule 144 under the Act.
3
<PAGE> 5
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by
applicable federal law or policy of the Commission (after the procedures set
forth in Section 6(a)(i) below have been complied with), SH Group shall (i)
cause the Exchange Offer Registration Statement to be filed with the Commission
as soon as practicable after the Closing Date (the "EXCHANGE OFFER FILING
DATE"), but in no event later than 75 days after the Closing Date (such 75th
day being the "FILING DEADLINE"), (ii) use its best efforts to cause such
Exchange Offer Registration Statement to become effective at the earliest
possible time, but in no event later than 150 days after the Closing Date (such
150th day being the "EFFECTIVENESS DEADLINE"), (iii) in connection with the
foregoing, (A) file all pre-effective amendments to such Exchange Offer
Registration Statement as may be necessary in order to cause it to become
effective, (B) file, if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause
all necessary filings, if any, in connection with the registration and
qualification of the Series B Debentures to be made under the Blue Sky laws of
such jurisdictions as are necessary to permit Consummation of the Exchange
Offer, and (iv) upon the effectiveness of such Exchange Offer Registration
Statement, commence and Consummate the Exchange Offer. The Exchange Offer
shall be on the appropriate form permitting registration of the Series B
Debentures to be offered in exchange for Series A Debentures that are Transfer
Restricted Securities and to permit resales of Series B Debentures by
Broker-Dealers that tendered into the Exchange Offer Series A Debentures that
such Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Debentures acquired
directly from SH Group or any of its Affiliates) as contemplated by Section
3(c) below.
(b) SH Group shall use its best efforts to cause the Exchange
Offer Registration Statement to be effective continuously, and shall keep the
Exchange Offer open for a period of not less than the minimum period required
under applicable federal and state securities laws to Consummate the Exchange
Offer; provided, however, that in no event shall such period be less than 20
Business Days. SH Group shall cause the Exchange Offer to comply with all
applicable federal and state securities laws. No securities other than the
Series B Debentures shall be included in the Exchange Offer Registration
Statement. SH Group shall use its
4
<PAGE> 6
best efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 Business Days thereafter (such 30th
day being the "CONSUMMATION DEADLINE").
(c) SH Group shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Broker-Dealer who holds Transfer Restricted
Securities that were acquired for the account of such Broker-Dealer as a result
of market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from SH Group or any Affiliate of SH
Group), may exchange such Transfer Restricted Securities pursuant to the
Exchange Offer; however, such Broker-Dealer may be deemed to be an
"underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus to be provided by SH Group, meeting the requirements of the Act in
connection with its initial sale of any Series B Debentures received by such
Broker-Dealer in the Exchange Offer and that the Prospectus contained in the
Exchange Offer Registration Statement may be used by such Broker-Dealer to
satisfy such prospectus delivery requirement. Such "Plan of Distribution"
section shall also contain all other information with respect to such sales by
such Broker-Dealers that the Commission may require in order to permit such
sales pursuant thereto, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Transfer Restricted Securities held by
any such Broker-Dealer, except to the extent required by the Commission as a
result of a change in policy, rules or regulations after the date of this
Agreement. See the Shearman & Sterling no-action letter (available July 2,
1993).
To the extent necessary to ensure that the Prospectus contained in
the Exchange Offer Registration Statement is continuously available for sales
of Series B Debentures by Broker-Dealers, SH Group agrees to use its best
efforts to keep the Exchange Offer Registration Statement continuously
effective, supplemented and amended as required by the provisions of Section
6(c) hereof and in conformity 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 one year from the Consummation Deadline, or such
shorter period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold pursuant thereto. SH
Group shall promptly provide sufficient copies of the latest version of such
Prospectus to such Broker-Dealer promptly upon request, and in no event later
than one day after such request, at any time during such period.
5
<PAGE> 7
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) (A) the Exchange Offer is not
permitted by applicable law or Commission policy (after SH Group has complied
with the procedures set forth in Section 6(a)(i) below) or (B) for any other
reason the Exchange Offer is not Consummated within 180 days after the Closing
Date or (ii) if any Holder of Transfer Restricted Securities notifies SH Group
prior to the 20th business day following the Consummation Deadline that (A)
such Holder was prohibited by law or Commission policy from participating in
the Exchange Offer, or (B) such Holder may not resell the Series B Debentures
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder, or
(C) such Holder is a Broker-Dealer and holds Series A Debentures acquired
directly from SH Group or any of its Affiliates, then SH Group shall as
promptly as practicable deliver to the Holders and the Trustee written notice
thereof (the "Shelf Notice"), and SH Group shall:
(x) cause to be filed, on or prior to 30 days after the
earlier of (i) the date on which SH Group determines that the Exchange
Offer Registration Statement cannot be filed as a result of clause
(a)(i) above, and (ii) the date on which SH Group receives the notice
specified in clause (a) (ii) above, (such earlier date, the "FILING
DEADLINE"), a shelf registration statement pursuant to Rule 415 under
the Act (which may be an amendment to the Exchange Offer Registration
Statement (the "SHELF REGISTRATION STATEMENT")), relating to all
Transfer Restricted Securities, and
(y) shall use its best efforts to cause such Shelf
Registration Statement to become effective on or prior to 60 days after
the Filing Deadline (such 60th day the "EFFECTIVENESS DEADLINE").
If, after SH Group has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, SH Group is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law or
Commission policy (i.e. clause (a)(i)(A) above), then the filing of the
Exchange Offer Registration Statement shall be deemed to satisfy the
requirements of clause (x) above; provided that, in such event, SH Group shall
remain obligated to meet the Effectiveness Deadline set forth in clause (y).
SH Group shall use its best efforts to keep any Shelf Registration
Statement required by this Section 4(a) continuously
6
<PAGE> 8
effective, supplemented and amended as required by and subject to the
provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Securities by the Holders
thereof entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years (as extended pursuant to Section 6(c)(i))
following the Closing Date or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Shelf Registration Statement
have been sold pursuant thereto (the "Effectiveness Period"). No securities
other than Transfer Restricted Securities shall be included in any Shelf
Registration Statement.
(b) 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 SH Group in writing, within 20 days after receipt of a request
therefor, the information specified in Item 507 or 508 of Regulation S-K, as
applicable, of the Act for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No Holder
of Transfer Restricted Securities shall be entitled to Liquidated Damages
pursuant to Section 5 hereof unless and until such Holder shall have provided
all such information. Each selling Holder agrees to promptly furnish
additional information required to be disclosed in order to make the
information previously furnished to SH Group by such Holder not materially
misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation
Deadline or (iv) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective immediately (each such event referred to
in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then SH Group hereby
agrees to pay to each Holder of Transfer Restricted Securities affected thereby
liquidated damages in an amount equal to $.05 per week per $1,000 in principal
amount of Transfer Restricted Securities held by such Holder for each week or
portion thereof that the Registration Default continues for the first 90-day
period immediately following the occurrence of such Registration Default. The
amount of the liquidated damages shall increase by an additional $.05 per week
per $1,000 in principal amount of Transfer
7
<PAGE> 9
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 $.50 per week per $1,000 in principal amount of Transfer Restricted
Securities; provided that SH Group shall in no event be required to pay
liquidated damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness
of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of
the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a
post-effective amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to again be declared
effective or made usable in the case of (iv) above, the accrual of liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture,
on each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. All obligations of SH Group 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 security shall have been
satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with
the Exchange Offer, SH Group shall (x) comply with all applicable provisions of
Section 6(c) below, (y) use its best efforts to effect such exchange and to
permit the resale of Series B Debentures by Broker-Dealers that tendered Notes
in the Exchange Offer Series A Debentures that such Broker-Dealer acquired for
its own account as a result of its market making activities or other trading
activities (other than Series A Debentures acquired directly from SH Group or
any of its Affiliates) being sold in accordance with the intended method or
methods of distribution thereof, and (z) comply with all of the following
provisions:
8
<PAGE> 10
(i) If, following the date hereof there has been
announced a change in Commission policy with respect to exchange
offers such as the Exchange Offer, that in the reasonable opinion of
counsel to SH Group raises a substantial question as to whether the
Exchange Offer is permitted by applicable federal law, SH Group
hereby agrees to seek a no-action letter or other favorable decision
from the Commission allowing SH Group to Consummate an Exchange
Offer for such Transfer Restricted Securities. SH Group hereby
agrees to pursue the issuance of such a decision to the Commission
staff level. In connection with the foregoing, SH Group hereby
agrees to take all such other actions as may be requested by the
Commission or otherwise required in connection with the issuance of
such decision, including without limitation (A) participating in
telephonic conferences with the Commission, (B) delivering to the
Commission staff an analysis prepared by counsel to SH Group setting
forth the legal bases, if any, upon which such counsel has concluded
that such an Exchange Offer should be permitted and (C) diligently
pursuing a resolution (which need not be favorable) by the
Commission staff.
(ii) As a condition to its participation in the Exchange
Offer, each Holder of Transfer Restricted Securities (including,
without limitation, any Holder who is a Broker Dealer) shall
furnish, upon the request of SH Group, prior to the Consummation of
the Exchange Offer, a written representation to SH Group (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 SH Group, (B) it is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the Series B
Debentures to be issued in the Exchange Offer and (C) it is
acquiring the Series B Debentures in its ordinary course of
business. Each Holder using the Exchange Offer to participate in a
distribution of the Series B Debentures hereby acknowledges and
agrees that, if the resales are of Series B Debentures obtained by
such Holder in exchange for Series A Debentures acquired directly
from SH Group or an Affiliate thereof, it (1) could not, under
Commission policy as in effect on the date of this Agreement, rely
on the position of the Commission enunciated in Morgan Stanley and
Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and
similar no-action letters (including, if applicable, any no-action
letter obtained pursuant to clause (i) above), and (2) must comply
with the registration and prospectus delivery requirements of the
Act in connection with a secondary resale
9
<PAGE> 11
transaction and that such a secondary resale transaction must be
covered by an effective registration statement containing the
selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, SH Group shall provide a supplemental letter
to the Commission (A) stating that SH Group is registering the
Exchange Offer in reliance on the position of the Commission
enunciated in Exxon Capital Holdings Corporation (available May 13,
1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as
interpreted in the Commission's letter to Shearman & Sterling dated
July 2, 1993, and, if applicable, any no-action letter obtained
pursuant to clause (i) above, (B) including a representation that SH
Group has not entered into any arrangement or understanding with any
Person to distribute the Series B Debentures to be received in the
Exchange Offer and that, to the best of SH Group's information and
belief, each Holder participating in the Exchange Offer is acquiring
the Series B Debentures in its ordinary course of business and has
no arrangement or understanding with any Person to participate in
the distribution of the Series B Debentures received in the Exchange
Offer and (C) any other undertaking or representation required by
the Commission as set forth in any no-action letter obtained
pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, SH Group shall (x) comply with all the provisions of
Section 6(c) below and (y) use its 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 thereof (as indicated in
the information furnished to SH Group pursuant to Section 4(b) hereof), and
pursuant thereto SH Group will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance with
the provisions hereof.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement, SH Group
shall:
(i) use its best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of
10
<PAGE> 12
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, SH Group shall file promptly an appropriate amendment to
such Registration Statement curing such defect, and, if Commission
review is required, use its best efforts to cause such amendment to
be declared effective as soon as practicable.
(ii) prepare and file with the Commission such
amendments and post-effective amendments to the applicable
Registration Statement as may be necessary to keep such Registration
Statement effective for the applicable period set forth in Section 3
or 4 hereof, as the case may be; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with Rules 424, 430A and 462, as applicable, under the
Act in a timely manner; and comply with the provisions of the Act
with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance
with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement to
the Prospectus;
(iii) advise the 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 applicable
Registration Statement or any post-effective amendment thereto, when
the same has become effective, (B) of any request by the Commission
for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the
Act or of the suspension by any state securities commission of the
qualification of the Transfer Restricted 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 thereto or any document incorporated by
reference therein untrue, or that requires the making of any
additions to or changes in the Registration Statement in order to
make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to
make the statements therein, in the light of the circumstances under
11
<PAGE> 13
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, SH
Group shall use its best efforts to obtain the withdrawal or lifting
of such order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of
Transfer Restricted Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(v) furnish to the Initial Purchaser and each selling
Holder named in any Registration Statement or Prospectus in
connection with such exchange or sale, if any, before filing with
the Commission, copies of any Registration Statement or any
Prospectus included therein or any amendments or supplements to any
such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the
review and comment of such selling Holders in connection with such
sale, if any, for a period of at least five Business Days, and SH
Group will not file any such Registration Statement or Prospectus or
any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference)
to which such selling Holders shall reasonably object within five
Business Days after the receipt thereof. A selling Holder shall be
deemed to have reasonably objected to such filing if such
Registration Statement, amendment, Prospectus or supplement, as
applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable
requirements of the Act;
(vi) promptly prior to the filing of any document that
is to be incorporated by reference into a Registration Statement or
Prospectus, provide copies of such document to the selling Holders
in connection with such exchange or sale, if any, make SH Group's
representatives available for discussion of such document and other
customary due diligence
12
<PAGE> 14
matters, and include such information in such document prior to the
filing thereof as such selling Holders may reasonably request;
(vii) make available at reasonable times for inspection
by the selling Holders participating in any disposition pursuant to
such Registration Statement and any attorney or accountant retained
by such selling Holders, all financial and other records, pertinent
corporate documents of SH Group and cause SH Group's officers,
directors and employees to supply all information reasonably
requested by any such selling Holder, attorney or accountant in
connection with such Registration Statement or any post-effective
amendment thereto subsequent to the filing thereof and prior to its
effectiveness;
(viii) if requested by any selling Holders in connection
with such exchange or sale, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders may
reasonably request to have included therein, including, without
limitation, information relating to the "Plan of Distribution" of
the Transfer Restricted Securities, and make all required filings of
such Prospectus supplement or post-effective amendment as soon as
practicable after SH Group is notified of the matters to be included
in such Prospectus supplement or post-effective amendment;
(ix) furnish to each selling Holder in connection with
such exchange or sale, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of
each amendment thereto, including all documents incorporated by
reference therein and all exhibits (including exhibits incorporated
therein by reference);
(x) deliver to each selling Holder, without charge, as
many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; SH Group hereby consents to the use (in
accordance with law) of the Prospectus and any amendment or
supplement thereto by each of the selling Holders in connection with
the offering and the sale of the Transfer Restricted Securities
covered by the Prospectus or any amendment or supplement thereto;
(xi) in the case of a Shelf Registration Statement only,
upon the request of any selling Holder, enter into such agreements
(including underwriting agreements) and make such representations
and warranties and take all such other actions
13
<PAGE> 15
in connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to such
Registration Statement contemplated by this Agreement as may be
reasonably requested by any Holder of Transfer Restricted Securities
in connection with any sale or resale pursuant to such Registration
Statement. In such connection, SH Group shall:
(A) upon request of any selling Holder,
furnish (or in the case of paragraphs (2) and (3), use its
best efforts to cause to be furnished) to each selling
Holder, upon Consummation of the Exchange Offer or upon the
effectiveness of the Shelf Registration Statement, as the
case may be:
(1) a certificate, dated such date,
signed on behalf of SH Group by (x) the President
or any Vice President and (y) a principal financial
or accounting officer of SH Group, confirming, as
of the date thereof, the matters set forth in
paragraphs (a) and (ee) of Section 6 and (a) and
(b) of Section 9 of the Purchase Agreement and such
other similar matters as the selling Holders may
reasonably request;
(2) an opinion, dated the date of
Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration Statement,
as the case may be, of counsel for SH Group
covering matters similar to those set forth in
paragraph (j) of Section 9 of the Purchase
Agreement and such other matter as the selling
Holders may reasonably request, and in any event
including a statement to the effect that such
counsel has participated in conferences with
officers and other representatives of SH Group,
representatives of the independent public
accountants for SH Group and have considered the
matters required to be stated therein and the
statements contained therein, although such counsel
has not independently verified the accuracy,
completeness or fairness of such statements; and
that such counsel advises that, on the basis of the
foregoing (relying as to materiality to the extent
such counsel deems appropriate upon the statements
of officers and other representatives of SH Group
and without independent check or verification), no
facts came to such counsel's attention that caused
such counsel to believe that the applicable
Registration Statement, at the time such
14
<PAGE> 16
Registration Statement or any post-effective
amendment thereto became effective and, in the case
of the Exchange Offer Registration Statement, as of
the date of Consummation of the Exchange Offer,
contained an untrue statement of a material fact or
omitted to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading, or that the Prospectus
contained in such Registration Statement as of its
date and, in the case of the opinion dated the date
of Consummation of the Exchange Offer, as of the
date of Consummation, contained an untrue statement
of a material fact or omitted to state a material
fact necessary in order to make the statements
therein, in the light of the circumstances under
which they were made, not misleading. Without
limiting the foregoing, such counsel may state
further that such counsel assumes no responsibility
for, and has not independently verified, the
accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial
data included in any Registration Statement
contemplated by this Agreement or the related
Prospectus; and
(3) a customary comfort letter, dated
the date of Consummation of the Exchange Offer, or
as of the date of effectiveness of the Shelf
Registration Statement, as the case may be, from SH
Group's independent accountants, in the customary
form and covering matters of the type customarily
covered in comfort letters to underwriters in
connection with underwritten offerings, and
affirming the matters set forth in the comfort
letters delivered pursuant to Section 9(1) of the
Purchase Agreement; and
(B) deliver such other documents and
certificates as may be reasonably requested by the selling
Holders to evidence compliance with clause (A) above and
with any customary conditions contained in the any
agreement entered into by SH Group pursuant to this clause
(xi);
(xii) prior to any public offering of Transfer
Restricted Securities, cooperate with the selling Holders and their
counsel in connection with the registration and qualification of the
Transfer Restricted Securities under the securities or Blue Sky laws
of such jurisdictions as the selling Holders may request and do any
and all other acts or
15
<PAGE> 17
things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, SH Group shall
not be required to register or qualify as a foreign corporation
where it is not now so qualified or to take any action that would
subject it to the service of process in suits or to taxation, other
than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xiii) issue, upon the request of any Holder of
Series A Debentures covered by any Shelf Registration Statement
contemplated by this Agreement, Series B Debentures having an
aggregate principal amount equal to the aggregate principal amount
of Series A Debentures surrendered to SH Group by such Holder in
exchange therefor or being sold by such Holder; such Series B
Debentures to be registered in the name of such Holder or in the
name of the purchaser(s) of such Series B Debentures, as the case
may be; in return, the Series A Debentures held by such Holder shall
be surrendered to SH Group for cancellation;
(xiv) in connection with any sale of Transfer
Restricted Securities that will result in such securities no longer
being Transfer Restricted Securities, cooperate with the selling
Holders to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold
and not bearing any restrictive legends; and to register such
Transfer Restricted Securities in such denominations and such names
as the selling Holders may request at least two Business Days prior
to such sale of Transfer Restricted Securities;
(xv) use its best efforts to cause the
disposition of 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 thereof to consummate the disposition
of such Transfer Restricted Securities, subject to the proviso
contained in clause (xii) above;
(xvi) provide a CUSIP number for all Transfer
Restricted Securities not later than the effective date of a
Registration Statement covering such Transfer Restricted Securities
and provide the Trustee under the Indenture with printed
certificates for the Transfer Restricted Securities which are in a
form eligible for deposit with the Depository Trust Company;
16
<PAGE> 18
(xvii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to any
applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term
is defined in paragraph (c) of Rule 158 under the Act);
(xix) cause the Indenture to be qualified under the TIA
not later than the effective date of the first Registration
Statement required by this Agreement and, in connection therewith,
cooperate with the Trustee and the Holders to effect such changes to
the Indenture as may be required for such Indenture to be so
qualified in accordance with the terms of the TIA; and execute and
use its best efforts to cause the Trustee to execute, all documents
that may be required to effect such changes and all other forms and
documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner; and
(xx) use its best efforts to cause the Transfer
Restricted Securities or the Series B Debentures, as applicable,
covered by an effective registration statement required by Section 3
or Section 4 hereof to be rated by one or two rating agencies, if
and as so requested by the Holders of a majority in aggregate
principal amount of Transfer Restricted Securities relating to such
registration statement or the managing underwriters in connection
therewith, if any;
(xxi) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of
Section 13 or Section 15(d) of the Exchange Act.
(xxii) use its best efforts to take all other steps
necessary to effect the registration of the Transfer Restricted
Securities covered by a Registration Statement contemplated hereby.
(d) Restrictions on Holders. Each Holder agrees by acquisition
of a Transfer Restricted Security that, upon receipt of the notice referred to
in Section 6(c)(iii)(C) or any notice from SH Group of the existence of any
fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration
Statement until (i) such Holder has received copies of the supplemented or
amended Prospectus contemplated by Section 6(c)(iv)
17
<PAGE> 19
hereof, or (ii) such Holder is advised in writing by SH Group 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 (in
each case, the "RECOMMENCEMENT DATE"). Each Holder receiving a Suspension
Notice hereby agrees that it will either (i) destroy any Prospectuses, other
than permanent file copies, then in such Holder's possession which have been
replaced by SH Group with more recently dated Prospectuses or (ii) deliver to
SH Group (at SH Group'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 the Suspension
Notice. The time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by a number of days equal to the number of days in the period from and
including the date of delivery of the Suspension Notice to the date of delivery
of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to SH Group's performance of or
compliance with this Agreement will be borne by SH Group, regardless of whether
a Registration Statement becomes effective, including without limitation: (i)
all registration and filing fees and expenses; (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws
(including, without limitation, reasonable fees and disbursements of counsel in
connection with Blue Sky qualifications of the Transfer Restricted Securities
or Series B Debentures); (iii) all expenses of printing (including printing
certificates for the Series B Debentures to be issued in the Exchange Offer and
printing of Prospectuses, messenger and delivery services and telephone
expenses; (iv) all fees and disbursements of counsel for SH Group and the
Holders of Transfer Restricted Securities; (v) all application and filing fees
in connection with listing the Series B Debentures on a national securities
exchange or automated quotation system pursuant to the requirements hereof (vi)
the fees and expenses of any "qualified independent underwriter" or other
independent appraiser participating in an offering pursuant to the NASD's Rules
of Fair Practice; (vii) any rating agency fees; and (viii) all fees and
disbursements of independent certified public accountants of SH Group
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
SH Group will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and
the fees and expenses of any Person, including special experts, retained by SH
Group.
18
<PAGE> 20
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), SH Group will reimburse the
Initial Purchaser 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 the
Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Milbank, Tweed, Hadley
& McCloy unless another firm shall 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) SH Group agrees to indemnify and hold harmless each Holder, its
directors, its officers and each Person, if any, who controls such Holder
(within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act), from and against any and all losses, claims, damages, liabilities,
judgments, (including without limitation, any legal or other expenses incurred
in connection with investigating or defending any matter, including any action
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, preliminary prospectus
or Prospectus (or any amendment or supplement thereto) provided by SH Group to
any holder or any prospective purchaser of Series B Debentures, or caused by
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by an untrue statement or omission or alleged untrue statement or
omission that is based upon information relating to any of the Holders
furnished in writing to SH Group by any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless SH Group and its directors and
officers, and each person, if any, who controls (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) SH Group to the same extent as
the foregoing indemnity from SH Group to each of the Indemnified Holders, but
only with reference to information relating to such Indemnified Holder
furnished in writing to SH Group by such Indemnified Holder expressly for use
in any Registration Statement. In no event shall any Indemnified Holder be
liable or responsible for any amount in excess of the amount by which the total
amount received by such Indemnified Holder with respect to its sale of Transfer
Restricted Securities pursuant to a Registration Statement
19
<PAGE> 21
exceeds (i) the amount paid by such Indemnified Holder for such Transfer
Restricted Securities and (ii) the amount of any damages that such Indemnified
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
(provided that the failure to give such notice shall not relieve the
indemnifying party of its obligations under Section 8 (a) or (b) unless and
only to the extent that the indemnifying party is materially prejudiced by the
failure to notify) and the indemnifying party shall assume the defense of such
action, including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all fees and expenses of such counsel, as
incurred (except that in the case of any action in respect of which indemnity
may be sought pursuant to both Sections 8(a) and 8(b), an Indemnified Holder
shall not be required to assume the defense of such action pursuant to this
Section 8(c), but may employ separate counsel and participate in the defense
thereof, but the fees and expenses of such counsel, except as provided below,
shall be at the expense of the Indemnified Holder). Any indemnified party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (i) the employment of
such counsel shall have been specifically authorized in writing by the
indemnifying party, (ii) the indemnifying party shall have failed to promptly
assume the defense of such action or employ counsel reasonably satisfactory to
the indemnified party or (iii) the named parties to any such action (including
any impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such separate
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of the indemnified party). In any such case,
the indemnifying party shall not, in connection with any one action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees
and expenses of more than one separate firm of attorneys (in addition to any
local counsel) for all indemnified parties and all such fees and expenses shall
be reimbursed as they are incurred. Such firm shall be designated in writing
by a majority of the Indemnified Holders, in the case of the parties
indemnified pursuant to Section 8(a), and by SH Group, in the case of parties
indemnified pursuant to Section 8(b). The
20
<PAGE> 22
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action (i) effected with its written consent or
(ii) effected without its written consent if the settlement is entered into
more than twenty business days after the indemnifying party shall have received
a request from the indemnified party for reimbursement for the fees and
expenses of counsel (in any case where such fees and expenses are at the
expense of the indemnifying party) and, prior to the date of such settlement,
the indemnifying party shall have failed to comply with such reimbursement
request. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement or compromise of, or consent to
the entry of judgment with respect to, any pending or threatened action in
respect of which the indemnified party is or could have been a party and
indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by SH
Group, on the one hand, and the Holders, on the other hand, from their sale of
Transfer Restricted Securities or (ii) if the allocation provided by clause
8(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of SH Group, on the one hand, and of
the Indemnified Holder, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative fault of SH Group, on the one hand, and of the Indemnified Holder, 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 SH Group, on the one hand, or by the Indemnified Holder, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable
21
<PAGE> 23
by a party as a result of the losses, claims, damages, liabilities and
judgments referred to above shall be deemed to include, subject to the
limitations set forth in the second paragraph of Section 8(a), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
SH Group and each Holder agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any matter, including any
action that could have given rise to such losses, claims, damages, liabilities
or judgments. Notwithstanding the provisions of this Section 8, no Holder or
its related Indemnified Holders shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the total received by
such Holder with respect to the sale of its Transfer Restricted Securities
pursuant to a Registration Statement exceeds the sum of (A) the amount paid by
such Holder for such Transfer Restricted Securities plus (B) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(c) are several in proportion to the respective
principal amount of Transfer Restricted Securities held by each of the Holders
hereunder and not joint.
SECTION 9. RULE 144 AND RULE 144A
SH Group agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which SH
Group (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15 (d) of the
22
<PAGE> 24
Exchange Act, to make all filings required thereby in a timely manner in order
to permit resales of such Transfer Restricted Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. SH Group acknowledges and agree that any failure by
SH Group to comply with its obligations under Sections 3 and 4 hereof may
result in material irreparable injury to the Initial Purchaser or the Holders
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchaser or any Holder may obtain such relief as may be
required to specifically enforce SH Group's obligations under Sections 3 and 4
hereof. SH Group further agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. SH Group will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement
or otherwise conflicts with the provisions hereof. SH Group has not previously
entered into any agreement granting any registration rights with respect to its
securities to any Person. 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 SH Group's securities under any agreement in effect on the date
hereof.
(c) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case
of Section 5 hereof and this Section 10(c)(i), SH Group has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities
and (ii) in the case of all other provisions hereof, SH Group has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities (excluding Transfer Restricted Securities held
by SH Group or its Affiliates). Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount
of Transfer Restricted Securities subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between SH
23
<PAGE> 25
Group on the one hand, and the Initial Purchaser, on the other hand, and shall
have the right to enforce such agreements directly to the extent they may deem
such enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records
of the Registrar under the Indenture, with a copy to the Registrar under
the Indenture; and
(ii) if to SH Group:
Steel Heddle Group, Inc.
1801 Rutherford Road
Greenville, SC 29607
Telecopier No.:
Attention:
With a copy to:
Kirkland & Ellis
655 15 Street, N.W.
Washington, D.C. 20005
Telecopier No.: (202) 879-5200
Attention: Jack M. Feder
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
receipt acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Donaldson, Lufkin &
Jenrette Securities Corporation, on behalf of the Initial Purchaser (in the
form attached hereto as Exhibit A) and shall be addressed to: Attention:
Compliance Department, 277 Park Avenue, New York, New York, 10172.
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.
24
<PAGE> 26
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
that nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Transfer Restricted Securities in violation of the terms hereof
or of the Purchase Agreement or the Indenture. If any transferee of any Holder
shall acquire Transfer Restricted Securities in any manner, whether by
operation of law or otherwise, such Transfer Restricted Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Transfer Restricted Securities 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, including the restrictions on resale set forth in this
Agreement and, if applicable, the Purchase Agreement, and such Person shall be
entitled to receive the benefits hereof.
(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 AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
25
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
STEEL HEDDLE GROUP, INC.
By:/s/Robert J. Klein
------------------------
Robert Klein
President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:/s/ William Baumgart
--------------------------
William Baumgart
Vice President
26
<PAGE> 28
EXHIBIT A
NOTICE OF FILING OF
EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: Steel Heddle Group, Inc.
13.750% Senior Discount Debentures due 2009
Date: ____________, 199__
For your information only (NO ACTION REQUIRED):
Today, ______________, 199__, we filed [an Exchange Registration
Statement/a Shelf Registration Statement] with the Securities and Exchange
Commission. We currently expect this registration statement to be declared
effective within __ business days of the date hereof.
27
<PAGE> 1
Exhibit 4.4
- --------------------------------------------------------------------------------
STOCKHOLDERS AGREEMENT
Dated as of May 26, 1998
Among
STEEL HEDDLE GROUP, INC.,
AND ITS STOCKHOLDERS
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Voting Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Rights Unimpaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(e) APPOINTMENT OF PROXY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3. Repurchase Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Repurchase Procedure for Employee Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Payment for Employee Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(d) Assignment to AIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4. Put Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Put upon Death or Disability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Repurchase Procedure for Put Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5. Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Certain Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6. Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(a) 1933 Act Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Stockholders Agreement Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Removal of Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7. Sale of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8. Participation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 9. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Company Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Costs of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Other Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Holdback Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(f) Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
Section 10. Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) Offered Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Refused Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(e) Excluded Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 11. Transfers in Violation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 12. Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 14. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 15. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 16. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 17. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 18. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 19. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 20. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 21. Termination; Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
iii
<PAGE> 4
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this "AGREEMENT") is dated as of
May 26, 1998 among STEEL HEDDLE GROUP, INC., a Delaware corporation (the
"COMPANY"), AMERICAN INDUSTRIAL PARTNERS CAPITAL FUND II, L.P., a Delaware
limited partnership ("AIP"), the individuals who have executed this Agreement
(or have otherwise agreed to be bound by the provisions hereof) and who are
listed on the Schedule of Stockholders attached hereto as AIP Stockholders (the
"AIP STOCKHOLDERS") and each other individual who hereafter executes a
counterpart of this Agreement (or otherwise agrees to be bound by the
provisions hereof) and who is listed on the Schedule of Stockholders attached
hereto as an Employee Stockholder (the "EMPLOYEE STOCKHOLDERS" and, together
with AIP and the AIP Stockholders, the "STOCKHOLDERS").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS. For purposes of this Agreement,
the following terms have the indicated meanings:
"AFFILIATE" of a Person means any other Person controlling,
controlled by or under common control with such Person, whether by ownership of
voting securities, by contract or otherwise, and in the case of AIP shall
include any partner of AIP.
"AIP" is defined in the preface.
"AIP SHARES" means Stockholder Shares held by the AIP
Stockholders and their respective Permitted Transferees.
"AIP STOCKHOLDERS" is defined in the preface.
"APPROVED SALE" is defined in Section 7.
"AUTHORIZATION DATE" is defined in Section 5(c).
"BOARD" means the Company's Board of Directors.
"CAUSE" means with respect to any Employee Stockholder, (i)
such Employee Stockholder's willful and repeated failure to comply with the
lawful directives of the Board (as set at a meeting of the Board in accordance
with the Company's bylaws) or such Employee Stockholder's supervisory personnel
(provided such directives are consistent with his or her position), (ii) any
indictment for a felony, (iii) any indictment for any other criminal act or act
of material dishonesty, disloyalty, misconduct by such Employee Stockholder
(other than minor traffic offenses and similar acts) or the indictment for or
the commission of any act of moral turpitude by such Employee Stockholder that
is materially injurious to the property, operations, business or reputation of
the Company or any Subsidiary thereof (as determined by the Board in its
reasonable good faith discretion) or (iv) the failure to comply in all material
respects with the terms hereof or
<PAGE> 5
any other agreement between such Employee Stockholder and the Company or any
Subsidiaries thereof.
"COMMON STOCK" means the Company's common stock, par value
$.01 per share.
"COMMON STOCK PERCENTAGE" means, with respect to a
Stockholder, the fraction, expressed as a percentage, the numerator of which is
the total number of shares of Common Stock held by such Stockholder (including
Common Stock issuable upon exercise or conversion of securities held by such
Stockholder which are convertible or exercisable at the time in question) and
the denominator of which is the total number of shares of Common Stock
outstanding and Common Stock issuable upon exercise or conversion of securities
then outstanding and exercisable or convertible.
"COMPANY SALE" means a transaction with one or more
independent third parties pursuant to which such party or parties (i) acquire
(whether by merger, consolidation or transfer or issuance of capital stock)
capital stock of the Company (or any surviving or resulting corporation)
possessing the voting power to elect a majority of the board of directors of
the Company (or such surviving or resulting corporation) or (ii) acquire all or
substantially all of the Company's assets determined on a consolidated basis.
"DEMAND REGISTRATION" is defined in Section 9(a).
"DISABILITY" means with respect to any Employee Stockholder,
the inability, due to illness, accident, injury, physical or mental incapacity
or other disability, which has existed for at least six months in any twelve
month period or has existed continuously for four months and which has
prevented, and can reasonably be expected to continue to prevent, such Employee
Stockholder from carrying out effectively his duties and obligations to the
Company and its Subsidiaries as determined in good faith by the Board.
"EMPLOYEE SHARES" means Stockholder Shares held by the
Employee Stockholders and their respective Permitted Transferees.
"EMPLOYEE STOCKHOLDER" is defined in the preface.
"EMPLOYEE STOCKHOLDER GROUP" is defined in Section 3(a).
"EXCLUDED SECURITIES" is defined in Section 10(e).
"FAIR MARKET VALUE" as of any date means (a) with respect to
publicly traded Common Stock, the market trading price of such Common Stock and
(b) with respect to non-publicly traded Common Stock, the per share fair market
value of such Common Stock as of such date, as determined in good faith by the
Board based on such factors as the Board may deem appropriate; provided that an
Employee Stockholder may request, at his or her own expense, an independent
appraisal of such Common Stock by a nationally recognized investment banking
firm acceptable to the Board, which such acceptance shall not be unreasonably
withheld.
2
<PAGE> 6
"FAMILY GROUP" is defined in Section 6(b).
"GOOD REASON" means a material reduction of an Employee
Stockholder's duties and responsibilities or a change in such Employee
Stockholder's duties and responsibilities which are materially inconsistent
with the type of duties and responsibilities of such Employee Stockholder as of
the date hereof, or a material reduction in compensation paid to such Employee
Stockholder (excluding any reduction in such Employee Stockholder's salary that
is part of an overall plan to reduce the aggregate amount of salary paid to all
Employee Stockholders).
"JUNIOR SUBORDINATED NOTE" is defined in Section 3(c).
"NOTICE OF ACCEPTANCE" is defined in Section 10(b).
"OFFER PERIOD" is defined in Section 10(a).
"OFFERED SECURITIES" is defined in Section 10(a).
"OPTION PLAN" means that certain Management Stock Option Plan
adopted by the Board as of May 26, 1998, as the same may be amended or
supplemented from time to time.
"OPTIONS" means Rollover Options and Plan Options.
"ORIGINAL COST" means (i) with respect to any Employee Shares
issued upon the exercise of a Rollover Option, $100 and (ii) with respect to
any Employee Shares purchased directly from the Company or issued upon the
exercise of a Plan Option, the original purchase price for such Employee Share
(in each case, as the same may be adjusted to account for the effect of any
reorganization, recapitalization, stock dividend, stock split, or combination
or other changes in the Common Stock).
"OTHER STOCKHOLDERS" is defined in Section 7.
"PARTICIPATING STOCKHOLDERS" is defined in Section 8.
"PERMITTED TRANSFER" is defined in Section 5(b).
"PERMITTED TRANSFEREE" is defined in Section 5(b).
"PERSON" means any individual, corporation, partnership, firm,
joint venture, association, limited liability company, joint-stock company,
trust, unincorporated organization, governmental or regulatory body or other
legal entity.
"PLAN OPTIONS" means options to purchase shares of Common
Stock granted by the Company pursuant to the Option Plan.
"PUT NOTICE" is defined in Section 4(a).
3
<PAGE> 7
"PUT PRICE" is defined in Section 4(a).
"PUT SHARES" is defined in Section 4(a).
"QUALIFIED PUBLIC OFFERING" means the sale, in an underwritten
public offering registered under the Securities Act, of shares of the Company's
Common Stock having an aggregate offering value (before underwriters' discounts
and selling commissions ) of at least $30 million.
"REFUSED SECURITIES" is defined in Section 10(c).
"REPURCHASE NOTICE" is defined in Section 3(b).
"REPURCHASE PRICE" is defined in Section 3(a).
"RETIREMENT" means with respect to any Employee Stockholder,
the withdrawal of such Employee Stockholder from the full-time work force after
the age of 62 or as determined in good faith by the Board.
"ROLLOVER OPTIONS" means options to purchase shares of Common
Stock granted by the Company as of May 26, 1998 in consideration for the
cancellation of options to acquire shares of SH Holdings Corp.
"RULE 144" means Rule 144 promulgated by the Securities and
Exchange Commission under the Securities Act, as such rule may be amended from
time to time, or any similar rule then in force.
"SALE NOTICE" is defined in Section 8.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCKHOLDER" is defined in the preface.
"STOCKHOLDER SHARES" means (i) all shares of Common Stock
acquired by the Stockholders, including all shares of Common Stock acquired
pursuant to the exercise of Options, and (ii) all shares of Common Stock or
other securities issued or issuable directly or indirectly with respect to the
securities referred to in clause (i) by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. Stockholder Shares shall cease to be
such when they have been sold (x) pursuant to a registered public offering
under the Securities Act or (y) to the public pursuant to Rule 144 under the
Securities Act, or any successor provision.
"SUBSIDIARY" means, with respect to any Person, any other
Person of which at least a majority of the outstanding shares or other equity
interests having ordinary voting power for the election of directors or
comparable managers of such Person are owned, directly or indirectly, by the
first Person or one or more Subsidiaries of such first Person.
4
<PAGE> 8
"TRANSFER" means, with respect to any Stockholder Shares, the
gift, sale, assignment, transfer, pledge, hypothecation or other disposition
(whether for or without consideration and whether voluntary, involuntary or by
operation of law) of such Stockholder Shares or any interest therein.
"TRANSFER NOTICE" is defined in Section 5(c).
"VESTED OPTIONS" means Options that are exercisable by the
holder thereof on the date of determination.
SECTION 2. VOTING ARRANGEMENTS.
(a) ELECTION OF DIRECTORS. Each Stockholder agrees that
such Person will vote, or cause to be voted, all voting securities of the
Company over which such Person has the power to vote or direct the voting, and
will take all other necessary or desirable action within such Person's control,
and the Company will take all necessary and desirable actions within its
control to cause the authorized number of directors for the Board to be at
least six persons, and to elect or cause to be elected to the Board and cause
to be continued in such office, six individuals designated by AIP; provided
that at least two of such persons shall be Employee Stockholders.
(b) REMOVAL OF DIRECTORS. If at any time AIP shall
notify the other Stockholders of its desire to remove, with or without cause,
any individual from a directorship, all such Persons so notified will vote, or
cause to be voted, all voting securities of the Company over which they have
the power to vote or direct the voting, and shall take all such other actions
promptly as shall be necessary or desirable to cause the removal of such
director.
(c) VACANCIES. If at any time any director ceases to
serve on the Board (whether due to resignation, removal or otherwise), then AIP
shall be entitled to designate a successor director to fill the vacancy created
thereby on the terms and subject to the conditions of Section 2(a) above. Each
Stockholder agrees that he, she or it will vote, or cause to be voted, all
voting securities of the Company over which such Person has the power to vote
or direct the voting, and shall take all such other actions as shall be
necessary or desirable to cause the successor designated by AIP to be elected
to fill such vacancy.
(d) RIGHTS UNIMPAIRED. Nothing in this Agreement shall
be construed to impair any rights that the stockholders of the Company may have
to remove any director for cause. No removal for cause of an individual
designated pursuant to this Section 2 shall affect the right of AIP to
designate a different individual pursuant to Section 2 to fill the directorship
from which such individual was removed.
(e) APPOINTMENT OF PROXY. IN ORDER TO SECURE THE
OBLIGATIONS OF EACH AND EVERY STOCKHOLDER TO VOTE ALL COMMON SHARES HELD BY
SUCH STOCKHOLDER IN ACCORDANCE WITH ALL OF THE PROVISIONS OF THIS AGREEMENT,
EACH STOCKHOLDER HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS EACH OF ROBERT L.
PURDUM AND ROBERT J. KLEIN AS SUCH STOCKHOLDER'S TRUE AND LAWFUL ATTORNEY,
AGENT AND PROXY, WITH FULL
5
<PAGE> 9
POWER OF SUBSTITUTION, TO ATTEND MEETINGS OF STOCKHOLDERS OF THE COMPANY HELD
FROM TIME TO TIME, AND TO VOTE ON SUCH STOCKHOLDER'S BEHALF AND IN SUCH
STOCKHOLDER'S NAME, PLACE, AND STEAD, OR TO EXECUTE WRITTEN CONSENTS IN LIEU OF
SUCH MEETINGS, THE NUMBER OF VOTES THAT SUCH STOCKHOLDER WOULD BE ENTITLED TO
CAST IF ACTUALLY PRESENT OR WITH RESPECT TO WHICH SUCH STOCKHOLDER WOULD BE
ENTITLED TO EXECUTE A WRITTEN CONSENT, IN CONNECTION WITH ANY ELECTION OF
DIRECTORS (IN ACCORDANCE WITH THIS SECTION 2) OR ANY COMPANY SALE (IN
ACCORDANCE WITH SECTION 7). THE POWERS GRANTED HEREIN WILL BE DEEMED TO BE
COUPLED WITH AN INTEREST, WILL BE IRREVOCABLE AND WILL SURVIVE THE DEATH,
INCOMPETENCY, DISABILITY OR DISSOLUTION OF ANY STOCKHOLDER.
SECTION 3. REPURCHASE OPTION.
(a) TERMINATION OF EMPLOYMENT. Upon the termination of
an Employee Stockholder's employment by the Company or its Subsidiaries, the
Company shall have the option (but not the obligation) to repurchase all or any
of the Employee Shares held by such Employee Stockholder or his or her
Permitted Transferees (hereinafter sometimes collectively referred to as the
"EMPLOYEE STOCKHOLDER GROUP"). The price payable in respect of such Employee
Shares (the "REPURCHASE PRICE") shall be calculated as follows:
(i) If such termination is by the Company or its
Subsidiaries for Cause, the Repurchase Price shall be
equal to the number of Employee Shares to be
repurchased multiplied by the lesser of (A) Original
Cost and (B) the Fair Market Value as of the date of
such termination.
(ii) If such termination is by the Company or its
Subsidiaries without Cause, the Repurchase Price
shall be equal to the number of Employee Shares to be
repurchased multiplied by the greater of (A) Original
Cost with interest thereon at the rate of six percent
(6%) per annum and (B) the Fair Market Value as of
the date of such termination.
(iii) If such termination is by such Employee Stockholder
voluntarily (other than for death, Retirement,
Disability or Good Reason) prior to June 1, 2002, the
Repurchase Price shall be equal to the number of
Employee Shares to be repurchased multiplied by the
lesser of (A) Original Cost and (B) the Fair Market
Value as of the date of such termination.
(iv) If such termination is by such Employee Stockholder
voluntarily (other than for death, Retirement,
Disability or Good Reason) on or after June 1, 2002,
the Repurchase Price shall be equal to the number of
shares of such Employee Shares to be repurchased
multiplied by Original Cost with interest thereon at
the rate of six percent (6%) per annum.
(v) If such termination is by such Employee Stockholder
for Retirement before June 1, 2002, the Repurchase
Price shall be equal to the number of shares of
6
<PAGE> 10
such Employee Shares to be repurchased multiplied by
Original Cost with interest thereon at the rate of
six percent (6%) per annum.
(vi) If such termination is by such Employee Stockholder
for Retirement on or after June 1, 2002, the
Repurchase Price shall be equal to the number of
Employee Shares to be repurchased multiplied by the
greater of (A) Original Cost with interest thereon at
the rate of six percent (6%) per annum and (B) the
Fair Market Value as of the date of such termination.
(vii) If such termination is by such Employee Stockholder
for Good Reason, the Repurchase Price shall be equal
to the number of Employee Shares to be repurchased
multiplied by the greater of (A) Original Cost with
interest thereon at the rate of six percent (6%) per
annum and (B) the Fair Market Value as of the date of
such termination.
(viii) If such termination is by such Employee Stockholder
is for death or Disability, the Repurchase Price
shall be equal to the number of Employee Shares to be
repurchased multiplied by the greater of (A) Original
Cost with interest thereon at the rate of six percent
(6%) per annum and (B) the Fair Market Value as of
the date of such termination.
(b) REPURCHASE PROCEDURE FOR EMPLOYEE SHARES. The
Company shall exercise any election to purchase Employee Shares pursuant to
Section 3(a) by delivery to the Employee Stockholder, within ninety (90) days
after the termination of such Employee Stockholder's employment, of a written
notice (the "REPURCHASE NOTICE") specifying the number of Employee Shares to be
repurchased. The closing of any repurchase of Employee Shares shall take place
not later than 30 days following the date on which the Repurchase Notice is
delivered to the Employee Stockholder. In the event there is more than one
member of the Employee Stockholder Group, the Company may repurchase Employee
Shares held by the different members of such Employee Stockholder Group in such
proportions as shall be determined by the Company (and shall be set forth in
the Repurchase Notice). The failure of any member of the Employee Stockholder
Group to perform his or her obligations hereunder shall not excuse or affect
the obligations of any other member thereof, and the closing of the purchases
from such other members by the Company shall not excuse, or constitute a waiver
of its rights against, the defaulting member.
(c) PAYMENT FOR EMPLOYEE SHARES. The Company shall pay
the purchase price for the Employee Shares it purchases (i) first, by the
cancellation of any indebtedness, if any, owing from such Employee Stockholder
to the Company or any Subsidiary thereof (which indebtedness shall be applied
pro rata against the proceeds receivable by each member of the Employee
Stockholder Group receiving consideration in such repurchase) and (ii) then, by
the Company's delivery of a check or wire transfer of immediately available
funds for the remainder of the purchase price, if any, against delivery of the
certificates representing the Employee Shares so purchased, endorsed in blank
or accompanied by appropriate assignments; provided, however, that in the event
that any such repurchase is prohibited by or would cause a default under any of
the Company's or its Subsidiaries' agreements for borrowed money, the portion
of the cash payment so prohibited may be made, to the extent such payment is
not prohibited, by the Company's delivery of a junior
7
<PAGE> 11
subordinated promissory note (which shall be subordinated and subject in right
of payment to the prior payment of any debt outstanding under any material
financing agreements and any modifications, renewals, extensions, replacements
and refunding of all such indebtedness) of the Company (a "JUNIOR SUBORDINATED
NOTE") in a principal amount equal to the balance of the purchase price,
payable in up to five equal annual installments commencing on the first
anniversary of the issuance thereof and bearing interest payable annually at
the publicly announced prime rate of NationsBank, N.A. on the date of issuance.
In the event that the issuance of a Junior Subordinated Note is prohibited by
or would cause a default under any of the Company's or its Subsidiaries'
agreements for borrowed money, no such issuance shall occur and all time
periods referred to in this Section 3(b) shall be tolled for so long as such
prohibition or potential default exists. In the event that any payment
pursuant to a Junior Subordinated Note is prohibited by or would cause a
default under any of the Company's or its Subsidiaries' agreements for borrowed
money, no such payment shall occur and the amount of such payment shall be
added to the principal amount of such Junior Subordinated Note.
Notwithstanding anything herein to the contrary, all Junior Subordinated Notes
shall be paid in full upon the consummation of a Company Sale so long as the
Company or the Stockholders receive cash consideration in connection with such
Company Sale.
(d) ASSIGNMENT TO AIP. The Company may (but shall not be
obligated to) assign any of its rights under this Section 3 to AIP, or any of
its Affiliates. Upon such an assignment, all references to "the Company" in
this Section 3 shall be deemed to be references to the assignee of the Company
to the extent of the interest so assigned.
SECTION 4. PUT RIGHT.
(a) PUT UPON DEATH OR DISABILITY. In the event of the
termination of an Employee Stockholder's employment with the Company or its
Subsidiaries by reason of such Employee Stockholder's death or Disability, each
member of such Employee Stockholder's Employee Stockholder Group may cause the
Company to purchase all, but not less than all of the Employee Shares held by
such Person (the "PUT SHARES") by delivering written notice (a "PUT NOTICE") to
the Company, during the one hundred eighty (180) day period commencing on the
termination of such Employee Stockholder's employment, of the exercise of such
right and the number of shares of Put Shares to be repurchased by the Company.
The price (the "PUT PRICE") at which the Company shall be required to
repurchase the Put Shares shall be equal to the number of Employee Shares to be
repurchased multiplied by the lesser of (A) Original Cost with interest thereon
at the rate of six percent (6%) per annum and (B) the Fair Market Value as of
the date of such termination.
(b) REPURCHASE PROCEDURE FOR PUT SHARES. Within thirty
(30) days after receipt of the Put Notice, the Company shall pay the Put Price
for the Put Shares it purchases (i) first, by the cancellation of any
indebtedness, if any, owing from such Employee Stockholder to the Company or
any Subsidiary thereof (which indebtedness shall be applied pro rata against
the proceeds receivable by each member of the Employee Stockholder Group
receiving consideration in such repurchase) and (ii) then, by the Company's
delivery of a check or wire transfer of immediately available funds for the
remainder of the purchase price, if any, against delivery of the certificates
or other instruments representing the Employee Shares so purchased, duly
endorsed in
8
<PAGE> 12
blank or accompanied by appropriate assignments; provided, however, that in the
event that any such repurchase is prohibited by or would cause a default under
any of the Company's or its Subsidiaries' agreements for borrowed money, the
portion of the cash payment so prohibited may be made, to the extent such
payment is not prohibited, by the Company's delivery of a Junior Subordinated
Note in a principal amount equal to the balance of the purchase price, payable
in up to five equal annual installments commencing on the first anniversary of
the issuance thereof and bearing interest payable annually at the publicly
announced prime rate of NationsBank, N.A. on the date of issuance. In the
event that the issuance of a Junior Subordinated Note is prohibited by or would
cause a default under any of the Company's or its Subsidiaries' agreements for
borrowed money, no such issuance shall occur and all time periods referred to
in this Section 4(b) shall be tolled for so long as such prohibition or
potential default exists. In the event that any payment pursuant to a Junior
Subordinated Note is prohibited by or would cause a default under any of the
Company's or its Subsidiaries' agreements for borrowed money, no such payment
shall occur and the amount of such payment shall be added to the principal
amount of such Junior Subordinated Note. Notwithstanding anything herein to
the contrary, all Junior Subordinated Notes shall be paid in full upon the
consummation of a Company Sale so long as the Company or the Stockholders
receive cash consideration in connection with such Company Sale. The put
rights provided in this Section 4 shall be of no further force and effect from
and after the consummation of a Qualified Public Offering.
SECTION 5. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. During the period
beginning on the date hereof and ending on June 1, 2002, no holder of Employee
Shares or AIP Shares may Transfer such Employee Shares or AIP Shares, except in
a Permitted Transfer. After June 1, 2003 (but before the consummation of a
Qualified Public Offering), no holder of Employee Shares or AIP Shares may
Transfer such Employee Shares or AIP Shares, except (i) in a Permitted Transfer
or (ii) to any other Person, subject to the provisions of Section 5(c), if
applicable.
(b) CERTAIN PERMITTED TRANSFERS. Section 5(a) shall not
apply to Transfers ("PERMITTED TRANSFERS") of Employee Shares or AIP Shares (i)
by will or pursuant to applicable laws of descent and distribution to such
Employee Stockholder's, AIP Stockholder's or Permitted Transferee's of such
Employee Stockholder or AIP Stockholder family group; provided that, in
connection with any such transfer, each such transferee (a "PERMITTED
TRANSFEREE") executes a Joinder Agreement substantially in the form attached
hereto as Exhibit A and thereby becomes a party to this Agreement, (ii)
pursuant to Sections 3, 4, 7, 8 or 9 or (iii) to the Company. Any Employee
Shares transferred to a Permitted Transferee shall continue to be Employee
Shares for purposes of this Agreement, and any AIP Shares transferred to a
Permitted Transferee shall continue to be AIP Shares for purposes of this
Agreement. A Person's "FAMILY GROUP" means such Person's spouse and lineal
descendants (whether natural or adopted) and any trust formed and maintained
solely for the benefit of such Person, such Person's spouse or such Person's
lineal descendants.
(c) RIGHT OF FIRST REFUSAL. After June 1, 2002 (but
before the consummation of a Qualified Public Offering), holders of Employee
Shares or AIP Shares may Transfer such Employee Shares or AIP Shares so long as
at least ninety (90) days prior to making any such Transfer, such Person
delivers a written notice (the "TRANSFER NOTICE") to the Company. The
9
<PAGE> 13
Transfer Notice will disclose in reasonable detail the identity of the
prospective transferee(s) and the terms and conditions of the proposed
Transfer. Such holder shall not consummate any such Transfer until thirty (30)
days after the Transfer Notice has been delivered to the Company, unless the
Company has notified such Employee in writing that it will not exercise its
rights under this Section 5(c). (The date of the first to occur of such events
is referred to herein as the "AUTHORIZATION DATE"). The Company may elect to
purchase any or all of the Employee Shares or AIP Shares to be transferred upon
the same terms and conditions as those set forth in the Transfer Notice, by
delivering a written notice of such election to such holder within thirty (30)
days after the receipt of the Transfer Notice by the Company. If the Company
has not elected to purchase all of the Employee Shares or AIP Shares specified
in the Transfer Notice, such holder may Transfer the Employee Shares or AIP
Shares to the prospective transferee(s) as specified in the Transfer Notice, at
a price and on terms no more favorable to the transferee(s) thereof than
specified in the Transfer Notice, during the 90-day period immediately
following the Authorization Date. Any Employee Shares or AIP Shares not so
transferred within such 90-day period must be reoffered to the Company in
accordance with the provisions of this Section 5(c). The Company may assign
its rights pursuant to this Section 5(c) to AIP or any of its Affiliates, in
whole or in part, at any time and from time to time. Upon such an assignment,
all references to "the Company" in this Section 5(c) shall be deemed to be
references to the assignee of the Company to the extent of the interest so
assigned.
(d) OPINION OF COUNSEL. No holder of Stockholder Shares
may Transfer any such stock (other than pursuant to an effective registration
statement under the Securities Act) without first delivering to the Company, if
the Company so requests, an opinion of counsel reasonably acceptable in form
and substance to the Company that registration under the Securities Act is not
required in connection with such transfer.
SECTION 6. LEGENDS.
(a) 1933 ACT LEGEND. The certificates representing
Stockholder Shares shall bear the following legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON _______________, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER.
(b) STOCKHOLDERS AGREEMENT LEGEND. The certificates
representing Stockholder Shares shall bear the following legend in addition to
the legend set forth in Section 6(a) above:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT DATED AS OF MAY 26, 1998 AMONG STEEL HEDDLE
GROUP, INC. AND CERTAIN STOCKHOLDERS THEREOF, A COPY OF WHICH MAY BE
OBTAINED WITHOUT CHARGE BY THE
10
<PAGE> 14
HOLDER HEREOF AT THE PRINCIPAL PLACE OF BUSINESS OF STEEL HEDDLE
GROUP, INC. DISPOSITION OF THIS CERTIFICATE OR THE SECURITIES
REPRESENTED HEREBY OR ANY RIGHTS OR INTERESTS THEREIN IN VIOLATION OF
SUCH STOCKHOLDERS AGREEMENT SHALL BE NULL AND VOID.
(c) REMOVAL OF LEGENDS. Whenever in the opinion of the
Company that the restrictions described in any legend set forth above cease to
be applicable to any Stockholder Shares, the holder thereof shall be entitled
to receive from the Company, without expense to the holder, a new certificate
not bearing a legend stating such restriction.
SECTION 7. SALE OF THE COMPANY. If AIP approves a
Company Sale (an "APPROVED SALE"), the other holders of Stockholder Shares (the
"OTHER STOCKHOLDERS") shall consent to and raise no objections against such
Approved Sale (and shall waive any rights of appraisal arising in connection
therewith) and shall fully cooperate with and take all necessary and desirable
actions in connection with the consummation of such Approved Sale, including
without limitation (a) executing a purchase and sale agreement and any other
agreement reasonably necessary to effectuate such Approved Sale in the form to
be entered into by AIP, (b) amending the Company's Certificate of
Incorporation, (c) merging, combining or consolidating the Company with any
other Person, (d) reorganizing, recapitalizing, liquidating, dissolving or
winding-up the Company, (e) exchanging or splitting stock of the Company or (f)
selling, leasing or exchanging all or substantially all of the property and
assets of the Company and its Subsidiaries on a consolidated basis. If the
Approved Sale is structured as a sale of stock, the Other Stockholders shall
agree to sell all of their shares of Common Stock and rights to acquire shares
of Common Stock on the terms and conditions approved by the Board and AIP. The
obligations of the Other Stockholders with respect to any Approved Sale are
subject to the conditions that (a) upon the consummation of such Approved Sale,
all of the holders of Common Stock will receive the same form and amount of
consideration per share of Common Stock, or if any holders are given an option
as to the form and amount of consideration to be received, all holders will be
given the same option and (b) no stockholder shall be required to incur
indemnification obligations (whether several or joint and several) which are in
excess of the net proceeds received by such Stockholder in connection with such
Approved Sale.
SECTION 8. PARTICIPATION RIGHTS. Not less than twenty
(20) days prior to any proposed Transfer of Common Stock by AIP, AIP shall
deliver to the Other Stockholders a written notice (the "SALE NOTICE")
specifying in reasonable detail the identity of the proposed transferee(s) and
the terms and conditions of the proposed Transfer. Any Other Stockholder may
elect to participate in the proposed Transfer by delivering to AIP a written
notice of such election within the 10-day period following delivery of the Sale
Notice. If one or more Other Stockholders elect to participate in such
Transfer (the "PARTICIPATING STOCKHOLDERS"), AIP and each such Participating
Stockholder will be entitled to sell in such proposed Transfer, at the same
price and on the same terms, a number of shares of Common Stock equal to the
product of (i) the quotient determined by dividing the percentage of the
Company's Common Stock then held by AIP or such Participating Stockholder, as
the case may be, by the aggregate percentage of the Common Stock then held by
AIP and all Participating Stockholders, multiplied by (ii) the number of shares
of Common Stock to be sold in such proposed Transfer. For purposes of this
Section 8, the amount of Common Stock
11
<PAGE> 15
held by each Participating Stockholder who is an Employee Stockholder shall be
deemed to include all shares of Common Stock acquirable pursuant to the
exercise of Vested Options then held by such Participating Stockholder.
Notwithstanding the foregoing, this Section 8 shall not apply to (i) Transfers
by AIP of up to an aggregate of 5% of the outstanding Common Stock, (ii)
Transfers by AIP to Affiliates of AIP, provided that each such Affiliate agrees
in writing to be bound by the provisions of this Agreement binding AIP, (iii)
Transfers pursuant to Rule 144 under the Securities Act (or any successor
provision), (iv) Transfers pursuant to Section 7, or (v) Transfers pursuant to
Section 9.
SECTION 9. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION. AIP shall have the right to
require the Company to effect up to two registrations of their Common Stock on
Form S-1 under the Securities Act and, if available, unlimited registrations on
Form S-2 or S-3 under the Securities Act (any such registration, a "DEMAND
REGISTRATION"). Upon receipt of any request for a Demand Registration, the
Company shall give prompt written notice of such request to each Stockholder,
and, subject to the provisions set forth below, shall include in such Demand
Registration all Stockholder Shares with respect to which the Company has
received written requests for inclusion therein within 30 days after the
delivery of the Company's notice (including shares covered by Vested Options to
the extent that the Company receives appropriate assurances that such Options
will be exercised upon effectiveness of such registration). If other
securities are included in any Demand Registration that is not an underwritten
offering, all Stockholder Shares included in such offering shall be sold prior
to the sale of any of such other securities. If other securities are included
in any Demand Registration that is an underwritten offering, and the managing
underwriter for such offering advises the Company that in its opinion the
number of securities to be included exceeds the number of securities which can
be sold in such offering without adversely affecting the pricing or
marketability thereof, the Company will include in such registration all
Stockholder Shares requested to be included therein prior to the inclusion of
any securities that are not Stockholder Shares. If the number of Stockholder
Shares requested to be included in such registration (including Employee
Shares) exceeds the number of securities which in the opinion of such
underwriter can be sold without adversely affecting the pricing or
marketability of such offering, the Company will include in such Demand
Registration the maximum number of Stockholder Shares that may be so included,
such amount to be allocated ratably among the holders thereof based on the
percentage of the outstanding Stockholder Shares held by each such Stockholder
(assuming the exercise of all Vested Options held by participating
Stockholders). The Company shall have the right to select the investment
banker(s) and manager(s) to administer any Demand Registration that is an
underwritten offering, subject to the approval of AIP.
(b) COMPANY REGISTRATION. In the event that the Company
proposes to register any Common Stock under the Securities Act in connection
with a public offering (other than a Demand Registration) on any form (other
than Form S-4 or Form S-8) that would legally permit the inclusion of
Stockholder Shares, the Company shall give each of the Stockholders written
notice thereof as soon as practicable but in no event less than 30 days prior
to such registration, and shall include in such registration all Stockholder
Shares with respect to which the Company has received written requests for
inclusion therein within 30 days after delivery of the Company's notice
(including shares covered by Vested Options to the extent that the Company
receives appropriate
12
<PAGE> 16
assurances that such Options will be exercised upon effectiveness of such
registration), subject to the limitations set forth in this Section 9(b). If
in connection with such proposed registration the managing underwriter for such
offering advises the Company that the number of Stockholder Shares (or the
number of Employee Shares) requested to be included therein exceeds the number
of Stockholder Shares (or the number of Employee Shares) that can be sold
without adversely affecting the pricing or the marketability of such offering,
any shares to be sold by the Company in such offering shall have priority over
any Stockholder Shares, the number of Stockholder Shares to be included by a
Stockholder in such registration shall be reduced pro rata on the basis of the
number of shares of Common Stock held by such Stockholder (assuming the
exercise of all Vested Options held by all participating Stockholders) and all
other holders (other than the Company) exercising similar registration rights,
and with respect to the Company's initial public offering of its Common Stock
to the extent required by the managing underwriter, the number of Employee
Shares to be included in such offering by any Person may be further reduced
(including, reduced to zero).
(c) COSTS OF REGISTRATION. The Company shall bear the
costs of each registration in which Stockholders participate pursuant to this
Section 9, including the reasonable fees and expenses of one counsel for the
selling Stockholders (to be selected by AIP or, if AIP has not requested any of
its Common Stock to be included, by the holders of a majority of the
Stockholder Shares to be included in such registration) but excluding any
underwriting discounts or commissions on the sale of Stockholder Shares or the
fees and expenses of any additional counsel retained by the Stockholders. As a
condition to the inclusion of Stockholder Shares in any registration, the
participating Stockholder and the Company shall execute an underwriting
agreement or similar agreement in a form reasonably acceptable to the Company
and the underwriter(s), if any, for such offering containing customary
indemnification and holdback provisions. Notwithstanding the foregoing, no
Stockholder shall be required to incur indemnification obligations (whether
several or joint and several) which are in excess of the net proceeds received
by such Stockholder pursuant to such registration or which relates to
information not supplied by such Stockholder for inclusion in the registration
statement.
(d) OTHER LIMITATIONS. Notwithstanding any other
provision of this Section 9, (i) the Company shall not be required to include
Stockholder Shares in a registration that relates to the Company's initial
public offering of Common Stock if AIP has not requested any of its Common
Stock to be sold in such offering, and (ii) the Company shall not be required
to include in any registration pursuant to this Section 9 any Stockholder
Shares (other than Common Stock owned by AIP in the case of a Demand
Registration) that are then eligible for transfer pursuant to Rule 144 under
the Securities Act or may otherwise be freely transferred without registration
under the Securities Act.
(e) HOLDBACK AGREEMENT. Each holder of Stockholder
Shares agrees that if requested in connection with an underwritten offering
made pursuant to a registration statement for which such Stockholder has
incidental registration rights pursuant to Section 9(b), by the managing
underwriter or underwriters of such underwritten offering, such Stockholder
will not effect any public sale or distribution of any of the securities being
registered or any securities convertible or exchangeable or exercisable for
such securities, including a sale pursuant to Rule 144 or Rule 144A (except as
part of such underwritten offering), during the period beginning 10 days prior
to, and ending 180 days after, the closing date of each underwritten offering
made pursuant to such
13
<PAGE> 17
registration statement (or for such shorter period as to which the managing
underwriter or underwriters may agree).
(f) ASSIGNMENT. Notwithstanding anything herein to the
contrary, AIP may assign any of its rights under this Section 9, in whole or in
part, to any Affiliate of AIP. Upon such an assignment, all references to
"AIP" in this Section 9(f) shall be deemed to be references to the assignee of
AIP to the extent of the interest so assigned.
SECTION 10. PREEMPTIVE RIGHTS.
(a) OFFERED SECURITIES. Except in the case of Excluded
Securities, the Company shall not issue, sell or exchange, agree to issue, sell
or exchange, or reserve or set aside for issuance, sale or exchange, any (i)
shares of Common Stock, (ii) any other equity security of the Company, (iii)
any debt security of the Company which by its terms is convertible into or
exchangeable for any equity security of the Company or has an equity kicker or
other participation rights, (iv) any security of the Company that is a
combination of debt and equity or (v) any option, warrant or other right to
subscribe for, purchase or otherwise acquire any equity security or any such
debt security of the Company (subsections (i) through (v), collectively, the
"OFFERED SECURITIES"), unless in each case, the Company shall have first
offered to sell such Offered Securities to each Employee Stockholder up to such
Employee Stockholder's Common Stock Percentage of such securities, at a price
and on such other terms as shall have been specified by the Company in writing
delivered to such Stockholder (the "OFFER"), which Offer by its terms shall
remain open and irrevocable for a period of 5 business days from the date it is
delivered by the Company (the "OFFER PERIOD").
(b) NOTICE. Notice of each Employee Stockholder's
intention to accept, in whole or in part, an Offer shall be evidenced by a
writing signed by such Employee Stockholder and delivered to the Company prior
to the end of the Offer Period, setting forth such portion of the Offered
Securities as such Employee Stockholder elects to purchase (the "NOTICE OF
ACCEPTANCE"); provided, however, that if any Employee Stockholder chooses to
purchase a portion, but not all, of the Offered Securities, such Employee
Stockholder must purchase a ratable portion of each class of the Offered
Securities. In the event the Company materially amends the terms of the Offer
at any time, the Offer Period shall be extended for a period of not less than 3
business days.
(c) REFUSED SECURITIES. In the event that Notices of
Acceptance are not given by the Employee Stockholders in respect of all the
Offered Securities, the Company shall have 120 days from the expiration of the
Offer Period to sell all or any part of such Offered Securities as to which
Notices of Acceptance have not been given by the Employee Stockholders (the
"REFUSED SECURITIES") to any other Person(s), but only upon terms and
conditions in all respects, including, without limitation, unit price and
interest rates, which are no more favorable, in the aggregate, to such other
Person(s) or less favorable to the Company than those set forth in the Offer.
Upon the closing, which shall include full payment to the Company, of the sale
to such other Person(s) of all the Refused Securities, the Employee
Stockholders shall purchase from the Company, and the Company shall sell to the
Employee Stockholders, the Offered Securities in respect of which Notices of
Acceptance were delivered to the Company by the Employee Stockholders, at the
terms specified in the Offer.
14
<PAGE> 18
(d) EXCLUSIONS. In each case, any Offered Securities not
purchased by the Stockholders or any other Person(s) in accordance with Section
10.1(d) may not be sold or otherwise disposed of until they are again offered
to the Stockholders under the procedures specified in Sections 10.1(a), 10.1(b)
and 10.1(d). Notwithstanding anything to the contrary contained in this
Section 10.1, the Company shall not be obligated to offer any Offered
Securities to a Employee Stockholder who is not an "accredited investor" as
such term is defined in Rule 501 of the Securities Act if, in the reasonable
judgement of the Company (i) inclusion of such Employee Stockholder would
result in unnecessary delay or (ii) a sale such Employee Stockholder would
violate any rule of, or regulation or provision promulgated under the
Securities Act.
(e) EXCLUDED SECURITIES. The rights of the Stockholders
under this Section 10 shall not apply to the following securities (the
"EXCLUDED SECURITIES"):
(i) shares of Common Stock issued to, or upon exercise
of, options granted to officers, employees or
directors of, or consultants to, the Company or any
of its Subsidiaries pursuant to any management stock
option plan;
(ii) shares of Common Stock sold to officers, employees or
directors of, or consultants to, the Company or any
of its Subsidiaries;
(iii) any securities issued by the Company as any "equity
kicker" in connection with a debt financing any
securities issued upon conversion or exercise
thereof;
(iv) any securities issued by the Company in connection
with an acquisition;
(v) any securities issued by the Company in a public
offering or a Rule 144A transaction; and
(vi) shares of Common Stock issued as a stock dividend or
upon any stock split or other subdivision or
combination of the Common Stock.
SECTION 11. TRANSFERS IN VIOLATION OF AGREEMENT. Any
Transfer or attempted Transfer of any Stockholder Shares in violation of this
Agreement shall be void, and the Company shall not be obligated to record such
Transfer on its books or treat any purported transferee of such Stockholder
Shares as the owner of such shares for any purpose.
SECTION 12. AMENDMENT AND WAIVER. Except as otherwise
provided herein, no amendment or waiver of any provision of this Agreement
shall be effective against the Company or Stockholders unless such amendment or
waiver is approved in writing by the Company, AIP, the holders of at least a
majority of the then-outstanding AIP Shares and the holders of at least a
majority of the then-outstanding Employee Shares, respectively. The failure of
any party to enforce any provision of this Agreement shall not be construed as
a waiver of such provision and shall not affect the right of such party
thereafter to enforce each provision of this Agreement in accordance with its
terms.
15
<PAGE> 19
SECTION 13. SEVERABILITY. If any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision or any other
jurisdiction, but this Agreement shall be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
SECTION 14. ENTIRE AGREEMENT. Except as otherwise
expressly set forth herein, this document embodies the complete agreement and
understanding among the parties hereto with respect to the subject matter
hereof and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
SECTION 15. SUCCESSORS AND ASSIGNS. This Agreement shall
bind and inure to the benefit of and be enforceable by the Company, and the
Stockholders and their respective permitted successors and assigns so long as
such Stockholders and their respective permitted successors and assigns hold
Stockholder Shares.
SECTION 16. COUNTERPARTS. This Agreement may be executed
in separate counterparts each of which shall be an original and all of which
taken together shall constitute one and the same agreement.
SECTION 17. REMEDIES. The Company and the Stockholders
shall be entitled to enforce their rights under this Agreement specifically to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights existing in their favor. The parties hereto agree
and acknowledge that money damages may not be an adequate remedy for any breach
of the provisions of this Agreement and that the Company or any Stockholder may
in its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief (without posting
a bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement.
SECTION 18. NOTICES. Any notice provided for in this
Agreement shall be in writing and shall be either personally delivered, or sent
via facsimile, or mailed first class mail (postage prepaid) or sent by
reputable overnight courier service (charges prepaid) to the Company at its
address set forth below and to any other recipient at the address indicated on
the schedules hereto and to any subsequent holder of Stockholder Shares subject
to this Agreement at such address as indicated by the Company's records, or at
such address or to the attention of such other Person as the recipient party
has specified by prior written notice to the sending party. Notices will be
deemed to have been given hereunder when delivered personally or sent via
facsimile (against receipt therefor), three days after deposit in the U.S. mail
and one day after deposit with a reputable overnight courier service.
The Company's address is: c/o Steel Heddle Mfg. Co.
1801 Rutherford Road
Greenville, S.C. 29607
Attention: President
16
<PAGE> 20
with a copy to: American Industrial Partners
One Maritime Plaza, Suite 2525
San Francisco, CA 94111
Attention: Chief Financial Officer
and
American Industrial Partners
551 Fifth Avenue, Suite 3800
New York, N.Y. 10176
Attention: Robert J. Klein
SECTION 19. GOVERNING LAW. The corporate law of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the internal law, and not
the law of conflicts, of New York.
SECTION 20. DESCRIPTIVE HEADINGS. The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
SECTION 21. TERMINATION; SURVIVAL. Sections 2, 7, 8 and
9 hereof shall terminate on the date on which AIP and its Affiliates own less
than 20% of the outstanding Common Stock of the Company. Sections 4 and 10
hereof shall terminate upon the occurrence of a Qualified Public Offering.
Notwithstanding anything herein to the contrary, this Agreement shall terminate
upon a Company Sale.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
17
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this
Stockholders Agreement as of the date first above written.
STEEL HEDDLE GROUP, INC.
By: /s/ Nathan L. Belden
----------------------------------
Name: Nathan L. Belden
Title: Secretary
AMERICAN INDUSTRIAL PARTNERS
CAPITAL FUND II, L.P.
BY: AMERICAN INDUSTRIAL PARTNERS
II, L.P., ITS GENERAL PARTNER
BY: AMERICAN INDUSTRIAL PARTNERS
CORPORATION, ITS GENERAL PARTNER
By: /s/ Robert J. Klein
-----------------------------
Name: Robert J. Klein
Title: Attorney-in-Fact
<PAGE> 22
IN WITNESS WHEREOF, the undersigned have executed this
counterpart to the Stockholders Agreement as of May 26, 1998.
AIP STOCKHOLDERS:
/s/ Tom H. Barrett
----------------------------
/s/ Robert Cizik
----------------------------
/s/ Robert J. Klein
----------------------------
/s/ Robert Cizik
----------------------------
/s/ Ken Pereira
----------------------------
/s/ Robert Purdum
----------------------------
/s/ Burnell R. Roberts
----------------------------
/s/ Graham Sullivan
----------------------------
<PAGE> 23
IN WITNESS WHEREOF, the undersigned have executed this
counterpart to the Stockholders Agreement as of May 26, 1998.
EMPLOYEE STOCKHOLDER:
/s/ Randy Boggs
----------------------------
/s/ James Brant Connor
----------------------------
/s/ Edward J. Treglia
----------------------------
/s/ John D. Wright
----------------------------
<PAGE> 24
Schedule of Stockholders
American Industrial Partners Capital Fund II, L.P.
AIP Stockholders:
Tom Barrett
Nate Belden
Robert Cizik
Robert Klein
Ken Pereira
Robert Purdum
Burnell R. Roberts
Graham Sullivan
Employee Stockholder:
Randy Boggs
James Brant Connor
Edward J. Treglia
John D. Wright
<PAGE> 25
EXHIBIT A
FORM OF JOINDER
TO
STOCKHOLDERS AGREEMENT
This Joinder (this "Agreement") is made as of the date written
below by the undersigned (the "Joining Party") in favor of and for the benefit
of Steel Heddle Group, Inc. and the other parties to the Stockholders
Agreement, dated as of May 26, 1998 (the "Stockholders Agreement").
Capitalized terms used but not defined herein shall have the meanings given
such terms in the Stockholders Agreement.
The Joining Party hereby acknowledges, agrees and confirms
that, by his or her execution of this Joinder, the Joining Party will be deemed
to be a party to the Stockholders Agreement and shall have all of the
obligations of an [Employee] [AIP] Stockholder thereunder as if he or she had
executed the Stockholders Agreement. The Joining Party hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions contained in the Stockholders Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Joinder
as of the date written below.
----------------------------------------
Name:
Date:
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF KIRKLAND & ELLIS]
[DATE]
Steel Heddle Group, Inc.
1801 Rutherford Road
Greenville, SC 29607
Re: Offer by Steel Heddle Group, Inc. to Exchange its 13 3/4%
Series B Senior Discount Debentures Due 2009 for any and all
of its 13 3/4% Series A Senior Discount Debentures Due 2009
Ladies and Gentlemen:
We are acting as special counsel to Steel Heddle Group, Inc., a Delaware
corporation (the "Company"), in connection with the proposed registration by the
Company of up to $29,250,000 in aggregate principal amount at maturity of the
Company's 13 3/4% Series B Senior Discount Debentures due 2009 (the "New
Debentures"), pursuant to a Registration Statement on Form S-4 filed with the
Securities and Exchange Commission (the "Commission") on _________________, 1998
(such Registration Statement, as amended or supplemented, is hereinafter
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), for the purpose of effecting an exchange
offer (the "Exchange Offer") for the Company's 13 3/4% Series A Senior Discount
Debentures due 2009 (the "Debentures"). The New Debentures are to be issued
pursuant to the Indenture (the "Indenture"), dated as of May 26, 1998, between
the Company, as issuer, and United States Trust Company of New York, as Trustee,
in exchange for and in replacement of the Company's outstanding Debentures, of
which $29,250,000 in aggregate principal amount at maturity is outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the corporate and organizational documents of the
Company, (ii) minutes and records of the corporate proceedings of the Company
with respect to the issuance of the New Debentures, (iii) the Registration
Statement and exhibits thereto and (iv) the Registration Rights Agreement, dated
as of May 26, 1998, between the Company and Donaldson, Lufkin & Jenrette
Securities Corporation.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the
<PAGE> 2
Steel Heddle Group, Inc.
[DATE]
Page 2
authenticity of the originals of all documents submitted to us as copies. We
have also assumed the genuineness of the signatures of persons signing all
documents in connection with which this opinion is rendered, the authority of
such persons signing on behalf of the parties thereto other than the Company,
and the due authorization, execution and delivery of all documents by the
parties thereto other than the Company. As to any facts material to the opinions
expressed herein which we have not independently established or verified, we
have relied upon statements and representations of officers and other
representatives of the Company and others.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
(1) The Company is a corporation existing and in good standing under the
General Corporation Law of the State of Delaware.
(2) The issuance of the New Debentures has been validly authorized by the
Company.
(3) When, as and if (i) the Registration Statement shall have become
effective pursuant to the provisions of the Securities Act, (ii) the Indenture
shall have been qualified pursuant to the provisions of the Trust Indenture Act
of 1939, as amended, (iii) the Debentures shall have been validly tendered to
the Company, (iv) the New Debentures shall have been duly executed and
authenticated in accordance with the provisions of the Indenture and duly
delivered to the purchasers thereof in exchange for the Debentures, (v) the
Board of Directors and the appropriate officers of the Company have taken all
necessary action to fix and approve the terms of the New Debentures and (vi) any
legally required consents, approvals, authorizations or other order of the
Commission or any other regulatory authorities have been obtained, the New
Debentures when issued pursuant to the Exchange Offer will be legally issued,
fully paid and nonassessable and will constitute valid and binding obligations
of the Company.
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of
(i) any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law),
(iii) public policy considerations which may limit the rights of parties to
obtain certain remedies and (iv) any laws except the laws of the State of New
York and the General Corporation Law of the State of Delaware. We advise you
that issues addressed by this letter may be governed in whole or in part by
other laws, but we express no opinion as to whether any relevant difference
exists between the laws upon which our opinions are based and any other laws
which may actually govern. For purposes of the opinion in paragraph 1, we have
relied exclusively upon recent certificates issued by the Secretary of State of
<PAGE> 3
Steel Heddle Group, Inc.
[DATE]
Page 3
the State of Delaware, and such opinion is not intended to provide any
conclusion or assurance beyond that conveyed by such certificates. We have
assumed without investigation that there has been no relevant change or
development between the respective dates of such certificates and the date of
this letter.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance of the New Debentures.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of New York or the State of Delaware be changed by legislative
action, judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes.
Yours very truly,
KIRKLAND & ELLIS
<PAGE> 1
Exhibit 10.1
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement") is entered into as of
May 26, 1998 among STEEL HEDDLE MFG. CO., a Pennsylvania corporation (the
"Borrower"), STEEL HEDDLE GROUP, INC., a Delaware corporation (the "Parent"),
the Guarantors identified on the signature pages hereto (individually a
"Guarantor", and collectively the "Guarantors"; together with the Borrower and
the Parent, individually a "Pledgor", and collectively the "Pledgors") and
NATIONSBANK, N.A., in its capacity as agent (in such capacity, the "Agent") for
the lenders from time to time party to the Credit Agreement described below (the
"Lenders").
RECITALS
WHEREAS, pursuant to that certain Credit Agreement dated as of the date
hereof (as amended, modified, extended, renewed or replaced from time to time,
the "Credit Agreement") among the Borrower, the Guarantors, the Lenders, the
Agent and DLJ Capital Funding, Inc. as Syndication Agent, the Lenders have
agreed to make Loans and issue Letters of Credit upon the terms and subject to
the conditions set forth therein; and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective Loans and
to issue Letters of Credit under the Credit Agreement that the Pledgors shall
have executed and delivered this Pledge Agreement to the Agent for the ratable
benefit of the Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Credit Agreement.
For purposes of this Pledge Agreement, the term "Lender" shall include any
Affiliate of any Lender to which Hedging Obligations are owed by a Pledgor.
2. Pledge and Grant of Security Interest. To secure the prompt payment
and performance in full when due, whether by lapse of time or otherwise, of the
Pledgor Obligations (as defined in Section 3 hereof), each Pledgor hereby
pledges and assigns to the Agent, for the benefit of the Lenders, and grants to
the Agent, for the benefit of the Lenders, a continuing security interest in any
and all right, title and interest of such Pledgor in and to the following,
whether now owned or existing or owned, acquired, or arising hereafter
(collectively, the "Pledged Collateral"):
(a) Pledged Shares. (i) 100% (or, if less, the full amount
owned by such Pledgor) of the issued and outstanding shares of capital
stock owned by such Pledgor of each Domestic Subsidiary set forth on
Schedule 2(a) attached hereto and (ii) 65% (or, if less, the full
amount owned by such Pledgor) of the issued and outstanding shares of
each class of capital stock or other ownership interests entitled to
vote (within the
<PAGE> 2
meaning of Treas. Reg. Section 1.956-2(c)(2)) ("Voting Equity") and
100% (or, if less, the full amount owned by such Pledgor) of the issued
and outstanding shares of each class of capital stock or other
ownership interests not entitled to vote (within the meaning of Treas.
Reg. Section 1.956-2(c)(2)) ("Non-Voting Equity") owned by such Pledgor
of each Foreign Subsidiary set forth on Schedule 2(a) attached hereto,
in each case together with the certificates (or other agreements or
instruments), if any, representing such shares, and all options and
other rights, contractual or otherwise, with respect thereto
(collectively, together with the shares of capital stock described in
Section 2(b) and 2(c) below, the "Pledged Shares"), including, but not
limited to, the following:
(y) all shares or securities representing a dividend
on any of the Pledged Shares, or representing a distribution
or return of capital upon or in respect of the Pledged Shares,
or resulting from a stock split, revision, reclassification or
other exchange therefor, and any subscriptions, warrants,
rights or options issued to the holder of, or otherwise in
respect of, the Pledged Shares; and
(z) without affecting the obligations of such Pledgor
under any provision prohibiting such action hereunder, in the
event of any consolidation or merger in which a Pledgor is not
the surviving corporation, all shares of each class of the
capital stock of the successor corporation formed by or
resulting from such consolidation or merger.
(b) Additional Shares. With respect to any Pledgor other than
the Parent, 100% (or, if less, the full amount owned by such Pledgor)
of the issued and outstanding shares of capital stock owned by such
Pledgor of any Person which hereafter becomes a Domestic Subsidiary and
65% (or, if less, the full amount owned by such Pledgor) of the Voting
Equity and 100% (or, if less, the full amount owned by such Pledgor) of
the Non-Voting Equity owned by such Pledgor of any Person which
hereafter becomes a Foreign Subsidiary, including, without limitation,
the certificates representing such shares (provided, however, that no
Person that is a Foreign Subsidiary shall be required to pledge any
shares hereunder).
(c) Proceeds. All proceeds and products of the
foregoing, however and whenever acquired and in whatever form.
Without limiting the generality of the foregoing, it is hereby
specifically understood and agreed that a Pledgor may from time to time
hereafter deliver additional shares of stock to the Agent as collateral security
for the Pledgor Obligations. Upon delivery to the Agent, such additional shares
of stock shall be deemed to be part of the Pledged Collateral of such Pledgor
and shall be subject to the terms of this Pledge Agreement whether or not
Schedule 2(a) is amended to refer to such additional shares.
<PAGE> 3
3. Security for Pledgor Obligations. The security interest created
hereby in the Pledged Collateral of each Pledgor constitutes continuing
collateral security for all of the Credit Party Obligations, now existing or
hereafter arising pursuant to the Credit Documents, owing from the Borrower or
any other Credit Party to any Lender or the Agent, howsoever evidenced, created,
incurred or acquired, whether primary, secondary, direct, contingent, or joint
and several, including, without limitation, all liabilities arising under
Hedging Agreements and all obligations and liabilities incurred in connection
with collecting and enforcing the foregoing (collectively, the "Pledgor
Obligations").
4. Delivery of the Pledged Collateral. Each Pledgor hereby agrees that:
(a) Each Pledgor shall deliver to the Agent (i)
simultaneously with or prior to the execution and delivery of this
Pledge Agreement, all certificates representing the Pledged Shares of
such Pledgor and (ii) promptly upon the receipt thereof by or on behalf
of a Pledgor, all other certificates and instruments constituting
Pledged Collateral of a Pledgor. Prior to delivery to the Agent, all
such certificates and instruments constituting Pledged Collateral of a
Pledgor shall be held in trust by such Pledgor for the benefit of the
Agent pursuant hereto. All such certificates shall be delivered in
suitable form for transfer by delivery or shall be accompanied by duly
executed instruments of transfer or assignment in blank, substantially
in the form provided in Exhibit 4(a) attached hereto.
(b) Additional Securities. If such Pledgor shall
receive by virtue of its being or having been the owner of any Pledged
Collateral, any (i) stock certificate, including without limitation,
any certificate representing a stock dividend or distribution in
connection with any increase or reduction of capital, reclassification,
merger, consolidation, sale of assets, combination of shares, stock
splits, spin-off or split-off, promissory notes or other instrument;
(ii) option or right, whether as an addition to, substitution for, or
an exchange for, any Pledged Collateral or otherwise; (iii) dividends
payable in securities; or (iv) distributions of securities in
connection with a partial or total liquidation, dissolution or
reduction of capital, capital surplus or paid-in surplus, then such
Pledgor shall receive such stock certificate, instrument, option, right
or distribution in trust for the benefit of the Agent, shall segregate
it from such Pledgor's other property and shall deliver it forthwith to
the Agent in the exact form received together with any necessary
endorsement and/or appropriate stock power duly executed in blank,
substantially in the form provided in Exhibit 4(a), to be held by the
Agent as Pledged Collateral and as further collateral security for the
Pledgor Obligations.
(c) Financing Statements. Each Pledgor shall execute
and deliver to the Agent such UCC or other applicable financing
statements as may be reasonably requested by the Agent in order to
perfect and protect the security interest created hereby in the Pledged
Collateral of such Pledgor.
<PAGE> 4
5. Representations and Warranties. Each Pledgor hereby severally and
not jointly represents and warrants to the Agent, for the benefit of the
Lenders, with respect only to the Pledged Shares and Pledged Collateral owned by
such Pledgor, that so long as any of the Pledgor Obligations remain outstanding
(other than any such obligations which by the terms thereof are stated to
survive termination of the Credit Documents) or any Credit Document is in effect
or any Letter of Credit shall remain outstanding, and until all of the
Commitments shall have been terminated:
(a) Authorization of Pledged Shares. The Pledged
Shares are duly authorized and validly issued, are fully paid and
nonassessable and are not subject to the preemptive rights of any
Person. All other shares of stock constituting Pledged Collateral will
be duly authorized and validly issued, fully paid and nonassessable and
not subject to the preemptive rights of any Person.
(b) Title. Each Pledgor has good and indefeasible
title to the Pledged Collateral of such Pledgor and will at all times
be the legal and beneficial owner of such Pledged Collateral free and
clear of any Lien, other than Permitted Liens. There exists no "adverse
claim" within the meaning of Section 8-102(a)(1) of the Uniform
Commercial Code as in effect in the State of New York (the "UCC") with
respect to the Pledged Shares of such Pledgor.
(c) Exercising of Rights. The exercise by the Agent
of its rights and remedies hereunder will not violate any law or
governmental regulation or any material contractual restriction binding
on or affecting a Pledgor or any of its property.
(d) Pledgor's Authority. No authorization, approval
or action by, and no notice or filing with any Governmental Authority
or with the issuer of any Pledged Stock is required either (i) for the
pledge made by a Pledgor or for the granting of the security interest
by a Pledgor pursuant to this Pledge Agreement or (ii) for the exercise
by the Agent or the Lenders of their rights and remedies hereunder
(except as may be required by laws affecting the offering and sale of
securities).
(e) Security Interest/Priority. This Pledge Agreement
creates a valid security interest in favor of the Agent for the benefit
of the Lenders, in the Pledged Collateral. The taking possession by the
Agent of the certificates representing the Pledged Shares and all other
certificates and instruments constituting Pledged Collateral will
perfect and establish the first priority of the Agent's security
interest in the Pledged Shares and, when properly perfected by filing
or registration, in all other Pledged Collateral represented by such
Pledged Shares and instruments securing the Pledgor Obligations. Except
as set forth in this Section 5(e), no action is necessary to perfect or
otherwise protect such security interest.
<PAGE> 5
(f) No Other Shares. No Pledgor owns any shares of stock
other than as set forth on Schedule 2(a) attached hereto.
6. Covenants. Each Pledgor hereby covenants, that so long as any of the
Pledgor Obligations remain outstanding (other than any such obligations which by
the terms thereof are stated to survive termination of the Credit Documents) or
any Credit Document is in effect or any Letter of Credit shall remain
outstanding, and until all of the Commitments shall have been terminated, such
Pledgor shall:
(a) Books and Records. Mark its books and records
(and shall cause the issuer of the Pledged Shares of such Pledgor to
mark its books and records) to reflect the security interest granted to
the Agent, for the benefit of the Lenders, pursuant to this Pledge
Agreement.
(b) Defense of Title. Warrant and defend title to and
ownership of the Pledged Collateral of such Pledgor at its own expense
against the claims and demands of all other parties claiming an
interest therein, keep the Pledged Collateral free from all Liens,
except for Permitted Liens, and not sell, exchange, transfer, assign,
lease or otherwise dispose of Pledged Collateral of such Pledgor or any
interest therein, except as permitted under the Credit Agreement and
the other Credit Documents.
(c) Further Assurances. Promptly execute and deliver
at its expense all further instruments and documents and take all
further action that may be necessary and desirable or that the Agent
may reasonably request in order to (i) perfect and protect the security
interest created hereby in the Pledged Collateral of such Pledgor
(including without limitation any and all action necessary to satisfy
the Agent that the Agent has obtained a first priority perfected
security interest in any capital stock); (ii) enable the Agent to
exercise and enforce its rights and remedies hereunder in respect of
the Pledged Collateral of such Pledgor; and (iii) otherwise effect the
purposes of this Pledge Agreement, including, without limitation and if
requested by the Agent, delivering to the Agent irrevocable proxies in
respect of the Pledged Collateral of such Pledgor.
(d) Amendments. Not make or consent to any amendment
or other modification or waiver with respect to any of the Pledged
Collateral of such Pledgor or enter into any agreement or allow to
exist any restriction with respect to any of the Pledged Collateral of
such Pledgor other than pursuant hereto or as may be permitted under
the Credit Agreement.
(e) Compliance with Securities Laws. File all reports
and other information now or hereafter required to be filed by such
Pledgor with the United States Securities and Exchange Commission and
any other state, federal or foreign agency in connection with the
ownership of the Pledged Collateral of such Pledgor.
<PAGE> 6
7. Advances by Lenders. On failure of any Pledgor to perform any of the
covenants and agreements contained herein, the Agent may, at its sole option and
in its sole discretion, perform the same and in so doing may expend such sums as
the Agent may reasonably deem advisable in the performance thereof, including,
without limitation, the payment of any insurance premiums, the payment of any
taxes, a payment to obtain a release of a Lien or potential Lien, expenditures
made in defending against any adverse claim and all other expenditures which the
Agent or the Lenders may make for the protection of the security hereof or which
may be compelled to make by operation of law. All such sums and amounts so
expended shall be repayable by the Pledgors promptly upon timely notice thereof
and demand therefor, shall constitute additional Pledgor Obligations and shall
bear interest from the date said amounts are expended at the default rate
specified in Section 3.1(b) of the Credit Agreement for Revolving Loans that are
Base Rate Loans. No such performance of any covenant or agreement by the Agent
or the Lenders on behalf of any Pledgor, and no such advance or expenditure
therefor, shall relieve the Pledgors of any default under the terms of this
Pledge Agreement or the other Credit Documents. The Lenders may make any payment
hereby authorized in accordance with any bill, statement or estimate procured
from the appropriate public office or holder of the claim to be discharged
without inquiry into the accuracy of such bill, statement or estimate or into
the validity of any tax assessment, sale, forfeiture, tax lien, title or claim
except to the extent such payment is being contested in good faith by a Pledgor
in appropriate proceedings and against which adequate reserves are being
maintained in accordance with GAAP.
8. Events of Default. The occurrence of an event (including the
expiration of any grace or cure period applicable thereto) which under the
Credit Agreement would constitute an Event of Default shall be an Event of
Default hereunder (an "Event of Default").
9. Remedies.
(a) General Remedies. Upon the occurrence of an Event
of Default and during the continuation thereof, the Agent and the
Lenders shall have, in respect of the Pledged Collateral of any
Pledgor, in addition to the rights and remedies provided herein, in the
Credit Documents or by law, the rights and remedies of a secured party
under the UCC or any other applicable law.
(b) Sale of Pledged Collateral. Upon the occurrence
of an Event of Default and during the continuation thereof, without
limiting the generality of this Section and without notice, the Agent
may, in its sole discretion, sell or otherwise dispose of or realize
upon the Pledged Collateral, or any part thereof, in one or more
parcels, at public or private sale, at any exchange or broker's board
or elsewhere, at such price or prices and on such other terms as the
Agent may deem commercially reasonable, for cash, credit or for future
delivery or otherwise in accordance with applicable law. To the extent
permitted by law, any Lender may in such event, bid for the purchase of
such securities. Each Pledgor agrees that, to the extent notice of sale
shall be required by law and has not been waived by such Pledgor, any
requirement of reasonable notice shall be
<PAGE> 7
met if notice, specifying the place of any public sale or the time
after which any private sale is to be made, is personally served on or
mailed, postage prepaid, to such Pledgor, in accordance with the notice
provisions of Section 11.1 of the Credit Agreement at least 30 days
before the time of such sale. The Agent shall not be obligated to make
any sale of Pledged Collateral of such Pledgor regardless of notice of
sale having been given. The Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.
(c) Private Sale. Upon the occurrence of an Event of
Default and during the continuation thereof, the Pledgors recognize
that the Agent may deem it impracticable to effect a public sale of all
or any part of the Pledged Shares or any of the securities constituting
Pledged Collateral and that the Agent may, therefore, determine to make
one or more private sales of any such securities to a restricted group
of purchasers who will be obligated to agree, among other things, to
acquire such securities for their own account, for investment and not
with a view to the distribution or resale thereof. Each Pledgor
acknowledges that any such private sale may be at prices and on terms
less favorable to the seller than the prices and other terms which
might have been obtained at a public sale and, notwithstanding the
foregoing, agrees that such private sale shall be deemed to have been
made in a commercially reasonable manner and that the Agent shall have
no obligation to delay sale of any such securities for the period of
time necessary to permit the issuer of such securities to register such
securities for public sale under the Securities Act of 1933. Each
Pledgor further acknowledges and agrees that any offer to sell such
securities which has been (i) publicly advertised on a bona fide basis
in a newspaper or other publication of general circulation in the
financial community of New York, New York (to the extent that such
offer may be advertised without prior registration under the Securities
Act of 1933), or (ii) made privately in the manner described above
shall be deemed to involve a "public sale" under the UCC,
notwithstanding that such sale may not constitute a "public offering"
under the Securities Act of 1933, and the Agent may, in such event, bid
for the purchase of such securities.
(d) Retention of Pledged Collateral. In addition to
the rights and remedies hereunder, upon the occurrence of an Event of
Default, the Agent may, after providing the notices required by Section
9-505(2) of the UCC or otherwise complying with the requirements of
applicable law of the relevant jurisdiction, retain all or any portion
of the Pledged Collateral in satisfaction of the Pledgor Obligations.
Unless and until the Agent shall have provided such notices, however,
the Agent shall not be deemed to have retained any Pledged Collateral
in satisfaction of any Pledgor Obligations for any reason.
(e) Deficiency. In the event that the proceeds of any
sale, collection or realization are insufficient to pay all amounts to
which the Agent or the Lenders are legally entitled, the Pledgors
(other than the Parent) shall be liable for the deficiency,
<PAGE> 8
together with interest thereon at the default rate specified in Section
3.1(b) of the Credit Agreement for Revolving Loans that are Base Rate
Loans, together with the costs of collection and the reasonable fees of
any attorneys employed by the Agent to collect such deficiency. Any
surplus remaining after the full payment and satisfaction of the
Pledgor Obligations shall be returned to the Pledgors or to whomsoever
a court of competent jurisdiction shall determine to be entitled
thereto.
10. Rights of the Agent.
(a) Power of Attorney. In addition to other powers of
attorney contained herein, each Pledgor hereby designates and appoints
the Agent, on behalf of the Lenders, and each of its designees or
agents as attorney-in-fact of such Pledgor, irrevocably and with power
of substitution, with authority to take any or all of the following
actions upon the occurrence and during the continuance of an Event of
Default:
(i) to demand, collect, settle, compromise, adjust
and give discharges and releases concerning the Pledged
Collateral of such Pledgor, all as the Agent may reasonably
determine;
(ii) to commence and prosecute any actions at any
court for the purposes of collecting any of the Pledged
Collateral of such Pledgor and enforcing any other right in
respect thereof;
(iii) to defend, settle or compromise any action
brought and, in connection therewith, give such discharge or
release as the Agent may deem reasonably appropriate;
(iv) to pay or discharge taxes, liens, security
interests, or other encumbrances levied or placed on or
threatened against the Pledged Collateral of such Pledgor;
(v) to direct any parties liable for any payment
under any of the Pledged Collateral to make payment of any and
all monies due and to become due thereunder directly to the
Agent or as the Agent shall direct;
(vi) to receive payment of and receipt for any and
all monies, claims, and other amounts due and to become due at
any time in respect of or arising out of any Pledged
Collateral of such Pledgor;
(vii) to sign and endorse any drafts, assignments,
proxies, stock powers, verifications, notices and other
documents relating to the Pledged Collateral of such Pledgor;
<PAGE> 9
(viii) to settle, compromise or adjust any suit,
action or proceeding described above and, in connection
therewith, to give such discharges or releases as the Agent
may deem reasonably appropriate;
(ix) execute and deliver all assignments,
conveyances, statements, financing statements, renewal
financing statements, pledge agreements, affidavits, notices
and other agreements, instruments and documents that the Agent
may determine necessary in order to perfect and maintain the
security interests and liens granted in this Pledge Agreement
and in order to fully consummate all of the transactions
contemplated therein;
(x) to exchange any of the Pledged Collateral of such
Pledgor or other property upon any merger, consolidation,
reorganization, recapitalization or other readjustment of the
issuer thereof and, in connection therewith, deposit any of
the Pledged Collateral of such Pledgor with any committee,
depository, transfer agent, registrar or other designated
agency upon such terms as the Agent may determine;
(xi) to vote for a shareholder resolution, or to sign
an instrument in writing, sanctioning the transfer of any or
all of the Pledged Shares of such Pledgor into the name of the
Agent or one or more of the Lenders or into the name of any
transferee to whom the Pledged Shares of such Pledgor or any
part thereof may be sold pursuant to Section 10 hereof; and
(xii) to do and perform all such other acts and
things as the Agent may reasonably deem to be necessary,
proper or convenient in connection with the Pledged Collateral
of such Pledgor.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Pledgor Obligations remain
outstanding, any Credit Document is in effect or any Letter of Credit
shall remain outstanding and (ii) until all of the Commitments shall
have been terminated. The Agent shall be under no duty to exercise or
withhold the exercise of any of the rights, powers, privileges and
options expressly or implicitly granted to the Agent in this Pledge
Agreement, and shall not be liable for any failure to do so or any
delay in doing so. The Agent shall not be liable for any act or
omission or for any error of judgment or any mistake of fact or law in
its individual capacity or its capacity as attorney-in-fact except acts
or omissions resulting from its gross negligence or willful misconduct.
This power of attorney is conferred on the Agent solely to protect,
preserve and realize upon its security interest in Pledged Collateral.
<PAGE> 10
(b) Performance by the Agent of Pledgor's Obligations. If any
Pledgor fails to perform any agreement or obligation contained herein,
the Agent itself may perform, or cause performance of, such agreement
or obligation, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgors on pursuant to Section 13
hereof.
(c) Assignment by the Agent. The Agent may from time to time
assign the Pledgor Obligations and any portion thereof and/or the
Pledged Collateral and any portion thereof, and the assignee shall be
entitled to all of the rights and remedies of the Agent under this
Pledge Agreement in relation thereto.
(d) The Agent's Duty of Care. Other than the exercise of
reasonable care to assure the safe custody of the Pledged Collateral
while being held by the Agent hereunder, the Agent shall have no duty
or liability to preserve rights pertaining thereto, it being understood
and agreed that Pledgors shall be responsible for preservation of all
rights in the Pledged Collateral of such Pledgor, and the Agent shall
be relieved of all responsibility for Pledged Collateral upon
surrendering it or tendering the surrender of it to the Pledgors. The
Agent shall be deemed to have exercised reasonable care in the custody
and preservation of the Pledged Collateral in its possession if such
Pledged Collateral is accorded treatment substantially equal to that
which the Agent accords its own property, which shall be no less than
the treatment employed by a reasonable and prudent agent in the
industry, it being understood that the Agent shall not have
responsibility for (i) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters
relating to any Pledged Collateral, whether or not the Agent has or is
deemed to have knowledge of such matters; or (ii) taking any necessary
steps to preserve rights against any parties with respect to any
Pledged Collateral.
(e) Voting Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have
occurred and be continuing, to the extent permitted by law,
each Pledgor may exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral of such
Pledgor or any part thereof for any purpose not inconsistent
with the terms of this Pledge Agreement or the Credit
Agreement; and
(ii) Upon the occurrence and during the continuance
of an Event of Default, all rights of a Pledgor to exercise
the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to paragraph (i) of
this Section shall cease and all such rights shall thereupon
become vested in the Agent which shall then have the sole
right to exercise such voting and other consensual rights.
(f) Dividend Rights in Respect of the Pledged Collateral.
<PAGE> 11
(i) So long as no Event of Default shall have
occurred and be continuing and subject to Section 4(b) hereof,
each Pledgor may receive and retain any and all dividends
(other than stock dividends and other dividends constituting
Pledged Collateral which are addressed hereinabove) or
interest paid in respect of the Pledged Collateral to the
extent they are allowed under the Credit Agreement.
(ii) Upon the occurrence and during the continuance
of an Event of Default:
(A) all rights of a Pledgor to receive the
dividends and interest payments which it would
otherwise be authorized to receive and retain
pursuant to paragraph (i) of this Section shall cease
and all such rights shall thereupon be vested in the
Agent which shall then have the sole right to receive
and hold as Pledged Collateral such dividends and
interest payments; and
(B) all dividends and interest payments
which are received by a Pledgor contrary to the
provisions of paragraph (A) of this Section shall be
received in trust for the benefit of the Agent, shall
be segregated from other property or funds of such
Pledgor, and shall be forthwith paid over to the
Agent as Pledged Collateral in the exact form
received, to be held by the Agent as Pledged
Collateral and as further collateral security for the
Pledgor Obligations.
(g) Release of Pledged Collateral. The Agent may release any
of the Pledged Collateral from this Pledge Agreement or may substitute
any of the Pledged Collateral for other Pledged Collateral without
altering, varying or diminishing in any way the force, effect, lien,
pledge or security interest of this Pledge Agreement as to any Pledged
Collateral not expressly released or substituted, and this Pledge
Agreement shall continue as a first priority lien on all Pledged
Collateral not expressly released or substituted.
11. Rights of Required Lenders. All rights of the Agent hereunder, if
not exercised by the Agent, may be exercised by the Required Lenders.
12. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Pledgor
Obligations and any proceeds of any Pledged Collateral, when received by the
Agent or any of the Lenders in cash or its equivalent, will be applied in
reduction of the Pledgor Obligations in the order set forth in Section 3.8 of
the Credit Agreement, and each Pledgor irrevocably waives the right to direct
the application of such payments and proceeds and acknowledges and agrees that
the Agent shall
<PAGE> 12
have the continuing and exclusive right to apply and reapply any and all such
payments and proceeds in the Agent's sole discretion, notwithstanding any entry
to the contrary upon any of its books and records.
13. Costs of Counsel. At all times hereafter, the Pledgors agree to
promptly pay upon demand any and all reasonable costs and reasonable expenses of
the Agent or the Lenders, (a) as required under Section 11.5 of the Credit
Agreement and (b) as necessary to protect the Pledged Collateral or to exercise
any rights or remedies under this Pledge Agreement or with respect to any
Pledged Collateral. All of the foregoing costs and expenses shall constitute
Pledgor Obligations hereunder.
14. Continuing Agreement.
(a) This Pledge Agreement shall be a continuing agreement in
every respect and shall remain in full force and effect so long as any
of the Pledgor Obligations remain outstanding, any Credit Document is
in effect or any Letter of Credit shall remain outstanding, and until
all of the Commitments thereunder shall have terminated (other than any
obligations with respect to the indemnities and the representations and
warranties set forth in the Credit Documents). Upon such payment and
termination, this Pledge Agreement shall be automatically terminated
and the Agent and the Lenders shall, upon the request and at the
expense of the Pledgors, forthwith release all of its liens and
security interests hereunder and shall executed and deliver all UCC
termination statements and/or other documents reasonably requested by
the Pledgors evidencing such termination. Notwithstanding the foregoing
all releases and indemnities provided hereunder shall survive
termination of this Pledge Agreement.
(b) This Pledge Agreement shall continue to be effective or be
automatically reinstated, as the case may be, if at any time payment,
in whole or in part, of any of the Pledgor Obligations is rescinded or
must otherwise be restored or returned by the Agent or any Lender as a
preference, fraudulent conveyance or otherwise under any bankruptcy,
insolvency or similar law, all as though such payment had not been
made; provided that in the event payment of all or any part of the
Pledgor Obligations is rescinded or must be restored or returned, all
reasonable costs and expenses (including without limitation any
reasonable legal fees and disbursements) incurred by the Agent or any
Lender in defending and enforcing such reinstatement shall be deemed to
be included as a part of the Pledgor Obligations.
15. Amendments; Waivers; Modifications. This Pledge Agreement and the
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except as set forth in Section 11.6 of the Credit Agreement.
16. Successors in Interest. This Pledge Agreement shall create a
continuing security interest in the Collateral and shall be binding upon each
Pledgor, its successors and assigns and
<PAGE> 13
shall inure, together with the rights and remedies of the Agent and the Lenders
hereunder, to the benefit of the Agent and the Lenders and their successors and
permitted assigns; provided, however, that none of the Pledgors may assign its
rights or delegate its duties hereunder without the prior written consent of
each Lender or the Required Lenders, as required by the Credit Agreement. To the
fullest extent permitted by law, each Pledgor hereby releases the Agent and each
Lender, and its successors and assigns, from any liability for any act or
omission relating to this Pledge Agreement or the Collateral, except for any
liability arising from the gross negligence or willful misconduct of the Agent,
or such Lender, or its officers, employees or agents.
17. Notices. All notices required or permitted to be given under this
Pledge Agreement shall be in conformance with Section 11.1 of the Credit
Agreement.
18. Counterparts. This Pledge Agreement may be executed in any number
of counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Pledge Agreement to produce or
account for more than one such counterpart.
19. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Pledge Agreement.
20. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any
legal action or proceeding with respect to this Security Agreement may
be brought in the courts of the State of New York, or of the United
States for the Southern District of New York, and, by execution and
delivery of this Security Agreement, each Pledgor hereby irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of such courts. Each Pledgor further
irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to
it at the address for notices pursuant to Section 11.1 of the Credit
Agreement, such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of the Agent to serve process in
any other manner permitted by law or to commence legal proceedings or
to otherwise proceed against any Pledgor in any other jurisdiction.
(b) Each Pledgor hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings
<PAGE> 14
arising out of or in connection with this Pledge Agreement brought in
the courts referred to in subsection (a) hereof and hereby further
irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
21. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE PARTIES TO THIS PLEDGE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
22. Severability. If any provision of any of the Pledge Agreement is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
23. Entirety. This Pledge Agreement and the other Credit Documents
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
24. Survival. All representations and warranties of the Pledgors
hereunder shall survive the execution and delivery of this Pledge Agreement and
the other Credit Documents, the delivery of the Notes and the making of the
Loans and the issuance of the Letters of Credit under the Credit Agreement.
25. Other Security. To the extent that any of the Pledgor Obligations
are now or hereafter secured by property other than the Pledged Collateral
(including, without limitation, real and other personal property owned by a
Pledgor), or by a guarantee, endorsement or property of any other Person, then
the Agent and the Lenders shall have the right to proceed against such other
property, guarantee or endorsement upon the occurrence of any Event of Default,
and the Agent and the Lenders have the right, in their sole discretion, to
determine which rights, security, liens, security interests or remedies the
Agent and the Lenders shall at any time pursue, relinquish, subordinate, modify
or take with respect thereto, without in any way modifying or affecting any of
them or any of the Agent's and the Lenders' rights or the Pledgor Obligations
under this Pledge Agreement or under any other of the Credit Documents.
26. Limitation of Liability. Notwithstanding any provision to the
contrary contained herein or in any other of the Credit Documents, to the extent
the obligations of an Obligor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or transfers)
then the obligations of such Obligor hereunder shall be limited to the maximum
amount that is
<PAGE> 15
permissible under applicable law (whether federal or state and including,
without limitation, the Bankruptcy Code).
***********
<PAGE> 16
Each of the parties hereto has caused a counterpart of this Pledge
Agreement to be duly executed and delivered as of the date first above written.
BORROWER: STEEL HEDDLE MFG. CO.
By: /s/ Benjamin G. Team
--------------------------
Name: Benjamin G. Team
--------------------------
Title: President
--------------------------
PARENT: STEEL HEDDLE GROUP, INC.
By: /s/ Robert J. Klein
--------------------------
Name: Robert J. Klein
--------------------------
Title: President
--------------------------
GUARANTORS: STEEL HEDDLE INTERNATIONAL, INC.
By: /s/ Benjamin G. Team
--------------------------
Name: Benjamin G. Team
--------------------------
Title: President
--------------------------
HEDDLE CAPITAL CORP.
By: /s/ Jerry B. Miller
--------------------------
Name: Jerry B. Miller
--------------------------
Title: President
--------------------------
Accepted and agreed to in Charlotte, North Carolina as of the date first
above written.
NATIONSBANK, N.A., as Agent
By: /s/ Diana H. Inman
--------------------------
Name: Diana H. Inman
--------------------------
Title: Vice President
--------------------------
<PAGE> 17
Schedule 2(a)
to
Pledge Agreement
dated as of May 22, 1998
in favor of NationsBank, N.A.
as Agent
PLEDGED STOCK
PLEDGOR: STEEL HEDDLE GROUP, INC.
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Owned Number Ownership
- ------------------ ------------ ------ ---------
<S> <C> <C> <C>
Steel Heddle Mfg. Co. 100%
-------- -------
</TABLE>
PLEDGOR: STEEL HEDDLE MFG. CO.
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Owned Number Ownership
- ------------------ ------------ ------ ---------
<S> <C> <C> <C>
Heddle Capital Corp. 1000 100%
Steel Heddle International, Inc. 25 1 100%
Steel Heddle International, Ltd. 100 1 100%
Steel Heddle (Canada) 30,000 1 100%
LTEE/LTD.
</TABLE>
PLEDGOR: STEEL HEDDLE INTERNATIONAL, INC.
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Owned Number Ownership
- ------------------ ---------- ----------- ----------
<S> <C> <C> <C>
[Japan Branch]
Steel Heddle Weaving Machine 100%
Accessories Co., Ltd. (China)
Steel Heddle International de
Mexico S.A. de C.V. 19996 1 99.98%
</TABLE>
1
<PAGE> 18
Exhibit 4(a)
to
Pledge Agreement
dated as of May 22, 1998
in favor of NationsBank, N.A.
as Agent
Irrevocable Stock Power
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
the following shares of capital stock of _____________________, a ____________
corporation:
No. of Shares Certificate No.
------------- ---------------
and irrevocably appoints __________________________________ its agent and
attorney-in-fact to transfer all or any part of such capital stock and to take
all necessary and appropriate action to effect any such transfer. The agent and
attorney-in-fact may substitute and appoint one or more persons to act for him.
The effectiveness of a transfer pursuant to this stock power shall be subject to
any and all transfer restrictions referenced on the face of the certificates
evidencing such interest or in the certificate of incorporation or bylaws of the
subject corporation, to the extent they may from time to time exist.
,
---------------
a ______________ corporation
By:
Name:
Title:
<PAGE> 1
Exhibit 10.2
================================================================================
STOCK PURCHASE AGREEMENT
among
SH HOLDINGS CORP.,
THE OTHER PERSONS IDENTIFIED
ON SCHEDULE 1 HERETO,
BUTLER CAPITAL CORPORATION
and
STEEL HEDDLE GROUP, INC.
Dated as of May 1, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Certain Matters of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. ACQUISITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. PAYMENT AND CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.1. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2. Closing Statement and Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3. Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.4. Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1. Organization and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.2. Authorization and Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.3. Non-Contravention, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.4. Title to Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.5. Brokers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5. REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1. Corporate Matters, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2. Financial Statements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3. Change in Condition Since Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4. Environmental Matters, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.5. Real and Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.6. Intellectual Property Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.7. Certain Contractual Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.8. Insurance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.9. Litigation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.10. Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.11. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.12. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.13. Brokers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.14. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.15. Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.1. Corporate Matters, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2. Financial Condition, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.3. Investment Intent, Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.4. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.5. Brokers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7. CERTAIN AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.1. Payment of Transfer Taxes and Other Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.2. Confidentiality Covenant of the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.3. Operation of Business and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.4. Preparation for Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.5. Potential Parachute Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.6. Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.7. No Section 338 Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.8. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.9. Delivery of Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.10. No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.11. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.12. Covenant Not to Compete; Non-Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.13. Litigation Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.14. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.15. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.16. Accountant's Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.17. Discharge of Management Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.18. Exercise of Options, Rights and Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8. CONDITIONS TO THE OBLIGATION TO CLOSE OF THE BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.1. Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2. Legality; Governmental Authorization; Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.3. Third-Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.4. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.5. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.6. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.7. Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.8. Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9. CONDITIONS TO THE OBLIGATION TO CLOSE OF THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.1. Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.2. Legality; Government Authorization; Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.3. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.4. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10. EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.1. Employment of Affected Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.2. Continuation of Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.3. WARN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.4. Third-Party Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.1. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.2. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.3. Monetary Limitations on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.4. Third-Party Claims, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.5. Mineral Spirits Remediation at Westminster, S.C. Facility . . . . . . . . . . . . . . . . . . . . . . . . 42
11.6. Special Hixon Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.7. Certain Other Indemnity Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12. CONSENT TO JURISDICTION; JURY TRIAL WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.1. Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.2. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.1. Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
13.3. Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.1. Entire Agreement; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.2. Amendment or Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.3. Investigation; No Additional Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.4. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.5. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.6. Limited Liability of Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.7. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.8. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.9. Headings, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.10. Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.11. Termination of Stockholder's Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.12. Termination of Consulting Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.14. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.15. Strict Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.16. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
-iii-
<PAGE> 5
EXHIBITS
Exhibit 3.2.1 Working Capital
Exhibit 8.4 Opinion of Sellers' and Company Counsel
Exhibit 9.4 Opinion of Buyer's Counsel
Exhibit 11.5.2 Environmental Escrow Agreement
SCHEDULES
Schedule 1 Ownership; Stock Subject to Liens
Schedule 4.3 Sellers' Exceptions to Non-Contravention
Schedule 5.1.2 Company Exceptions to Non-Contravention
Schedule 5.1.4 SH Holdings Corp. Subsidiaries
Schedule 5.1.5 Directors & Officers
Schedule 5.3 Changes in Condition Since Balance Sheet Date
Schedule 5.4 Environmental Matters
Schedule 5.5.1 Liens on Personal Property
Schedule 5.5.2 Owned Real Property
Schedule 5.5.2(a) Liens on Owned Real Property
Schedule 5.5.2(b) Leased Real Property
Schedule 5.6 List of Trademarks, Patents and Licenses
Schedule 5.7 Contractual Obligations
Schedule 5.8 Insurance Policies
Schedule 5.9 Litigation
Schedule 5.10 Compliance with Laws
Schedule 5.11 Tax Matters
Schedule 5.12 Employee Benefit Plans
Schedule 5.14 Absence of Undisclosed Liabilities
Schedule 5.15 Labor
Schedule 7.3 Operation of Business Pre-Closing
Schedule 7.12 Key Management Employees
Schedule 8.3 Third-Party Consents
-iv-
<PAGE> 6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the
first day of May, 1998, among SH Holdings Corp., a Pennsylvania corporation
(the "Company"), each stockholder or holder of options, warrants or rights of
the Company listed on Schedule 1 hereto which has executed a counterpart hereof
(each singularly, a "Seller" and, collectively, the "Sellers" of the Company),
Butler Capital Corporation, a Delaware corporation ("Butler") (with respect to
Section 7.12 hereof only) and Steel Heddle Group, Inc., a Delaware corporation
(the "Buyer").
Recitals
1. Each of the Sellers owns (a) the shares of Class A Common Stock of
the Company, par value $.01 per share set forth opposite such Seller's name on
Schedule 1 hereto (the "Class A Common Stock") ; (b) the shares of Class B
Common Stock of the Company, par value $.01 per share set forth opposite such
Seller's name on Schedule 1 hereto (the "Class B Common Stock"); (c) the
options to purchase shares of Class A Common Stock set forth opposite such
Seller's name on Schedule 1 hereto (the "Options"); (d) the warrants to
purchase shares of Class A Common Stock set forth opposite such Seller's name
on Schedule 1 hereto (the "Warrants"); and (e) the rights to purchase Class A
Common Stock set forth opposite such Seller's name on Schedule 1 hereto (the
"Rights"). The shares of Class A Common Stock and Class B Common Stock,
together with any shares of Class A Common Stock issued upon exercise of the
Options, Warrants and Rights prior to Closing, are referred to collectively as
the "Shares," and the Shares, Options, Warrants and Rights are collectively
referred to as the "Securities."
2. The Buyer wishes to afford certain key employees of the Company
who own Shares, Options or Rights the opportunity to exchange such Securities
for Rollover Securities (as defined herein).
3. The Sellers desire to (i) sell and transfer their Shares to Buyer
for cash (other than any Shares designated by such Seller, subject to Buyer's
approval, as Excluded Securities (as defined below) which would be exchanged
for Rollover Securities (as defined below)) and (ii) have their Options,
Warrants and Rights canceled in exchange for the payment in cash of their net
value (other than any Options or Rights designated by such Seller, subject to
Buyer's approval, as Excluded Securities which would be canceled in exchange
for Rollover Securities).
Agreement
Therefore, in consideration of the foregoing and the mutual agreements
and covenants set forth below, the parties hereto hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
<PAGE> 7
1.1. Certain Matters of Construction. In addition to the
definitions referred to or set forth below in this Section 1:
(a) The words "hereof," "herein," "hereunder" and words
of similar import refer to this Agreement as a whole and not to any
particular Section or provision of this Agreement, and reference to a
particular Section of this Agreement includes all subsections thereof.
(b) The words "party" and "parties" refer to the Sellers,
the Company and the Buyer.
(c) Definitions are equally applicable to both the
singular and plural forms of the terms defined, and references to the
masculine, feminine or neuter gender include each other gender.
(d) Accounting terms used herein and not otherwise
defined herein are used herein as defined by Generally Accepted
Accounting Principles (as defined below) in effect as of the date
hereof, consistently applied.
(e) All references in this Agreement to any Exhibit or
Schedule, unless the context otherwise requires, refer to an Exhibit
or Schedule, as the case may be, to this Agreement, all of which are
made a part of this Agreement.
(f) The word "including" means including without
limitation.
1.2. Certain Definitions. The following terms shall have the
following meanings:
1.2.1. "Action" means any judicial or administrative
action, suit or proceeding before any Governmental Authority.
1.2.2. "Active Remediation Phase" is defined in Section
11.5.3.
1.2.3. "Affected Employees" means all current employees of
any of the Steel Heddle Companies as of the Closing Date, including
any such person who is on an approved leave of absence.
1.2.4. "Affiliate" means, as to the Company (or other
specified Person), each Person directly or indirectly controlling,
controlled by or under common control with the Company (or such
specified Person). For purposes of this definition, the term
"control" (including the terms "controlling," "controlled by" and
"under common control with") means the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities
or otherwise.
-2-
<PAGE> 8
1.2.5. "Agreement" is defined in the Preamble.
1.2.6. "Another Transaction" is defined in Section 7.10.
1.2.7. "Balance Sheet" is defined in Section 5.2.1.
1.2.8. "Balance Sheet Date" means January 3, 1998.
1.2.9. "Bank Debt" means all Debt (including all
outstanding principal, prepayment premiums, if any, and accrued
interest, fees, penalties and expenses related thereto, but excluding
the DHEC Letter of Credit) of the Steel Heddle Companies to
NationsBank, N.A. under the Credit Agreement dated as of February 21,
1997 between the Company and NationsBank, N.A.
1.2.10. "BCC Sellers" means, collectively, Mezzanine
Lending Associates II, L.P., a Delaware limited partnership; Mezzanine
Lending Associates III, L.P., a Delaware limited partnership;
Mezzanine Lending Management II, L.P., a Delaware limited partnership;
Mezzanine Lending Management III, L.P.; a Delaware limited
partnership; Senior Lending Associates I, L.P. a Delaware limited
partnership; Senior Lending Associates II, L.P., a Delaware limited
partnership; Senior Lending Management I, L.P., a Delaware limited
partnership; and BCC Industrial Services, Inc., a Delaware
corporation.
1.2.11. "Bonus Liability" means the aggregate amounts
payable pursuant to the Bonus Agreements dated as of April 21, 1998
among the Company, Mfg. Co. and each of Benjamin G. Team, Robert W.
Dillon and Jerry B. Miller as a result of the transactions
contemplated by this Agreement.
1.2.12. "Business" means the business of the Steel Heddle
Companies as such business is currently conducted.
1.2.13. "Business Day" means any day on which banking
institutions in New York, New York are customarily open for the
purpose of transacting business.
1.2.14. "Butler" is defined in the Preamble.
1.2.15. "Buyer" is defined in the Preamble.
1.2.16. "By-laws" means the corporate by-laws of a
corporation, as from time to time in effect.
1.2.17. "Cash Consideration" is defined in Section 3.1.3.
-3-
<PAGE> 9
1.2.18. "Charter" means the certificate or articles of
incorporation or organization or other charter or organizational
documents of any Person (other than an individual), each as from time
to time in effect.
1.2.19. "Class A Common Stock" is defined in the Recitals.
1.2.20. "Class B Common Stock" is defined in the Recitals.
1.2.21. "Closing" is defined in Section 2.
1.2.22. "Closing Balance Sheet" is defined in Section
3.2.1.
1.2.23. "Closing Date" is defined in Section 2.
1.2.24. "Closing Working Capital" is defined in Section
3.2.1.
1.2.25. "COBRA" is defined in Section 5.12.
1.2.26. "Code" means the federal Internal Revenue Code of
1986, as amended.
1.2.27. "Commitment Letters" is defined in Section 6.2.
1.2.28. "Company" is defined in the Preamble.
1.2.29. "Company Plans" is defined in Section 5.12.
1.2.30. "Compensation Tax Benefit" means an amount equal to
the product of (a) 18.65%, multiplied by (b) the sum of (i) the Bonus
Liability, plus (ii) the aggregate amount of the Cash Consideration
before any adjustment to the Purchase Price pursuant to Section 3.2)
actually paid in connection with the cancellation of Options, Warrants
and Rights , plus (iii) the portion of the Escrow Amount attributable
to such Options, Warrants and Rights (determined based on
Proportionate Shares); provided, however, that each Potential
Parachute Payment (as defined in Section 7.5 below) for which a waiver
or stockholder approval is not obtained prior to the Closing in
accordance with Section 7.5 shall be ignored for purposes of this
clause (b). The amount of the Compensation Tax Benefit shall not be
affected by any disallowance of any deduction claimed in respect of
amounts included within the calculation.
1.2.31. "Confidential Information" means, as to any Person,
any proprietary or confidential information concerning any of the
Steel Heddle Companies or this Agreement, excluding information (a)
that is generally known at the Closing Date in the trade or business
in which the Steel Heddle Companies are now engaged or becomes so
generally known after the Closing Date, through no act of such Person
or his, her or its Affiliates; (b) has come into the possession of
such Person or his, her or its Affiliates
-4-
<PAGE> 10
from a third party who is under no obligation to maintain the
confidentiality of such information; (c) was developed by such Person
or his, her of its Affiliates, independently of and without reference
to the Confidential Information; or (d) is disclosed by Buyer or its
Affiliates to third parties without restrictions on disclosure and
use.
1.2.32. "Confidentiality Agreement" is defined in Section
7.2.
1.2.33. "Contracts" is defined in Section 5.7.
1.2.34. "Contractual Obligation" means, with respect to any
Person, any oral or written contract, agreement, deed, mortgage,
lease, license, indenture, note, bond, or other document or instrument
to which or by which such Person is legally bound.
1.2.35. "Debt" means all obligations (other than
obligations owed to any Steel Heddle Company) of the Company or its
Subsidiaries (i) for borrowed money (including accrued interest, fees,
penalties and premiums or payments in addition to principal); (ii)
evidenced by notes, bonds, debentures or similar instruments, but in
no event including operating leases; (iii) in respect of capitalized
leases and purchase money obligations, but in no event including trade
payables incurred in the Ordinary Course of Business and payable in
accordance with customary practices; (iv) in respect of banker's
acceptances issued or created for the account of the Company or its
Subsidiaries or letters of credit; (v) for indebtedness or obligations
of the types referred to in the preceding clauses (i) through (iv) of
any other Person secured by any Lien on any assets of the Company or
its Subsidiaries to the extent attributable to the interest of the
Company or any of its Subsidiaries in such assets, even though neither
the Company nor any of its Subsidiaries has assumed or otherwise
become liable for the payment thereof, but excluding customer deposits
and interest payable thereon in the Ordinary Course of Business; and
(vi) in the nature of guarantees of obligations of the type described
in clauses (i) through (v) above of any other Person.
1.2.36. "Debt Payment" is defined in Section 3.1.3.
1.2.37. "Definitive Financing Agreements" is defined in
Section 7.4.4.
1.2.38. "Early Termination" is defined in Section 11.5.6.
1.2.39. "Enforceable" means, with respect to any
Contractual Obligation, that such Contractual Obligation is the legal,
valid and binding obligation of the Person in question, enforceable
against such Person in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or other laws affecting
creditors' rights generally and general principles of equity (whether
considered in a proceeding at law or in equity).
1.2.40. "Environmental Escrow Agreement" is defined in
Section 11.5.2.
-5-
<PAGE> 11
1.2.41. "Environmental Law" means any Legal Requirement or
common law as in effect as of the date hereof relating to (i)
pollution or protection of the environment, (ii) releases or
threatened releases of Hazardous Substances, or (iii) the manufacture,
handling, transport, use, treatment, storage or disposal of Hazardous
Substances.
1.2.42. "Environmental Permits" is defined in Section 5.4.
1.2.43. "ERISA" means the federal Employee Retirement
Income Security Act of 1974 or any successor statute, as amended and
as in effect as of the date hereof.
1.2.44. "Escrow Agent" is defined in Section 11.5.2.
1.2.45. "Escrow Amount" is defined in Section 11.5.2.
1.2.46. "Excluded Securities" means any Securities which
any Seller has elected, on or prior to the fifth (5th) Business Day
preceding the Closing Date, (with the consent of Buyer) to exchange
for Rollover Securities; provided, however, that no such Securities
shall be Excluded Securities under this Agreement unless, prior to
Closing, the applicable Seller has entered into the Rollover
Documents.
1.2.47. "Financial Statements" is defined in Section 5.2.1.
1.2.48. "Financing" is defined in Section 7.4.4.
1.2.49. "Financing Sources" is defined in Section 6.2.
1.2.50. "Foreign Plans" is defined in Section 5.12.
1.2.51. "Generally Accepted Accounting Principles" means
generally accepted accounting principles in the United States as in
effect from time to time and (i) except in the case of Section 3.2.1,
applied on a basis consistent with the preparation of the Financial
Statements, (ii) and, in the case of Section 3.2.1, applied on a basis
consistent with the Balance Sheet.
1.2.52. "Governmental Authority" means any federal, state
or local government, regulatory or administrative agency or judicial
authority (or any department, bureau or division thereof).
1.2.53. "Governmental Order" means any decree, stipulation,
determination or award entered by any Governmental Authority that is
directly applicable to and binding upon a Seller or one of the Steel
Heddle Companies, as applicable.
-6-
<PAGE> 12
1.2.54. "Hazardous Substances" means (i) substances defined
in or regulated as toxic or hazardous or otherwise regulated under the
following federal statutes and their state counterparts, and similar
foreign statutes, as well as such statutes' implementing regulations,
in each case, as amended and as in effect as of the date hereof: the
Hazardous Materials Transportation Act, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation
and Liability Act, the Clean Water Act, the Safe Drinking Water Act,
the Asbestos Hazard Emergency Response Act, the Atomic Energy Act, the
Toxic Substances Control Act, the Federal Insecticide, Fungicide, and
Rodenticide Act, and the Clean Air Act; (ii) petroleum and petroleum
products, including crude oil and any fractions thereof; (iii) natural
gas, synthetic gas and any mixtures thereof; (iv) PCBs; and (v)
asbestos.
1.2.55. "Hixon Claim" is defined in Section 11.6.
1.2.56. "HSR Act" is defined in Section 6.1.3.
1.2.57. "Indemnifying Party" is defined in Section 11.1.
1.2.58. "Indemnitee" is defined in Section 11.1.
1.2.59. "Intangibles" is defined in Section 5.6.
1.2.60. "Interim Financial Statements" is defined in
Section 7.9.
1.2.61. "IRS" is defined in Section 5.11.
1.2.62. "Knowledge," with respect to a Person, means the
actual awareness or understanding after reasonable inquiry of the
specified Person with respect to the factors or matters on which a
representation is based. In the case of the Knowledge of the Company,
the term shall mean the Knowledge of any of Benjamin G. Team, Robert
W. Dillon or Jerry B. Miller.
1.2.63. "Leased Real Property" is defined in Section 5.5.2.
1.2.64. "Leases" is defined in Section 5.5.2.
1.2.65. "Legal Requirement" means any federal, state, local
or foreign statute, ordinance, code, rule or regulation, or any
Governmental Order, or any license, franchise, consent, approval,
permit or similar right granted under any of the foregoing, in each
case other than an Environmental Law.
1.2.66. "Licenses" is defined in Section 5.6.
-7-
<PAGE> 13
1.2.67. "Lien" means any mortgage, pledge, lien, option,
voting trust, security interest, attachment or other similar
encumbrance, provided, however, that the term "Lien" shall not include
(i) statutory liens for Taxes, to the extent that the payment thereof
is not in arrears or otherwise due; (ii) encumbrances in the nature of
zoning restrictions, easements, rights or restrictions of record on
the use of real property if the same do not materially detract from
the value of the property encumbered thereby or materially impair the
use of such property in the Business; (iii) liens to secure landlords,
lessors or renters under leases or rental agreements confined to the
premises rented, to the extent that the payment thereof is not in
arrears or otherwise due; (iv) deposits or pledges made in connection
with, or to secure payment of, worker's compensation, unemployment
insurance, old age pension programs mandated under applicable Legal
Requirements or other social security regulations; (v) liens in favor
of carriers, warehousemen, mechanics and materialmen, liens to secure
claims for labor, materials or supplies and other similar liens, to
the extent that the payment thereof is not in arrears or otherwise
due; and (vi) restrictions on transfer of securities imposed by
applicable state and federal securities laws.
1.2.68. "Losses" means any and all damages, deficiencies,
awards, assessments, amounts paid in good faith settlement, judgments,
fines, penalties, costs and expenses (including reasonable legal costs
and out-of-pocket expenses); provided, however, that the amount of any
such Losses for the purposes of indemnification hereunder shall be
determined net of the Net Insurance Recovery collected by the
Indemnitee under insurance policies with respect to such Loss;
provided further, however, that nothing contained in this Agreement
shall obligate any party to obtain or maintain insurance or to make
more than commercially reasonable efforts to assert any claim or
otherwise seek to recover in respect of any Losses from any insurer.
Further, in calculating the amount of any Losses, there shall be taken
into account the present value (based on a discount factor equal to
the applicable federal rate as determined under Section 1274(d)(1) of
the Code) of any Tax Benefit or Tax liability reasonably expected to
be realized or incurred by the Indemnitee (or any consolidated,
combined or unitary group of which the Indemnitee is also a member)
arising from the incurrence or payment of such Loss.
1.2.69. "Material Adverse Effect" means any change in or
effect on the business of any of the Steel Heddle Companies which has
a material adverse effect on the business, assets, liabilities,
results of operations or financial condition of the Steel Heddle
Companies taken as a whole.
1.2.70. "Maximum Aggregate Loss" is defined in Section
11.3.
1.2.71. "Mfg. Co." means Steel Heddle Mfg. Co., a
Pennsylvania corporation and wholly-owned subsidiary of the Company.
1.2.72. "Mineral Spirits Losses" is defined in Section
11.5.1.
-8-
<PAGE> 14
1.2.73. "Mineral Spirits Releases" is defined in Section
11.5.1.
1.2.74. "Mineral Spirits Remediation" is defined in Section
11.5.1.
1.2.75. "Net Insurance Recovery" means, with respect to any
Person, any insurance proceeds recovered by such Person (or an
Affiliate thereof) in respect of Losses, but excluding proceeds to the
extent (i) premiums will be adjusted, under the terms of the relevant
insurance policy or policies, to reimburse the insurer for the
material part of such recovery or (ii) such Person incurs additional
costs or expenses because filing the insurance claim with respect to
such Losses results in the discontinuation of insurance coverage.
1.2.76. "Non-Compete Period" is defined in Section 7.12.
1.2.77. "Operation and Maintenance Phase" is defined in
Section 11.5.3.
1.2.78. "Options" is defined in the Recitals.
1.2.79. "Ordinary Course of Business" means the ordinary
course of the Steel Heddle Companies' business consistent with their
respective past customs and practices.
1.2.80. "Owned Real Property" is defined in Section 5.5.2.
1.2.81. "Per Share Amount" means (x) the sum of the
Purchase Price, plus the Compensation Tax Benefit, minus the Debt
Payment, minus the Bonus Liability, minus the Unpaid Expenses, minus
the Escrow Amount, plus the aggregate exercise price of all Options,
Warrants and Rights, divided by (y) the sum of the number of shares of
Common Stock outstanding as of the Closing Date, plus the number of
shares of Common Stock issuable upon the exercise of all Options,
Warrants and Rights as of the Closing Date.
1.2.82. "Permits" is defined in Section 5.10.
1.2.83. "Person" means any individual, partnership, limited
liability company, corporation, association, trust, joint venture,
unincorporated organization or other entity.
1.2.84. "Personalty Leases" is defined in Section 5.5.1.
1.2.85. "Potential Parachute Payments" is defined in
Section 7.5.
1.2.86. "Prime" means the rate of interest per annum
publicly announced from time to time by NationsBank, N.A.
-9-
<PAGE> 15
1.2.87. "Proportionate Share" means for any Seller, the
percentage for such Seller listed in the far right-hand column of
Schedule 1 hereto.
1.2.88. "Purchase Price" is defined in Section 3.1.
1.2.89. "Real Property" is defined in Section 5.5.2.
1.2.90. "Real Property Liens" is defined in Section 5.5.2.
1.2.91. "Remediation Completion Costs" is defined in
Section 11.5.7.
1.2.92. "Rights" is defined in the Recitals.
1.2.93. "Rollover Consideration" means the aggregate value
of the Rollover Securities, valued as follows: (a) each such share of
Common Stock shall be valued at the Per Share Amount, (b) each such
Option shall be valued at the Per Share Amount less the exercise price
for such Option, and (c) each such Right shall be valued at the Per
Share Amount less the exercise price for such Right.
1.2.94. "Rollover Documents" means the definitive documents
pursuant to which the Buyer agrees with any Seller to issue Rollover
Securities.
1.2.95. "Rollover Securities" means any shares of common
stock, options or other equity-related interests of the Buyer which
Buyer shall agree to issue to any Seller upon the surrender or
cancellation of Securities held by such Seller.
1.2.96. "SCDHEC" is defined in Section 11.5.1.
1.2.97. "SCDHEC Letter of Credit" means the irrevocable
standby letter of credit No. 919989 in the amount of $671,000.00
issued on behalf of Mfg. Co. by NationsBank, N.A. for the benefit of
the South Carolina Bureau of Solid and Hazardous Waste Management
pursuant to regulations of the SCDHEC.
1.2.98. "Scheduled Termination" is defined in Section
11.5.6.
1.2.99. "Securities" is defined in the Recitals.
1.2.100. "Seller" is defined in the Preamble.
1.2.101. "Seller Partnership" is defined in Section 14.6.
1.2.102. "Sellers' Representative" shall mean Butler or
its designee, acting pursuant to the Sellers' Representative
Agreement.
-10-
<PAGE> 16
1.2.103. "Sellers' Representative Agreement" shall mean the
agreement dated as of the date hereof among the Sellers'
Representative, the Company, Mfg. Co. and each of the Sellers.
1.2.104. "Shares" is defined in the Recitals.
1.2.105. "Steel Heddle Companies" means, collectively, the
Company and its Subsidiaries.
1.2.106. "Subsidiary" means any Person of which the Company
(or other specified Person) shall own directly or indirectly through a
Subsidiary, a nominee arrangement or otherwise at least a majority of
the outstanding capital stock (or other shares of beneficial interest)
entitled to vote generally.
1.2.107. "Tax" means any (and in the plural "Taxes" means
all) federal, state, local or foreign income, gross receipts,
franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, severance, stamp,
occupation, premium, profit, windfall profit, customs, duties, real
property, personal property, capital stock, social security,
employment, unemployment, disability, payroll, license, employee,
withholding or other tax of every kind and nature arising under or
imposed by any Legal Requirement, including all interest, penalties
and additions with respect to any of the foregoing.
1.2.108. "Tax Benefit" means any reduction in Tax realized
by any Person attributable to the consummation of the transactions
contemplated by this Agreement (or other specified event), which Tax
Benefit shall be determined after first taking all other items of
income, gain, loss, deduction or credit of such Person into account.
1.2.109. "Tax Returns" means all federal, state, local, and
foreign Tax returns, Tax reports, claims for refund of Tax, and
declarations of estimated Tax, or other filings relating to Taxes and
any schedule or attachments to any of the foregoing or amendments
thereto, including (where permitted or required) consolidated,
combined or unitary returns for any group of entities.
1.2.110. "Title Companies" is defined in Section 8.7.
1.2.111. "Unpaid Expenses" means all fees and expenses
payable to Merrill Lynch & Co. and to the legal, accounting and
financial advisors to the Steel Heddle Companies and the Sellers
payable by any Steel Heddle Company as of the Closing in connection
with the solicitations of proposals to acquire the Company and the
negotiation, execution and delivery of this Agreement and related
agreements and the Closing hereunder.
-11-
<PAGE> 17
1.2.112. "WARN" means the Worker Adjustment and Retraining
Notification Act of 1988, as amended.
1.2.113. "Warrants" is defined in the Recitals.
1.2.114. "Working Capital" means, as of a specified date,
the sum of the following amounts reflected on a balance sheet of the
Company as of such date: cash and cash equivalents; plus accounts
receivable; plus inventories (at LIFO); plus prepaid expenses; minus
accounts payable; minus accrued and sundry liabilities (other than
accrued interest); in each case determined on a basis consistent with
the Balance Sheet and Exhibit 3.2.1. Further, without limiting Section
3.2, Working Capital shall not include any accruals made after the
date hereof in respect of the Aqua-Tech "superfund" site or any
existing environmental issues associated with the Company's
Greenville, South Carolina site.
1.2.115. "Work Plan" is defined in Section 11.5.3.
2. ACQUISITION.
Upon the terms, subject to the conditions, and in reliance on the
representations, warranties and covenants set forth herein, on the day on which
the Closing (the "Closing") takes place (such date being referred to herein as
the "Closing Date"), each of the Sellers severally agrees to sell, transfer and
deliver to the Buyer the number of Shares set forth opposite such Seller's name
in Schedule 1 (other than any Excluded Securities) and the Buyer agrees to
purchase and acquire from each of the Sellers such Shares for the consideration
specified in Section 3 hereof, and each of the Sellers severally agrees to
execute appropriate documentation to evidence the cancellation of the Options,
Warrants and Rights set forth opposite such Seller's name in Schedule 1 (other
than any Excluded Securities) and the Buyer agrees to deliver to the Seller's
Representative, for further delivery to the applicable Seller, the
consideration for such cancellation specified in Section 3 hereof.
3. PAYMENT AND CLOSING.
3.1. Purchase Price.
3.1.1. Payment of Purchase Price. In consideration of the
sale and transfer of the Securities by the Sellers to the Buyer and
the discharge of the Debt and other transactions provided for herein,
at the Closing, the Buyer will pay an aggregate amount equal to the
sum of $164,150,000 (the "Purchase Price") (subject to later
adjustment pursuant to Section 3.2 below) plus the Compensation Tax
Benefit pursuant to the payment instructions in Section 3.1.3 below.
The parties agree that none of the Purchase Price and Compensation Tax
Benefit shall be allocable to the covenant not to compete in Section
7.12.
-12-
<PAGE> 18
3.1.2. Allocation of Cash Consideration. The Cash
Consideration (as defined in Section 3.1.3 below) shall be allocated
among the Sellers such that (a) each Seller holding Common Stock shall
receive the Per Share Amount for each Share then held by such Seller
(other than any Excluded Securities), (b) each holder of Options
(other than any Excluded Securities) shall receive the Per Share
Amount for each Option to acquire one share of Common Stock then held
less the exercise price for such Option, (c) each holder of Warrants
shall receive the Per Share Amount for each Warrant to acquire one
share of Common Stock then held less the exercise price for such
Warrant and (d) each holder of Rights (other than any Excluded
Securities) shall receive the Per Share Amount for each Right to
acquire one share of Common Stock then held less the exercise price
for such Right.
3.1.3. Payment Instructions. The Purchase Price and the
Compensation Tax Benefit shall be payable at the Closing (i) by wire
transfer of immediately available funds, to such accounts as the
holders of the Debt may specify, of payment in full of the outstanding
Debt other than the DHEC Letter of Credit (the "Debt Payment); (ii) by
wire transfer of immediately available funds of an amount equal to the
Bonus Liability to such accounts as the Persons owed the Bonus
Liability may specify; (iii) by wire transfer of immediately available
funds of an amount equal to the Unpaid Expenses to such accounts as
the Persons owed the Unpaid Expenses may specify; (iv) by wire
transfer of immediately available funds of an amount equal to the
Escrow Amount to such account as may be specified by the Escrow Agent;
(v) by issuance of Rollover Securities in accordance with the Rollover
Documents (which shall be deemed to have a value for purposes of the
payment of the Purchase Price and the Compensation Tax Benefit equal
to the Rollover Consideration); (vi) subject to Section 7.17, by wire
transfer of immediately available funds, the balance of the Purchase
Price and the Compensation Tax Benefit after taking into account all
payments pursuant to clauses (i) though (v) of this Section (such
remaining balance being referred to herein as the "Cash
Consideration"), in accordance with transfer instructions provided to
the Buyer by the Sellers' Representative. Such transfer instructions
with respect to the allocation of the Cash Consideration and the
accounts to which payments thereof shall be provided within two (2)
Business Days prior to Closing, and shall include directions to pay
(a) $3,000,000 to the settlement account established pursuant to
Section 2(iii) of the Seller's Representative Agreement; (b) an amount
sufficient to satisfy any federal, state or local withholding tax
requirements of the Company in respect of the payment of the Cash
Consideration to the Sellers, to an account established for the
Company; and (c) the remaining Cash Consideration to accounts and in
the amounts specified in such instructions. The Buyer's obligations
with respect to the method of payment to the Sellers shall be limited
to making such payments in accordance with the instructions given to
the Buyer by the Sellers' Representative. Each party hereby
acknowledges that the computation of the Compensation Tax Benefit and
Per Share Amount are interdependent and shall be determined by an
iterative process.
3.2. Closing Statement and Purchase Price Adjustment.
-13-
<PAGE> 19
3.2.1. As promptly as practicable, and in any event within
sixty (60) days after Closing, the Buyer shall prepare, and cause
Deloitte & Touche LLP to review (it being understood that the Buyer
shall bear all costs and expenses associated with such review), a
consolidated balance sheet for the Steel Heddle Companies as of the
Closing, before giving effect to the transactions occurring at the
Closing (as initially prepared, and as subsequently determined in
accordance with this Section 3.2, the "Closing Balance Sheet"). The
Closing Balance Sheet shall be prepared on a basis consistent with the
Balance Sheet, even if consistent treatment as such is not the best
treatment or an appropriate treatment, in whole or in part, under
Generally Accepted Accounting Principles. In addition, the Buyer shall
cause Deloitte & Touche LLP to review a written calculation in the
form of Exhibit 3.2.1 calculating the Working Capital of the Company
as of the Closing (the "Closing Working Capital"), based on the
Closing Balance Sheet and on a basis consistent with such Exhibit.
(By way of example, (a) current assets, (b) current liabilities and
(c) Working Capital for April 4, 1998 were $26,511,579, $6,694,841
and $19,816,738, respectively.)
3.2.2. If within twenty (20) days following delivery of the
Closing Balance Sheet and the computation of Closing Working Capital,
the Sellers' Representative has not raised any objection to such
Closing Balance Sheet or computation of Closing Working Capital, then
such Closing Balance Sheet shall be deemed to have been accepted and
the computation of Closing Working Capital shall be binding for
purposes of Section 3.2.3 below. If the Sellers' Representative
raises any objection to such Closing Balance Sheet or computation of
Closing Working Capital within such 20-day period and the Buyer and
the Sellers' Representative cannot agree on the Closing Balance Sheet
or the calculation of Closing Working Capital within twenty (20) days
of such objection, either party may submit the dispute to Coopers &
Lybrand LLP, or if such firm declines to serve, then to another
nationally recognized accounting firm selected upon mutual agreement
of the parties, for resolution within thirty (30) days or as soon
thereafter as reasonably practicable. Such accounting firm shall
determine, only with respect to the remaining differences so
submitted, whether and to what extent, if any, the Closing Balance
Sheet and the calculation of Closing Working Capital require
adjustment in order to comply with the requirements of Section 3.2.1.
The decision by such accounting firm shall be final and binding on the
parties. The costs and expenses of such accountants shall be paid by
the party whose position is, as ruled by such accounting firm, most
incorrect. The Buyer and the Sellers shall make available to such
accounting firm and each other all relevant books and records and work
papers (including, if available, work papers of their respective
accountants) relating to the Closing Balance Sheet and the computation
of Closing Working Capital and all other information reasonably
requested by such accounting firm.
3.2.3. Upon final determination of the Closing Working
Capital, either by agreement between the Buyer and the Sellers'
Representative or determination in accordance with Section 3.2.2, (a)
if the Closing Working Capital exceeds $19,457,802
-14-
<PAGE> 20
the Purchase Price shall be increased by the amount of such excess,
and (b) if the Closing Working Capital is less than such amount, the
Purchase Price shall be decreased by the amount of such shortfall.
Within ten (10) Business Days after the final determination of the
Closing Working Capital, the Buyer (in the case of any increase in the
Purchase Price) or the Sellers (in the case of a decrease in the
Purchase Price) shall pay in immediately available funds an amount
equal to the amount of such increase or decrease. Any payment made to
the Sellers pursuant to this Section 3.2.3 shall be allocated in
accordance with each Seller's Proportionate Share. The Sellers'
obligations, if any, to the Buyer under this Section 3.2.3 shall be
joint and several. Any payment which is made after the applicable due
date shall bear simple interest at the Prime Rate.
3.3. Time and Place of Closing. The Closing shall take
place at the conference center of Kirkland & Ellis, Citicorp Center, 153 East
53rd Street, New York, New York, at 10:00 a.m. (local time) on May 27, 1998 or
such other date as is jointly specified by the parties, which date shall be not
later than five (5) Business Days after the satisfaction or waiver of all
conditions precedent set forth in Sections 8 and 9 hereof or at such other time
or place upon which the parties may agree.
3.4. Delivery. At the Closing, each of the Sellers shall
deliver to Buyer: (a) the certificate or certificates evidencing all of the
Common Stock held by such Seller; (b) evidence of cancellation of all Options,
Warrants or Rights held by such Seller and the release of all liabilities of
the Company related thereto; (c) certificates executed by the Secretary of
Company certifying as to the resolutions of the Board of Directors and the
stockholders of the Company authorizing the execution and delivery of this
Agreement and consummation of the transactions contemplated by this Agreement;
(d) a certificate of the Secretary of the Company certifying as to the
incumbency of the officers of the Company and as to the signatures of such
officers who have executed documents delivered at the Closing on behalf of the
Company; (e) a certificate, dated within three (3) Business Days of the Closing
Date, of the Secretary of the Commonwealth of Pennsylvania establishing that
the Company is in existence and otherwise is in good standing to transact
business in its state of incorporation; (f) certificates, dated within three
(3) Business Days of the Closing Date, of the Secretaries of State of the
states of incorporation of each of the Subsidiaries establishing that each of
the Subsidiaries is in existence and otherwise is in good standing to transact
business in its state of incorporation; (g) certificates, dated within ten (10)
days of the Closing Date, of the Secretaries of State of the states in which
the Company is qualified to do business, to the effect that the Company is
qualified to do business and is in good standing as a foreign corporation in
each of such states; and (h) certificates, dated within ten (10) days of the
Closing Date, of the Secretaries of State of the states in which each of the
Subsidiaries is qualified to do business, to the effect that each of the
Subsidiaries is qualified to do business and is in good standing as a foreign
corporation in each of such states (it being understood that the deliveries
specified in clauses (c)-(h) of this Section 3.4 shall be made once on behalf
of all Sellers); and the Buyer shall deliver: (w) the Purchase Price and the
Compensation Tax Benefit, as specified in Section 3.1; (x) a certificate
executed by the Secretary of the Buyer, certifying as to the resolutions of the
Board of Directors and stockholders of the Buyer authorizing the execution and
delivery of this Agreement and consummation of the
-15-
<PAGE> 21
transactions contemplated by this Agreement; (y) a certificate of the Secretary
of the Buyer certifying as to the incumbency of the officers of the Buyer, and
as to the signatures of such officers who have executed documents delivered at
the Closing on behalf of the Buyer; and (z) a certificate, dated within three
(3) Business Days of the Closing Date, of the Secretary of State of the State
of Delaware establishing that the Buyer is in existence and otherwise is in
good standing to transact business in its state of incorporation.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the Sellers,
severally and not jointly, represents and warrants, but only with respect to
such Seller and the Securities owned by such Seller, that:
4.1. Organization and Authority. In the case of each Seller that
is not an individual, such Seller is an entity duly formed, legally existing
and in good standing under the laws of the jurisdiction of its organization and
such Seller has full power and authority to enter into this Agreement, to carry
out and perform its obligations hereunder and to consummate the transactions
contemplated hereby. In the case of each Seller that is an individual, such
Seller has the legal capacity to enter into this Agreement, to carry out and
perform its obligations hereunder and to consummate the transactions
contemplated hereby.
4.2. Authorization and Enforceability. This Agreement has been
duly authorized, executed and delivered by, and is Enforceable against, such
Seller.
4.3. Non-Contravention, Etc. Except as set forth in Schedule 4.3,
the execution and delivery of this Agreement by such Seller and the
consummation by such Seller of the Closing hereunder in accordance with the
terms and conditions of this Agreement do not and will not conflict with or
result in the breach of any of the terms or provisions of, or constitute a
default under, or require any consent, waiver, approval or authorization under,
any Contractual Obligation to which such Seller is a party or by which such
Seller is, or the Securities to be sold or canceled by such Seller hereunder
are, bound or any Legal Requirement applicable to such Seller or to the
Securities to be sold or canceled by such Seller. No consent is required to be
obtained by such Seller in connection with the execution, delivery and
performance of this Agreement by such Seller or the sale of the Securities to
be sold or canceled by such Seller as contemplated hereby, except as set forth
in Schedule 4.3, and other than any consent where the failure of such Seller to
obtain such consent would not materially and adversely affect the Seller's
ability to consummate the Closing hereunder in accordance with the terms and
conditions of this Agreement and would not prevent such Seller from performing
in all material respects any of its obligations under this Agreement.
4.4. Title to Securities. Such Seller is the record and beneficial
owner of the Securities set forth opposite such Seller's name on Schedule 1,
and, except as set forth in Schedule 1, such Seller owns the Securities, free
and clear of any Liens. Upon delivery to the Buyer of certificates
representing such Securities, and upon such Seller's receipt of payment
therefor, title to the Securities held by such Seller will pass to the Buyer,
free and clear of any Liens.
-16-
<PAGE> 22
4.5. Brokers, Etc. Except for payments to be made by the Sellers
to Merrill Lynch & Co., no broker, finder, investment bank or similar agent is
entitled to any brokerage or finder's fee in connection with the transactions
contemplated by this Agreement based upon agreements or arrangements made by or
on behalf of such Seller.
5. REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY. The Company
represents and warrants that:
5.1. Corporate Matters, Etc.
5.1.1. Organization, Power and Standing of the Company.
The Company (i) is a corporation duly incorporated, validly existing
and in good standing under the laws of the Commonwealth of
Pennsylvania; (ii) has the corporate power and authority to own,
operate or lease its properties and to carry on its business in all
material respects as currently conducted; and (iii) is in good
standing as a foreign corporation and is duly licensed or qualified to
transact business in each jurisdiction in which the character of its
properties owned or leased or the nature of its activities makes such
qualification necessary, except where failure to be so qualified has
not had, and would not reasonably be expected to have, a Material
Adverse Effect.
5.1.2. Non-Contravention, Etc. Except for items listed on
Schedule 5.1.2, neither the execution, delivery or performance of this
Agreement nor the consummation of the Closing hereunder in accordance
with the terms and conditions of this Agreement does or will
constitute, result in or give rise to (with or without notice or
passage of time) (i) a breach, violation or default under any Legal
Requirement applicable to any of the Steel Heddle Companies; (ii) a
breach of or default under any provision of the Charter or By-Laws of
any of the Steel Heddle Companies; (iii) the imposition of any Lien
upon any asset of any of the Steel Heddle Companies (except for liens
created by or on behalf of the Buyer); or (iv) a material breach of or
default under (or the acceleration of the time for performance of any
material obligation under), or require any consent, waiver, approval
or authorization under, any Contractual Obligation of any of the Steel
Heddle Companies. Except as set forth in Schedule 5.1.2, no approval,
consent, waiver, authorization or other order of, and no declaration,
filing, registration, qualification or recording with, any
Governmental Authority is required to be obtained or made by or on
behalf of any of the Steel Heddle Companies in connection with the
execution, delivery or performance of this Agreement and the
consummation of the Closing hereunder in accordance with the terms and
conditions of this Agreement, except those (x) which shall have been
obtained or made on or prior to, and shall be in full force and effect
at, the Closing Date and (y) where failure to obtain such approval,
consent, waiver, authorization or other order, or to make such
declaration, filing, registration, qualification or recording, in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect or materially impair the ability of the Company to consummate
the transactions contemplated by this Agreement.
-17-
<PAGE> 23
5.1.3. Capital Stock. The entire authorized capital stock
of the Company consists of (i) 2,000,000 shares of Class A Common
Stock, of which as of the date hereof 91,080 shares are issued and
outstanding and 54,596 shares are reserved for issuance upon exercise
of the Options, Warrants and Rights, and (ii) 8,000,000 shares of
Class B Common Stock, of which as of the date hereof 912,250 shares
are issued and outstanding. The Shares constitute all of the issued
and outstanding shares of Common Stock of the Company and are duly
authorized, validly issued and are fully paid and nonassessable. The
Securities are held of record in the number and by the Sellers as set
forth on Schedule 1. Except for this Agreement and the Options,
Warrants and Rights, there is no Contractual Obligation pursuant to
which the Company has granted any option, warrant or other right to
any Person to acquire the shares of Common Stock or any other
securities of, or equity interests in, the Company.
5.1.4. Subsidiaries. Schedule 5.1.4 sets forth a true and
complete list of all Subsidiaries of the Company, including the name
and jurisdiction of organization of each such Subsidiary. Each
Subsidiary listed on Schedule 5.1.4 is a corporation or other entity
duly formed and validly existing under the laws of its jurisdiction of
organization, has the corporate or other requisite power and authority
to own, operate or lease the properties and assets now owned, operated
or leased by such Subsidiary and to carry on its business in all
material respects as currently conducted, and is duly qualified as a
foreign corporation or other entity in each jurisdiction indicated on
Schedule 5.1.4, and there are no other jurisdictions in which any such
Subsidiary is required to be qualified, except where the failure to be
so qualified has not had, and would not reasonably be expected to
have, a Material Adverse Effect. Except as set forth in Schedule
5.1.4, each Subsidiary listed on Schedule 5.1.4 is wholly-owned by the
Company (either directly or indirectly by way of ownership through
another Subsidiary listed on Schedule 5.1.4). Except for the
Subsidiaries, the Company does not own, directly or indirectly, any
interest or investment (whether equity or debt) in any Person.
5.1.5. Corporate Records. The Company has heretofore
delivered or made available to the Buyer true and complete copies of
the Charter and By-laws of each of the Steel Heddle Companies, in each
case as in effect on the date hereof. Schedule 5.1.5 lists the
directors and officers of each of the Steel Heddle Companies. The
Company has delivered or made available to the Buyer the minute books
(containing the records of meetings of the stockholders, the Board of
Directors, and any committees of the Board of Directors), the stock
certificate books, and the stock record books of each of the Steel
Heddle Companies, and such minute books, stock certificate books, and
stock record books are correct and complete in all material respects.
5.2. Financial Statements, Etc.
5.2.1. Financial Information. The Buyer has been furnished
with the consolidated audited balance sheets of the Company and its
consolidated Subsidiaries as of January 3, 1998 (the "Balance Sheet"),
December 28, 1996 and December 30, 1995
-18-
<PAGE> 24
and the related statements of earnings and shareholders equity and
cash flows for the fiscal years ended January 3, 1998, December 28,
1996 and December 30, 1995, accompanied by the notes thereto and by
the reports thereon of Ernst & Young LLP (collectively, the "Financial
Statements").
5.2.2. Character of Financial Information. Unless
otherwise disclosed therein, the Financial Statements were prepared in
accordance with Generally Accepted Accounting Principles consistently
applied throughout the periods specified therein and present fairly,
in all material respects, the consolidated financial position and
results of operations of the Company and its Subsidiaries as of the
dates and for the periods specified therein in accordance with
Generally Accepted Accounting Principles, and to the Knowledge of the
Company are consistent with the books and records of the Steel Heddle
Companies (which books and records are to the Knowledge of the Company
correct and complete in all material respects).
5.3. Change in Condition Since Balance Sheet Date. Except for
matters set forth in Schedule 5.3, since the Balance Sheet Date and until the
date hereof:
(a) the Business has been conducted only in the Ordinary
Course of Business (except as otherwise required or explicitly
permitted by the terms of this Agreement) and other than transactions
between or among the Company and its domestic Subsidiaries, neither
the Company nor any of its Subsidiaries has:
(i) entered into any Contractual Obligation
other than this Agreement relating to
(A) the sale of any capital stock or
equity interest in any of the Steel
Heddle Companies, (B) the purchase of
assets constituting a business or (C)
any merger, consolidation or other
business combination;
(ii) settled or agreed to settle any Action
in excess of $100,000 or any claim of
any other Person in excess of $100,000;
(iii) subjected to any Lien any of their
assets other than (A) conditional sales
or similar security interests granted in
connection with the lease or purchase of
equipment or supplies in the Ordinary
Course of Business; and (B) Liens
disclosed on Schedule 5.5.1;
(iv) sold, leased, transferred or exchanged
any material property for less than the
fair value thereof; or
(v) declared or paid any dividends on any
shares of its capital stock;
-19-
<PAGE> 25
(b) none of the Steel Heddle Companies has entered into
any Contractual Obligation to do any of the actions referred to in
clause (a) above;
(c) there has not been any resignation or threatened
resignation of any key employee of any of the Steel Heddle Companies;
and
(d) there has not been any material adverse change or any
event that would reasonably be expected to cause any material adverse
change in the Business, assets, liabilities, results of operations or
financial condition of the Steel Heddle Companies, taken as a whole,
other than changes resulting from general economic, financial or
market conditions or circumstances generally affecting the Business.
5.4. Environmental Matters, Etc. Except as set forth on Schedule
5.4 or has not had, or would not reasonably be expected to have, a Material
Adverse Effect, each of the Steel Heddle Companies has complied and is in
compliance with all Environmental Laws. Except as set forth on Schedule 5.4,
there is no Action pending or, to the Knowledge of the Company, threatened
against any of the Steel Heddle Companies in respect of (i) noncompliance by
any of the Steel Heddle Companies with any Environmental Laws or (ii) the
release or threatened release into the environment of any Hazardous Substance
at the Real Property or by any of the Steel Heddle Companies; or (iii) the
handling, storage, use, transportation or disposal of any Hazardous Substance
by any of the Steel Heddle Companies; except for Actions filed or threatened
after the date hereof that in the aggregate have not had, or would not be
reasonably expected to have, a Material Adverse Effect (it being understood
that the Company shall promptly notify the Buyer of any such Action before
Closing). Except as set forth on Schedule 5.4. each of the Steel Heddle
Companies has obtained and complied with, and is in compliance with, all
permits, licenses and other authorizations that are required pursuant to
Environmental Laws for the occupation of its facilities and the operation of
the Business (the "Environmental Permits"), except where such noncompliance or
the failure to obtain Environmental Permits has not had, or would not
reasonably be expected to have, a Material Adverse Effect. Except as set forth
on Schedule 5.4, none of the Steel Heddle Companies has received any notice,
report or other written information regarding any actual or alleged violation
of Environmental Laws or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise) thereunder, including
any investigatory, remedial or corrective obligations, relating to any of the
Steel Heddle Companies or their facilities arising under Environmental Laws.
Except as set forth on Schedule 5.4, to the Knowledge of the Company, none of
the Steel Heddle Companies, or their respective predecessors or Affiliates, has
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled or released any Hazardous Substance, or owned or operated
any property or facility in a manner that has given or would give rise to
liabilities, including any liability for response costs, corrective action
costs, personal injury, property damage, natural resources damages or attorneys
fees, pursuant to any Environmental Laws. Except as set forth on Schedule 5.4,
to the Knowledge of the Company, none of the property or facilities (including
the Real Property) owned or operated by any of the Steel Heddle Companies is
contaminated by any Hazardous Substance. To the Knowledge of the Company,
except as set forth on Schedule 5.4, none of the Steel Heddle Companies has,
-20-
<PAGE> 26
either expressly or by operation of law, assumed, undertaken or otherwise
become subject to any liability, including any obligation for corrective or
remedial action, of any other Person relating to Environmental Laws. Except as
set forth on Schedule 5.4, to the Knowledge of the Company, no facts, events or
conditions relating to the past or present facilities, properties or operations
of any of the Steel Heddle Companies or their respective predecessors or
Affiliates are reasonably likely to prevent, hinder or limit continued
compliance with Environmental Laws or give rise to any investigatory, remedial
or corrective obligations pursuant to Environmental Laws.
5.5. Real and Personal Property.
5.5.1. Except as has not had and would not reasonably be
expected to have a Material Adverse Effect, each of the Steel Heddle
Companies has valid title to all of its material personal property,
and such material personal property is not subject to any Lien except
as set forth on Schedule 5.5.1. Except as has not had and would not
reasonably be expected to have a Material Adverse Effect, (i) all
material leases and licensing agreements for personal property
("Personalty Leases") leased or licensed by any of the Steel Heddle
Companies are valid and in full force; (ii) the Steel Heddle Companies
have performed in all material respects all obligations required to be
performed by them under such Personalty Leases; and (iii) no event or
condition exists which constitutes or, with the giving of notice or
the passage of time or both, would constitute a material default by
any of the Steel Heddle Companies as lessee or licensee under such
Personalty Leases.
5.5.2. (a) Attached as Schedule 5.5.2 is the address and
legal description of all real property owned by the Company or any
Subsidiary (the "Owned Real Property"). The Company or its applicable
Subsidiary has good and marketable title in and to all of the Owned
Real Property subject to no Liens, or other licences, material
encroachments, encumbrances or other defects in title (collectively,
the "Real Property Liens") except for those listed on Schedule
5.5.2(a).
(b) Attached as Schedule 5.5.2(b) is a list of all
leases, subleases and other occupancy agreements, including all
amendments, extensions and other modifications (the "Leases") relating
to the lease or sublease of real property to, or the occupancy of any
real property by, any Steel Heddle Company (the "Leased Real
Property"; the Owned Real Property and the Leased Real Property are
collectively referred to herein as the "Real Property") to which the
Company or any Subsidiary is a party. Except as has not had and would
not reasonably be expected to have a Material Adverse Effect, (i) all
Leases to the Steel Heddle Companies are valid and in full force and
effect; (ii) the Steel Heddle Companies have performed in all material
respects all obligations required to be performed by them under such
Leases; and (iii) no event or condition exists which constitutes or,
with the giving of notice or passage of time or both, would constitute
a material default by any of the Steel Heddle Companies as lessee
under such Lease.
-21-
<PAGE> 27
(c) The Real Property constitutes all of the real
property owned or leased in connection with the Business. Except as
set forth on Schedule 5.5.2(b), other than the Company and its
Subsidiaries, there are no parties in possession or parties leasing or
occupying any of the Owned Real Property. The Owned Real Property is
in condition and repair sufficient in all material respects for the
conduct of the Business. The Owned Real Property and all plants,
buildings and improvements located thereon conform to all applicable
building, zoning and other laws, ordinances, rules and regulations
except where such failure or violation has not had, or would not
reasonably be expected to have, a Material Adverse Effect. All
permits, licenses and other approvals necessary for the current
occupancy and use of the Owned Real Property have been obtained, are
in full force and effect and have not been violated, except where such
failure or violation has not had, or would not reasonably be expected
to have, a Material Adverse Effect. All improvements located on the
Real Property have direct or indirect access to a public road, except
where such failure to have access has not had, or would not reasonably
be expected to have, a Material Adverse Effect. The Company has not
received any notice of any condemnation proceeding affecting any
material portion of the Owned Real Property. To the Knowledge of the
Company, there are no outstanding options or rights of first refusal
with respect to the purchase or use of any of the Owned Real Property.
5.6. Intellectual Property Rights. Schedule 5.6 lists all material
patents, trade and product names, trademarks, service marks, logos and
copyrights (including registrations and applications therefor) that are owned
or licensed by any of the Steel Heddle Companies, other than commercially
available software programs (the "Intangibles"). Schedule 5.6 also lists each
license or other Contractual Obligation under which any Intangible is licensed
by any of the Steel Heddle Companies as licensee (the "Licenses"). Except as
disclosed on Schedule 5.6 or Schedule 5.7, there is no license or other
Contractual Obligation under which any of the Steel Heddle Companies is a
licensor with respect to any Intangibles. Except has not had or would
reasonably be expected to have a Material Adverse Effect, use by the Steel
Heddle Companies of the Intangibles does not infringe any rights of any third
party. To the Knowledge of the Company, no activity of any third party
infringes upon the rights of the Steel Heddle Companies with respect to any of
the Intangibles. Except has not had or would reasonably be expected to have a
Material Adverse Effect, the Steel Heddle Companies own and possess all right,
title and interest in and to, or have a valid and enforceable license to use,
the Intangibles, free and clear of all Liens.
5.7. Certain Contractual Obligations. Set forth on Schedule 5.7
is a true and complete list of all of the following Contractual Obligations of
the Steel Heddle Companies (other than (i) the Options, Warrants and Rights,
and (ii) Contractual Obligations incurred solely in connection with the
transactions contemplated hereby):
(a) all collective bargaining agreements;
(b) all written employment or consulting agreements
pursuant to which services are rendered to the Steel Heddle Companies,
in each case which are likely to
-22-
<PAGE> 28
involve payments by or on behalf of any of the Steel Heddle Companies
in excess of $100,000 per year;
(c) all Contractual Obligations under which any of the
Steel Heddle Companies is or will after the Closing be restricted in
any respect from carrying on their respective business or other
activities conducted by them or presently contemplated to be conducted
by them anywhere in the world (other than use restrictions contained
in any of the Leases and Personalty Leases that are of the type and
scope customarily found in such Contractual Obligations);
(d) all Contractual Obligations to sell or otherwise
dispose of any assets (other than products pursuant to purchase orders
or agreements entered into in the Ordinary Course of Business) having
a fair market value in excess of $250,000, individually or $500,000 in
the aggregate;
(e) all Contractual Obligations between any of the
Steel Heddle Companies on the one hand and any Affiliate of any of the
Steel Heddle Companies (other than one of the other Steel Heddle
Companies) on the other hand;
(f) all Contractual Obligations (including partnership
and joint venture agreements) under which (i) any of the Steel Heddle
Companies has any liability or obligation for Debt, (ii) a Lien is
imposed on any of its assets or (iii) any Person has any liability or
obligation constituting or giving rise to a guarantee of any liability
or obligation of any of the Steel Heddle Companies, in either case
involving any Debt or liability in excess of $100,000 individually or
$500,000 in the aggregate;
(g) all Contractual Obligations pursuant to which any
of the Steel Heddle Companies incurred an obligation in respect of
indemnification obligations, purchase price adjustment or otherwise
either (x) not in the Ordinary Course of Business, or (y) in
connection with any (i) acquisition or disposition of assets
constituting a business or securities representing a controlling
interest in any Person; (ii) merger, consolidation or other business
combination, or (iii) series or group of related transactions or
events of a type specified in subclauses (i) through (ii);
(h) all Contractual Obligations pursuant to which any
of the Steel Heddle Companies may be expected to perform services with
a value in excess of $250,000 individually or $500,000 in the
aggregate per year and which cannot be canceled by any of the Steel
Heddle Companies within ninety (90) days, except for customer purchase
orders received in the Ordinary Course of Business;
(i) all Contractual Obligations pursuant to which any
of the Steel Heddle Companies may be obligated to pay for goods and
services to be delivered or performed in excess of $250,000
individually or $500,000 in the aggregate per year, except for
purchase orders issued in the Ordinary Course of Business;
-23-
<PAGE> 29
(j) any non-solicitation, non-competition or material
confidentiality agreement under which any of the Steel Heddle
Companies has any obligation of non-solicitation, non-competition or
confidentiality;
(k) all profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other
material plan or arrangement for the benefit of any current or former
director, officer, or employee of any of the Steel Heddle Companies;
and
(l) any lease, sublease, license or sublicense of
personal property from or to any third parties providing for payments
in excess of $100,000 individually or $250,000 in the aggregate or any
material lease, sublease, license or sublicense of personal property
providing for a term or duration in excess of twelve (12) months from
the date hereof (without considering any option or right thereunder to
terminate the term or duration thereof prior to the expiration
thereof).
Each of the Contractual Obligations listed on Schedule 5.7 shall be referred to
herein collectively as the "Contracts". No breach or default in performance by
any of the Steel Heddle Companies under any of the Contracts has occurred and
is continuing, and no event has occurred which with notice or lapse of time or
both would constitute such a breach or default, other than any breach or
default which has not had, or would not reasonably be expected to have, a
Material Adverse Effect. To the Knowledge of the Company, no material breach
or default by any other Person under any of the Contracts has occurred and is
continuing, and no event has occurred which with notice or lapse of time or
both would constitute such a breach or default. The Company has made each
written Contract available to the Buyer, and has provided a written summary of
each oral Contract to the Buyer. Each of the Contracts is valid, binding and
enforceable in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights, or the applicability of
equitable principles.
5.8. Insurance, Etc. Schedule 5.8 is a true and accurate list as
of the date hereof of all material policies or binders of insurance covering
the operations of the Steel Heddle Companies. The Company has delivered or
made available to the Buyer true and accurate copies of all such policies or
binders as in effect on the date hereof. To the Knowledge of the Company, none
of the Steel Heddle Companies is in any material default with respect to its
obligations under any of such policies.
5.9. Litigation, Etc. Except as set forth on Schedule 5.9 or has
not had, or would not reasonably be expected to have, a Material Adverse
Effect, there is no Action involving any of the Steel Heddle Companies pending
or, to the Knowledge of the Company, threatened. There is no Action pending
or, to the Knowledge of the Company, threatened in writing, which seeks
rescission of or seeks to enjoin the consummation of this Agreement or any of
the transactions contemplated hereby.
-24-
<PAGE> 30
5.10. Compliance with Laws, Etc. Each of the Steel
Heddle Companies has complied and is in compliance with, and the operations of
the Business have been and are in compliance with, applicable Legal
Requirements, except as set forth in Schedule 5.10, or as have not had, and
would not reasonably be expected to have, a Material Adverse Effect. The Steel
Heddle Companies have been granted and have complied with and are in compliance
with all licenses, permits, consents, approvals, franchises and other
authorizations under any Legal Requirement necessary for the conduct of the
Business or the ownership or operation of the Owned Real Property (the
"Permits"), except where the failure to obtain or to comply with such Permits
has not had, and would not reasonably be expected to have, a Material Adverse
Effect. The Company has not received any written notice that any Governmental
Authority or other licensing authority will revoke, cancel, rescind, materially
modify or refuse to renew in the ordinary course any of the Permits.
5.11. Tax Matters.
Except as set forth on Schedule 5.11:
(a) Each of the Steel Heddle Companies has filed or has
had filed on its behalf all Tax Returns that it was required to file
on or before the date hereof (or the Closing Date), and has paid or
accrued in accordance with Generally Accepted Accounting Principles on
the Closing Balance Sheet all Taxes through the Closing Date, except
where the failure to file Tax Returns or to pay Taxes has not had, or
would not reasonably be expected to have, a Material Adverse Effect,
or except to the extent of any Taxes arising as a result of any
disallowance of any deductions (and any corresponding imposition of
any withholding) claimed or expected to be claimed in respect of items
included in the calculation of the Compensation Tax Benefit;
(b) all deficiencies asserted in writing and any
assessments made as a result of any examinations of the Tax Returns
referred to in clause (a) by the Internal Revenue Service ("IRS") or
the appropriate state, local or foreign taxing authority have been
paid in full;
(c) none of the Steel Heddle Companies has received any
written notice of any audit, claim, deficiency or assessment pending
or proposed with respect to Taxes of any of the Steel Heddle
Companies;
(d) none of the Steel Heddle Companies is party to any
written agreements or waivers extending the statutory period of
limitation applicable to any Taxes of the Steel Heddle Companies;
-25-
<PAGE> 31
(e) to the Company's Knowledge, none of the Steel Heddle
Companies (i) files or is required to file any combined, consolidated
or unitary federal, state, local or foreign Tax Returns (other than
Tax Returns filed by a group the common parent of which was the
Company) and (ii) is a party to any Contractual Obligation relating to
the allocation or sharing of Taxes;
(f) there are no Tax liens (other than liens for current
Taxes not yet due and payable) upon any properties or assets of any of
the Steel Heddle Companies;
(g) all of the Steel Heddle Companies have duly withheld
and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, shareholder or other Person that required
withholding (and have otherwise complied with all applicable laws
relating to the payment and withholding of Taxes), except where the
failure to withhold or pay such Taxes has not had, or would not
reasonably be expected to have, a Material Adverse Effect;
(h) none of the Steel Heddle Companies have made any
election under Section 341(f) of the Code (or any corresponding
provision of state, local or foreign income Tax law);
(i) none of the Steel Heddle Companies has any current
obligation to indemnify or otherwise assume or succeed to the
liability of any Person other than any of the Steel Heddle Companies
for the payment of Taxes other than in the ordinary course of its
business; and
(j) none of the Steel Heddle Companies will be required
to include any item of income in, or exclude any item of deduction
from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of (i) any change in method
of accounting made by any of the Steel Heddle Companies prior to the
Closing Date for a taxable period ending on or prior to the Closing
Date, (ii) any closing agreement described in Section 7121 of the Code
(or any corresponding provision of state, local or foreign income tax
law) entered into by any of the Steel Heddle Companies prior to the
Closing Date, or (iii) any installment sale made prior to the Closing
Date.
5.12. Employee Benefit Plans.
(a) Schedule 5.12 lists each employee benefit plan,
program or policy (including each "employee benefit plan" within the
meaning of Section 3(3) of ERISA) that is maintained or otherwise
contributed to by the Company or any of its Subsidiaries or with
respect to which any of the Steel Heddle Companies has any liability
(collectively, the "Company Plans").
-26-
<PAGE> 32
(b) With respect to each of the Company Plans, the
Company has made available to the Buyer a current, accurate and
complete copy (or, to the extent no such copy exists, an accurate
description) thereof and, to the extent applicable, (i) any related
trust agreement, annuity contract or other funding instrument pursuant
to which the Company is obligated; (ii) any summary plan description;
(iii) the two (2) most recent annual Forms 5500 (if applicable) with
respect to such Company Plans; (iv) the two (2) most recent actuarial
valuation reports, if applicable; and (v) if such Company Plan is
intended to be a qualified single employer plan under Section 401(a)
of the Code, the most recent favorable determination letter received
from the Internal Revenue Service.
(c) Except as set forth in Schedule 5.12 (i) each Company
Plan is in compliance as of the date hereof with its terms and the
applicable provisions, if any, of ERISA and the Code, except where
noncompliance does not have, or would not be reasonably expected to
have, a Material Adverse Effect; (ii) each Company Plan that is
intended to be qualified within the meaning of Section 401(a) of the
Code has received a favorable determination letter from the IRS as to
its qualification, and nothing has occurred since the date of such
determination letter that would reasonably be expected to adversely
affect the qualified status of such Company Plan; (iii) to the
Knowledge of the Company as of the date of this Agreement no
"reportable event" (as such term is used in Section 4043 of ERISA),
"prohibited transaction" (as such term is used in Section 4975 of the
Code or Section 406 of ERISA) or "accumulated funding deficiency" (as
such term is used in Section 412 or 4971 of the Code) has heretofore
occurred with respect to any Company Plan; (iv) no material litigation
or administrative or other proceedings involving the Company Plans
have occurred or, to the Knowledge of the Company, are threatened; (v)
each of the Steel Heddle Companies has complied with the health care
continuation requirements of Part 6 of Subtitle B of Title I of ERISA
("COBRA") with respect to employees and their spouses, former spouses
and dependents, except where failure to comply has not had, or would
not reasonably be expected to have, a Material Adverse Effect; and
(vi) none of the Steel Heddle Companies has any obligation under any
Company Plan to provide health or life insurance benefits to former
employees of any of the Steel Heddle Companies except as specifically
required by COBRA or state law; and (vii) no asset of the Steel Heddle
Companies that is to be acquired by the Buyer, directly or indirectly,
pursuant to this Agreement is subject to any Lien under Section 412 of
the Code or ERISA.
(d) None of the Steel Heddle Companies maintains or
contributes to any "multiemployer plan" (as such term is defined in
Section 3(37) of ERISA) or has incurred any withdrawal liability with
respect to any such plan.
(e) None of the Steel Heddle Companies has any liability
with respect to any "employee benefit plan" (as defined in Section
3(3) of ERISA) solely by reason of being treated as a single employer
under Section 414 of the Code with any trade, business or entity other
than the Steel Heddle Companies.
-27-
<PAGE> 33
(f) Except as set forth in Schedule 5.12, none of the
Steel Heddle Companies contributes to, maintains or sponsors or has
any liability with respect to any employee benefit plan, agreement or
arrangement applicable to employees located outside the United States
(the "Foreign Plans"). Each Foreign Plan is in compliance with all
laws applicable thereto and the respective requirements of such
Foreign Plan's governing documents, except where such noncompliance
does not have, or would not reasonably be expected to have, a Material
Adverse Effect.
5.13. Brokers, Etc. Except for payments to be made by the Sellers
to Merrill Lynch & Co., no broker, finder, investment bank or similar agent is
entitled to any brokerage or finder's fee in connection with the transactions
contemplated by this Agreement based upon agreements or arrangements made by or
on behalf of any of the Steel Heddle Companies or the Sellers.
5.14. Absence of Undisclosed Liabilities. Except for liabilities
disclosed in the Balance Sheet or incurred in the Ordinary Course of Business
since the Balance Sheet Date, and except as listed on Schedule 5.14, none of
the Steel Heddle Companies has as of the date hereof, or will have as of the
Closing Date, any liabilities of the type required by Generally Accepted
Accounting Principles to be set forth on the face of a balance sheet (as
opposed to the notes thereto) prepared as of the date hereof or as of the
Closing Date, as the case may be.
5.15. Labor. Except as set forth on Schedule 5.15, to the Knowledge
of the Company, no key executive employee and no group of employees or
independent contractors of any Steel Heddle Company has any plans to terminate
his, her or its employment or relationship as an independent contractor with
the Seller. Except as set forth in Schedule 5.15, to the Knowledge of the
Company, no organizational effort is presently being made or threatened by or
on behalf of any labor union with respect to any employees of any of the Steel
Heddle Companies and none of the employees of any of the Steel Heddle Companies
are represented by labor union. The Company has not engaged in any unfair
labor practice except where any such unfair labor practice has not had, and
would not reasonably be expected to have, a Material Adverse Effect, and to the
Knowledge of the Company, no complaint therefor has been asserted. There is no
labor strike, dispute, slowdown or stoppage pending or, to the Knowledge of the
Company, threatened, against any of the Steel Heddle Companies.
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants as follows:
6.1. Corporate Matters, Etc.
6.1.1. Organization, Power and Standing of the Buyer. The
Buyer is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and
has full power and authority, corporate and otherwise, to enter into
this Agreement, to carry out and perform its obligations hereunder and
to consummate the transactions contemplated hereby.
-28-
<PAGE> 34
6.1.2. Authorization and Enforceability. This Agreement has
been duly authorized, executed and delivered by, and is Enforceable
against, the Buyer.
6.1.3. Non-Contravention, Etc. The execution, delivery and
performance of this Agreement by the Buyer and the consummation by the
Buyer of the Closing hereunder in accordance with the terms and
conditions of this Agreement do not and will not conflict with or
result in the breach of any terms or provisions of, or constitute a
default under, any Contractual Obligation or the Charter or By-Laws of
the Buyer or a breach of any Legal Requirement applicable to the
Buyer. Except for satisfaction of the notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), no consent is required to be obtained or made by or
on behalf of the Buyer in connection with the execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated hereby, except (i) for items which shall have been
obtained or made on or prior to, and shall be in full force and effect
at, the Closing Date and (ii) where failure to obtain such consent
would not materially and adversely affect the Buyer's ability to
consummate the Closing hereunder in accordance with the terms and
conditions of this Agreement and would not prevent the Buyer from
performing in all material respects any of its obligations under this
Agreement.
6.2. Financial Condition, Etc. The Buyer has, as of the date
hereof, received and provided the Company with true and correct copies of
executed commitment letters (the "Commitment Letters") from certain
institutional lenders and investors with respect to secured bank facilities,
unsecured subordinated debt financing and equity financing (such persons being
collectively referred to as the "Financing Sources") and, subject to its
receipt of the financing contemplated by the Commitment Letters, will have as
of the Closing Date funds in an aggregate amount sufficient to (i) pay the
Purchase Price and all contemplated fees and expenses related to the
transactions contemplated by this Agreement and (ii) provide adequate working
capital for the Business.
6.3. Investment Intent, Related Matters. The Buyer is purchasing
the Securities for its own account and has the present intention of holding the
Securities for investment purposes and not with a view to, or for sale in
connection with, any distribution thereof in violation of any federal or state
securities laws.
6.4. Litigation. Except as has not had, or would not reasonably be
expected to have, a material adverse effect on the ability of the Buyer to
perform its obligations under this Agreement, there is no Action pending, or,
to the Knowledge of the Buyer, threatened against the Buyer or any of its
Affiliates. There is no Action pending, or, to the Knowledge of the Buyer,
threatened in writing, which seeks rescission of or seeks to enjoin the
consummation of this Agreement or any of the transactions contemplated hereby.
-29-
<PAGE> 35
6.5. Brokers, Etc. Except for customary transaction fees payable
by the Buyer to certain stockholders of the Buyer, no broker, finder,
investment bank or similar agent is entitled to any brokerage or finder's fee
in connection with the transactions contemplated by this Agreement based upon
agreements or arrangements made by or on behalf of the Buyer or any of its
Affiliates.
7. CERTAIN AGREEMENTS OF THE PARTIES.
7.1. Payment of Transfer Taxes and Other Charges. The Buyer shall
be responsible for and shall pay all real property Taxes, sales Taxes,
documentary stamp Taxes, recording charges and other similar Taxes, and the
Sellers shall pay all stock transfer Taxes, each arising in connection with the
transactions contemplated by this Agreement. Each of the parties hereto shall
prepare and file, and shall fully cooperate with each other party with respect
to the preparation and filing of, any Tax Returns and other filings relating to
any such Taxes or charges as may be required.
7.2. Confidentiality Covenant of the Buyer. The Confidentiality
Agreement dated January 12, 1998 as amended and modified through the date
hereof (the "Confidentiality Agreement") by and between the Buyer and Mfg. Co.
on behalf of the Company and the Sellers is hereby confirmed and acknowledged
as a continuing obligation of the parties; provided, however, that the
disclosure by the Buyer as required in connection with the Financing and any
other related offering to parties involved therewith or their representatives
who have entered appropriate confidentiality arrangements with Buyer shall not
violate such Confidentiality Agreement.
7.3. Operation of Business and Related Matters. From the date
hereof and on and prior to the Closing Date, except as otherwise permitted or
required by this Agreement, the Company will, and will cause the other Steel
Heddle Companies to, conduct the Business in the Ordinary Course of Business
and substantially as presently operated, and use reasonable efforts to maintain
the value of the Business as a going concern and preserve their relationships
with customers, suppliers, lessors, licensors, employees and others with whom
they deal. From the date hereof and on and prior to the Closing Date, no
Seller will sell, pledge or otherwise encumber any of his, her or its
Securities without the prior written consent of the Buyer. Except as set forth
in Schedule 7.3, from the date hereof and prior to the Closing Date, the
Company shall not, and shall cause the other Steel Heddle Companies not to,
without the prior written consent of the Buyer, which will not be unreasonably
withheld or delayed:
(a) enter into any transactions other than on an arms'
length basis with any Seller or any other Affiliate of the Steel
Heddle Companies (other than as contemplated by this Agreement and
transactions in the Ordinary Course of Business among the Steel Heddle
Companies); provided, however, that with the exception of transfers
aggregating no more than $100,000, no domestic Steel Heddle Company
shall transfer cash or any other assets (other than inventory or
products in the Ordinary Course of Business) to a non-domestic Steel
Heddle Company;
-30-
<PAGE> 36
(b) pay any compensation other than in the Ordinary
Course of Business or increase any compensation of any director,
officer or employee other than such increases in compensation to
non-exclusive, non-executive level employees as may be made in the
Ordinary Course of Business;
(c) incur, assume, guarantee or create any Debt
(including any capital lease), make any material loans, advances or
capital contributions to, or investments in, any other Person, or
mortgage or pledge any of their assets, or create any Liens with
respect thereto, except in the Ordinary Course of Business;
(d) amend the Charter or By-laws of any of the Steel
Heddle Companies or sell, lease or otherwise dispose of any material
assets except (i) for sales or other dispositions of inventory or
excess equipment in the Ordinary Course of Business and (ii) as may
otherwise be explicitly permitted by the terms of this Agreement;
provided, however, that the Company may file with the Commonwealth of
Pennsylvania a restated Charter that restates, but does not amend,
such Charter;
(e) make any material change in the Business or
operations of any of the Steel Heddle Companies;
(f) other than as set forth in Steel Heddle Mfg. Co.'s
capital plan for the fiscal year ending January 2, 1999, make any
capital expenditure in excess of $100,000 with respect to the Business
or enter into any contract or commitment therefor;
(g) declare, set aside or pay any dividend or
distribution with respect to its capital stock (except for any payment
to BCC ISI in accordance with the terms of the Warrants held by BCC
ISI) or redeem, purchase or otherwise acquire any of its capital
stock;
(h) split, combine or reclassify any of their
respective capital stock or issue or sell any additional shares of, or
securities convertible into or exchangeable for shares of, or options,
warrants, calls, commitments or rights of any kind to acquire shares
of, their respective capital stock;
(i) file any amended Tax Return, surrender any right to
claim a refund of Taxes, or fail to file any Tax Return or pay any
Tax, if such action would have the effect of materially increasing the
Tax liability or materially decreasing any Tax Benefit of any of the
Steel Heddle Companies, the Buyer or any Affiliate of the Buyer;
(j) change any of the accounting methods used by the
Steel Heddle Companies unless required by Generally Accepted
Accounting Principles; or
-31-
<PAGE> 37
(k) enter into any Contractual Obligation to do any of
the actions referred to in this Section 7.3.
7.4. Preparation for Closing.
7.4.1. Conditions Precedent. The Buyer on the one hand and
the Company and the Sellers on the other hand will each use
commercially reasonable efforts to bring about the fulfillment of each
of the conditions precedent to the obligations of the other set forth
in this Agreement.
7.4.2. HSR Filing. Promptly upon execution and delivery
of this Agreement, each of the Buyer and the Company will prepare and
file, or cause to be prepared and filed, with the appropriate
Governmental Authorities, a notification with respect to the
transactions contemplated by this Agreement pursuant to the HSR Act,
supply all information requested by Governmental Authorities in
connection with the HSR notification and cooperate with each other in
responding to any such request. The Buyer shall be solely responsible
for all filing fees required to be paid in connection therewith.
7.4.3. Consents, Etc. Prior to the Closing Date, the
Company shall use commercially reasonable efforts (but the Company and
the Sellers shall have no obligation to pay any fees or incur any
expenses) to secure required written consents or waivers under or with
respect to the Contracts indicated on Schedule 5.1.1, and reasonably
requested by the Buyer, any consents needed to effectuate any mergers
between the Buyer and any of the Steel Heddle Companies or between any
of the Steel Heddle Companies. If reasonably requested by the Company
in connection with its attempts to obtain such consents, the Buyer
shall execute and deliver an agreement of assignment, assumption and
attornment with respect to and/or guarantee of the obligations under
such Contracts.
7.4.4. Definitive Financing Agreements. The Buyer shall
use commercially reasonable efforts (which shall include the payment
of any financing fees reflected in the Commitment Letters) to
negotiate, prepare and enter into definitive financing agreements (the
"Definitive Financing Agreements") with the Financing Sources to
provide the financing substantially on the terms set forth in the
Commitment Letters (the "Financing") and otherwise to use reasonable
commercial efforts to enforce the financing commitments reflected in
the Commitment Letters; provided, however, that Buyer need not enforce
the commitment of DLJ Bridge Finance, Inc. dated April 28, 1998 to
provide bridge financing until June 26, 1998. The Buyer shall use
commercially reasonable efforts to satisfy on or before the Closing
Date all requirements of the Definitive Financing Agreements which are
conditions to closing the transactions constituting the Financing.
The Buyer shall promptly notify the Sellers of any material change to,
or revocation of, any Commitment Letter.
-32-
<PAGE> 38
7.4.5. Representations and Warranties. Each party hereto
shall use commercially reasonable efforts not to take any action or
omit to take any action that will cause any representation or warranty
of such party to become untrue in any material respect if it were made
on any date from the date hereof until Closing.
7.5. Potential Parachute Payments. Buyer and Sellers acknowledge
that a portion of the payments referred to in clause (b) of Section 1.2.30
above might be deemed to constitute "excess parachute payments" under Code
Section 280G(b). As soon as reasonably practicable, the Company will (i)
identify which, if any, of such payments may reasonably be deemed to constitute
an excess parachute payment (the payments so identified being the "Potential
Parachute Payments") and (ii) request that each Seller that would receive a
Potential Parachute Payment agree in writing to waive such Seller's rights to
receive such payment and to accept in substitution therefor the right to
receive such payment only if approved by stockholders in a manner intended to
comply with Code Section 280G(b)(5)(B) and proposed Treasury Regulation Section
1.280G-1 Q&A 7 (it is being understood that such waiver will not be requested
if the Potential Parachute Payment is already conditional on such approval).
The Company will use commercially reasonable efforts to obtain each such
waiver. The Company will seek, as soon thereafter as reasonably practicable,
stockholder approval in a manner intended to comply with Code Section
280G(b)(5)(B) and proposed Treasury Regulation Section 1.280G-1 Q&A 7 of all
Potential Parachute Payments that have been conditioned on the receipt of such
approval. The determination of which Tax Benefit Payments are Potential
Parachute Payments, the form of each such waiver and the disclosure and other
circumstances of any such stockholder approval shall be subject to the approval
of Buyer, which approval shall not be unreasonably withheld or delayed.
7.6. Letter of Credit. The Company, the Sellers and the Buyer
shall cooperate to permit the substitution, as of the Closing, of a new letter
of credit provided by the Buyer's Financing Sources for the SCDHEC Letter of
Credit.
7.7. No Section 338 Election. The Buyer will not make an election
pursuant to Section 338 of the Code with respect to the Company and its
Subsidiaries.
7.8. Further Assurances. Each party, upon the request from time to
time of any other party hereto after the Closing, and at the expense of the
requesting party but without further consideration, will do each and every act
and thing as may be necessary or reasonably requested to consummate the
transactions contemplated hereby in an orderly fashion.
7.9. Delivery of Interim Financial Statements. Prior to the
Closing, the Company shall use commercially reasonable efforts to promptly
deliver to the Buyer interim financial statements generated in the Ordinary
Course of Business (the "Interim Financial Statements"). All Interim Financial
Statements delivered pursuant to this Section 7.9 shall be prepared in a manner
consistent with past practice.
-33-
<PAGE> 39
7.10. No Solicitation. From and after the date of this Agreement
until the earlier of (a) the Closing or (b) the termination of this Agreement
pursuant to Section 13.1, neither the Steel Heddle Companies nor the Sellers
shall, and shall not permit any officer, director, agent, representative or
Affiliate of the Sellers or the Steel Heddle Companies (including Merrill
Lynch & Co.) to, directly or indirectly: (i) enter into any written or oral
agreement or understanding with any Person (other than the Buyer or its
Affiliates) regarding Another Transaction (as defined below); (ii) enter into
or continue any negotiations or discussions with any Person (other than the
Buyer or its Affiliates) regarding the possibility of Another Transaction;
(iii) submit, solicit, initiate, encourage, participate in, or facilitate any
proposal or offer (other than a proposal or offer of the Buyer of its
Affiliates) regarding Another Transaction; or (iv) except as otherwise required
by law, provide any Confidential Information (including this Agreement and any
other materials containing the Buyer's acquisition proposal and any other
financial information, projections or proposals regarding the Steel Heddle
Companies) to any Person (other than the Buyer or its Affiliates or their
respective representatives) whom the Steel Heddle Companies know, or have
reason to believe, would have any interest in participating in Another
Transaction. As used herein, the term "Another Transaction" means the sale of
any of the material assets of any of the Steel Heddle Companies (other than the
sale of inventory in the Ordinary Course of Business) or any sale, merger,
consolidation, public offering, reorganization, dissolution, recapitalization,
business combination or similar transaction involving any of the Steel Heddle
Companies or any of their respective capital stock (or rights to acquire such
capital stock). The Company shall notify the Buyer immediately if on or after
the date of this Agreement any third party makes any written proposal, offer,
inquiry or contact in respect of Another Transaction.
7.11. Confidentiality. After the Closing, each Seller will use
commercially reasonable efforts to treat and hold as such all Confidential
Information and refrain from using any Confidential Information except in
connection with this Agreement. In the event that such Seller is requested or
required (by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand or similar
process) to disclose any Confidential Information, such Seller will notify the
Buyer promptly of the request or requirement so that the Buyer may seek an
appropriate protective order or waive compliance with the provisions of this
Section 7.11. If, in the absence of a protective order or the receipt of a
waiver hereunder, such Seller is, on the advice of counsel, compelled to
disclose any Confidential Information or else stand liable for contempt, such
Seller may so disclose the Confidential Information; provided, however, that
such Seller shall use its commercially reasonable efforts to obtain, at the
request and expense of the Buyer, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information
required to be disclosed as the Buyer shall designate.
7.12. Covenant Not to Compete; Non-Solicitation.
(a) Butler and each BCC Seller agrees that for a period of three
(3) years from and after the Closing Date (the "Non-Compete Period"), such
party and its successors and Affiliates will not engage directly or indirectly
in the Business in any geographic area in which any Steel
-34-
<PAGE> 40
Heddle Company conducts the Business as of the Closing Date; provided, however,
that nothing herein shall prohibit Butler or such BCC Seller and its successors
and Affiliates from being a passive owner of not more than 5% of the
outstanding stock of any class of any other corporation that engages in the
Business, so long as such party has no active participation in the business of
such corporation.
(b) During the Non-Compete Period, neither Butler nor any BCC
Seller or any successor or Affiliate thereof shall directly or indirectly
through another entity, (i) induce or attempt to induce any employee as of the
date hereof of the Buyer or any Steel Heddle Company to leave the employ of the
Buyer or such Steel Heddle Company, or in any way interfere with the
relationship between the Buyer or such Steel Heddle Company and any employee
thereof as of the date hereof, or (ii) hire any of the employees of any Steel
Heddle Company listed in Schedule 7.12.
(c) If, at the time of enforcement of this Section 7.12, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
period, scope and area permitted by applicable law. Butler and each BCC Seller
agrees that the restrictions contained in this Section 7.12 are reasonable.
(d) In the event of the breach or a threatened breach by Butler, a
BCC Seller or any successor or Affiliate thereof any of the provisions of this
Section 7.12, in addition and supplementary to other rights and remedies
existing in its favor, the Buyer may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof
(without posting a bond or other security). In addition, in the event of an
alleged breach or violation of this Section 7.12 by Butler, a BCC Seller or any
successor or Affiliate thereof, the Non-Compete Period shall be tolled until
such breach or violation has been duly cured.
7.13. Litigation Support. In the event and for so long as any party
hereto actively is contesting or defending against any Action from a third
party in connection with (i) any transaction contemplated under this Agreement
or (ii) any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or
transaction on or prior to the Closing Date involving the Company, the other
party will cooperate with the contesting or defending party and its counsel in
the contest or defense, make available its personnel, and provide such
testimony and access to its books and records as shall be reasonably necessary
in connection with the contest or defense, all at the sole cost and expense of
the contesting or defending party (unless the contesting or defending party is
entitled to indemnification therefor under Section 11 hereof).
7.14. Debt. The Company shall use reasonable commercial efforts to
arrange for the delivery to the Buyer of appropriate payoff letters and
instructions reasonably satisfactory to the
-35-
<PAGE> 41
Buyer for the repayment of all outstanding Debt and the release of all Liens
securing (including appropriate UCC termination statements) and the
cancellation of all notes issued in connection with such Debt.
7.15. Expenses. The Company shall use reasonable commercial efforts
to provide the Buyer at or before Closing with appropriate bills and payment
instructions reasonably satisfactory to the Buyer for all Unpaid Expenses.
7.16. Accountant's Consent. The Company shall use its commercially
reasonable efforts to obtain, at the Buyer's expense, the consent of Ernst &
Young LLP to the inclusion of the Financial Statements, together with its
unqualified audit opinions on each of such statements, in the offering
memorandum used by the Buyer in connection with the Financing, the registration
statement used in connection with the subsequent exchange offer and any other
related registered offering.
7.17. Discharge of Management Loans. The loans by the Company to
William B. Parson and James B. Conner, respectively, evidenced by Notes dated
as of April 29,1994, shall be discharged by the maker thereof on or prior to
the Closing Date. Each of William B. Parson and James B. Conner hereby
authorizes the Buyer to pay to the Company, on his behalf, out of the portion
of the Cash Consideration otherwise payable to him, all amounts required as of
the Closing to discharge such loans.
7.18. Exercise of Options, Rights and Warrants. Each Seller agrees
that such Seller will not exercise any Options, Rights or Warrants held by such
Seller prior to the Closing.
8. CONDITIONS TO THE OBLIGATION TO CLOSE OF THE BUYER. The obligations
of the Buyer to consummate the Closing under this Agreement are subject to the
satisfaction, at or prior to the Closing, of all of the following conditions,
compliance with which, or the occurrence of which, may be waived prior to the
Closing in writing by the Buyer in its sole discretion:
8.1. Representations, Warranties and Covenants.
8.1.1. Continued Accuracy of Representations and
Warranties. The representations and warranties of the Sellers and the
Company contained in this Agreement shall be true and correct in all
material respects on, and as of, the Closing Date with the same effect
as though such representations and warranties had been made on and as
of such date (except for representations and warranties that speak as
of a specific date or time other than the Closing Date which need only
be true and correct as of such date or time).
8.1.2. Performance of Agreements. The Sellers and the
Company shall have performed and satisfied, in all material respects,
all covenants and agreements required by this Agreement to be
performed or satisfied by them at or prior to the Closing.
-36-
<PAGE> 42
8.1.3. Sellers' Closing Certificate. At the Closing, the
Sellers shall furnish a certificate, signed by each of the Sellers,
dated the Closing Date, to the effect that the conditions specified in
Sections 8.1.1 and 8.1.2 hereof (to the extent relating to such
Seller), have been satisfied.
8.1.4. Company's Closing Certificate. At the Closing, the
Company shall furnish a certificate, signed by the President or a Vice
President of the Company, dated the Closing Date, to the effect that
the conditions specified in Sections 8.1.1 and 8.1.2 (to the extent
relating to the Company), have been satisfied.
8.1.5. Outstanding Capital. The Shares shall constitute
all the outstanding stock of the Company and the Options, Warrants and
Rights shall constitute all the Contractual Obligations pursuant to
which the Company has granted any option, warrant or other right to
any Person to acquire the shares of Common Stock or any other
securities of, or equity interest in, the Company.
8.2. Legality; Governmental Authorization; Litigation. The
acquisition of the Securities and the consummation of the other transactions
contemplated hereby shall not be prohibited by any Legal Requirement, and all
necessary filings, if any, pursuant to the HSR Act shall have been made and all
applicable waiting periods thereunder (and any extensions thereof) shall have
expired or been terminated. No Action shall have been instituted at or prior
to the Closing by any Person or Governmental Authority, other than a party
hereto or any Affiliate thereof, relating to this Agreement or any of the
transactions contemplated hereby, which has a reasonable likelihood of success
and the result of which would prevent or make illegal the consummation of any
such transaction or could otherwise reasonably be expected to have a material
adverse effect on the ability of the Buyer to consummate the transactions
contemplated hereby.
8.3. Third-Party Consents. There shall have been obtained by the
Company the consents or waivers listed on Schedule 8.3.
8.4. Opinion of Counsel. The Sellers and the Company shall have
furnished the Buyer with favorable opinions of Haynsworth, Marion, McKay &
Guerard, L.L.P.; Ropes & Gray; and Drinker, Biddle & Reath (or in each case
other counsel satisfactory to the Buyer ), each dated as of the Closing Date,
with respect to the matters set forth in Exhibit 8.4.
8.5. Financing. The Definitive Financing Agreements shall be in
full force and effect and all conditions for the receipt by the Buyer of the
Financing contemplated thereby shall have been satisfied or waived.
8.6. General. All corporate proceedings required to be taken on
the part of the Company in connection with the transactions contemplated by
this Agreement shall have been taken. The Buyer shall have received copies of
such officers' certificates, good standing
-37-
<PAGE> 43
certificates, incumbency certificates and other customary closing documents as
the Buyer may reasonably request in connection with the transactions
contemplated hereby.
8.7. Title Insurance. First American Title Insurance Company,
Chicago Title Insurance Company, and/or another nationally recognized
independent title insurance company or companies mutually agreed upon by the
Buyer and the Sellers' Representative (the "Title Companies"), shall be willing
to insure the Company's or the applicable Subsidiaries' marketable title in and
to the Owned Real Property, and Buyer's lender's mortgage lien on the Owned
Real Property, free and clear of all Liens, other than the matters disclosed on
Schedule 5.5.2(a) and other than Liens that in the aggregate do not materially
diminish the value of the Real Property or materially limit its current or
intended use in the Business. The Company shall provide such usual and
customary affidavits as the Title Companies reasonably shall require in order
to issue such title insurance policy.
8.8. Surveys. Buyer shall have received (after using commercially
reasonable efforts to obtain, at its own expense) a survey of each Owned Real
Property conforming to the Minimum Standard Detail Requirements jointly
established and approved in 1992 by ALTA and ACSM certified to the Company, the
Buyer's lender and the Title Companies showing no defects, encroachments or
encumbrances other than those disclosed on Schedule 5.5.2(a) or which in the
aggregate do not materially diminish the value of the Real Property or
materially limit its current or intended use in the Business.
9. CONDITIONS TO THE OBLIGATION TO CLOSE OF THE SELLERS. The obligations
of the Sellers to consummate the Closing under this Agreement are subject to
the satisfaction, at or prior to the Closing, of all of the following
conditions, compliance with which, or the occurrence of which, may be waived
prior to the Closing in writing by the Sellers' Representative in its sole
discretion:
9.1. Representations, Warranties and Covenants.
9.1.1. Continued Accuracy of Representations and
Warranties. The representations and warranties of Buyer contained in
this Agreement shall be true and correct on and as of the Closing Date
with the same effect as though such representations and warranties had
been made on and as of such date (except for representations and
warranties that speak as of a specific date or time other than the
Closing Date which need only be true and correct as of such date or
time).
9.1.2. Performance of Agreements. The Buyer shall have
performed and satisfied, in all material respects, all covenants and
agreements required by this Agreement to be performed or satisfied by
the Buyer at or prior to the Closing.
9.1.3. Officer's Certificate. At the Closing, the Buyer
shall furnish to the Sellers a certificate signed by the President or
any Vice President of the Buyer, dated the
-38-
<PAGE> 44
Closing Date, to the effect that the conditions specified in Sections
9.1.1 and 9.1.2 have been satisfied.
9.2. Legality; Government Authorization; Litigation. The Sellers'
consummation of the transactions contemplated hereby shall not be prohibited by
any Legal Requirement, and all necessary filings, if any, pursuant to the HSR
Act shall have been made and all applicable waiting periods thereunder shall
have expired or been terminated. No Action shall have been instituted at or
prior to the Closing by any Person or Governmental Authority, other than a
party hereto or any Affiliate thereof, relating to this Agreement or any of the
transactions contemplated hereby, which has a reasonable likelihood of success
and the result of which would prevent or make illegal the consummation any such
transaction or could otherwise reasonably be expected to have a Material
Adverse Effect on the ability of the Sellers to consummate the transactions
contemplated hereby.
9.3. Opinion of Counsel. The Buyer shall have furnished the
Sellers with a favorable opinion of Kirkland & Ellis, dated as of the Closing
Date, with respect to the matters set forth in Exhibit 9.3.
9.4. General. All corporate proceedings required to be taken by
the Buyer in connection with the transactions contemplated by this Agreement
shall have been taken. The Sellers shall have received copies of such
officers' certificates, good standing certificates, incumbency certificates and
other customary closing documents as the Sellers may reasonably request in
connection with the transactions contemplated hereby.
10. EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS.
10.1. Employment of Affected Employees. The Buyer shall cause the
Steel Heddle Companies to employ on the Closing Date, at not less than the same
rate of pay as in effect immediately preceding the Closing Date, all Affected
Employees.
10.2. Continuation of Employee Benefits. Buyer represents and
warrants that it is its present intention to have the employee benefits offered
employees of the Steel Heddle Companies existing immediately preceding the
Closing Date, including those included within the Company Plans listed on
Schedule 5.12, continue without change after the Closing Date.
10.3. WARN. The Buyer shall indemnify the Sellers and their
Affiliates and defend and hold each of them harmless from and against any
Losses which may be incurred by any of them under WARN, or any state plant
closing or notification law or otherwise, arising out of, or relating to, any
actions taken by the Buyer or the Company on or after the Closing Date.
10.4. Third-Party Rights. No provision of this Section 10 shall
confer any rights or remedies upon any Person not a party hereto, including
any employee or former employee (including any beneficiary or dependent
thereof) of the Company or any Subsidiaries of the
-39-
<PAGE> 45
Company including in respect of continued employment (or resumed employment)
for any specified period of any nature or kind whatsoever.
11. INDEMNIFICATION.
11.1. Indemnification. Subject to the terms of this Section 11,
each of the Sellers (each in its capacity as an indemnifying party, an
"Indemnifying Party") agrees after the Closing to indemnify the Buyer and the
Company (in their capacities as indemnified parties, together, the
"Indemnitee") and hold the Buyer harmless, and the Buyer and the Company (in
their capacities as indemnifying parties, an "Indemnifying Party") agree after
the Closing to indemnify each of the Sellers (each in its capacity as
indemnified party, an "Indemnitee") and hold each of the Sellers harmless,
from, against and in respect of any and all Losses arising from or related to
any of the following:
11.1.1. The Sellers. In the case of each Seller as an
Indemnifying Party (i) any breach of any representation or warranty
made by such Seller in this Agreement or in any certificate required
to be delivered under this Agreement; (ii) any breach of any
representation or warranty (except with respect to capitalization in
Section 5.1.3 and the penultimate sentence of Section 5.1.4) made by
the Company in this Agreement or in any certificate required to be
delivered under this Agreement; (iii) any breach or violation of any
covenant or agreement made by such Seller in this Agreement; (iv) any
breach of any representation or warranty with respect to
capitalization in Section 5.1.3 or the penultimate sentence of Section
5.1.4 made by the Company in this Agreement; (v) any breach or
violation of any covenant or agreement made by the Company in this
Agreement to be performed prior to Closing and (vi) any Unpaid
Expenses not subtracted from the calculation of Purchase Price
pursuant to Section 3.1; provided, however, that for purposes of
clauses (i) and (ii), each qualification as to materiality or Material
Adverse Effect in the representations and warranties referred to
therein shall be ignored; and provided, further, that for purposes of
clauses (i) and (ii) only, no representation, warranty, agreement or
covenant referred to therein shall be considered to be breached in
respect of any single item or event, or series of related items or
events, unless the Losses attributable to such single item or event,
or series of related items or events, exceed $250,000 in the
aggregate. For purpose of this Section 11, all notices to the Sellers
as Indemnifying Parties, or otherwise, shall be delivered to the
Sellers' Representative.
11.1.2. The Buyer. In the case of the Buyer or the Company
as Indemnifying Party (i) any breach of any representation or warranty
made by or on behalf of the Buyer in this Agreement or any certificate
required to be delivered under this Agreement; and (ii) any breach or
violation of any covenant or agreement made by or on behalf of the
Buyer in this Agreement.
11.2. Survival. Each representation and warranty contained in this
Agreement or any certificate required to be delivered under this Agreement
(other than representations and
-40-
<PAGE> 46
warranties with respect to ownership of securities in Section 4.4 or
capitalization in Section 5.1.3 and the penultimate sentence of Section 5.1.4,
which shall survive forever, and representations and warranties with respect to
tax matters in Section 5.11, which shall expire upon the expiration of the
applicable statute of limitations) shall survive the Closing until, and shall
expire on, March 15, 1999, without regard to any investigation made by any
party hereto. Notwithstanding the preceding sentence, with respect to any
claim asserted by a party for a breach of any warranty of the other party
before March 15, 1999 in the manner and with the specificity required under
Section 11.4, then the warranty with respect to which the claim is asserted
shall survive beyond the date determined by the preceding sentence, but such
survival shall extend only with respect to such claim and the specific grounds
asserted with respect thereto in such notice.
11.3. Monetary Limitations on Indemnification. The Sellers as
Indemnifying Parties shall not have any obligation to indemnify the Buyer or
the Company as Indemnitee under clauses (i) and (ii) of Section 11.1.1 unless
and until the aggregate cumulative total of all Losses for which
indemnification would be provided under Section 11.1.1 incurred by the Buyer or
the Company as Indemnitee exceeds $1,000,000, whereupon the Indemnitee shall be
entitled to indemnification for such Losses but only to the extent that the
aggregate cumulative total of such Losses exceeds such amount.
Notwithstanding any other provision of this Agreement, (i) the total maximum
aggregate indemnification liability for all claims for all such Losses in
excess of $1,000,000 pursuant to clauses (i), (ii) and (v) of Section 11.1.1.
shall not exceed $5,000,000 (the "Maximum Aggregate Loss") for all Sellers as a
group; and (ii) each Seller's aggregate indemnification obligations under
clauses (ii) and (v) of Section 11.1.1 shall be limited to such Seller's
Proportionate Share of the Maximum Aggregate Loss, (iii) each Seller's
aggregate indemnification obligation under clauses (ii) and (v) of Section
11.1.1 for any specific Loss shall be limited to such Seller's Proportionate
Share of such Loss, and (iv) except for indemnification obligations for claims
for breaches of the representations in Section 5.1.3 or the penultimate
sentence of Section 5.1.4, each Seller's aggregate obligation under this
Section 11 shall in no event exceed the portion of the Cash Consideration
received by such Seller.
11.4. Third-Party Claims, Etc. Promptly after (a) becoming aware of
any fact, occurrence or event which may give rise to a claim for
indemnification under this Section 11 or (b) the receipt by any Indemnitee of
notice of the commencement of any action or other claim against such Indemnitee
by a third party, such Indemnitee shall, if a claim with respect thereto is or
may be made against any Indemnifying Party pursuant to this Section 11, give
such Indemnifying Party written notice of the nature and basis of such claim.
The Indemnifying Parties shall have the right to defend such claim, at the
Indemnifying Parties' expense and with counsel of their choice reasonably
satisfactory to the Indemnitee; provided, however, that (a) the Indemnifying
Parties so notify the Indemnitee within thirty (30) days after receipt of such
notice, (b) the claim seeks only monetary relief, (c) the claim is not made by
a Governmental Authority alleging criminal violations, and (d) the Indemnifying
Party would be responsible (after the effect of Section 11.3) for at least
one-half of the amount of any reasonably likely damages in the event the
plaintiff's claims as to liability were resolved in its favor; and provided,
further, that the Indemnitee may at any time consent to the entry of a judgment
or enter into a settlement with
-41-
<PAGE> 47
respect to any claim if the terms of such judgment or settlement contain an
unconditional release of the Indemnitee from all liability in respect of such
claim and the Indemnitee would be responsible (after the effect of Section
11.3) for at least one-half of the amount of the Losses attributable to such
judgment or settlement. So long as the Indemnifying Parties are conducting the
defense of such claim as provided in the immediately preceding sentence, the
Indemnitee may retain separate co-counsel at its sole cost and expense and may
participate in the defense of such claim, and the Indemnifying Parties will not
consent to the entry of any judgment or enter into any settlement with respect
to such claim unless (a) such judgment or settlement contains an unconditional
term providing for a release to be given by the claimant in question or
plaintiff to the Indemnitee of and from all liability in respect of such claim
and (b) the Indemnifying Party would be responsible (after the effect of
Section 11.3) for at least one-half of the amount of the Losses attributable to
such judgment or settlement. In the event the Indemnifying Parties do not
assume the defense of such claim as so provided, (x) the Indemnitee shall
defend against such claim (provided that the Indemnitee shall not settle or
consent to judgment in respect of such claim without the consent of the
Indemnifying Party (which consent shall not be unreasonably withheld or
delayed) unless (a) the terms of such judgment or settlement contain an
unconditional release of the Indemnitee from all liability in respect of such
claim and (b) the Indemnitee would be responsible (after the effect of Section
11.3) for at least one-half of the amount of the Losses attributable to such
judgment or settlement), and (y) the Indemnifying Parties will remain
responsible for any Losses the Indemnitee may suffer as a result of such claim
to the full extent provided in this Section 11. Regardless of which party
shall assume the defense of such claim, each party shall upon request provide
to the other parties all information and documentation, and reasonable access
to all personnel, in their possession or under their control which are
reasonably required to assist in the defense of such claim.
11.5. Mineral Spirits Remediation at Westminster, S.C. Facility.
11.5.1. Agreement With Respect to Mineral Spirits Releases.
This Section 11.5 sets forth the agreement of the parties with respect
to any releases relating to or arising from the virgin mineral spirits
storage tank and related former underground piping system used to
store and transfer mineral spirits at the Company's Westminster, S.C.
facility, including any offsite migration of contaminants relating to
or arising from such releases (and including any contamination
detected in the analytical results from the sampling conducted at the
Westminster, South Carolina facility on April 28, 1998) (the "Mineral
Spirits Releases"). Subject to the terms and conditions set forth in
this section, the Sellers shall indemnify and hold the Buyer and the
Steel Heddle Companies harmless, from, against and in respect of any
Losses relating to or arising from any Mineral Spirits Releases,
including any fines or penalties, third-party claims, and any
investigation, remediation, and corrective action costs, and any
natural resources damages (the "Mineral Spirits Losses"). Without
limiting the generality of the foregoing, the Sellers shall also
initiate, conduct, and complete any investigations, remediation,
corrective action, or compliance action in order to address the
Mineral Spirits Releases to the satisfaction of the South Carolina
Department of Health and Environmental Control ("SCDHEC") and any
other relevant Governmental Authority
-42-
<PAGE> 48
("Mineral Spirits Remediation"), subject to the terms and conditions
set forth in this Section 11.5.
11.5.2. Environmental Escrow; Limitation of Seller's
Responsibility. On or prior to the Closing Date, the parties shall
enter into the Environmental Escrow Agreement substantially in the
form set forth in Exhibit 11.5.2 (the "Environmental Escrow
Agreement"). In accordance with the Environmental Escrow Agreement,
the Buyer shall deliver to the escrow agent under such agreement (the
"Escrow Agent") $350,000, which shall constitute a portion of the
Purchase Price to pay for any Mineral Spirits Losses, including the
costs of any Mineral Spirits Remediation. The $350,000 delivered
pursuant to the Environmental Escrow Agreement, as increased or
decreased in accordance with the terms of this Section 11.5 and the
Environmental Escrow Agreement, shall be referred to as the "Escrow
Amount". The following shall be paid out of the Escrow Amount, in
accordance with the terms of this Section 11.5 and the Environmental
Escrow Agreement: (i) Mineral Spirits Losses incurred by the Buyer or
any Steel Heddle Company; (ii) reasonable costs incurred by Sellers as
a result of the Sellers' Representative's conduct of the Mineral
Spirits Remediation; (iii) reasonable costs incurred by the Buyer or
any Steel Heddle Company as a result of the Buyer or any Steel Heddle
Company taking reasonable action to respond to an actual or threatened
emergency or imminent endangerment situation arising from the Mineral
Spirits Releases; and (iv) reasonable costs incurred by the Buyer or
any Steel Heddle Company as a result of their assumption of management
and control of the conduct of the Mineral Spirits Remediation, as a
result of Sellers' Representative's failure to manage the Mineral
Spirits Remediation in accordance with the standards and requirements
contained herein. Notwithstanding any other provision of this Section
11.5, the Sellers' responsibility to indemnify the Buyer and the
Company for any Mineral Spirits Losses and the Sellers' responsibility
for any Mineral Spirits Remediation, shall be limited to the Escrow
Amount.
11.5.3. Mineral Spirits Remediation. Prior to the Closing
Date, the Sellers' Representative shall conduct a Phase II
environmental investigation at the Westminster, S.C. facility to
determine the presence of any environmental contamination arising from
or relating to any Mineral Spirits Releases. Should the investigation
detect any environmental contamination in quantities or concentrations
that exceed any applicable action levels or cleanup levels established
or utilized by, or that would require investigation, remediation or
monitoring under the applicable rules or regulations of, SCDHEC and
any other applicable Governmental Authority, the Sellers'
Representative shall initiate, conduct, and complete, in accordance
with a work plan (the "Work Plan") approved by SCDHEC and any other
relevant Governmental Authority (and not conditioned on any material
restriction on the ownership or use of the Westminster, S.C. facility
(such as institutional controls or use controls) other than that the
facility continue to be used for industrial purposes)), the Active
Remediation Phase (as defined below) of the Mineral Spirits
Remediation. For purposes of this Section 11.5, the "Active
Remediation Phase" shall consist of all aspects of the Mineral Spirits
Remediation through and including implementation and completion of all
one-time remediation measures (such as soil removal) contemplated by
the Work Plan and, if ongoing
-43-
<PAGE> 49
remediation measures (such as ground water pumping, treatment or
monitoring) are contemplated by the Work Plan, installation of the
wells or other remediation systems, materials or equipment necessary
for such ongoing remediation, and operation for a period of three
months after installation of any such wells, systems, materials or
equipment. By way of clarification, the following, to the extent
required for or contemplated by the Work Plan, are included in the
Active Remediation Phase: any pre-remedial sampling or other
investigation to determine the nature of or delineate the extent of
contamination, including an investigation work plan; the design of
remedial measures or a remedial system, including a remediation work
plan; any one-time removal actions, including excavation, removal,
treatment or disposal of soil; the one-time construction and
installation of the remedial system; obtaining any environmental
permits required for operation of the such remedial system; and
preparation, installation and operation for a three-month period of
any such remedial system and any groundwater monitoring program. The
"Operation and Maintenance Phase" shall consist of all aspects of the
Mineral Spirits Remediation from and after the Active Remediation
Phase.
11.5.4. Cooperation; Conduct of Mineral Spirits
Remediation. The parties agree to reasonably cooperate with one
another in connection with the Mineral Spirits Remediation. Until
termination of the Environmental Escrow, the Sellers shall manage and
control the conduct of the Mineral Spirits Remediation, provided that
notwithstanding anything to the contrary contained herein, the Buyer
or the Company may take such action as is reasonable under the
circumstances, and without prejudice to its rights hereunder, to
respond to an actual or threatened emergency or imminent endangerment
situation arising from the Mineral Spirits Releases and the reasonable
costs associated with such action shall be paid out of the Escrow
Amount, in accordance with the terms of the Environmental Escrow
Agreement. In order to conduct the Mineral Spirits Remediation,
Sellers' Representative shall retain Rogers & Callcott Engineers,
Inc., or another environmental consulting firm that is reasonably
acceptable to the Buyer. Upon reasonable advance request, the Buyer
and the Company shall afford the Sellers' Representative and its
environmental consultant reasonable access to the Westminster, S.C.
facility for the purpose of allowing them to conduct and complete the
Mineral Spirits Remediation. Sellers' Representative shall conduct
the Mineral Spirits Remediation in a manner that does not unreasonably
interfere with the day-to-day operations at the Westminster, S.C.
facility. The Sellers' Representative shall manage the Mineral
Spirits Remediation in good faith and in a responsible manner, and all
activities in connection therewith shall be undertaken promptly and
completed expeditiously using commercially reasonable efforts, subject
to any schedules and approvals required by SCDHEC or any other
applicable Governmental Authority. Should the Sellers' Representative
fail to conduct the Mineral Spirits Remediation in accordance with the
standards and requirements contained herein, the Buyer or the Company
may assume management and control of the Mineral Spirits Remediation,
and the reasonable costs of the Buyer or the Company, as the case may
be, shall be paid out of the Escrow Amount in accordance with the
terms of the Environmental Escrow Agreement. The Sellers'
Representative shall promptly restore to its prior condition (to the
extent commercially feasible) any property that is disturbed or
disrupted as a result of any activities it conducts
-44-
<PAGE> 50
in connection with the Mineral Spirits Remediation. The Sellers shall
indemnify and hold the Buyer and the Steel Heddle Companies harmless,
from, against and in respect of any Losses relating to or arising from
the negligence or willful misconduct of Sellers, Sellers'
Representative, its environmental consultant, any of their agents,
employees, representatives, or contractors in connection with the
Mineral Spirits Remediation. Such Losses shall be paid directly by
Sellers, and shall not be paid out of the Escrow Amount. The Sellers'
Representative shall keep the Buyer and the Company apprised of
developments relating to the Mineral Spirits Remediation and the Buyer
and the Company shall be entitled, at their sole cost and expense, to
reasonably participate in the Mineral Spirits Remediation. Such
participation shall include, without limitation: (i) the right to
receive and comment on draft copies of reports, workplans and
analytical data submitted to any Governmental Body, and the right to
have such comments reasonably addressed, (ii) the right to receive
final copies of such reports, workplans, and data, (iii) the right to
receive copies of all notices, letters or documents received from any
Governmental Body or third party, (iv) the right to receive advance
notices of any material meetings with any Governmental Body and the
opportunity to attend (but without substantive participation) such
meetings; and (v) the right to receive advance notice of and to
comment on all material actions by the Sellers' Representative and the
right to have such comments addressed.
11.5.5. SCDHEC Oversight and Approval. Sellers'
Representative shall use commercially reasonable efforts to obtain
prior written approval of SCDHEC regarding any work Sellers'
Representative proposes to conduct in connection with the Mineral
Spirits Remediation. Should such written approval be unavailable,
Sellers' Representative shall use commercially reasonable efforts to
obtain prior oral approval from an appropriate SCDHEC representative
regarding any such work. Sellers' Representative shall keep SCDHEC
reasonably apprised of activities and results related to the Mineral
Spirits Remediation and shall submit the results of its field work to
SCDHEC for its review. Sellers' Representative shall communicate and
meet with SCDHEC as necessary or appropriate to help ensure that
SCDHEC approves of work conducted in connection with the Mineral
Spirits Remediation.
11.5.6. Termination of Environmental Escrow. Unless
terminated in an Early Termination (as defined below), the Sellers'
responsibilities to Buyer and the Company under this Section 11.5 with
respect to the Mineral Spirits Releases shall terminate (a "Scheduled
Termination"), subject to any payments to be made pursuant to Section
11.5.7, when: (i) any fines, penalties, damages or claims asserted or
received through such date and relating to or arising from the Mineral
Spirits Releases, if any, have been paid, settled, or resolved; (ii)
the Active Remediation Phase has been completed; and (iii) all costs
and expenses associated with the Active Remediation Phase have been
paid. In addition, the Sellers' Representative may, no sooner than
one year after the Closing Date, submit a petition to Buyer for
termination (an "Early Termination") prior to such date of the
Sellers' responsibilities to Buyer and the Company under this Section
11.5 with respect to the Mineral Spirits Releases. Sellers'
Representative shall be permitted to obtain an Early Termination if:
(iv) any fines, penalties, damages or claims incurred or received
through such date and relating to or arising from the Mineral Spirits
Releases, if any, have been paid, settled, or resolved; (v) the
-45-
<PAGE> 51
Remediation Completion Costs (as defined below) are reasonably certain
and estimable; (vii) Sellers' Representative have delivered to the
Buyer and the Company a good faith estimate of the Remediation
Completion Costs; and (ix) such good faith estimate is reasonably
acceptable to Buyer. Upon a Scheduled Termination or an Early
Termination, the Escrow Agreement shall terminate, subject only to the
payments to be made pursuant to Section 11.5.7.
11.5.7. Payments Upon Termination. Upon the termination of
the Environmental Escrow Agreement as provided in Section 11.5.6, the
Escrow Agent shall pay to the Buyer the amount of the Remediation
Completion Costs, and, after such payment to the Buyer the
Environmental Escrow Agent shall pay any remaining amount to the
Sellers' Representative in accordance with the Escrow Agreement. For
purposes of this Section 11.5, the "Remediation Completion Costs"
shall mean, at any time, the estimated costs from such date to
complete the Active Remediation Phase (if not already completed) and
the Operation and Maintenance Phase. In determining the Remediation
Completion Costs, there shall be included an appropriate contingency
amount for uncertainties, and the amount of future costs shall be
determined on a present value basis using a discount rate of twelve
percent (12.0%). The amount of the Remediation Completion Costs shall
be determined by agreement between the Buyer and the Sellers'
Representative or, failing such agreement by binding arbitration as
provided in Section 11.5.9; provided, however, that for purposes of an
Early Termination the amount of the Remediation Completion Costs shall
be determined by agreement between the Buyer and the Sellers'
Representative.
11.5.8. Reduction in Escrow Amount. Upon the approval by
SCDHEC and any other relevant Governmental Authority of the Work Plan,
if the Escrow Amount exceeds the sum of any unpaid fines, penalties,
damages or claims asserted or received through such date and relating
to or arising from the Mineral Spirits Releases plus 150% of the
Remediation Completion Costs, the Sellers shall be entitled to reduce
the Escrow Amount by such the amount of such excess. Any such excess
shall be paid to the Sellers' Representative in accordance with the
Environmental Escrow Agreement.
11.5.9. Disputes; Arbitration. All claims, controversies,
and other matters related to Mineral Spirits Losses, including the
Mineral Spirits Remediation, and interpretation of the requirements
set forth in this Section 11.5, shall be finally resolved through
binding arbitration in South Carolina under the Commercial Arbitration
Rules of the American Arbitration Association, as modified by this
Section 11.5.9. The arbitral tribunal shall consist of a single
arbitrator, who shall be an environmental consultant, environmental
lawyer, or other environmental professional knowledgeable and
experienced regarding SCDHEC remediation requirements and the
investigation and remediation of contamination in South Carolina.
Judgment on the award of the arbitrator may be entered in any court
having jurisdiction thereof or having jurisdiction over one or more of
the parties or their assets. The arbitrator shall allocate the costs
of the arbitration, including reasonable attorney's fees, to the
parties in an equitable manner, taking into account the relative
merits
-46-
<PAGE> 52
of the parties' respective positions. Unless otherwise agreed by the
Buyer and the Sellers' Representative, such costs shall not be paid
out of the Escrow Amount.
11.6. Special Hixon Indemnity. Subject to the terms of this Section
11.6, each of the Sellers jointly and severally agrees to indemnify the Buyer
and the Company and hold the Buyer and the Company harmless from, against and
in respect of any and all Losses arising from or related to the claim of Wesley
F. Hixon described on Schedule 5.9 (the "Hixon Claim"), including any Loss
resulting from the Sellers' failure to defend the Hixon Claim in accordance
with this Section 11.6. Notwithstanding the provisions of Section 11.4, the
provisions of this Section 11.6 shall apply to the notice, settlement and
defense of the Hixon Claim, including any Action brought in respect thereof.
The Sellers, through the Sellers' Representative, shall assume and control the
defense of the Hixon Claim, at the Sellers expense and with counsel of their
choice reasonably satisfactory to the Buyer, which defense shall include the
power to investigate such claim, conduct all communications with Wesley F.
Hixon or his counsel with respect to the Hixon Claim, conduct settlement
discussions, enter into a settlement, or prosecute or defend, in the name of
the Company, any Action relating to the Hixon Claim; provided, however, that
the Sellers may not enter into a settlement with respect to the Hixon Claim
unless such settlement contains an unconditional release of the Company and the
Buyer from all liability in respect of the Hixon Claim; and provided, further,
that the Buyer and the Company may retain separate co-counsel at their cost and
may participate in the defense of the Hixon Claim. The Company and the Buyer
shall cooperate in the defense of the Hixon Claim, and without limiting the
foregoing shall upon request provide to the Sellers all information and
documentation, and reasonable access to all personnel, in their possession or
under their control which are reasonably required to assist in the defense of
the Hixon Claim.
11.7. Certain Other Indemnity Matters. After the Closing, the
Buyer's sole and exclusive remedy with respect to any and all claims relating
to the subject matter of this Agreement (except for disputes with respect to
the preparation of the Closing Balance Sheet and the calculation of the Closing
Working Capital, which shall be resolved in the manner provided in Section
3.2.2, or claims pursuant to Section 7.12 hereof) shall be pursuant to the
indemnification provisions set forth in this Section 11. In furtherance of the
foregoing, the Buyer hereby, on its own behalf and on behalf of its Affiliates,
waives, to the fullest extent permitted under applicable law, and agrees not to
assert in any action or proceeding of any kind, any and all rights, claims and
causes of action it or such Affiliate may now or hereafter have against the
Sellers other than claims for indemnification asserted as permitted by and in
accordance with the provisions set forth in this Section 11 (including any such
rights, claims or causes of action arising under or based upon common law or
other Legal Requirements).
(b) No party shall be liable under this Section 11, and no claim for
indemnification may in any event be asserted under this Section 11, for any
consequential damages by reason of a breach or violation of any representation,
warranty, covenant or other provision.
(c) Upon making any payment to an Indemnitee for any indemnification
claim pursuant to this Section 11, the Indemnifying Party shall be subrogated,
to the extent of such payment,
-47-
<PAGE> 53
to any rights which the Indemnitee may have against other Persons with respect
to the subject matter underlying such indemnification claim.
(d) All costs and expenses of defense incurred by any party as
Indemnifying Party as contemplated by Section 11.4 shall be deemed to
constitute Losses for purposes of Section 11.3.
(e) Any indemnification payments under this Agreement shall be
considered an adjustment to the Purchase Price.
12. CONSENT TO JURISDICTION; JURY TRIAL WAIVER.
12.1. Consent to Jurisdiction. Each party to this Agreement, by its
execution hereof, (i) hereby irrevocably submits, and agrees to cause each of
its Subsidiaries to submit, to the jurisdiction of the state courts of the
State of New York or the United States District Court located in the Southern
District of New York for the purpose of any action, claim, cause of action or
suit (in contract, tort or otherwise), inquiry, proceeding or investigation
arising out of or based upon this Agreement or relating to the subject matter
hereof; (ii) hereby waives, and agrees to cause each of its Subsidiaries to
waive, to the extent not prohibited by applicable law, and agrees not to
assert, and agrees not to allow any of its Subsidiaries to assert, by way of
motion, as a defense or otherwise, in any such action, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution, that any such
proceeding brought in one of the above-named courts is improper, or that this
Agreement or the subject matter hereof may not be enforced in or by such court;
and (iii) hereby agrees not to commence or to permit any of its Subsidiaries to
commence any action, claim, cause of action or suit (in contract, tort or
otherwise), inquiry proceeding or investigation arising out of or based upon
this Agreement or relating to the subject matter hereof other than before one
of the above-named courts nor to make any motion or take any other action
seeking or intending to cause the transfer or removal of any such action,
claim, cause of action or suit (in contract, tort or otherwise), inquiry,
proceeding or investigation to any court other than one of the above-named
courts whether on the grounds of inconvenient forum or otherwise. Each party
hereby consents to service of process in any such proceeding in any manner
permitted by New York law, and agrees that service of process by registered or
certified mail, return receipt requested, at its address specified pursuant to
Section 14.8 is reasonably calculated to give actual notice.
12.2. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY
WAIVES, AND AGREES TO CAUSE EACH OF ITS SUBSIDIARIES TO WAIVE, AND COVENANTS
THAT NEITHER IT NOR ANY OF ITS SUBSIDIARIES WILL ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF
ANY ISSUE OR ACTION, CLAIM , CAUSE OF ACTION OR SUIT (IN CONTRACT, TORT OR
OTHERWISE), INQUIRY, PROCEEDING OR INVESTIGATION ARISING OUT OF OR BASED UPON
THIS AGREEMENT OR THE
-48-
<PAGE> 54
SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO
THE TRANSACTIONS CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING. THE BUYER ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE
SELLERS THAT THIS SECTION 12.2 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THE
SELLERS ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT AND ANY OTHER
AGREEMENTS RELATING HERETO OR CONTEMPLATED HEREBY. ANY PARTY HERETO MAY FILE
AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 12.2 WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT
TO TRIAL BY JURY.
13. TERMINATION.
13.1. Termination of Agreement. This Agreement may be terminated by
the parties only as provided below:
(a) The Buyer and the Sellers' Representative may
terminate this Agreement by mutual written consent at any time prior
to the Closing.
(b) The Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to the Closing in the
event the Sellers are in material breach of any representation,
warranty, covenant or agreement contained in this Agreement, the Buyer
has notified the Sellers of the breach and such breach has continued
without cure for a period of ten (10) Business Days after the notice
of breach and there is a reasonable likelihood that such breach will
result in an inability of the Sellers to satisfy the conditions set
forth in Section 8.1.
(c) The Sellers' Representative may terminate this
Agreement by giving written notice to the Buyer at any time prior to
the Closing in the event the Buyer is in material breach of any
representation, warranty, covenant or agreement contained in this
Agreement, the Sellers' Representative has notified the Buyer of the
breach and such breach has continued without cure for a period of ten
(10) Business Days after the notice of breach and there is a
reasonable likelihood that such breach will result in an inability of
the Buyer to satisfy the conditions set forth in Section 9.1.
(d) The Sellers' Representative may terminate this
Agreement by giving written notice to the Buyer at any time prior to
the Closing in the event any Commitment Letter terminates, or is
terminated, for any reason and is not replaced, to the Sellers'
Representative's reasonable satisfaction, with an alternative
financing commitment within five (5) Business Days; provided, however,
that the termination is not the result of the breach of any
representation or warranty or covenant hereunder by the Sellers, the
Company or any of their Affiliates.
-49-
<PAGE> 55
(e) The Sellers' Representative or the Buyer may
terminate this Agreement on or after July 31, 1998; provided, however,
that the failure to consummate the transaction by such date is not the
result of the breach of a representation or warranty or a covenant
hereunder by the party (or any of its Affiliates) seeking termination.
13.2. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 13.1, all obligations of the parties
hereunder (other than obligations under Sections 7.2, 12, 14 and this Section
13, which shall survive termination) shall terminate without any liability of
any party to any other party; provided, however, that no termination by a party
pursuant to clause (b), (c), (d) or (e) of Section 13.1 shall relieve any party
from any liability arising from or relating to any breach by such party prior
to termination.
13.3. Time of the Essence. Time is and shall be of the essence in
this Agreement.
14. MISCELLANEOUS.
14.1. Entire Agreement; Waivers. This Agreement (including the
Schedules and Exhibit hereto) constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersedes all prior
and contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, of the parties with respect to such subject matter,
other than (i) the Confidentiality Agreement (which shall survive execution and
delivery of this Agreement and shall survive any termination of this Agreement
but shall terminate upon consummation of the Closing) and (ii) any agreements
solely among the Sellers or between the Sellers' Representative and any of the
Sellers. Any waiver of any provision of this Agreement shall not be deemed to
constitute a waiver of any other provision hereof (whether or not similar), and
no waiver shall constitute a continuing waiver unless otherwise expressly
provided and no such waiver shall be effective unless in writing and executed
(i) in the case of a waiver by the Buyer, by an authorized signatory thereof;
and (ii) in the case of a waiver by the Sellers, by the Sellers'
Representative.
14.2. Amendment or Modification. The parties hereto may not amend
or modify this Agreement except by a written instrument executed by the Buyer
and the Sellers' Representative.
14.3. Investigation; No Additional Representations. The Sellers and
the Company have not made and are not making any representation, warranty,
covenant or agreement, express or implied, with respect to the matters
contained in this Agreement other than the explicit representations,
warranties, covenants and agreements set forth herein. The Buyer acknowledges
and agrees that it (i) has made its own inquiry and investigation into, and
based thereon has formed an independent judgment concerning, the Business and
the Steel Heddle Companies; (ii) has been furnished with or given adequate
access to such information about the Business and the Steel Heddle Companies as
it has requested, and (iii) will not assert, after the Closing, except pursuant
to Section 3.2.2 or Section 11, any claim against the Sellers or any of their
respective partners, directors, officers, employees, agents, stockholders,
consultants, investment bankers, brokers, representatives or controlling
Persons, or any Affiliate of any of the foregoing, or hold
-50-
<PAGE> 56
the Sellers or any such Persons liable, for any inaccuracies, misstatements or
omissions with respect to information furnished by the Company, the Sellers or
such Persons concerning the Business, the Steel Heddle Companies, this
Agreement or the transactions contemplated hereby.
14.4. Severability. In the event that any provision hereof would,
under applicable law, be invalid or unenforceable in any respect, such
provision shall (to the extent permitted under applicable law) be construed by
modifying or limiting it so as to be valid and enforceable to the maximum
extent compatible with, and possible under, applicable law. The provisions
hereof are severable, and in the event any provision hereof should be held
invalid or unenforceable in any respect, it shall not invalidate, render
unenforceable or otherwise affect any other provision hereof.
14.5. Successors and Assigns. All of the terms and provisions of
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective permitted transferees and assigns (each of
which transferees and assigns shall be deemed to be a party hereto for all
purposes hereof); provided, however, that (i) no transfer or assignment by any
party hereto shall be permitted without the prior written consent of the other
parties hereto and any such attempted transfer or assignment without consent
shall be null and void and (ii) no transfer or assignment by any party shall
relieve such party of any of its obligations hereunder. Notwithstanding the
foregoing, the Buyer may assign its rights and delegate its obligations
hereunder to any Affiliate and after the Closing, to any Person (i) in
connection with a sale of all or substantially all assets of the Buyer, (ii)
who acquires all of the capital stock of the Buyer or (iii) who provides
financing to the Buyer or its Affiliates.
14.6. Limited Liability of Partners. The Buyer agrees that none of
the general, limited partners of any of the BCC Sellers that is a limited
partnership (each, a "Seller Partnership" and collectively, the "Seller
Partnerships") or any general partner of any Seller Partnership shall have any
liability, personal or otherwise, and that neither the Buyer nor any of the
Buyer's Subsidiaries or Affiliates shall seek or be entitled to impose any such
liability on any such general or limited partner, for or by reason of any
obligation of any Seller Partnership or any action or inaction of any Seller
Partnership or any such general or limited partner under, in connection with,
related to or by reason or means of (i) this Agreement, (ii) any of the
transactions contemplated hereby or (iii) the purchase, ownership or
disposition of any Securities; provided, however, that the foregoing shall not
limit the liability of any Seller Partnership to the extent arising from any
obligation of it, or any action or inaction by it, in its capacity as a Seller
or as a direct holder of Securities.
14.7. Public Announcements. At all times no party hereto will issue
or make any reports, statements or releases to the public with respect to this
Agreement or the transactions contemplated hereby without the consent of the
other parties hereto, which consent shall not be unreasonably withheld. If any
party hereto is unable to obtain, after reasonable effort, the approval of its
public report, statement or release from the other parties hereto and such
report, statement or release is, in the opinion of legal counsel to such party,
required by law in order to discharge such party's disclosure obligations, then
such party may make or issue the legally
-51-
<PAGE> 57
required report, statement or release and promptly furnish the other parties
with a copy thereof. Each party hereto will also obtain the prior approval by
the other parties hereto of any press release to be issued announcing the
consummation of the transactions contemplated by this Agreement. Any consent
required of the Sellers under this Section 14.7 may be given by the Sellers'
Representative.
14.8. Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if in writing and delivered
personally or sent by telecopier, Federal Express, or registered or certified
mail, postage prepaid, addressed as follows:
<TABLE>
<S> <C>
If to the BCC Sellers, to: c/o Butler Capital Corporation
767 Fifth Avenue, 6th Floor
New York, New York 10153
Telecopier: (212) 759-0876
Attention: Mr. David Barr
with a copy to: Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopier: 617-951-7050
Attention: Daniel S. Evans, Esq.
If to the Individual Sellers, to: Haynsworth, Marion, McKay & Guerard, L.L.P.
75 Beattie Place, UCB Tower, 11th Floor
Post Office Box 2048
Greenville, South Carolina 29602
Telecopier: (803) 240-3300
Attention: Joseph J. Blake, Jr., Esq.
If to the Buyer , to: c/o American Industrial Partners
551 Fifth Avenue
Suite 3800
New York, NY 10176
Attention: Robert Klein
Facsimile: 212-986-5099
with a copy to: American Industrial Partners
One Maritime Plaza
Suite 2525
San Francisco, CA 94111
Attention: Chief Financial Officer
Facsimile: 415-788-5302
</TABLE>
-52-
<PAGE> 58
and
Kirkland & Ellis
655 Fifteenth Street, N.W.
Suite 1200
Washington, DC 20005
Attention: Jack M. Feder, Esq.
Facsimile: 202-879-5200
Unless otherwise specified herein, such notices or other communications shall
be deemed received (a) on the date delivered, if delivered personally, (b) two
(2) Business Days after being sent by Federal Express, if sent by Federal
Express, (c) one (1) Business Day after being delivered, if delivered by
telecopier and (d) three (3) Business Days after being sent, if sent by
registered or certified mail. Each of the parties hereto shall be entitled to
specify a different address by giving notice as aforesaid to each of the other
parties hereto.
14.9. Headings, Etc. Section and Subsection headings are not to be
considered part of this Agreement, are included solely for convenience, are not
intended to be full or accurate descriptions of the content thereof and shall
not affect the construction hereof.
14.10. Third-Party Beneficiaries. Nothing in this Agreement is
intended or shall be construed to entitle any Person other than the Sellers'
Representative, the parties or their respective transferees and assigns
permitted hereby to any claim, cause of action, remedy or right of any kind.
14.11. Termination of Stockholder's Agreement. Each Seller that is
party to the Stockholder's Agreement dated December 24, 1992 between the
Company and certain stockholders hereby agrees that, effective upon the
Closing, such agreement is hereby terminated and canceled and shall be of no
further force and effect.
14.12. Termination of Consulting Services Agreement. Mfg. Co. and
BCC Industrial Services, Inc., hereby agree that, effective upon the Closing,
the Consulting Services Agreement dated as of January 1, 1996 between the
Company and BCC Industrial Services, Inc. is hereby terminated and canceled and
shall be of no further force or effect.
14.13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
14.14. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic substantive laws of the State of New
York, without giving effect to any choice or conflict of law provision or rule
that would cause the application of the laws of any other jurisdiction.
-53-
<PAGE> 59
14.15. Strict Construction. No rule of strict construction shall
apply to or be used against any party hereto.
14.16. Expenses. All costs and expenses (including any fees paid to
Merrill Lynch & Co., legal fees and expenses) incurred by the Sellers in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the Sellers directly, or indirectly in the manner contemplated by
Section 3.1 and clause (vi) of Section 11.1.1. All such costs and expenses
incurred by the Company shall be paid by the Company, whether or not the
transactions contemplated hereby are consummated (it being understood that if
such transactions are consummated, such expenses will be borne indirectly by
the Sellers pursuant to Sections 3.1 and 3.2), and all such costs and expenses
incurred by the Buyer (including any fees and expenses incurred in connection
with any financing arranged by the Buyer) shall be paid by the Buyer whether or
not the transactions contemplated hereby are consummated.
[THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
-54-
<PAGE> 60
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed, as of the date first above
written by their respective officers thereunto duly authorized.
THE COMPANY: SH HOLDINGS CORP.
By:/s/ Benjamin G. Team
------------------------------------------
Title:
MEZZANINE LENDING ASSOCIATES II, L.P.
By: Mezzanine Lending Management II, L.P.,
its general partner
MEZZANINE LENDING ASSOCIATES III, L.P.
By: Mezzanine Lending Management III, L.P.,
its general partner
MEZZANINE LENDING MANAGEMENT II, L.P.
MEZZANINE LENDING MANAGEMENT III, L.P.
SENIOR LENDING ASSOCIATES I, L.P.
By: Senior Lending Management I, L.P.,
its general partner
SENIOR LENDING ASSOCIATES II, L.P.
By: Senior Lending Management II, L.P.,
its general partner
SENIOR LENDING MANAGEMENT I, L.P.
By:/s/ Gilbert Butler
-----------------------------------------------
their General Partner
BCC INDUSTRIAL SERVICES, INC.
By:
-----------------------------------------------
its authorized signatory
<PAGE> 61
/s/ Jerry B. Miller
--------------------------------------------------
Jerry B. Miller
/s/ Benjamin G. Team
--------------------------------------------------
Benjamin G. Team
/s/ Robert W. Dillon
--------------------------------------------------
Robert W. Dillon
LEEWAY & CO.
By: State Street Bank and Trust Company,
as General Partner
By:/s/ Kimberly A. Moynihan
-------------------------------------------
Title:Assistant Secretary
/s/ Thomas A. Korbutt
--------------------------------------------------
Thomas A. Korbutt
/s/ Edward A. Rostick
--------------------------------------------------
Edward A. Rostick
/s/ Frank L. Rodgers
--------------------------------------------------
Frank L. Rodgers
/s/ James E. Merritt
--------------------------------------------------
James E. Merritt
/s/ Wesley F. Hixon
--------------------------------------------------
Wesley F. Hixon
/s/ Hugh I. Cash
--------------------------------------------------
Hugh I. Cash
<PAGE> 62
/s/ James B. Conner
---------------------------------
James B. Conner
/s/ William B. Parson
---------------------------------
William B. Parson
*
---------------------------------
Stefan Burgess Schwinn
*
---------------------------------
Miller Elizabeth Schwinn
*
---------------------------------
Jacob Logan Schwinn
/s/ Kimberly M. Schwinn
---------------------------------
Kimberly M. Schwinn
/s/ Benjamin G. Team III
---------------------------------
Benjamin G. Team III
/s/ Martha T. Garrison
---------------------------------
Martha T. Garrison
/s/ Francis E. Team
---------------------------------
Frances E. Team
THE BUYER: STEEL HEDDLE GROUP, INC.
By:/s/ Robert J. Klein
------------------------------
Title: President
/s/ Kimberly M. Schwinn
- -----------------------
*By Kimberly M. Schwinn as custodian for Stefan B. Schwinn, Miller E. Schwinn
and Jacob L Schwinn, under South Carolina Uniform Gift for Minors Act.
BUTLER CAPITAL CORPORATION
By: Gilbert Butler
---------------------------------------
Title:
<PAGE> 63
EXHIBIT 3.2.1
STEEL HEDDLE
WORKING CAPITAL
<TABLE>
<CAPTION>
Target April 4, 1998
------ -------------
Actual
------
<S> <C> <C>
Cash and cash equivalents 0 276,011
Accounts receivable 10,577,016 11,114,740
Inventories @LIFO 14,230,156 15,071,208
Prepaid expenses 132,707 49,620
----------- -------------
TOTAL CURRENT ASSETS 24,939,879 26,511,579
Accounts payable 1,844,833 2,193,611
Income taxes payable(1) 200,000 1,485,021
Accrued & sundry liabilities 3,822,019 3,130,420
Accrued Interest (384,775) (114,211)
----------- -----------
Adjusted accrued & sundry liabilities 3,437,244 3,016,209
TOTAL CURRENT LIABILITIES 5,482,077 6,694,841
----------- -----------
WORKING CAPITAL 19,457,802 19,816,738
=========== ==========
</TABLE>
- --------------------
(1) Note: does not include deferred income taxes.
<PAGE> 64
EXHIBIT 8.4
SELLER'S COUNSEL OPINION
Special counsel to Sellers shall opine, in a manner reasonably satisfactory to
Buyer, with respect to the following matters (defined terms used herein shall
have the meanings set forth in the Stock Purchase Agreement dated as of May 1,
1998);
1. The Company is duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania and is duly
qualified as a foreign corporation in each such other jurisdiction where the
nature of its business or the ownership of its properties requires such
qualifications, except where the failure to be so qualified would not have a
Material Adverse Effect on the Company. The Company has the corporate power
and authority to own its property and assets and to conduct its business as
presently owned and conducted. The Company has the corporate power and
authority to enter into and perform its obligations under the Stock Purchase
Agreement. The Stock Purchase Agreement has been duly authorized, executed and
delivered by the Company.
2. Each of the Sellers that is not an individual is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and each of such Sellers has the power to enter
into and perform its obligations under the Stock Purchase Agreement. The Stock
Purchase Agreement has been duly authorized (in the case of non-individual
Sellers), executed and delivered by each Seller.
3. The outstanding capital stock of the Company is duly
authorized, validly issued and fully paid and non-assessable. To the Knowledge
of such counsel, the Shares are the only issued and outstanding capital stock
of the Company. As of the date hereof, the Company, directly or indirectly,
owns of record and, to the Knowledge of such counsel, beneficially, all of the
outstanding capital stock of each of its Subsidiaries, except for Steel Heddle
International de Mexico, S.A. DE C.V.
4. The Company's authorized capital stock consists solely of
2,000,000 shares of Class A Common Stock, 8,000,000 shares of Class B Common
Stock and no shares of preferred stock. The Sellers collectively own of record
and, to the knowledge of such counsel, beneficially all of the outstanding
capital stock of the Company, and, to the knowledge of such counsel free and
clear of all encumbrances with full right, power and authority to transfer,
exchange and sell said shares to Buyer. Assuming that the Buyer is acquiring
the outstanding Common Stock in good faith and without notice of any adverse
claims, upon consummation of the transactions contemplated by the Stock
Purchase Agreement, the Buyer will acquire valid title to such stock, free and
clear of all liens.
<PAGE> 65
5. To the Knowledge of such counsel, other than as identified in
the Stock Purchase Agreement, there are no outstanding subscriptions, calls,
commitments, warrants or options for the purchase of shares of any capital
stock or other securities of the Company or any securities convertible into or
exchangeable for shares of capital stock or other securities issued by the
Company, or any other commitments of any kind for the issuance of additional
shares of capital stock or other securities issued by the Company.
6. To such counsel's Knowledge, no Action is pending against the
Company with respect to the transactions contemplated by the Stock Purchase
Agreement.
7. The Stock Purchase Agreement constitutes a legally valid and
binding obligation of each of the Company and the Sellers and is enforceable
against each of such parties in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights, or the
applicability of equitable principles.
8. Neither execution and delivery of the Stock Purchase Agreement
nor performance thereunder by the Company or any of the Sellers will (i)
conflict with or violate the organizational documents of such Person (in the
case of non-individual Sellers); (ii) to such counsel's knowledge, violate,
conflict with or constitute a material default under, or result in the
imposition of any material encumbrance on any such Person, pursuant to any
material agreement or commitment to which any of such Person is a party and
which is identified to such counsel by the Company or any of the Sellers as a
material agreement or commitment (except as otherwise noted in such counsel's
opinion); (iii) to such counsel's knowledge, violate any court orders which are
binding on any such Person; or (iv) violate any regulation, rule or statute
applicable to such Person, which violation would have a material adverse effect
on such Person.
9. No authorization, consent, order, permit or approval of, or
notice to or filing with, any court or governmental authority or other person
or entity is required for the execution and delivery of the Stock Purchase
Agreement or the consummation of the transactions contemplated thereby in
accordance with the terms of the Stock Purchase Agreement, other than any such
authorization, consent, order or approval which has been obtained.
-2-
<PAGE> 66
EXHIBIT 9.3
BUYER'S COUNSEL OPINION
Special counsel to Buyer shall opine, in a manner reasonably satisfactory to
Seller, with respect to the following matters (defined terms used herein shall
have the meanings set forth in the Stock Purchase Agreement dated as of May 1,
1998):
1. Buyer has been duly organized and is validly existing and in
good standing under the laws of the State of Delaware and has the corporate
power and authority to own its property and assets and to conduct its business
as presently owned and conducted. Buyer has the corporate power and authority
to enter into and perform its obligations under the Stock Purchase Agreement,
and all necessary corporate action has been taken by Buyer to authorize the
execution and delivery of the Stock Purchase Agreement and the performance of
its obligations thereunder.
2. To such counsel's Knowledge, no Action is pending against the
Buyer with respect to the transactions contemplated by the Stock Purchase
Agreement.
3. The Stock Purchase Agreement constitutes a legally valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights, or the applicability of equitable principles.
4. Neither execution and delivery of the Stock Purchase Agreement
nor performance thereunder by Buyer will (i) conflict with the Certificate of
Incorporation or By-laws of Buyer; (ii) to the Knowledge of such counsel,
violate, conflict with or constitute a material default under, or result in the
imposition of any material encumbrance on Buyer pursuant to any material
agreement or commitment to which Buyer is a party and which is identified to
such counsel by Buyer as a material agreement or commitment; (iii) violate any
court orders that are binding on Buyer; or (iv) to such counsel's knowledge,
violate any statute, rule or regulation presently applicable to Buyer, which
violation would have a material adverse effect on Buyer.
5. No authorization, consent, order, permit or approval of, or
notice to or filing with, any court or governmental authority or other person
or entity is required for the execution and delivery of the Stock Purchase
Agreement or the consummation of the transactions contemplated thereby in
accordance with the terms of the Stock Purchase Agreement, other than any such
authorization, consent, order, permit or approval which has been obtained.
<PAGE> 67
EXHIBIT 11.5.2
ENVIRONMENTAL ESCROW AGREEMENT
-2-
<PAGE> 68
SCHEDULE 1
OWNERSHIP
<TABLE>
<CAPTION>
Warrant & Rights to Total
Shares Option Unallocated Fully-Diluted Proportionate
Owned Shares Shares Shares Share
----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
CLASS A
- -------
Thomas A. Korbutt 11,250 2,204 13,454 1.2717
Jerry B. Miller 11,250 2,204 2,060 15,514 1.4665
Edward A. Rostick 11,250 2,204 13,454 1.2717
Frank L. Rodgers 4,500 882 5,382 0.5087
Benjamin G. Team 11,250 2,204 4,140 17,594 1.6631
Robert W. Dillon 11,250 2,204 2,720 16,174 1.5288
James E. Merritt 11,250 2,204 13,454 1.2717
Wesley F. Hixon 6,750 0 6,750 0.6380
Hugh I. Cash 2,250 0 2,250 0.2127
James Brant Conner 4,500 0 4,500 0.4254
William B. Parson 4,500 0 4,500 0.4254
Stefan Burgess Schwinn 100 0 100 0.0095
Miller Elizabeth Schwinn 30 0 30 0.0028
Jacob Logan Schwinn 30 0 30 0.0028
Kimberly M. Schwinn 500 0 500 0.0473
Benjamin G. Team III 140 0 140 0.0132
Martha T. Garrison 140 0 140 0.0132
Frances E. Team 140 0 140 0.0132
BCC Industrial Services, Inc. 0 31,570 31,570 2.9841
- -------------------------------------------------------------------------------------------------------------------
CLASS A TOTALS 91,080 45,676 8,920 145,676 13.7699
- -------------------------------------------------------------------------------------------------------------------
CLASS B
- -------
SLA I B-1 66,110 66,110 6.2490
SLM I B-1 1,113 1,113 0.1052
SLA II B-2 66,110 66,110 6.2490
MLA II B-3 347,158 347,158 32.8150
MLM II B-3 14,700 14,700 1.3895
Leeway B-3 56,906 56,906 5.3790
MLM III B-4 12,653 12,653 1.1960
Leeway B-4 48,960 48,960 4.6279
MLA III B-4 298,540 298,540 28.2194
- -------------------------------------------------------------------------------------------------------------------
CLASS B TOTALS 912,250 0 0 912,250 86.2300
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
TOTALS 1,003,330 45,676 8,920 1,057,926 100.0000
===================================================================================================================
</TABLE>
<PAGE> 69
STOCK SUBJECT TO LIENS
1. Pledge, pursuant to Security Agreement, by William B. Parson to Steel
Heddle Mfg. Co. of 4,500 shares of Common Stock as collateral for a loan
by Steel Heddle Mfg. Co. to Parson in the original principal amount of
$85,041 pursuant to Note dated as of April 29, 1994
2. Pledge, pursuant to Security Agreement, by James B. Conner to Steel
Heddle Mfg. Co. of 4,500 shares of Common Stock as collateral for a loan
by Steel Heddle Mfg. Co. to Conner in the original principal amount of
$85,041 pursuant to Note dated as of April 29, 1994.
-2-
<PAGE> 70
SCHEDULE 4.3
SELLERS' EXCEPTIONS TO NON-CONTRAVENTION
1. Credit Agreement dated February 20, 1997 among SH Intermediate Corp., et
al. and NationsBank, N.A., as agent.
-3-
<PAGE> 71
SCHEDULE 5.1.2
COMPANY EXCEPTIONS TO NON-CONTRAVENTION
1. Credit Agreement dated February 20, 1997 among SH Intermediate Corp., et
al. and NationsBank, N.A., as agent.
2. Any necessary filings pursuant to Hart-Scott-Rodino Act.
3. Chubb Crime Insurance Policy.
-4-
<PAGE> 72
SCHEDULE 5.1.4
SH HOLDINGS CORP. SUBSIDIARIES
<TABLE>
<CAPTION>
Name Jurisdiction % Ownership
- ---- ------------ -----------
<S> <C> <C>
SH Intermediate Corp. S. C. 100.00
Steel Heddle Mfg. Co. PA 100.00
Heddle Capital Corp. Delaware 100.00
Steel Heddle International, Inc. S. C. 100.00
Steel Heddle International, Ltd. VI V.I. 100.00
Steel Heddle (Canada) Ltee/Ltd. Canada 100.00
Steel Heddle International de Mexico, S.A. DE C.V. Mexico 99.98(1)
Privada de la Soledad No. 503
Colonia Jaguey Barrio
Delegacion Azcapotzalco
02519, Mexico, D.F.
Steel Heddle International Japan (Branch) Japan 100.00
Room 905, 1/Otsubashi
Tensho Building, No. 9
1-12-12, Shinmachi, Nishi-Ku
Osaka 550, Japan
Steel Heddle (Tianjin) Weaving Machine China 100.00
Accessories Co. Ltd.
3 Wan Liu Cun Ave.
Hebei District, Tianjin, China
</TABLE>
- --------
(1) Remaining .02 consists of one share held by B. Team, one share held by R.
Dillon, one share held by J. Merritt and one share held by J. Miller.
-5-
<PAGE> 73
SCHEDULE 5.1.5
DIRECTORS & OFFICERS
SH HOLDINGS CORP.
Directors
- ---------
David Barr
Tom Burger
Daniel H. Kahrs
Benjamin G. Team
Robert W. Dillon
Officers
- --------
Benjamin G. Team President
Jerry B. Miller Secretary & Treasurer
SH INTERMEDIATE CORP.
Directors
- ---------
David Barr
Tom Burger
Daniel H. Kahrs
Benjamin G. Team
Robert W. Dillon
Officers
- --------
Benjamin G. Team President
Jerry B. Miller Secretary & Treasurer
STEEL HEDDLE MFG. CO.
Directors
- ---------
David Barr
Tom Burger
Daniel H. Kahrs
Benjamin G. Team
Robert W. Dillon
-6-
<PAGE> 74
<TABLE>
<S> <C>
Officers
- --------
Benjamin G. Team President & Chief Executive Officer
Robert W. Dillon Executive Vice President
Jerry B. Miller Vice President - Finance & Secretary
Thomas A. Korbutt Vice President - Frame Division
John D. Wright Manager - Heddle Division
C. Randy Boggs Manager - Reed Division
Edward J. Treglia Manager - Rolled Products Division
J. Brant Conner General Sales Manager
HEDDLE CAPITAL CORP.
Directors
- ---------
Benjamin G. Team
Jerry B. Miller
Francis B. Jacobs
Officers
- --------
Jerry B. Miller President
Benjamin G. Team Vice President, Treasurer
Joan L. Dobrzynski Secretary, Assistant Treasurer
STEEL HEDDLE INTERNATIONAL, INC.
Directors
- ---------
Benjamin G. Team
Robert W. Dillon
Jerry B. Miller
Officers
- --------
Benjamin G. Team President
Robert W. Dillon Executive Vice President
Jerry B. Miller Vice President - Finance & Secretary
STEEL HEDDLE INTERNATIONAL, LTD. VI
Directors
- ---------
Benjamin G. Team
Robert W. Dillon
Jerry B. Miller
Susan S. Seipel
Lesley Thomas-Dawson
</TABLE>
-7-
<PAGE> 75
Officers
- --------
Benjamin G. Team President
Robert W. Dillon Senior Vice President
Jerry B. Miller Secretary
Jerry B. Miller Treasurer
STEEL HEDDLE (CANADA) LTEE/LTD.
Director
- --------
Don Poure
Officers
- --------
Benjamin G. Team President
Jerry B. Miller Vice President
Don Poure Secretary and Treasurer
STEEL HEDDLE INTERNATIONAL DE MEXICO S.A. DE C.V.
Directors
- ---------
Benjamin G. Team
Robert W. Dillon
Jerry B. Miller
J. Brant Conner
Officers
- --------
Benjamin G. Team President
Robert W. Dillon Executive Vice President
Jerry B. Miller Vice President Finance & Secretary
J. Brant Conner Vice President
-8-
<PAGE> 76
SCHEDULE 5.3
CHANGES IN CONDITION SINCE BALANCE SHEET DATE
None.
-9-
<PAGE> 77
SCHEDULE 5.4
ENVIRONMENTAL MATTERS
Greenville, Georgia
1. A septic tank tile field and lime pit with a drain line were used to
dispose of liquid production wastewaters from 1972, until the plant tied
into the City of Greenville's sewer system between 1981 and 1984. It is
believed the septic tile field was located in front of the building. The
lime pit was located near the northwest corner of the building and
drained toward the east. The Company believes that little manufacturing
wastewater was disposed in the septic tank tile field, based upon the
plant's current flow to the sewer system. The lime pit collected a lime
wash water from the solder reeds. No solvents or oil are believed to have
been on the solder reeds at this point in the manufacturing process. No
physical manifestations such as stressed vegetation or discolored soil
were observed during the inspection of these areas by Rogers and Callcott
Engineers, Inc. in January 1993.
2. In January 1993, Rogers and Callcott Engineers, Inc. observed a small
area of discolored (black) soil/ash/debris around the base of two air
exhaust units located behind the manufacturing building. The Company
believes that the discolored material was from a fire in one of the
exhaust outlets. The discolored material appeared to be superficial in
nature.
Greensboro, North Carolina
3. A lime pit has been used since the time the plant was built, in
approximately 1964. The lime pit is located along the western wall of the
main building and discharges to the city sewer. The lime pit collects a
lime wash water from the solder reeds. No solvents or oils are believed
to be on the solder reeds at this point in the process. No physical
manifestation such as stressed vegetation or discolored soil were
observed around the lime pit during the inspection of the area by Rogers
and Callcott Engineers, Inc. in January 1993.
4. A 275-gallon aboveground varsol storage tank and a solvent product drum
dispensing rack are located along the northern exterior wall of the main
building. The area around the tank and drum area is not paved and has no
spill containment structure.
5. Along the west outside wall of the main manufacturing building, the
baghouses are located. In January 1993, when this area was inspected by
Rogers and Callcott Engineers, Inc., the area immediately around the
baghouses appeared to be surficially stained.
6. In the yard to the north of the main manufacturing building is an area
where tar had been stored for use in the pitch reed manufacturing
process. In January 1993, when this area was inspected by Rogers and
Callcott Engineers, Inc., the drums of tar had been removed, but tar
residue remained on the ground in the area.
Greenville, North Carolina
7. In 1987, three lagoons at the facility were RCRA certified closed as
landfills by the EPA. In 1989, the facility started ground water
remediation and monitoring at the site to comply with the RCRA post-
closure case requirements. In 1996, the facility was issued a revised
RCRA Part B and Post Closure Care Permit. This permit includes a 30-year
period of post-closure care for the 3 lagoons and requires: (1) the
maintenance of the integrity and effectiveness of the landfills' cover;
and (2) continued ground water recovery and ground water monitoring.
-10-
<PAGE> 78
8. There is one external pad-mounted transformer that does not have labels
regarding PCB-content. No evidence of leaks or stains around the
transformer unit have been observed.
9. The facility is a Large Quantity Generator (LQG) of hazardous waste and
is a permitted Treatment Storage and Disposal (TSD) facility for treating
electroplating wastes. At times, the roll-offs containing hazardous waste
have not been appropriately labeled. The facility's Contingency Plus &
Emergency Procedures Plan dated March 29, 1993, is out of date and needs
to be updated to reflect management and operations changes.
The facility is inspected annually by the hazardous waste division of the
South Carolina Department of Health and Environmental Control (DHEC). The
1997 inspection identified deficiencies in the form of open waste
containers, a missing land disposal restriction modification form, and
incomplete hazardous waste determinations, which the facility
subsequently addressed. No penalties were assessed for the 1997
deficiencies.
In 1992, the facility received a Notice of Violation (NOV) resulting from
noncompliance items with respect to hazardous waste determinations,
manifest discrepancies, hazardous waste drum labeling discrepancies,
hazardous waste storage on-site longer than 90 days, the absence of
identification for satellite storage areas, irregular maintenance of
quarterly reports, improper employee training, and inadequate hazardous
waste weekly inspections. The facility was assessed a penalty of $18,250
for these violations.
10. Aqua-Tech Hazardous Waste Treatment Facility, Greer, South Carolina
Steel Heddle was assessed and remitted a sum of $115,513 for response
costs incurred by DHEC at the Aqua-Tech site. Steel Heddle settled with
the Aqua-Tech PRP Group and paid a sum of $42,806 in settlement of all
response costs incurred in connection with the surface clean-up at the
Aqua-Tech site through February 28, 1997. The Aqua-Tech PRP Group did not
settle its claim against Steel Heddle for Steel Heddle's allocated share
of the RI/FS costs (estimated to be $2,500.28). The settlement also did
not include the Aqua-Tech PRP Group's claim against Steel Heddle for
future remediation costs.
11. Beaco Road Site, South Carolina
Steel Heddle was alleged to be a PRP at the Beaco Road site. In an order
dated December 9, 1995, Judge G. Ross Anderson, Jr. dismissed Steel
Heddle from the case. Judge Ross concluded that Steel Heddle did not
deliver or arrange for the delivery of any hazardous substance to the
site.
12. Douglasville Site, Pennsylvania Banks Associates, Inc.
Litigation Steel Heddle was alleged to be a PRP at the Douglasville site.
In an order dated January 31, 1994, Judge S.J. Troutman dismissed Steel
Heddle without prejudice and gave the third-party plaintiffs thirty days
to effect service of another complaint, and that deadline passed without
an additional compliant being served. On April 1, 1994, the court
confirmed that Steel Heddle was out of the case.
13. Jadco-Hughes Site, Belmont, North Carolina
On June 12, 1986, USEPA requested Steel Heddle to submit information in
connection with alleged disposal of waste at the Jadco-Hughes site. In
letters dated June 20, 1986 and June 24, 1986, Ogletree, Deakins, et al.,
counsel for Steel Heddle, responded that Steel Heddle had no records of
sending wastes to the Jadco-Hughes site. No further response has been
received from the USEPA.
14. The facility discharges sanitary wastewater and treated process
wastewater to the Taylors Wastewater Treatment Plant in accordance with
an Industrial Wastewater Discharge Permit (ID-0080C, expires 3/31/2000)
issued by the Western Carolina Regional Sewer Authority (WCRSA). The
facility is currently identified as a categorical wastewater discharger
due to its industrial operations of
-11-
<PAGE> 79
electroplating and metal finishing. This categorical industry
identification designates pretreatment standards for all associated
metal finishing industries. The categorical parameters and limitations
identified in the facility's permit were determined in accordance with
40 CFR 433.15 (Pretreatment standards for existing sources - metal
finishing subcategory). The facility conducts monitoring in accordance
with the requirements of the permit and 40 CFR 433.15.
WCRSA conducts annual inspections of the facility. The 1996 and 1997
inspection reports indicated that the facility had a violation of permit
conditions/limitations or sewer use regulations. However, no details
were provided in the reports and the facility did not receive a NOV and
was not assessed any penalty. The 1995 and 1996 effluent quality data do
not reveal any significant areas of concern except for two exceedances
of the total chromium limitation and an exceedance for total flow.
15. The facility discharges storm water to Mountain Creek under a general
permit (SCR006000) issued by the DHEC that expired on September 30,
1997. DHEC informed the facility that a renewal application was not
necessary. DHEC indicated that it is running behind schedule and a
revised permit will be issued soon. DHEC informed the facility that the
existing permit conditions would not be changed. The facility conducts
semi-annual monitoring for selected parameters. At the request of DHEC,
results of the analysis of the storm water sampling is maintained
on-site by the facility (the permit states that the results should be
submitted to DHBC).
16. In 1993, the facility conducted whole effluent toxicity test. Results of
the test indicated that the storm water discharge was of concern (acute
toxicity to the fish was observed at the 100% effluent concentrations).
Facility personnel are unaware if the results were submitted to DHEC.
17. The facility is currently not subject to Title V permitting process. The
facility is currently operating under Air Quality Permit No. 1200-0006
(issued December 8, 1997; expires November 30, 2002) and is identified
as having 14 emission sources. Among other items, the permit requires
the facility to maintain logs on the three boilers whenever the boilers
are in operation, prepare an operation and maintenance plan for all
scrubbers, monitor and record velocity pressure at the inlet and the
pressure drop across the chrome scrubber, maintain inspection and
maintenance records on the chrome line scrubber and the chrome line
plating tanks, maintain records of trichlomedrylene use in the
degreaser, etc. The facility has not yet implemented all the required
procedures to comply with the monitoring and recordkeeping requirements
of the operating permit.
18. The facility is inspected annually by the Air Quality Division of DHEC.
In 1997, the facility received a NOV for not including control equipment
in the permit, which the facility subsequently addressed. No penalties
were assessed for this violation.
19. The SPCC Plan is out of date. SPCC plans must be reviewed and updated
once every three years. The facility's SPCC plan was prepared in 1993
and has not been updated since.
20. Four phases of ground water quality assessment were conducted that
identified and delineated VOC contamination at SWMU 39-42. In August
1989, ground water remediation was initiated in accordance with RCRA
Corrective Action. The purpose of well network is to monitor and recover
contaminants originating from two closed waste management units (Lagoon
1 and Lagoon 2&3).
The current monitoring and recovery system consists of 4 recovery wells,
29 monitoring wells, and six piezometers. The primary VOCs and the
corresponding 1997 maximum levels are: 1,1-DCA (70 ppb), 1,1-DCE (91
ppb), 1,2-DCE (49 ppb), PCE (20 ppb), and TCE (13 ppb). The combined
recovery flow rate is 14.5 gpm, and the extracted water is used as
process water in the electroplating operation or is discharged directly
to POTW.
-12-
<PAGE> 80
There are also three production wells at the site (PW1-PW3) that are 350
ft, 250 ft and 405 ft deep. In 1989, PW3 contained TVOC's at 39 ppb. PW1
has never been used. PW2 produced 10 gpm, but is currently inactive. PW3
produces 75 gpm and it periodically used to supplement the process
water. No production, public or private water wells are located within
a one mile radius of the site other than SHM's on-site production wells.
Residential potable water is provided by a municipality that obtains
water from a surface water supply.
21. Embankment Fill Area (SWMU 46) This is a 400 ft x "100 ft x 20 fit thick
grassy embankment immediately west of five former ponds and next to
Bldg. 18. The embankment was used for the disposal of various wastes
including foundry sand until 1979, foundry-related wastes, construction
debris, 55-gallon drums, tile, scrap metal, bricks, etc. In 1988, the
debris observed in the embankment was spent foundry sand and half-buried
drums. At that time, Steel Heddle removed exposed drums. In 1994, EPA
collected one surface composite sample that contained elevated nickel,
barium and chromium.
22. Former Waste Disposal Area (SWMU 45) This unit consists of a heavily
vegetated area where deteriorated drums as well as vegetative and
construction debris were periodically dumped from 1961 to 1979. In 1976,
Steel Heddle received a complaint related to excessive smoke due to
burning of construction debris and heavy brush in this area of the
property. During the 1988 RFA, two drums were unearthed that contained
wooden bobbins and a black oily substance. At that time, Steel Heddle
removed visible drums for off-site disposal. During the 1993 Phase I,
deteriorated drums and construction debris were noted in the area. The
1993 RFA indicated that wastes included foundry sand, glue wastes, 55-
gallon drums, wood wastes, creosote poles and construction debris. In
1994, 3 surface soil samples were collected and elevated barium, nickel
and chromium were detected. SCDHEC indicated ground water flow in this
area is not known.
23. Old Surface Impoundments (SWMU 44) This unit consists of five former
unlined ponds that received metal working wastewaters and hazardous
wastewaters from electroplating operations from about 1961 to 1979. The
units are located in any open area each of the Embankment Fill area and
west of Building 35. One of the ponds is located beneath Building 35.
Four of the ponds were taken out of service in 1970 and one of the ponds
was taken out of service 1971 and backfilled in 1979. No documentation
is available concerning the method of closure of the ponds. During the
1988 RFA, this area contained stressed vegetation. Downgradient well W-9
did not contain VOCs; therefore, the EPA stated no further action.
24. Inert Landfill (SWMU 38) This unit operated from at least 1979 to 1989
as a state-permitted solid waste landfill (IWP 171) that received spent
foundry sand consisting of a mixture of clays, Columbia sand, and
graphite. The 1988 RFA noted that salt deposits cleaned from molds used
in coating operations were present in the landfill. In 1989, the
landfill was closed by capping with SCDHEC's review, but no waste
materials were recovered. In 1993, facility personnel indicated that as
old glue ditch may have been incorporated into landfill. The SCDHEC
believed that the landfill is located sidegradient of the closed surface
lagoons and the groundwater flowing beneath the landfill may discharge
to the Mountain Creek tributary upstream of the monitoring well network
and recovery wells. In 1993, a temporary well was installed northeast of
the unit, and no VOCs were detected. In 1994, a groundwater sample
collected from a well near the creek contained several VOCs above MCLs.
25. Hazardous Waste Drum Storage Area (SWMU 10) This is a 40 ft x 40 ft
concrete pad with 6-inch high containment berm on two sides and spill
collection trench on one side. In 1991, TCLP sampling was conducted on
runoff from this unit, which did not indicate an impact. A sump in the
pad was subsequently hand-piped to WWTP. In 1993 RFA noted that the
concrete pad was cracked and two surface soil samples were collected
that contained low levels of xylene and toluene and elevated CaPAHs.
-13-
<PAGE> 81
26. Acid Dump Receiver (SWMU 17) This is an indoor, underground concrete
tank with a capacity of 2,000 gallons. The unit receives acidic
wastewater with high nickel and zinc content from electroplating
operations with a pH of 2. In December 1993, about 170 gallons of
wastewater were released through a deteriorated portion of one concrete
wall and two adjoining corners of the unit. The tank was immediately
removed from service, repaired and returned to service in June 1994. A
soil sample was collected near the unit for TCLP metals, which showed no
high metals, but zinc, nickel and pH were not analyzed. Well W-10 is
located 110 ft downgradient of unit and contained water with pH of 5.28
in 12/93 and a pH of 3.79 in 12/94.
27. Sludge Storage Tanks (SWMU 30) This unit consists of two 15,000 gallon
ASTs that were positioned on unpaved ground. Each tank receives 5,500
gallons of electroplating metal hydroxide sludge (ROO6) from the
clarifier per day. A 1986 analysis of sludge indicated high nickel
(2,670 ppm), zinc (42,310 ppm), and chromium (13,960 pp,). The 1988 RFA
noted sludge spillage on ground in area of ASTs. Both ASTs are now
located on a concrete pad with containment and rain that transports
spillage to a concrete basin (but there may be exposed ground surface).
In 1994, two soil samples contained chromium (5,200 and 4,700 ppm) and
nickel (5,900 and 5,200 ppm).
28. Runoff Ditch SW of Bldg 18 (AOC A) This is a shallow grassy ditch that
runs from an asphalt paved lot adjacent to the former foundry building
to a wooded area known as the former waste disposal area (SWMU 45).
During the 1988 RFA, oil staining was noted in the ditch. In 1989,
surface oil sampling revealed low VOCs and PHCs (90 ppm). The 1993 Phase
I indicated that the soil was black due to nature of foundry sands. In
1994, two soil samples detected petroleum SVOCs and metals.
29. Air Compressor Blowdown Area (AOC D) This area is along a wall of Bldg
29 and covers an area 200 sq. ft of which 80 ft is covered with
concrete. In 1996, 3 soil samples were collected that contained TPHCs at
a maximum level of 6,680 ppm.
30. Fuel Oil Containment Area (AOC C) This area contains two 20,000 gallon
fuel oil ASTs, one 5,000 gallon duel oil AST and one 250 gallon kerosene
AST. The ASTs were installed in 1974. Historically, the tank valves
dripped during hose disconnects after filling operations on unpaved
ground. During the 1993 RFA, this area was unpaved. SHM has since paved
the area with asphalt and has installed drip pans below the tank valves
to catch drippage. No soil sampling or removal of potentially
contaminated soil has been conducted.
31. Oil/Water Separator (SWMU 8) This unit was constructed in 1976 and
effluent discharges to the POTW. During the 1988 RFA, oil foundry sand
and rags were observed under the freshly graded soil in the area around
this unit. In addition, heavy staining was observed on the walls of the
tank and on the soil around the unit. During the 1993 Phase I, very
minor staining was observed along exterior wall with no observed leakage
or stained soil around unit. In 1993, SHM indicated that this unit is
drained annually and inspected and that the unit is intact. No soil
sampling or excavation of potentially contaminated soil has been
conducted.
32. Former Tumbler Waste Receiver Tank (SWMU 33) This unit was installed in
1987 and received wastewater from the tumbling and seed operation sump
(SWMU 6). The unit consists of a 6,300 gallon oil separator tank
associated with the WWTP. The tank has been taken out of service, but
the sludge has not been removed from the tank. Apparently, a pipe
associated with the tank has a tendency to leak or break. During the
1977 RFA, a large stain was observed northwest of the tank. During the
1993 Phase I, soil staining around a valve at base of tank was observed.
Facility personnel indicated it was from a slow leak in underground
piping which was repaired. No soil sampling or removal of potentially
affected soil has been conducted.
-14-
<PAGE> 82
33. Oil Sump at Foundry Compressor Building (SWMU 5) This unit was 3.5 ft x
3.5 ft concrete unit that collected storm water runoff and waste oil
from a compressor, and transported the waste to a storm water drainage
ditch. During 1988 RFA, extensive oil staining was noted around sump
and its discharge point was not known. In 1989, an RFI was conducted in
this area that did not verify a release from this area. During the 1993
Phase I, the oil sump was observed to be abandoned and filled, which
occurred when the foundry building was razed. No soil sampling or
removal of potentially affected soil has been conducted.
34. Unnamed Tributary of Mountain Creek The facility's wastewater discharged
to Mountain Creek from about 1948 to 1976. A 1960 effluent sample
contained chromium (6.1 ppm) and cyanide (1.8 ppm). In 1967, Steel
Heddle obtained a NPDES permit for its discharge of treated sanitary and
process wastewater. SCDHEC files contain several complaints dated
between 1968 to 1975 that indicate high pH, fecal coliform, chromium,
copper and cyanide levels in the outfall, as well as anodizing and
discoloration in Mountain Creek. A 1970 document cites a construction
permit issued to SHM to add cyanide, chromium, alkaline, acid, floor
washings and sludge from clarifier as a large lagoon with discharge to
Mountain Creek.
35. Suspected Septic System The 1993 Phase I indicated that the facility
likely had a septic system when the facility was constructed, but its
location is unknown. A 1967 document cites a permit for the construction
of an aerated oxidation pond for sanitary waste with discharge to
Mountain Creek. This pond is in the area of RCRA Lagoon 3.
Westminster, South Carolina
36. The facility was previously a Large Quantity Generator (LQG) of
hazardous waste (EPA ID #SCD045095454). The facility's LQG stains was
based on generation of waste Naphtha and flux containing acid. In
1994-95 the facility switched to Naphtha-140, a nonhazardous material
and a non-acid flax. Hazardous wastes are no longer generated at the
facility.
As reported in a 1993 Phase 1 environmental assessment report prepared
by Rogers and Callcott Engineers, Inc., the facility has received
several Notices of Violation (NOV) resulting from noncompliance items
with respect to hazardous waste determinations, disposal of special
wastes at a municipal landfill without written authorization, manifest
requirements, waste down labeling discrepancies, irregular maintenance
of quarterly reports, improper employee training, and inadequate
hazardous waste weekly inspections. The facility paid a penalty of
$21,650 for these violations.
37. The facility discharges sanitary wastewater and process wastewater
(cooling water) to the Coneross Creek Wastewater Treatment Plant in
accordance with an Industrial Wastewater Discharge Permit (OC-000022
expires 1/31/1999) issued by the Oconee County Sewer Commission (OCSC).
The facility is currently identified as a non-categorical wastewater
discharger because it does not perform any of the six basic metal
finishing operations listed in the federal regulations (40 CFR 433.15 --
pretreatment standards for existing sources). Pretreatment of wastewater
is not required. The facility conducts monitoring and reporting in
accordance with the requirements of the permit.
OCSC conducts quarterly inspections of the facility's process wastewater
discharge. The Fourth Quarter 1997 inspection report indicated that the
facility had a violation of permit discharge limits for biochemical
oxygen demand (BOD), oil and grease, and total suspended solids (TSS).
The facility received a NOV, but was not assessed any penalty. The 1996
and 1997 effluent quality data do not indicate any significant areas of
concern except for the exceedances of the oil and grease and TSS
limitations noted above.
-15-
<PAGE> 83
38. Several spills/releases from former underground product transfer piping
from the aboveground mineral spirits and ammonia storage tanks occurred
between 1981 and 1988. The releases were not reported to SCDHEC and no
soil or ground water sampling or remediation were conducted. The
underground lines were removed in 1988/89 and replaced with aboveground
transfer lines.
-16-
<PAGE> 84
SCHEDULE 5.5.1
LIENS ON PERSONAL PROPERTY
1. Credit Agreement dated February 20, 1997 among SH Intermediate Corp., et
al. and NationsBank, N.A., as agent.
-17-
<PAGE> 85
SCHEDULE 5.5.2
OWNED REAL PROPERTY
Location
- --------
Greenville, SC
1801 Rutherford Rd.
Greenville, S.C. 29609
Oconee County, SC
692 Plant Rd.
Westminster, S.C. 29693
Greensboro, NC
143 Blue Bell Rd.
Greensboro, N.C. 27406
(excluding 0.58 acres sold on March 12, 1998 for $183,392.93)
Meriwether County, GA
Highway 109, Gay Rd.
Greenville, GA 30222
-18-
<PAGE> 86
SCHEDULE 5.5.2(a)
LIENS ON OWNED REAL PROPERTY
1. Liens held by NationsBank, N.A. pursuant to Credit Agreement dated
February 20, 1997.
2. Title Exceptions: Oconee County, South Carolina
- Title to that portion of the land embraced within the bounds of
SC Highway 183 and SC Highway 37-109.
- Easement granted to State Rural Electrification Authority by
instrument filed September 15, 1937 in the Office of the Clerk of
Court for Oconee County, South Carolina in Book 4-T, Page 231.
3. Title Exceptions: Greenville County, South Carolina
- Title to that portion of the land embraced within the bounds of
Sunnydale Drive.
- Easement granted to Duke Power Company by instrument dated
October 5, 1948, filed October 15, 1948, in the Office of the RMC
for Greenville County, South Carolina in Book 362, Page 197.
- Easement granted to Duke Power Company by instrument dated
November 10, 1948, filed November 17, 1948, in the Office of the
RMC for Greenville County, South Carolina in Book 365, Page 250.
- Easement granted to Western Carolina Regional Sewer Authority by
instrument dated October 14, 1974, filed November 4, 1974 in the
Office of the RMC for Greenville County, South Carolina in Book
1009, Page 597.
- Easement 68 feet in which for the purpose of electrical
transmission lines as shown on plat of survey entitled, "Survey
for Steel Heddle Mfg. Co.", dated February, 1988, revised May,
1989 and recorded in Plat Book 17-A at Pages 45 and 46 in the
Office of the RMC for Greenville County, South Carolina.
- Encroachment of the fence located on the land over and across the
railroad right-of-way along the southern boundary line.
- Riparian rights incident to the premises.
- Notice of Use of Property for Management of Hazardous Waste
executed by Steel Heddle Mfg. Co., dated June 9, 1989 and
recorded June 14, 1989 in the Office of the RMC for Greenville
County, South Carolina in Deed Book 1364 at Page 649.
4. Title Exceptions: Meriwether County, Georgia
- Matters as shown on plat of survey prepared by Tony L. Carr, Str.
and Associates, Surveyors, for First Union National Bank of North
Carolina and Steel Heddle Mfg. Co., dated 2/1/93, revised on
2/10/97, and recorded in Plat Book 17, Page 20, Meriwether County
Records, namely:
-19-
<PAGE> 87
- branch crossing central portion of subject property in an
east-west direction;
- power line, poles and guy wires located in southeasternmost
portion of subject property, said power line running in
northwesterly direction to power poles, guy wires and 18-inch
c.m.p.;
- sanitary sewer service line, power pole, telephone line, gas
meter, water meter and water valve located in southwesterly
portion of subject property; and
- asphalt parking lot encroaches onto adjacent property to the
southeast.
5. Title Exceptions: Guilford County, North Carolina
- Easements, setback lines, and any other facts shown on the plat
recorded in Plat Book 32, Page 9, Guilford County Registry,
including but not limited to the following: ten (10) foot
easement along the rear property line.
- Encroachments, overlaps, boundary line disputes, access,
deficiency in quantity of land, and any other matters which would
be disclosed by a current and accurate survey and inspection of
the land occurring subsequently to January 11, 1993, being the
date of a survey by Michael D. Case, R.S. said survey reveals the
following: a) a portion of a twenty (20) foot easement along the
northerly property line; b) overhead power liens (poles) crossing
insured premises; c) overhead telephone lines (poles) crossing
insured premises; d) gravel area, fence and metal storage
building all encroach into said portion of twenty (20) foot
easement; e) fence from property adjoining to the west encroaches
onto insured premises.
-20-
<PAGE> 88
SCHEDULE 5.5.2(b)
LEASED REAL PROPERTY
Lease for Steel Heddle International de Mexico, S.A. DE C.V. for property
located at Privada de la Soledad No. 503, Colonia Jaguey Barrio, Delegacion
Azcapotzalco, 02519, Mexico, D.F.
Lease for sales office located at Room 905, 1/Otsubashi, Tensho Building, No.
9, 1-12-12, Shinmachi, Nishi-Ku, Osaka 550, Japan.
Lease between Steel Heddle Manufacturing Company, as Lessor, and Duke Power
Company, as Lessee dated September 29, 1981, filed October 7, 1981 in the
Office of the Clerk of Court for Oconee County, South Carolina in Book 14-N,
Page 229.
Lease between Steel Heddle Manufacturing Co., as Lessor, and Duke Power
Company, as Lessee, dated October 24, 1963 filed November 8, 1963, in the
Office of the RMC for Greenville County, South Carolina in Book 735, Page 525.
Lease between The Steel Heddle Manufacturing Company, as Lessor, and Duke Power
Company, Lessee, dated November 27, 1961, filed December 8, 1961, in the Office
of the RMC for Greenville County, South Carolina in Book 688, Page 143.
-21-
<PAGE> 89
SCHEDULE 5.6
LIST OF TRADEMARKS, PATENTS AND LICENSES
TRADEMARKS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Trademark Registration No.
--------- ----------------
- --------------------------------------------------------------------------------
<S> <C>
MVS (Mechanical Variable Speed) 1039122
- --------------------------------------------------------------------------------
SH (Mark) 1168075
- --------------------------------------------------------------------------------
Duralite 1177859
- --------------------------------------------------------------------------------
Draw-O 1496549
- --------------------------------------------------------------------------------
SH (Chinese) 94003088
- --------------------------------------------------------------------------------
Jet Eye 2062780
- --------------------------------------------------------------------------------
</TABLE>
[The rest of this page intentionally has been left blank.]
-22-
<PAGE> 90
PATENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
TITLE PATENT NO. ISSUE DATE FILING DATE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Heddle frame with locking clamp block 5,560,399 10/1/96 7/31/95
center brace assembly
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame endbrace assembly 5,477,889 12/26/95 12/16/94
- -----------------------------------------------------------------------------------------------------------------------------
Double dent reed with increased separation 5,415,205 5/16/95 2/25/94
between front and back dent rows
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame assembly with releasable end 5,411,061 5/2/95 12/16/93
braces
- -----------------------------------------------------------------------------------------------------------------------------
Heddle eyelet structure 5,348,055 9/20/94 5/6/93
- -----------------------------------------------------------------------------------------------------------------------------
Nose guide for a heddle frame 5,275,210 1/4/94 8/11/92
- -----------------------------------------------------------------------------------------------------------------------------
Harness frame with drop-through bolted 4,924,916 5/15/90 5/19/89
centerbrace
- -----------------------------------------------------------------------------------------------------------------------------
Light weight heddle frame assembly slat 4,913,194 4/3/90 11/18/88
- -----------------------------------------------------------------------------------------------------------------------------
Light weight heddle support bar 4,913,193 4/3/90 2/14/89
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame for a high speed weaving 4,706,717 11/17/87 8/25/86
machine
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame for a high speed weaving 4,687,030 8/18/87 8/14/86
machine
- -----------------------------------------------------------------------------------------------------------------------------
Roll-formed shear-resistant frame slat 4,633,916 1/6/87 6/24/85
- -----------------------------------------------------------------------------------------------------------------------------
Reinforced heddle frame slat and method 4,596,275 62/4/86 10/12/84
- -----------------------------------------------------------------------------------------------------------------------------
Land heddle device 4,572,241 2/25/86 11/20/84
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame and composite frame slat 4,508,145 4/2/85 7/6/82
construction
- -----------------------------------------------------------------------------------------------------------------------------
Extruded heddle rod and cap 4,492,256 1/8/85 6/30/82
- -----------------------------------------------------------------------------------------------------------------------------
Dent counter for loom reed 4,331,865 5/25/82 10/9/79
- -----------------------------------------------------------------------------------------------------------------------------
Shuttle grip 4,298,032 11/3/81 9/7/78
- -----------------------------------------------------------------------------------------------------------------------------
Apparatus for reinforcing a heddle frame slat 4,254,802 3/10/81 5/17/79
of a loom
- -----------------------------------------------------------------------------------------------------------------------------
Heddle rod hook device for a loom 4,252,153 2/24/81 4/23/79
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame nose guide 4,232,713 11/11/80 4/23/79
- -----------------------------------------------------------------------------------------------------------------------------
Lease rods for textile apparatus 4,183,380 1/15/80 6/26/78
- -----------------------------------------------------------------------------------------------------------------------------
Bobbin 4,114,828 9/19/78 5/23/77
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE> 91
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
TITLE PATENT NO. ISSUE DATE FILING DATE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Heddle frame with torque locking block 5,630,448 5/20/97 3/25/96
centerbrace assy. Twist in center bar
- -----------------------------------------------------------------------------------------------------------------------------
Dog bone rodslot 2,545,889 4/12/93
- -----------------------------------------------------------------------------------------------------------------------------
Harness frame slat and heddle 4,790,357 12/13/88 8/6/87
- -----------------------------------------------------------------------------------------------------------------------------
Drawing-in of heddles remote from a loom 4,760,628 8/2/88 9/15/86
harness frame
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame for a high speed weaving 4,750,526 6/14/88 8/17/87
machine
- -----------------------------------------------------------------------------------------------------------------------------
M/Roll-formed shear-resistant frame slat 4,633,916 6/1/87 6/24/85
- -----------------------------------------------------------------------------------------------------------------------------
Stabilized nose guide 4,565,223 1/21/86 10/29/84
- -----------------------------------------------------------------------------------------------------------------------------
Loom reed with plastic profiled dents 4,529,014 7/16/85 8/29/83
- -----------------------------------------------------------------------------------------------------------------------------
Releasable heddle rod connector 4,503,890 3/12/85 4/13/83
- -----------------------------------------------------------------------------------------------------------------------------
Reinforced loom shuttle and method 4,487,234 12/11/84 4/5/82
- -----------------------------------------------------------------------------------------------------------------------------
Composite dual-face heddle frame slat 4,484,604 11/27/84 9/6/83
- -----------------------------------------------------------------------------------------------------------------------------
Double dent lightweight reed construction 4,481,980 11/13/84 7/26/82
- -----------------------------------------------------------------------------------------------------------------------------
Composite heddle rod 4,476,900 10/16/84 1/27/82
- -----------------------------------------------------------------------------------------------------------------------------
Stabilized shuttle grip 4,441,529 4/10/84 11/29/82
- -----------------------------------------------------------------------------------------------------------------------------
Wraparound adjustable center brace 4,432,398 2/21/84 6/16/82
attachment
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame assembly construction and 4,404,995 9/20/83 4/10/81
method
- -----------------------------------------------------------------------------------------------------------------------------
Squeeze rod hook 4,404,994 9/20/83 1/27/82
- -----------------------------------------------------------------------------------------------------------------------------
Foldable nose guide device for a heddle 4,364,420 12/21/82 3/23/81
frame
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame 4,106,529 8/15/78 10/22/76
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frames 4,060,102 11/29/77 10/12/76
- -----------------------------------------------------------------------------------------------------------------------------
Loom harness 4,036,264 7/19/77 7/23/76
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame 4,036,263 7/19/77 6/14/76
- -----------------------------------------------------------------------------------------------------------------------------
Plastic bobbin or quill 3,993,265 11/23/76 3/17/75
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE> 92
LICENSES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
TYPE LICENSOR LICENSEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
License of Duralite process (thermal bonding of wire Steel Heddle Mfg. Co. Takayama Enterprises
reeds by use of plastics), materials and equipment by Corporation (Japan)
Technology License Agreement dated 10/17/95.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE> 93
SCHEDULE 5.7
CONTRACTUAL OBLIGATIONS
- - Computer Consulting Agreement dated February 3, 1998 between AGS and
Steel Heddle.
- - Consulting Agreement dated January 1, 1996 between BCC Industrial
Services, Inc. and Steel Heddle, as amended as of March 31, 1998. (to be
terminated as of Closing)
- - Confidentiality Agreement dated December 15, 1997 between BRANT Beheer
nv. and Steel Heddle in connection with review of the business
operations of Verbrugge.
- - Deferred Compensation Agreement with the following executives with total
obligation of $84,000:
1. Jerry B. Miller dated July 14, 1995.
2. Thomas A. Korbutt dated July 14, 1995.
3. Benjamin G. Team dated July 14, 1995.
4. J. Brant Conner dated July 14, 1995.
5. William R. Rogers dated July 14, 1995.
6. Robert W. Dillon dated July 18, 1995.
- - Severance Agreement dated April 18, 1995 with the following executives,
as amended on December 5, 1997:
1. Jerry B. Miller.
2. Thomas A. Korbutt.
3. Benjamin G. Team.
4. J. Brant Conner.
5. Robert W. Dillon.
- - Employee Stock Option Agreements with the following seven individuals:
(to be terminated as of Closing)
1. Jerry B. Miller dated February 21, 1997.
2. Thomas A. Korbutt dated February 21, 1997.
3. Benjamin G. Team dated February 21, 1997.
4. James E. Merritt dated February 21, 1997.
5. Frank L. Rodgers dated February 21, 1997.
6. Robert W. Dillon dated February 21, 1997.
7. Edward A. Rostick dated February 21, 1997.
- - Exclusive Sales Representative Agreements with approximately 45
individual sales representatives.
- - Miscellaneous post-retirement benefits that in the aggregate do not
exceed $50,000 annually (See Schedule 5.12 -- Schedule of Benefits).
- - Executive Performance Bonus Agreement dated as of January 5, 1998 with
each of Benjamin G. Team, Robert W. Dillon, Jerry B. Miller, J. Brant
Connor, Thomas A. Korbutt, Edward J. Treglia, John D. Wright and C.
Randy Boggs (See Schedule 5.12 -- Schedule of Benefits).
- - Middle Management Profit Sharing Plan (See Schedule 5.12 -- Schedule of
Benefits).
- - Employment Agreement with Richard G. Gentry dated May 1, 1997.
-26-
<PAGE> 94
- - Debt of SH Intermediate Corp. to Heddle Capital Corp. in principal
amount of $40,000,000 dated February 21, 1997. (to be paid at Closing)
- - Debt of Steel Heddle Mfg. Co. to Heddle Capital Corp. in principal
amount of $55,000,000 dated February 21, 1997. (to be paid at Closing)
- - Payment totaling $120,121 to James E. Merritt pursuant to Severance
Agreement dated April 15, 1995.
- - Sale Bonus Agreements dated April 21, 1998 with the following
individuals:
1. Jerry B. Miller.
2. Benjamin G. Team.
3. Robert W. Dillon.
- - Refer to Schedule 1: Stock Subject to Liens.
- - Refer to Schedules 5.12 and 5.5.2(b).
-27-
<PAGE> 95
Schedule 5.8
INSURANCE POLICIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CARRIER POLICY # EXPIRATION DATE TYPE POLICY LIMITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Travelers Indemnity Co. KTJCMB267T527097 4/1/99 Property $5,000,000 (Primary)
- ------------------------------------------------------------------------------------------------------------------------------------
Westchester Fire Insurance Co. 1XL491740 4/1/99 Property $5,000,000 Excess $5,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hartford Fire Insurance Co. 10XLSSD8393 4/1/99 Property $10,000,000 Excess of $10,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hartford Fire Insurance Co. 10XLSQG0985 4/1/99 Property $20,000,000 Excess of $20,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
National Surety Corp. XSP2841660 4/1/99 Property $80,000,000 Excess of $20,000,000
Property $100,000,000 Total Property Coverage
- ------------------------------------------------------------------------------------------------------------------------------------
Travelers Ins. Co. M5JBMG270X2122 4/1/99 Boiler & Machinery $100,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
National Union Fire Ins. Co. RMGL 143-84-09 4/1/99 General Liability $5,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
AIU Ins. Co. BE 932-76-03 4/1/99 Umbrella $25,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
National Union Fire Ins. Co. RMCA 143-93-47 4/1/99 Automobile $1,000,000 Combined Single Limit
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Life Ins. Co. GTA 15675 4/1/2000 Travel Accident $1,000,000 Class I Employees
$100,000 Class II Employees
- ------------------------------------------------------------------------------------------------------------------------------------
Chubb Ins. Group 8133-87-39-A 4/1/99 Crime $1,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
National Union Fire Ins. Co. 485-15-80 4/1/99 Directors and Officers $5,000,000 (D&O)
- ------------------------------------------------------------------------------------------------------------------------------------
National Union Fire Ins. Co. 485-15-62 4/1/99 Pension Trust $1,000,000 (Pension Trust)
- ------------------------------------------------------------------------------------------------------------------------------------
Ins. Co. of State of RMWC 217-84-80 4/1/99 Workers Compensation N/A
Pennsylvania & Employers
Liability $1,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance Company of North 498392-55 4/1/99 Ocean Cargo $5,000,000 (Vessel)
America $2,000,000 (Aircraft)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-28-
<PAGE> 96
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CARRIER POLICY# EXPIRATION DATE TYPE POLICY LIMITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Seuguros LA Territorial, S.A. QB1 19663 4/1/99 Multiline Policy $230,000 Property
Mexico $600,000 General Liability
$7,500 Theft
$2825 Per Occ Cash
$500,000 Auto (New Paso)
- ------------------------------------------------------------------------------------------------------------------------------------
Union Ins. Society of Hong 070/010254/01 12/1/98 Employers Liability $100,000,000 (HKS)
Kong, Ltd. Hong Kong
- ------------------------------------------------------------------------------------------------------------------------------------
Carolina Benefits 59502 5/1/98 Third Party Self-Funded
Administrators Administrator for
Medical Benefits
- ------------------------------------------------------------------------------------------------------------------------------------
Lamar Life Ins. Co. LNL-9023 5/1/98 Stop Loss Reinsurance Medical Only - Individual Stop Loss -
$150,000
Maximum Amount per Covered Person:
$1,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Anthem Life Ins. Co. 39182 5/1/98 Group Team Life Ins. COMPANY PAID
Hourly & Non-Exempt Employees:
$20,000
Exempt: $75,000
Exempt Executive: $150,000
EMPLOYEE CONTRIBUTORY
Exempt: $75,000
Exempt Executive: $150,000
- ------------------------------------------------------------------------------------------------------------------------------------
Reliance Standard Life Ins. LSC-098393 5/1/98 Long Term Disability Exempt Employees Only
Monthly Benefit: $5,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-29-
<PAGE> 97
SCHEDULE 5.9
LITIGATION
1. Margaret COLE and Ernestine MAHONE v. STEEL HEDDLE MFG. CO., United
States District Court for the Northern District of Georgia, Civil Action
Number: 3 96-CV-150-JTC.
2. Wesley F. Hixon asserts a claim against the Company and the majority
shareholders for breach of their fiduciary duty and misrepresentation
with respect to 2204 shares of options which were repurchased from
Wesley F. Hixon in the spring of 1997. It is alleged that the Company
and its majority shareholders restructured the Company so as to devalue
the options and solicited their repurchase without making proper
disclosure of their intentions and such omissions and misrepresentations
have caused Wesley F. Hixon to lose gain on the sale of the 2204
options.
-30-
<PAGE> 98
SCHEDULE 5.10
COMPLIANCE WITH LAWS
None.
-31-
<PAGE> 99
SCHEDULE 5.11
TAX MATTERS
None.
-32-
<PAGE> 100
SCHEDULE 5.12
EMPLOYEE BENEFIT PLANS
I. PAID HOLIDAYS - Employees receive ten (10) paid holidays each calendar
year as follows:
Good Friday
Memorial Day
Labor Day
Thanksgiving Day
Friday after Thanksgiving
Christmas Week - 5 paid holidays in week in which Christmas falls.
II. PAID VACATION - Vacation eligibility is based on length of service.
A. ALL EMPLOYEES EXCEPT SENIOR MANAGEMENT GROUP
One year service - two weeks vacation
Five years service - three weeks vacation
Fifteen years service - four weeks vacation
B. SENIOR MANAGEMENT GROUP
Vacation up to 5 weeks according to the following schedule or
Company vacation policy, whichever offers the greater advantage:
A. First year in Group - 3 weeks
B. Second year in Group - 4 weeks
C. Third year in Group - 5 weeks
A maximum of one week of unused vacation may be carried over to
the next vacation year; however, three weeks may be carried over
in the pre-retirement year.
III. GROUP INSURANCE
A. MEDICAL BENEFITS - Steel Heddle self insures benefits
through a leased agreement with the Blue Cross-Blue Shield
PPC Managed Care Network. Payment of claims is
administered by Carolina Benefit Administrators of S.C., a
third party administrator. The Schedule of Benefits is
listed in the enclosed Summary Plan Description.
Employee coverage is provided at no cost to employees.
Employees contribute $10.00 per week for one dependent or
$12.50 per week for two or more dependents. Employee
premiums are paid through a Section 125 Premium Plan.
B. LIFE INSURANCE - Company paid life insurance for employees
only as follows:
<TABLE>
<S> <C>
Hourly Paid and Weekly Salaried Non-exempt Employees: $20,000
Salaried Exempt Employees: 1 and 1/2 X Base Annual Salary
Maximum Benefit: $75,000
Management Group: 1 and 1/2 Base Annual Salary
</TABLE>
-33-
<PAGE> 101
Maximum Benefit: $150,000
Note: Salaried Exempt Employees are eligible for contributory
life insurance. Maximum Contributory is $75,000 or
$150,000
C. SHORT TERM DISABILITY BENEFITS - $90.00 Per week.
Company self-insures this benefit which covers only hourly
and weekly salaried non-exempt employees. Benefit can be
paid 26 weeks maximum.
D. LONG TERM DISABILITY BENEFIT - for Salaried Exempt
Employees. Company paid insured benefit of $5,000 per
month Maximum.
IV. EMPLOYEE THRIFT PLAN - 401(k)
Company match of employee contributions up to 6%: $.65 per $1.00
of employee contributions. Employees may contribute up to
additional 10% with no company match.
Employee directed investments in seven investment options.
Funds are managed by T. Rowe Price; applying currently for a
determination letter
V. CASH BALANCE PENSION PLAN - Company paid Benefit for all employees.
Eligibility: Age 21 with one year of service.
Steel Heddle makes annual contributions to each eligible
employee's account. Contribution is determined by Base Annual
Salary and Age of participant. All funds are invested as follows:
Lehman Brothers Corporate/Government Bonds: 60%
S&P 500: 40%
VI. ANNUAL LENGTH OF SERVICE BONUS - Employees will receive $10.00 per year
for each year of service to a maximum of $250.00.
VII. YEAR-END BONUSES - Year-end bonuses are determined as a percentage of
salary.
VIII. MIDDLE MANAGEMENT PROFIT SHARING
A performance based profit sharing plan with incentive payments
to middle managers based on divisional and corporate earnings.
IX. EXECUTIVE PERFORMANCE BONUS AGREEMENT
Executive Performance Bonus Agreement dated as of January 5, 1998
with each of Benjamin G. Team, R. Dillon, Jerry B. Miller, J.
Brant Connor, Thomas A. Korbutt, Edward J. Treglia, John D.
Wright and C. Randy Boggs. A performance-based bonus agreement
with incentive payments to executives. Based on consolidated
earnings.
X. TUITION REIMBURSEMENT
Steel Heddle offers its employees tuition reimbursement for
courses of study directly related to an employee's job or which
qualify the employee for another job within the company. All
courses must be pre-approved.
-34-
<PAGE> 102
XI. SUPPLEMENTAL PENSION PLANS (Plans may not qualify for exemptions from
coverage under ERISA.)
A. Cash Drawer Plan. An agreement under which direct payments are
made to certain retired personnel based on years of service and
compensation.
Participants are guaranteed a benefit equal to 50% of average
base monthly salary for best five of last 10 years of service
reduced by: (1) monthly straight life benefit from company paid
pension plan, (2) monthly straight life benefit from company
contributions and earnings on company contributions to employee
thrift plan, (3) and 50% of primary social security benefit.
B. Trust Fund Plan. An Agreement under which employees whose
normal retirement benefit at age 65 from the Steel Heddle Master
Retirement Plan was less than $90.00 per month received direct
monthly payments supplementing the Retirement Plan benefit to
equal $90.00 per month. There are six retirees currently
receiving a benefit from this agreement.
XII. POST RETIREMENT HEALTH CARE BENEFITS FOR RETIREES BORN PRIOR TO JANUARY
1, 1935
For employees who retire before age 65, Company paid health care
coverage continues from date of retirement for a period of 18
months but not beyond the date retiree becomes age 65 or the date
retiree becomes eligible for MEDICARE benefits. These benefits
also apply to spouses of retirees. After 18 months, the retiree
can continue this coverage for himself and spouse by paying a
premium of $40.00 per month per person to the company. Health
care benefits on the retiree and on the spouse are discontinued
on each when the covered person is age 65 or becomes eligible for
MEDICARE.
REIMBURSEMENT OF PART B MEDICARE PREMIUM: The company reimburses
the retiree for his and his spouse's Part B Medicare Premium
capped at $50.00 per month per person. Payments are made annually
and are discontinued upon the death of the retiree.
RETIREES BORN AFTER JANUARY 1, 1935: Company paid health care
coverage is discontinued on date of retirement. The retiree may
continue the coverage under COBRA by paying the fully insured
premiums to the company for a period of time specified by COBRA.
The company does not reimburse these retirees for Part B Medicare
Premium.
POST RETIREMENT SUPPLEMENTARY MEDICARE PLAN
An agreement under which key named executive employees have
medical benefits supplementing MEDICARE benefits to the level of
benefits covered in the medical benefits plan for active
employees. MEDICARE is primary and pays first. Steel Heddle's
Plan is secondary. Retirees eligible for this benefit pay a
premium to Steel Heddle of $40.00 per month for the retiree and
$40.00 per month for spouses of retirees.
PHILADELPHIA EFFECTS AGREEMENT
An agreement made on March 9, 1983 between Steel Heddle Mfg. Co.
and the United Steel Workers of America (AFL-CIO) upon the
closing of the Philadelphia Plant. In this agreement, Steel
Heddle agreed to pay Philadelphia Plant employees and their
spouses $450 per year for life to assist the employees in
purchasing health insurance. The employee and the spouse each
receive separate payments.
XIII. POST RETIREMENT LIFE INSURANCE
Company paid life insurance is continued as follows:
<TABLE>
<S> <C>
A. Hourly Paid and Weekly Paid non-exempt Salaried Employees: $3,000
</TABLE>
-35-
<PAGE> 103
B. Semi-monthly Paid Salaried Exempt Employees: Company paid
coverage existing on date of retirement is reduced 10
percent per year for 5 years after which the retiree has
50 percent of pre-retirement company life insurance
continued in force for life.
XIV. PAYMENT FOR ABSENTEEISM DUE TO NON WORK-RELATED INJURY OR ILLNESS
A. Hourly Paid Employees
Hourly paid employees are not entitled to any payment of
wages by the Company for non work-related illnesses or
injuries.
B. Weekly Salaried Employees
Weekly salaried employees will receive their regular pay,
less the amount of any Weekly Indemnity Insurance to which
they may be entitled, for each extended period of illness,
the length of which will be determined by the
uninterrupted years of service with the Company. During
the first 12 months of employment, five consecutive work
days will constitute the maximum length of an extended
period of illness for which the Company will pay. For each
successive 12 months of employment an additional workday
will be added to the five consecutive work days referred
to above.
C. Semi-monthly Salaried Employees
Semi-monthly salaried employees will receive full pay when
absent from work for injury or illness provided a single
period of continuous absenteeism does not exceed twelve
weeks. Payment for more than on such period of absenteeism
per calendar year will necessitate review by Management on
a case-by-case basis.
XV. PENSION PLAN FOR EMPLOYEES OF STEEL HEDDLE (CANADA) LTEE/LTD. (Plan may
not qualify for exemptions from coverage under ERISA.)
Plan presently covering one employee in Canada to which
contributions are made by Employer to Imperial Life
Assurance Company of Canada.
-36-
<PAGE> 104
SCHEDULE 5.14
ABSENCE OF UNDISCLOSED LIABILITIES
None.
-37-
<PAGE> 105
SCHEDULE 5.15
LABOR
None.
-38-
<PAGE> 106
SCHEDULE 7.3
OPERATION OF BUSINESS PRE-CLOSING
- - Closing of operations of Steel Heddle (Tianjin) Weaving Machine
Accessories Co. Ltd.
- - Payment of interest and dividends among Steel Heddle Companies.
-39-
<PAGE> 107
SCHEDULE 7.12
KEY MANAGEMENT EMPLOYEES
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
Benjamin G. Team President and CEO
Robert W. Dillon Executive Vice President
Jerry B. Miller Vice President - Finance
J. Brant Conner General Sales Manager
Thomas A. Korbutt Vice President - Frame Division
John D. Wright Manager - Heddle Division
Randy Bow Manager - Reed Division
Edward J. Treglia Manager - Rolled Products Division
</TABLE>
-40-
<PAGE> 108
SCHEDULE 8.3
THIRD PARTY CONSENTS
1. Credit Agreement among SH Intermediate Corp., et al. and NationsBank,
N.A., as agent, dated February 20, 1997.
-41-
<PAGE> 1
Exhibit 10.3
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (this "Agreement") is made as of
May 26, 1998 by and among Steel Heddle Group, Inc., a Delaware corporation
("Group"); Steel Heddle Mfg. Co. (the "Corporation"); Heddle Capital Corp.,
Steel Heddle International, Inc., Steel Heddle International, Ltd., Steel
Heddle (Canada) Ltee/Ltd (collectively, the "Subsidiaries"); and American
Industrial Partners Corporation, a Delaware corporation ("AIP").
Background
Subject to the terms and conditions of this Agreement, the Corporation
desires to retain AIP to provide certain management services to the
Corporation.
Terms and Conditions
In consideration of the mutual covenants contained herein and
intending to be legally bound hereby, the parties agree as follows:
1. Management Services: During the term of this Agreement, AIP
shall provide general management, financial and other corporate advisory
services to the Corporation. Such management services shall be performed by
the qualified officers, employees or agents of AIP, and AIP shall at all times
direct, monitor and supervise the performance of such services by such
officers, employees or agents.
2. Fees and Expenses.
(a) The Corporation shall pay to AIP an annual management
fee (the "Management Fee") of Eight Hundred Ninety-five Thousand Dollars
($895,000). The Management Fee shall be payable semi-annually in arrears on
each May 30 and November 29 occurring during the term of this Agreement,
beginning May 30, 1998, or at such other times as the Corporation and AIP shall
otherwise agree; provided that if any date on which payment of the Management
Fee is required hereunder is not a business day, the Corporation shall pay such
Management Fee on the first business day following the date on which payment
was otherwise due.
(b) In addition to the Management Fees, the Company
agrees to promptly reimburse AIP for all out-of-pocket expenses incurred by AIP
in providing the services contemplated by this Agreement, including fees and
expenses paid to consultants, subcontractors and other third parties in
connection with such services.
<PAGE> 2
(c) Group and the Subsidiaries (collectively, the
"Guarantors"), jointly and severally, hereby guarantee the Corporation's
payment of all amounts owing to AIP.
(d) Notwithstanding anything to the contrary contained
herein, (i) the Corporation shall not be required to pay the Management Fee if
and for so long as any such payment would violate, breach or otherwise
constitute a default (or any event which might with the lapse of time or the
giving of notice or both, constitute a default) under any of the Corporation's
financing agreements, and (ii) none of the Guarantors shall be required to make
any payments pursuant to Section 2(c) of this Agreement if any such payment
would violate, breach or otherwise constitute a default (or any event which
might with the lapse of time or the giving of notice or both, constitute a
default) under any of the Guarantors' financing agreements.
(e) Interest will accrue on all due and unpaid Management
Fees at the rate per annum equal to ten percent (10%) until such time as such
Management Fees are paid, and such interest shall compound annually.
(f) Notwithstanding the provisions of Section 2(a)
hereof, the liability of the Corporation for any semi-annual Management Fee
payment hereunder shall not accrue, and AIP shall have no right for payment in
respect thereto, unless AIP continues to perform the management services
described in Section 1 through the end of the applicable semi-annual period
(except for any partial semi-annual period ending on the termination of this
Agreement, whereupon the Management Fee shall be pro rated, and shall be
payable, for such period).
3. Binding Effect; Assignability. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
successors and permitted assigns. This Agreement may not be transferred or
assigned by any party without the written consent of each other party;
provided, however, that AIP may assign its obligations hereunder to any of its
affiliates.
4. Entire Agreement; Amendment. This Agreement constitutes the
entire agreement and understanding between the parties with respect to the
subject matter hereof. This Agreement may be amended or modified, or any
provision hereof may be waived, provided that such amendment or waiver is set
forth in a writing executed by the parties. No courses of dealing between or
among any persons having any interest in this Agreement will be deemed
effective to modify, amend or discharge any part of this Agreement or any
rights or obligations of any person under or by reason of this Agreement.
5. Term. Except as provided for herein, this Agreement shall
commence on the date hereof and shall terminate on the earlier of (i) the tenth
anniversary of the date hereof and (ii) such other date as to which AIP and the
Corporation mutually agree. The provisions of Section 6 shall survive the
termination of this Agreement.
6. Indemnification. The Company and the Guarantors hereby
jointly and severally indemnify and hold harmless AIP and its partners,
employees, agents, representatives and affiliates (each being an "Indemnified
Party") from and against any and all losses, claims, damages
2
<PAGE> 3
and liabilities to which such Indemnified Party may become subject under any
applicable federal or state law, any claim made by any third party or
otherwise, relating to or arising out of the engagement of AIP pursuant to, and
the performance by AIP of the services contemplated by, this Agreement, and the
Company and the Guarantors jointly and severally will reimburse any Indemnified
Party for all costs and expenses (including attorneys' fees and expenses) as
they are incurred in connection with the investigation of, preparation for or
defense of any pending or threatening claim, or any action or proceeding
arising therefrom, whether or not such Indemnified Party is a party hereto.
None of the Company and the Guarantors will be liable under this Section 6, and
an Indemnified Party shall reimburse the Company or Guarantor for any related
payments made by the Company or any Guarantor under this Section 6, to the
extent that any loss, claim, damage, liability, cost or expense is determined
by a court, in a final judgment from which no further appeal may be taken, to
have resulted primarily from the gross negligence or willful misconduct of such
Indemnified Party. No Indemnified Party shall be liable to the Company or any
of the Guarantors for honest mistakes of judgment, or for any action or
inaction, taken in good faith in the performance of management services under
this Agreement to the extent such action would satisfy the standards for
indemnification set forth in this Section 6.
7. Permissible Activities. Subject to all applicable provisions
of Delaware law that impose fiduciary duties upon AIP or its partners or
affiliates, nothing herein shall in any way preclude AIP, its partners or
affiliates from engaging in any business activities or from performing services
for its or their own account or for the account of others.
8. Governing Law. The validity, performance, construction and
effect of this Agreement shall be governed by and construed in accordance with
the internal law of the State of New York.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
3
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto has caused this
Management Services Agreement to be executed as of the day and year first above
written.
STEEL HEDDLE GROUP, INC.
By: /s/ Benjamin G. Team
------------------------------------------
Its: President
------------------------------------------
STEEL HEDDLE MFG. CO.
By: /s/ Benjamin G. Team
------------------------------------------
Its: President
------------------------------------------
HEDDLE CAPITAL CORP.
By: /s/ Jerry B. Miller
------------------------------------------
Its: President
------------------------------------------
STEEL HEDDLE INTERNATIONAL, INC.
By: /s/ Benjamin G. Team
------------------------------------------
Its: President
------------------------------------------
STEEL HEDDLE INTERNATIONAL, LTD.
By: /s/ Benjamin G. Team
------------------------------------------
Its: President
------------------------------------------
4
<PAGE> 5
STEEL HEDDLE (CANADA) LTEE/LTD
By: /s/ Benjamin G. Team
-----------------------------------------------
Its: President
-----------------------------------------------
AMERICAN INDUSTRIAL PARTNERS, a
Delaware general partnership
By: American Industrial Partners
Management Corporation II, a general partner
By: /s/ Theodore Rogers
-----------------------------------------------
Theodore C. Rogers, President
5
<PAGE> 1
EXHIBIT 10.4
STEEL HEDDLE GROUP, INC.
MANAGEMENT STOCK OPTION PLAN
THIS MANAGEMENT STOCK OPTION PLAN is hereby adopted by the Board of
Directors of Steel Heddle Group, Inc., a Delaware corporation, as of May 26,
1998.
ARTICLE I
PURPOSE OF PLAN
The Plan is adopted by the Board for certain management employees of
the Company and its Subsidiaries as a part of the compensation and incentive
arrangements for such employees. The Plan is intended to advance the best
interests of the Company by allowing such employees to acquire an ownership
interest in the Company, thereby motivating them to contribute to the success of
the Company and to remain in the employ of the Company and its Subsidiaries. The
availability of stock options under the Plan will also enhance the Company's
ability to attract and retain individuals of exceptional talent to contribute to
the sustained progress, growth and profitability of the Company.
ARTICLE II
DEFINITIONS
For purposes of the Plan, except where the context clearly indicates
otherwise, the following terms shall have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other Person who,
either directly or through one or more intermediaries, Controls, is Controlled
by or is under common Control with, such first Person.
"Aggregate Exercise Price" is defined in Section 7.2.
"Board" means the Board of Directors of the Company.
"CEO" means the President and Chief Executive Officer of the
Company.
"Closing Date" means May 26, 1998.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
<PAGE> 2
"Committee" means the Compensation Committee or such other committee
of the Board as the Board may designate to administer stock options granted by
the Company or, if for any reason the Board has not designated such a committee,
the Board. The Committee, if other than the Board, shall be composed of two or
more directors as appointed from time to time by the Board. At any time when the
Company is subject to the reporting requirements of Section 13 or Section 15(d)
of the Securities Exchange Act, this Plan will be administered by a committee of
one or more directors who are "disinterested persons," within the meaning of
Rule 16b-3 of the Securities Exchange Act.
"Common Stock" means the Company's common stock, par value $0.01 per
share.
"Company" means Steel Heddle Group, Inc., a Delaware corporation.
"Company Sale" means a transaction with one or more independent
third parties pursuant to which such party or parties (i) acquire (whether by
merger, consolidation or transfer or issuance of capital stock) capital stock of
the Company (or any surviving or resulting corporation) possessing the voting
power to elect a majority of the board of directors of the Company (or such
surviving or resulting corporation) or (ii) acquire all or substantially all of
the Company's assets determined on a consolidated basis.
"Control" (including, with correlative meaning, all conjugations
thereof) means with respect to any Person, the ability of another Person to
control or direct the actions or policies of such first Person, whether by
ownership of voting securities, by contract or otherwise.
"Disability" means with respect to any Participant, the inability,
due to illness, accident, injury, physical or mental incapacity or other
disability, which has existed for at least six months in any twelve month period
or has existed continuously for four months and which has prevented, and can
reasonably be expected to continue to prevent, such Participant from carrying
out effectively his duties and obligations to the Company and its Subsidiaries
as determined in good faith by the Board.
"EBITDA" means, with reference to any period, the sum of the amounts
for such period of, without duplication, (a) net income, plus (b) interest
expenses paid or accrued and deducted in determining net income, plus (c) income
or profits taxes paid or accrued and deducted in determining net income, plus
(d) depreciation, amortization and other non-cash charges deducted in
determining net income, minus (e) cash payments with respect to any
non-recurring, non-cash charges previously added back pursuant to clause (d)
above, (f) excluding the impact of foreign currency translations, (g) excluding
management fees paid to and expenses of American Industrial Partners
Corporation, Butler Capital Corporation or any of their Affiliates and (h)
excluding extraordinary, non-recurring restructuring and transaction costs, all
determined in accordance with United States generally accepted accounting
principles. EBITDA shall be calculated excluding the effects of purchase
accounting.
-2-
<PAGE> 3
"EBITDA Target" means, with respect to each Plan Year, the EBITDA
Target set forth opposite such Plan Year in the following chart:
Plan Year EBITDA Target
1/1/98 - 12/31/98 $ 23,400,000
1/1/99 - 12/31/99 $ 24,300,000
1/1/00 - 12/31/00 $ 25,500,000
1/1/01 - 12/31/01 $ 26,600,000
The Committee will make equitable adjustments to the EBITDA Targets from time to
time to reflect acquisitions and dispositions made by the Company and its
Subsidiaries during the Performance Plan Term and the anticipated effect on the
EBITDA Targets resulting therefrom.
"Employee" means any full-time employee of the Company or any of its
Subsidiaries.
"Exercise Notice" is defined in Section 7.2.
"Exercise Price" means the amount payable for an Option Share upon
exercise of an Option.
"Expiration Date" is defined in Section 8.1.
"Fair Market Value" as of any date means (a) with respect to
publicly traded Common Stock, the market trading price of such Common Stock, (b)
with respect to non-publicly traded Common Stock, the fair market value of such
Common Stock (expressed on a per-share basis) as of such date, as determined in
good faith by the Committee based on such factors as the Committee may deem
appropriate (provided that a Participant may request, at his or her own expense,
an independent appraisal of such Common Stock by a nationally recognized
investment banking firm acceptable to the Board, which such acceptance shall not
be unreasonably withheld), and (c) with respect to any Option (or portion
thereof), the difference of (i) the product of the amount described in clause
(a) or (b) above (as appropriate) multiplied by the number of Option Shares
issuable upon exercise of the Option (or portion thereof), minus (ii) the
aggregate Exercise Price of the Option (or portion thereof).
"Initial Options" is defined in Section 5.2.
"Joinder" is defined in Section 5.6.
"Matured Shares" means, with respect to any Participant, Common
Stock owned by such Participant for longer than six months.
"Option Certificate" is defined in Section 5.5.
-3-
<PAGE> 4
"Options" means the Initial Options and the Undesignated Options.
"Option Shares" means, with respect to any Participant, (a) any
shares of Common Stock (or other shares of capital stock of the Company) issued
by the Company upon exercise of any Option by such Participant, and (b) any
shares of the capital stock of the Company issued in respect of any of the
securities described in clause (a) above, by way of stock dividend, stock split,
merger, consolidation, reorganization or other recapitalization.
"Participant" means any Employee who is selected to participate in
the Plan in accordance with Article III of the Plan.
"Performance Plan Term" means the period beginning on the Closing
Date and ending on December 29, 2001.
"Performance Level" means with respect to any Plan Year, the product
of (i) 100 multiplied by (ii) a fraction, the numerator of which is the actual
EBITDA of such Plan Year (treated for this purpose as a single accounting
period) and the denominator of which is the EBITDA Target for such Plan Year.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Plan" means this Management Stock Option Plan, as amended or
supplemented from time to time in accordance with its terms.
"Plan Year" means any of the fiscal years ended January 2, 1999,
January 1, 2000, December 30, 2000 and December 29, 2001, respectively.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Stockholders Agreement" means the Stockholders Agreement dated as
of the Closing Date among the Company and its stockholders.
"Subsidiary" means any corporation of which the Company owns,
directly or through one or more Subsidiaries, securities having a majority of
the ordinary voting power in electing the board of directors of such
corporation.
"Transfer" means, with respect to any Option, the gift, sale,
assignment, transfer, pledge, hypothecation or other disposition (whether for or
without consideration and whether voluntary, involuntary or by operation of law)
of such Option or any interest therein.
-4-
<PAGE> 5
"Undesignated Options" is defined in Section 5.3.
ARTICLE III
ADMINISTRATION
The CEO shall be responsible for the routine administration of the
Plan, subject to the review and approval of the Committee. Subject to the
requirements and limitations of the Plan, the CEO, in consultation with the
Non-Executive Chairman of the Board, shall have the authority to select
Participants and to grant Initial Options to Participants in such amounts as the
CEO shall in his discretion, determine. Subject to the requirements and the
limitations of the Plan, the Committee shall have the sole and complete
responsibility and authority to: (a) approve the award of Options under this
Plan; (b) interpret the Plan and adopt, amend and rescind administrative
guidelines and other rules and regulations relating to the Plan; (c) correct any
defect or omission or reconcile any inconsistency in the Plan or in any Option
granted hereunder; and (d) make all other determinations and take all other
actions necessary or advisable for the implementation and administration of the
Plan, including actions necessary or advisable in connection with the issuance
of Undesignated Options. All authority not expressly granted to the CEO
hereunder shall remain vested in the Committee. The Committee's determinations
on matters within its authority shall be conclusive and binding upon the
Participants, the Company and all other Persons. All expenses associated with
the administration of the Plan shall be borne by the Company.
ARTICLE IV
LIMITATION ON AVAILABLE OPTION SHARES
4.1 Option Shares. The aggregate number of shares of Common Stock
with respect to which Options may be granted under the Plan shall not exceed
18,817 shares; provided, however, that the aggregate number of shares of Common
Stock with respect to which Options may be granted shall be subject to
adjustment in accordance with the provisions of Section 9.3 below.
4.2 Status of Option Shares. The shares of Common Stock for which
Options may be granted under the Plan may be either authorized and unissued
shares, treasury shares or a combination thereof, as the Committee shall
determine and shall be reserved by the Committee for issuance as provided in the
Plan. To the extent any Undesignated Options are not awarded under the Plan, the
Option Shares reserved for issuance in respect thereof shall become available
for issuance for any purpose that the Committee, in its discretion, determines.
To the extent any outstanding Options expire or are terminated prior to
exercise, the Option Shares in respect of which such Options were issued shall
remain available for reissuance to employees of the Company and its Subsidiaries
pursuant to this Plan or any other plan or agreement approved by the Board.
-5-
<PAGE> 6
ARTICLE V
GRANT OF OPTIONS
5.1 Options. The Committee shall grant options to Participants in
accordance with this Article V.
5.2 Initial Options. On the Closing Date, the Committee will
grant Options (the "Initial Options") to acquire an aggregate of 13,172 Option
Shares to Participants, to be allocated to and among Participants selected by
the CEO and approved by the Committee.
5.3 Undesignated Options. Options to purchase an aggregate of up
to 5,645 Option Shares will be available for award to Employees under this Plan
from time to time (the "Undesignated Options"). Undesignated Options will be
awarded on such terms, at such times, in such amounts and to such Employees as
shall be determined by the Committee; provided, however that the Committee shall
award immediately prior to a Company Sale (to such Employees and in such
percentages as the Committee determines) a percentage of the Undesignated
Options not awarded prior to such Company Sale (with an exercise price equal to
$100 per share, as adjusted pursuant to Section 9.3) equal to the percentage of
Initial Options vested pursuant to Section 6.3 hereof.
5.4 Form of Options.
(a) Initial Options granted under this Plan shall be
non-qualified stock options and are not intended to be "incentive stock
options" within the meaning of Section 422 of the Code or any successor
provisions.
(b) The Exercise Price of each Initial Option granted
pursuant to this Plan shall be $100 (subject to adjustment pursuant to
Section 9.3).
(c) Initial Options shall be exercisable upon vesting (as
determined pursuant to Article VI) and shall thereafter be exercisable
until they expire or are terminated (as determined pursuant to Article
VIII).
5.5 Option Agreement. Each Option granted hereunder to a
Participant shall be evidenced by a certificate substantially in the form
attached hereto as Annex I (or in such other form as the Committee may from time
to time adopt) (the "Option Certificate") which shall be signed by the CEO or
such other officer of the Company as the Committee shall designate. For purposes
of the Plan, no Option shall be deemed to be outstanding until it has been
granted to a Participant by the Committee and an Option Certificate has been
executed and delivered by the Company and an Option shall cease to be
outstanding when it is repurchased by the Company, terminates or is exercised
pursuant to the Plan.
-6-
<PAGE> 7
5.6 Joinder Agreement. As a condition to exercising any Options
hereunder, any Participant who is not already a party to the Stockholders
Agreement shall be required to execute a Joinder Agreement substantially in the
form attached hereto as Annex III (the "Joinder") and thereby become a party to
the Stockholders Agreement with respect to any Option Shares issued in
connection with such exercise.
ARTICLE VI
VESTING OF OPTIONS
6.1 Vesting of Initial Options. Initial Options issued pursuant
to this Plan may be exercised only to the extent that they have vested. Not
later than 90 days after the end of each Plan Year (so long as no Company Sale
has been consummated prior to such date) the Committee shall determine the
Performance Level for such Plan Year (such determination to be made in good
faith based upon the annual audited consolidated financial statements for the
latest fiscal year of the Company and its Subsidiaries ended on the last day of
such Plan Year).
6.2 Accelerated Vesting of Initial Options. All Initial Options
awarded under the Plan will vest on the seventh anniversary of the date of
grant, subject to acceleration of vesting as set forth in Sections 6.3 and 6.5
hereof; provided, in each case, that the Participant remains continuously
employed with the Company or its Subsidiaries from the date of award through the
date of determination. For purposes of accelerated vesting, each Participant
will be deemed to be employed by the Company or its Subsidiaries with respect to
any Plan Year if such Participant has been continuously employed by the Company
or its Subsidiaries from the first day of such Plan Year through the last day of
such Plan Year.
6.3 Performance-Based Acceleration. The vesting of each
Participant's Initial Options shall be subject to acceleration as follows:
(a) No Initial Options will vest for any Plan Year with a
Performance Level at or below 90.
(b) If the Performance Level for a given Plan Year is less than
100 but exceeds 90, a number of Initial Options equal to the
product of (i) 25% of such Participant's Initial Options and
(ii) a fraction the numerator of which equals the Performance
Level for such Plan Year minus 90 and the denominator of which
is ten, will vest as of the last day of such Plan Year.
(c) If the Performance Level for a given Plan Year equals or
exceeds 100, Initial Options representing 25% of such
Participant's Initial Options will vest as of the last day of
such Plan Year.
(d) If the Performance Level for any of the Plan Years ended
January 2, 1999, January 1, 2000 or December 30, 2000 exceeds
100 but is less than 110, then,
-7-
<PAGE> 8
in addition to the acceleration of vesting effected pursuant
to any of the foregoing subsections, a number of Initial
Options equal to the product of (i) 25% of such Participant's
Initial Options and (ii) a fraction the numerator of which
equals the Performance Level for such Plan Year minus 100 and
the denominator of which is ten, will vest as of the last day
of such Plan Year.
(e) If the Performance Level for any of the Plan Years ended
January 2, 1999, January 1, 2000 or December 30, 2000 equals
or exceeds 110, then, in addition to the acceleration of
vesting effected pursuant to any of the foregoing subsections,
25% of such Participant's Initial Options will vest as of the
last day of such Plan Year.
(f) If the Performance Level for the Plan Year ended December 29,
2001 exceeds 100 but is less than 110 and the Performance
Level for the preceding Plan Year was greater than 90 but less
than 100, then, in addition to the acceleration of vesting
effected pursuant to any of the foregoing subsections, a
number of Initial Options equal to the product of (i) 25% of
such Participant's Initial Options and (ii) a fraction the
numerator of which equals the Performance Level for such Plan
Year minus 100 and the denominator of which is ten, will vest
as of the last day of such Plan Year; provided, however that
the percentage of Initial Options that may vest pursuant to
this clause (f) plus the percentage of Initial Options which
vested for the preceding Plan Year shall not exceed 25%.
(g) If the Performance Level for the Plan Year ended December 29,
2001 equals or exceeds 110 and the Performance Level for the
preceding Plan Year was greater than 90 but less than 100,
then, in addition to the acceleration of vesting effected
pursuant to any of the foregoing subsections, a number of
Initial Options equal to 25% of such Participant's Initial
Options will vest as of the last day of such Plan Year;
provided, however that the percentage of Initial Options that
may vest pursuant to this clause (g) plus the percentage of
Initial Options which vested for the preceding Plan Year shall
not exceed 25%.
; provided, however that in no event shall more than 100% of a Participant's
Initial Options vest.
6.4 Termination of Employment. All Initial Options held by a
Participant who ceases to be employed by the Company and its Subsidiaries which
have not vested will not vest after the date such Participant's employment
terminates.
6.5 Vesting on Company Sale. If a Company Sale is consummated
prior to the end of the Performance Plan Term, then that portion of the Initial
Options held by a Participant that would, in the aggregate, have vested for all
Plan Years ended after the date such Company Sale is consummated (not to exceed
25% of such Participant's Initial Options for any such Plan Year) if the
-8-
<PAGE> 9
Performance Level for each such Plan Year was equal to the product of (i) 100
and (ii) a fraction, the numerator of which is the actual cumulative EBITDA for
the Company and its Subsidiaries during all Plan Years ended before the date
such Company Sale is consummated (treated for this purpose as a single
accounting period) and the denominator of which is the sum of the EBITDA Targets
for all such Plan Years, will vest immediately prior to the consummation of such
Company Sale.
ARTICLE VII
EXERCISE OF OPTIONS
7.1 Right to Exercise. Initial Options may not be Transferred
other than by will or the laws of descent and distribution and, during the
lifetime of the Participant, Initial Options may be exercised only by such
Participant (or his legal guardian or legal representative). Any Transfer or
attempted Transfer of an Initial Option contrary to this Section 7.1 shall be
void, and the Company shall not record such Transfer on its books or treat any
purported transferee of such Initial Option as the owner of such Initial Option
for any purpose. In the event of the death of a Participant, exercise of Initial
Options granted hereunder shall be made only by the executor or administrator of
the estate of the deceased Participant or the Person or Persons to whom the
deceased Participant's rights under the Initial Option shall pass by will or the
laws of descent and distribution.
7.2 Procedure for Exercise. Any Participant may exercise all or
any portion of any of such Participant's Initial Options, to the extent they
have vested pursuant to Article VI and are outstanding, at any time and from
time to time prior to its expiration, by completing, signing and delivering to
the Company (to the attention of the Company's Secretary) a notice of exercise
substantially in the form attached hereto as Annex II (or in such other form as
the Committee may from time to time adopt and provide to the Participant) (the
"Exercise Notice"), accompanied by the Joinder (if such Participant is not
already a party to the Stockholders Agreement), the related Option
Certificate(s) and payment in full of an amount equal to the product of (i) the
Exercise Price multiplied by (ii) the number of Option Shares to be acquired
(the "Aggregate Exercise Price"). Payment of the Exercise Price shall be made in
cash (including check, bank draft or money order); provided, that, at any time
when the Common Stock is publicly traded, if a Participant owns Matured Shares
with a Fair Market Value exceeding the Aggregate Exercise Price in connection
with such exercise, such Participant may, in lieu of paying the Aggregate
Exercise Price in cash, deliver an Exercise Notice accompanied by the
certificate for the Matured Shares (duly executed) and indicate in such Exercise
Notice that such Participant intends to effect a cashless exercise thereof and
be entitled to receive, in respect of the exercise of the Initial Option and the
cancellation of Matured Shares with an aggregate Fair Market Value equal to the
Aggregate Exercise Price, (x) the number of Option Shares that otherwise would
be issued hereunder if the Aggregate Exercise Price were paid in cash and (y)
the number of Matured Shares with an aggregate Fair Market Value equal to the
excess of the aggregate Fair Market Value of the Matured Shares before such
cashless exercise minus the Aggregate Exercise Price. Notwithstanding anything
in this Section 7.2 to the contrary, in the event that any Initial Option
Certificate representing Initial Options granted to a Participant
-9-
<PAGE> 10
is lost, stolen or destroyed, the Participant may, in lieu of delivering such
Initial Option Certificate at the time of exercise, deliver an affidavit as to
its loss, theft or destruction and any indemnity that the Company may reasonably
request. A Participant's right to exercise the Initial Option shall be subject
to the satisfaction of all conditions set forth in the Exercise Notice. If a
Participant exercises any Initial Options for less than all of the Option Shares
covered by the relevant Option Certificate, the Company shall issue a new Option
Certificate to such Participant in respect of the portion of such Initial Option
remaining unexercised.
7.3 Securities Laws Restrictions on Transfer of Option Shares.
Each Participant exercising an Initial Option will be required to represent to
the Company in the Exercise Notice that when such Participant is purchasing
Option Shares for such Participant's own account for investment and not on
behalf of others or otherwise with a view toward distributing them. Each
Participant is advised that federal and state securities laws govern and
restrict each Participant's right to Transfer, or offer to Transfer, any Option
Shares unless such Participant's Transfer, or offer to Transfer, is registered
under the Securities Act and state securities laws, or such Transfer, or offer
to Transfer, is exempt from registration or qualification thereunder. Each
Participant is further advised that the Stockholders Agreement, to which each
Participant will become a party upon exercising of such Participant's Initial
Options, imposes additional restrictions on the transfer of Option Shares, and
that the certificates for any Option Shares issued in connection with such
exercise will bear such legends as the Company deems necessary or desirable in
connection with the Securities Act or other rules, regulations or laws.
7.4 Withholding of Taxes. The Company shall be entitled, if
necessary or desirable, to withhold from any Participant from any amounts due
and payable by the Company to such Participant (or secure payment from such
Participant in lieu of withholding) the amount of any withholding or other tax
due from the Company with respect to any Option Shares issuable under the Plan,
and the Company may defer such issuance unless indemnified to its satisfaction.
7.5 Listing, Registration and Compliance with Laws and
Regulations. Initial Options shall be subject to the requirement that if at any
time the Committee shall make a good faith determination that the listing,
registration or qualification of Option Shares upon any securities exchange or
under any state or federal securities or other law or regulation, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of the Initial Options or the
issuance or purchase of Option Shares thereunder, no Initial Options may be
granted or exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not reasonably acceptable to the Committee. The Company shall in
good faith, and to the extent consistent with its reasonable business judgment,
exercise all reasonable efforts to obtain any such listing, registration,
qualification or approval. The holders of such Initial Options will supply the
Company with such certificates, representations and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval.
-10-
<PAGE> 11
ARTICLE VIII
EXPIRATION OF OPTIONS
8.1 Expiration Date. In no event shall any part of any Initial
Option be exercisable after 5:00 p.m. Eastern Standard Time on the tenth
anniversary of the Closing Date (the "Expiration Date").
8.2 Accelerated Expiration: Company Sale. Any Initial Options not
exercised or deemed exercised in connection with a Company Sale pursuant to
Section 7.2(b) hereof shall expire upon the consummation of the first Company
Sale occurring after the Closing Date.
8.3 Accelerated Expiration: Termination of Employment. All
unvested Initial Options shall expire and be forfeited in the event a
Participant shall cease to be an employee of the Company or its Subsidiaries for
any reason. All vested Initial Options not previously exercised shall expire and
be forfeited at 5:00 p.m. Eastern Standard Time on the thirtieth day after a
Participant shall cease to be an employee of the Company or its Subsidiaries for
any reason; provided, however if a Participant ceases to be an employee because
of death or Disability, all vested Initial Options not previously exercised
shall expire and be forfeited at 5:00 p.m. Eastern Standard Time on the one
hundred twentieth day after such Participant ceased to be an employee.
ARTICLE IX
MISCELLANEOUS
9.1 Rights of Participants. Nothing in this Plan shall interfere
with or limit in any way any right of the Company or any of its Subsidiaries to
terminate any Participant's employment at any time (with or without cause), nor
confer upon any Participant any right to continued employment by the Company or
any of its Subsidiaries for any period of time or to continue such employee's
present (or any other) rate of compensation. Transfer of an Employee from the
Company to a Subsidiary, from a Subsidiary to the Company and from one
Subsidiary to another shall not be considered a termination of such Employee's
employment for purposes of this Plan. No Employee shall have a right to be
selected as a Participant or, having been so selected, to be selected again as a
Participant.
9.2 Supplementation, Amendment, Suspension and Termination of
Plan. The Committee reserves the right to supplement the Plan in order to
specify the terms and conditions under which the Company shall issue the
Undesignated Options. The Committee may not suspend, terminate or materially
amend the Plan or any portion thereof at any time without the consent of
Participants who hold a majority of the Option Shares issued or issuable
pursuant to Options issued under the Plan or without such greater or other
stockholder approval to the extent such approval is required by law, agreement
or the rules of any exchange upon which the Common Stock is listed.
Notwithstanding the foregoing, no suspension, termination or amendment of or to
the Plan will
-11-
<PAGE> 12
affect adversely the rights of any holder of Options with respect to Options
issued hereunder prior to the date of such suspension, termination or amendment
without the consent of such holder.
9.3 Adjustments. In the event of (a) a reorganization,
recapitalization, stock dividend, stock split, share combination or other change
in the shares of Common Stock, or (b) a grant of options, warrants or other
rights to purchase Common Stock or a sale of Common Stock to American Industrial
Partners Capital Fund II, L.P. or its Affiliates at less than Fair Market Value
at the time of such grant or sale (provided, however if Persons not Affiliated
with American Industrial Partners Capital Fund II, L.P. are granted or purchase
similar options, warrants or other rights or Common Stock at substantially the
same time and at a cost equal to or less than the price paid by American
Industrial Partners Capital Fund II, L.P. or its Affiliates, such grant or sale
shall be deemed to have been for Fair Market Value), the Committee shall make
such adjustments in the number and type of shares authorized by the Plan, the
number and type of shares covered by outstanding Options and the Exercise Prices
specified therein and other amendments to the Plan as the Committee, in good
faith, determines to be appropriate and equitable in order to prevent the
dilution or enlargement of the rights granted hereunder or under any outstanding
Options.
9.4 Construction of Plan. The validity, construction,
interpretation, administration and effect of the Plan shall be determined in
accordance with the local law, and not the law of conflicts, of the State of
Delaware.
9.5 Indemnification. The Company will, and will cause each of its
Subsidiaries to, indemnify the CEO and the members of the Committee against all
costs and expenses reasonably incurred by them in connection with any action,
suit or proceeding to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan or any
Option granted thereunder or any Option Shares issued pursuant to the exercise
of an Option, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding; provided, however, that any such Person shall be entitled to
the indemnification rights set forth in this Section 10.5 only if such Person
has acted in good faith and in a manner that such Person reasonably believed to
be in or not opposed to the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful, and provided further that upon the institution of any such
action, suit or proceeding such Person shall give the Company written notice
thereof and an opportunity, at its own expense, to handle and defend the same
before such Person undertakes to handle and defend it on his or her own behalf.
[END OF TEXT OF DOCUMENT]
-12-
<PAGE> 13
Annex I
THIS OPTION AND THE OPTION SHARES ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE SECURITIES LAWS OF ANY STATE. THIS OPTION IS ISSUED PURSUANT TO THE
MANAGEMENT STOCK OPTION PLAN ADOPTED MAY __, 1998 BY THE BOARD OF DIRECTORS OF
THE ISSUER (THE "PLAN") AND THIS OPTION IS SUBJECT TO THE TERMS SET FORTH IN THE
PLAN.
- --------------------------------------------------------------------------------
OPTION TO PURCHASE ________ SHARES OF
COMMON STOCK OF
STEEL HEDDLE GROUP, INC.
OPTION NO. ___________ [DATE OF ISSUANCE]
VOID AFTER MAY 26, 2008
- --------------------------------------------------------------------------------
This certifies that ______________, ("Participant") is entitled,
upon the due exercise hereof, to purchase up to shares of Common Stock, par
value $0.01 per share (the "Option Shares") of Steel Heddle Group, Inc., a
Delaware corporation (the "Company") at a price (the "Exercise Price") of $100
per Option Share. This option (this "Option") is issued pursuant to the Stock
Option Plan adopted May 26, 1998 by the Company's Board of Directors (the
"Plan") and is subject in its entirety to the terms and conditions of the Plan,
as amended from time to time, all of which are hereby incorporated in the terms
of this Option. Capitalized terms which are used but not defined herein shall
have the respective meanings ascribed to them in the Plan.
To the extent otherwise permitted by the Plan, the Participant may
exercise all or any portion of the Option by executing and delivering to the
Company an Exercise Notice and a Joinder to Stockholders Agreement (copies of
which may be obtained from the Company) together with full payment of the
Aggregate Exercise Price for all Option Shares being so purchased, such payment
to be made (if payable in cash) by cash, check, bank draft or money order made
payable to "Steel Heddle Group, Inc." Except as otherwise expressly provided by
the Plan, this Option shall be deemed to have been exercised and the Option
Shares issuable upon such exercise shall be deemed to have been issued as of the
close of business on the date upon which all of the foregoing items are received
by the Company.
In the event of (a) a reorganization, recapitalization, stock
dividend, stock split, share combination or other change in the Common Stock of
the Company, or (b) a grant of options, warrants or other rights to purchase
Common Stock or a sale of Common Stock to American Industrial Partners Capital
Fund II, L.P. or its Affiliates at less than Fair Market Value at the time
<PAGE> 14
of such grant or sale (provided, however if Persons not Affiliated with American
Industrial Partners Capital Fund II, L.P. are granted or purchase similar
options, warrants or other rights or Common Stock at substantially the same time
and at a cost equal to or less than the price paid by American Industrial
Partners Capital Fund II, L.P. or its Affiliates, such grant or sale shall be
deemed to have been for Fair Market Value), the number and, if applicable, the
type of Option Shares issuable upon exercise of this Option and the Exercise
Price therefor shall be adjusted as provided in the Plan.
THIS OPTION MAY NOT BE TRANSFERRED BY THE PARTICIPANT EXCEPT IF AND
AS OTHERWISE PERMITTED BY THE PLAN.
Prior to the exercise of this Option as permitted by the Plan, the
Participant shall not, with respect to the Option Shares issuable upon the due
exercise hereof, be entitled to any of the rights of a stockholder of the
Company including, without limitation, the right as a stockholder to (i) vote on
or consent to any proposed action of the Company, or (ii) receive dividends or
other distributions made to stockholders, (iii) receive notice of or attend any
meetings of stockholders of the Company, or (iv) receive notice of any other
proceedings of the Company.
[END OF TEXT OF DOCUMENT]
ii
<PAGE> 15
IN WITNESS WHEREOF, the Company has executed this Option as of the
date first above written.
STEEL HEDDLE GROUP, INC.
[SEAL] ----------------------------------------------
Name:
Title:
Attest:
--------------------------
iii
<PAGE> 16
Annex II
EXERCISE NOTICE
This Exercise Notice (this "Notice") is given by the undersigned
participant ("Participant") to Steel Heddle Group, Inc., a Delaware corporation
(the "Company") in connection with the Participant's exercise of an Option
granted pursuant to the Company's Stock Option Plan, adopted May 26, 1998 (the
"Plan") to purchase Option Shares (as defined in the Plan). Capitalized terms
used but not defined herein shall have the respective meanings ascribed to them
in the Plan.
1. Purchase and Sale of Option Shares.
(a) Upon delivery to the Company of this Notice and the
Option to which it relates, the Company will sell and issue to
Participant, the Option Shares that Participant elects to purchase
hereunder. Participant will deliver to the Company herewith the aggregate
Exercise Price for the Option Shares purchased hereunder (if payable in
cash) by check, bank draft or money order made payable to "Steel Heddle
Group, Inc."
PARTICIPANT IS ADVISED THAT IT MAY BE IN PARTICIPANT'S OWN
BEST INTEREST TO MAKE AN EFFECTIVE ELECTION WITH THE INTERNAL REVENUE
SERVICE UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE AND THE
REGULATIONS PROMULGATED THEREUNDER, AND THAT PARTICIPANT SHOULD CONSULT
WITH PARTICIPANT'S TAX ADVISOR ABOUT THE DESIRABILITY OF AND PROCEDURE FOR
MAKING SUCH AN ELECTION BEFORE EXERCISING THE OPTION TO WHICH THIS NOTICE
RELATES.
(b) In connection with the purchase and sale of the Option
Shares hereunder, Participant represents and warrants to the Company that:
(i) The Option Shares to be acquired by Participant
pursuant to Participant's exercise of the Option will be acquired
for Participant's own account and not with a view to, or intention
of, distribution thereof in violation of the Securities Act, or any
applicable state securities laws, and the Option Shares will not be
disposed of in contravention of the Securities Act or any applicable
state securities laws;
(ii) Participant is sophisticated in financial
matters and is able to evaluate the risks and benefits of the
investment in the Option Shares;
(iii) Participant is able to bear the economic risk
of his or her investment in the Option Shares for an indefinite
period of time because the Option Shares have not been registered
under the Securities Act and, therefore, cannot be sold unless
subsequently registered under the Securities Act or an exemption
from such registration is available;
(iv) Participant has had an opportunity to ask
questions and receive answers concerning the terms and conditions of
the Option Shares and has had full
<PAGE> 17
access to such other information concerning the Company as he or she
has requested; and
(v) Participant is a resident and domiciliary of
the state or other jurisdiction hereinafter set forth opposite
such Participant's signature and Participant has no present
intention of becoming a resident of any other state or
jurisdiction. If Participant is a resident and domiciliary of a
state that requires the Company to ascertain certain other
information regarding the Participant, the Company may attach a
page to this Notice containing additional representations to be
made by Participant in connection with such Participant's
investment in Option Shares, and by signing this Notice,
Participant shall be deemed to have made such additional
representations to the Company.
(c) Participant further acknowledges and agrees that:
(i) neither the issuance of the Option Shares to
Participant nor any provision contained herein shall entitle
Participant to remain in the employment of the Company and its
Subsidiaries or affect any right of the Company to terminate
Participant's employment at any time for any reason;
(ii) the Company shall have no duty or obligation to
disclose to Participant and Participant shall have no right to be
advised of, any material information regarding the Company and its
Subsidiaries in connection with the repurchase of Option Shares upon
the termination of Participant's employment with the Company and its
Subsidiaries or as otherwise provided hereunder; and
(iii) the Company shall be entitled to withhold from
participant from any amounts due and payable by the Company to
Participant (or secure payment from Participant in lieu of
withholding) the amount of any withholding or other tax due from the
Company with respect to such Option Shares and the Company may defer
issuance until indemnified to its satisfaction.
(d) The Company and Participant acknowledge and agree
that the Option Shares issued in connection herewith hereunder, are issued
as a part of the compensation and incentive arrangements between the
Company and Participant.
2. Restriction on Option Shares. Participant acknowledges that
the Option Shares being purchased hereunder are being issued pursuant to the
Plan, the terms and conditions of which are incorporated herein as if set forth
fully herein, and that such Option Shares are subject to certain restrictions on
transfer, rights of repurchase and other provisions set forth in the Plan and
the Stockholders Agreement. Purchaser acknowledges that the certificates
evidencing such Option Shares shall be imprinted with a legend providing notice
of such restrictions substantially in the form set forth in the Stockholders
Agreement.
[END OF TEXT OF DOCUMENT]
-ii-
<PAGE> 18
IN WITNESS WHEREOF, the Participant has executed this Notice as of
the date written below.
No. of Shares of Common Stock:
---------------
Aggregate Exercise Price Therefor:
---------------
Cashless Exercise: Yes No
--- ----
- ------------------------------ ------------------
Signature of Participant Date
- ------------------------------ --------------------------------
Print Participant's Name Participant's Social Security No.
Participant's Residence Address: Mailing Address, if different from
Residence Address:
- ------------------------------ ----------------------------------
Street Street
- ------------------------------ ----------------------------
City State Zip Code City State Zip Code
Acknowledged Receipt of Notice as of _________________________.
STEEL HEDDLE GROUP, INC.
- ---------------------------------
Name:
Title:
-iii-
<PAGE> 19
Annex III
FORM OF JOINDER TO THE
STOCKHOLDERS AGREEMENT
This Joinder (this "Agreement") is made as of the date written below
by the undersigned (the "Joining Party") in favor of and for the benefit of
Steel Heddle Group, Inc. and the other parties to the Stockholders Agreement,
dated as of May 26, 1998 (the "Stockholders Agreement"). Capitalized terms used
but not defined herein shall have the meanings given such terms in the
Stockholders Agreement.
The Joining Party hereby acknowledges, agrees and confirms that, by
his or her execution of this Joinder, the Joining Party will be deemed to be a
party to the Stockholders Agreement and shall have all of the obligations of an
Employee Stockholder thereunder as if he or she had executed the Stockholders
Agreement. The Joining Party hereby ratifies, as of the date hereof, and agrees
to be bound by, all of the terms, provisions and conditions contained in the
Stockholders Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Joinder as of
the date written below.
Date:
------------- ---------------------------------
Name:
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
Subsidiaries Jurisdiction
- ------------ ------------
<S> <C>
Steel Heddle Mfg. Co. Pennsylvania
Steel Heddle International, Inc. South Carolina
Heddle Capital Corp. Delaware
Steel Heddle International, Ltd. Virgin Islands
Steel Heddle (Canada) Ltee/Ltd. Canada
Steel Heddle International de Mexico, S.A. de C.V. Mexico
Steel Heddle Weaving Machine Accessories Co., Ltd. China
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Change of Accountants" and to the use of our report dated January 28, 1998,
except for Note 11, as to which the date is May 26, 1998, in the Registration
Statement (Form S-4) and related Prospectus of Steel Heddle Group, Inc. for the
registration of $29,250,000 in Series B 13 3/4% Senior Discount Debentures due
2009.
/s/ Ernst & Young LLP
Greenville, S.C.
August 6, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS CONSENT
We consent to the use in this Registration Statement of Steel Heddle
Group, Inc. on Form S-4 of our report dated May 4, 1998, appearing in the
Prospectus, which is part of this Registration Statement and to the reference
to us under the heading "Experts" in such Prospectus.
Deloitte & Touche LLP
Greenville, South Carolina
August 6, 1998
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
13 3/4% SENIOR DISCOUNT DEBENTURES DUE 2009
OF
STEEL HEDDLE GROUP, INC.
PURSUANT TO THE PROSPECTUS DATED ____________________, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON __________, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed, and submitted to the Exchange Agent:
<TABLE>
<CAPTION>
By Overnight Courier: By Hand: By Registered or Certified Mail:
<S> <C> <C>
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway, Lower Level P.O. Box 844
New York, New York 10003 New York, New York 10006 Cooper Station
Attn: Corporate Trust Attn: Corporate Trust New York, New York 10276-0844
Services Services Attn: Corporate Trust Services
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT
800-548-6565, OR BY FACSIMILE AT 212-780-0592.
The undersigned hereby acknowledges receipt of the Prospectus dated
__________, 1998 (the "Prospectus"), of Steel Heddle Group, Inc., a Delaware
corporation (the "Issuer"), and this Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Issuer's offer (the "Exchange
Offer") to exchange $1,000 in principal amount of its 13 3/4% Series B Senior
Discount Debentures due 2009 (the "New Debentures"), which have been registered
under the Securities Act of 1933, as amended (together with the rules and
regulations promulgated thereunder, the "Securities Act"), pursuant to a
Registration Statement, for each $1,000 in principal amount of its outstanding
13 3/4% Series A Senior Discount Debentures due 2009 (the "Debentures"), of
which $29,250,000 aggregate principal amount at maturity is outstanding.
Capitalized terms used but not defined herein have the meanings ascribed to them
in the Prospectus.
The undersigned hereby tenders the Debentures described in Box 1 below
(the "Tendered Debentures") pursuant to the terms and conditions described in
the Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Debentures and the undersigned represents that it has
received from each beneficial owner of the Tendered Debentures ("Beneficial
Owners") a duly completed and executed form of "Instruction to Registered
<PAGE> 2
Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner"
accompanying this Letter of Transmittal, instructing the undersigned to take the
action described in this Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the
Tendered Debentures, the undersigned hereby exchanges, assigns, and transfers
to, or upon the order of, the Issuer, all right, title, and interest in, to, and
under the Tendered Debentures.
Please issue the New Debentures exchanged for Tendered Debentures in the
name(s) of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions" below (Box 3), please send or cause to be sent the
certificates for the New Debentures (and accompanying documents, as appropriate)
to the undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned with
respect to the Tendered Debentures, with full power of substitution (such power
of attorney being deemed to be an irrevocable power coupled with an interest),
to (i) deliver the Tendered Debentures to the Issuer or cause ownership of the
Tendered Debentures to be transferred to, or upon the order of, the Issuer, on
the books of the registrar for the Debentures and deliver all accompanying
evidences of transfer and authenticity to, or upon the order of, the Issuer upon
receipt by the Exchange Agent, as the undersigned's agent, of the New Debentures
to which the undersigned is entitled upon acceptance by the Issuer of the
Tendered Debentures pursuant to the Exchange Offer and (ii) receive all benefits
and otherwise exercise all rights of beneficial ownership of the Tendered
Debentures, all in accordance with the terms of the Exchange Offer.
The undersigned understands that tenders of Debentures pursuant to the
procedures described under the caption "The Exchange Offer" in the Prospectus
and in the instructions hereto will constitute a binding agreement between the
undersigned and the Issuer upon the terms and subject to the conditions of the
Exchange Offer, subject only to withdrawal of such tenders on the terms set
forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal of
Tenders." All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any Beneficial Owner(s), and
every obligation of the undersigned or any Beneficial Owners hereunder shall be
binding upon the heirs, representatives, successors, and assigns of the
undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign, and transfer the Tendered
Debentures and that the Issuer will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges, encumbrances, and adverse
claims when the Tendered Debentures are acquired by the Issuer as contemplated
herein. The undersigned and each Beneficial Owner will, upon request, execute
and deliver any additional documents reasonably requested by the Issuer or the
Exchange Agent as necessary or desirable to complete and give effect to the
transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the New Debentures to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired by
the undersigned and any Beneficial Owner(s) in the ordinary course of business
of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each
Beneficial Owner that are not Participating Broker-Dealers, are not engaged in
and do not intend to engage in, and have no arrangement or understanding with
any person to engage in, a distribution of the New Debentures, (iii) except as
otherwise disclosed in writing herewith, neither the undersigned nor any
Beneficial Owner is an "affiliate," as defined in Rule 405 under the Securities
Act, of the Issuer and (iv) the undersigned and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer with
the intention or for the purpose of distributing the New Debentures must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale of the New Debentures acquired by such
person and cannot rely on the position of the Staff of the Securities and
Exchange Commission (the "Commission") set forth in the no-action letters that
are discussed in the section of the Prospectus entitled "The Exchange Offer." In
addition,
2
<PAGE> 3
by accepting the Exchange Offer, the undersigned hereby (i) represents and
warrants that, if the undersigned or any Beneficial Owner of the Debentures is a
Participating Broker-Dealer, such Participating Broker-Dealer acquired the
Debentures for its own account as a result of market-making activities or other
trading activities and has not entered into any arrangement or understanding
with the Company or any affiliate of the Company (within the meaning of Rule 405
under the Securities Act) to distribute the New Debentures to be received in the
Exchange Offer and (ii) acknowledges that, by receiving New Debentures for its
own account in exchange for Debentures, where such Debentures were acquired as a
result of market-making activities or other trading activities, such
Participating Broker-Dealer will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such New Debentures;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
[ ] CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED HEREWITH.
[ ] CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE "Use of Guaranteed Delivery" BELOW (Box 4).
[ ] CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE "Use of Book-Entry Transfer"
BELOW (Box 5).
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
3
<PAGE> 4
- ------------------------------------------------------------------
BOX 1
DESCRIPTION OF DEBENTURES TENDERED
(Attach additional signed pages, if necessary)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
NAME(S) AND ADDRESS(ES) OF REGISTERED CERTIFICATE AGGREGATE AGGREGATE
DEBENTURE HOLDER(S), EXACTLY AS NAME(S) NUMBER(S) OF PRINCIPAL AMOUNT PRINCIPAL
APPEAR(S) ON DEBENTURE CERTIFICATE(S) DEBENTURES* REPRESENTED BY AMOUNT
(PLEASE FILL IN, IF BLANK) CERTIFICATE(S) TENDERED**
</TABLE>
TOTAL
* Need not be completed by persons tendering by book-entry transfer.
** The minimum permitted tender is $1,000 in principal amount of Debentures.
All other tenders must be in integral multiples of $1,000 of principal
amount. Unless otherwise indicated in this column, the principal amount of
all Debenture Certificates identified in this Box 1 or delivered to the
Exchange Agent herewith shall be deemed tendered. See Instruction 4.
- --------------------------------------------------------------------------------
4
<PAGE> 5
- --------------------------------------------------------------------------------
BOX 2
BENEFICIAL OWNER(S)
- --------------------------------------------------------------------------------
STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF TENDERED DEBENTURES
BENEFICIAL OWNER OF TENDERED DEBENTURES HELD FOR ACCOUNT OF BENEFICIAL OWNER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF NEW DEBENTURES EXCHANGED FOR DEBENTURES AND UNTENDERED
DEBENTURES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE
UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail New Debenture(s) and any Untendered Debentures to:
Name(s):
- ---------------------------------------------------------------------
(please print)
Address:
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
(include Zip Code)
Tax Identification or
Social Security No.:
------------------------------------
5
<PAGE> 6
BOX 4
USE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 2)
TO BE COMPLETED ONLY IF DEBENTURES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
- --------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution which Guaranteed Delivery:
BOX 5
USE OF BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED DEBENTURES IS TO BE MADE BY
BOOK-ENTRY TRANSFER.
Name of Tendering Institution:
Account Number:
Transaction Code Number:
6
<PAGE> 7
- --------------------------------------------------------------------------------
BOX 6
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
X Signature Guarantee
(If required by Instruction 5)
X
(Signature of Registered Holder(s) or Authorized Signature
Authorized Signatory) X
Note: The above lines must be signed
by the registered holder(s) of Name:
Debentures as their names(s) appear(s) (please print)
on the Debentures or by persons(s)
authorized to become registered Title:
holder(s) (evidence of which
authorization must be transmitted with Name of Firm:
this Letter of Transmittal). If (Must be an Eligible
signature is by a trustee, executor, Institution as defined
administrator, guardian, in Instruction 2)
attorney-in-fact, officer, or other
person acting in a fiduciary or
representative capacity, such person
must set forth his or her full title
below. See Instruction 5.
Name(s): Address
Capacity: (include Zip Code)
Street Address: Area Code and Telephone Number:
(include Zip Code)
Area Code and Telephone Number: Dated:
Tax Identification or Social Security
Number:
</TABLE>
- --------------------------------------------------------------------------------
BOX 7
BROKER-DEALER STATUS
[ ] Check this box if the Beneficial Owner of the Debentures is a
Participating Broker-Dealer and such Participating Broker-Dealer acquired
the Debentures for its own account as a result of market-making activities
or other trading activities.
[ ] Check here if you are a Participating Broker-Dealer and wish to receive 10
additional copies of the prospectus and 10 copies of any amendments or
supplements thereto.
7
<PAGE> 8
- --------------------------------------------------------------------------------
PAYOR'S NAME: STEEL HEDDLE GROUP, INC.
- --------------------------------------------------------------------------------
Name (if joint names, list first and circle the name
of the person or entity whose number you enter in
Part 1 below. See instructions if your name has changed.)
- --------------------------------------------------------------------------------
Address:
--------------------------------------------------------------
--------------------------------------------------------------
City, State and ZIP Code:
---------------------------------------------
SUBSTITUTE FORM W-9 List account number(s) here (optional)
<TABLE>
<S> <C> <C>
DEPARTMENT OF THE PART 1 -- PLEASE PROVIDE YOUR TAXPAYER Social Security Number or TIN
TREASURY IDENTIFICATION NUMBER ("TIN") IN THE BOX
AT RIGHT AND CERTIFY BY SIGNING AND
DATING INTERNAL REVENUE SERVICE
BELOW
PART 2 -- Check the box if you are
NOT subject to backup withholding
under the provisions of section
3406(a)(1)(C) of the Internal Revenue
Code because (1) you have not been
notified that you are subject to
backup withholding as a result of
failure to report all interest or
dividends or (2) the Internal Revenue
Service has notified you that you are
no longer subject to backup
withholding. [ ]
CERTIFICATION -- UNDER THE PENALTIES
OF PERJURY, I CERTIFY THAT THE Part 3 --
INFORMATION PROVIDED ON THIS FORM IS
TRUE, CORRECT AND COMPLETE. Awaiting TIN [ ]
SIGNATURE DATE:
</TABLE>
Note: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
8
<PAGE> 9
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND DEBENTURES. A properly
completed and duly executed copy of this Letter of Transmittal, including
Substitute Form W-9, and any other documents required by this Letter of
Transmittal must be received by the Exchange Agent at its address set forth
herein, and either certificates for Tendered Debentures must be received by the
Exchange Agent at its address set forth herein or such Tendered Debentures must
be transferred pursuant to the procedures for book-entry transfer described in
the Prospectus under the caption "Exchange Offer -- Book-Entry Transfer" (and a
confirmation of such transfer received by the Exchange Agent), in each case
prior to 5:00 p.m., New York City time, on the Expiration Date. The method of
delivery of certificates for Tendered Debentures, this Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the tendering holder and the delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. Instead of delivery
by mail, it is recommended that the Holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. No Letter of Transmittal or Debentures should be sent to the Issuer.
Neither the Issuer nor the registrar is under any obligation to notify any
tendering holder of the Issuer's acceptance of Tendered Debentures prior to the
closing of the Exchange Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their
Debentures but whose Debentures are not immediately available, and who cannot
deliver their Debentures, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent prior to the Expiration Date must tender
their Debentures according to the guaranteed delivery procedures set forth
below, including completion of Box 4. Pursuant to such procedures: (i) such
tender must be made by or through a firm which is a member of a recognized
Medallion Program approved by the Securities Transfer Association Inc. (an
"Eligible Institution") and the Notice of Guaranteed Delivery must be signed by
the holder; (ii) prior to the Expiration Date, the Exchange Agent must have
received from the holder and the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by mail or hand delivery) setting
forth the name and address of the holder, the certificate number(s) of the
Tendered Debentures and the principal amount of Tendered Debentures, stating
that the tender is being made thereby and guaranteeing that, within five New
York Stock Exchange trading days after the Expiration Date, this Letter of
Transmittal together with the certificate(s) representing the Debentures and any
other required documents will be deposited by the Eligible Institution with the
Exchange Agent; and (iii) such properly completed and executed Letter of
Transmittal, as well as all other documents required by this Letter of
Transmittal and the certificate(s) representing all Tendered Debentures in
proper form for transfer, must be received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date. Any holder who
wishes to tender Debentures pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery relating to such Debentures prior to 5:00 p.m., New York
City time, on the Expiration Date. Failure to complete the guaranteed delivery
procedures outlined above will not, of itself, affect the validity or effect a
revocation of any Letter of Transmittal form properly completed and executed by
an Eligible Holder who attempted to use the guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder
in whose name Tendered Debentures are registered on the books of the registrar
(or the legal representative or attorney-in-fact of such registered holder) may
execute and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered
Debentures who is not the registered holder must arrange promptly with the
registered holder to execute and deliver this Letter of Transmittal on his or
her behalf through the execution and delivery to the registered holder of the
Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner form accompanying this Letter of Transmittal.
4. PARTIAL TENDERS. Tenders of Debentures will be accepted only in
integral multiples of $1,000 in principal amount. If less than the entire
principal amount of Debentures held by the holder is tendered, the tendering
holder should fill in the principal amount tendered in the column labeled
"Aggregate Principal Amount Tendered" of
9
<PAGE> 10
the box entitled "Description of Debentures Tendered" (Box 1) above. The entire
principal amount of Debentures delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated. If the entire principal amount of
all Debentures held by the holder is not tendered, then Debentures for the
principal amount of Debentures not tendered and New Debentures issued in
exchange for any Debentures tendered and accepted will be sent to the Holder at
his or her registered address, unless a different address is provided in the
appropriate box on this Letter of Transmittal, as soon as practicable following
the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered holder(s) of the Tendered Debentures, the signature must
correspond with the name(s) as written on the face of the Tendered Debentures
without alteration, enlargement or any change whatsoever.
If any of the Tendered Debentures are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Debentures are held in different names, it will be necessary to complete, sign
and submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Debentures are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Debentures, and New Debentures issued in exchange therefor are to be
issued (and any untendered principal amount of Debentures is to be reissued) in
the name of the registered holder(s), then such registered holder(s) need not
and should not endorse any Tendered Debentures, nor provide a separate bond
power. In any other case, such registered holder(s) must either properly endorse
the Tendered Debentures or transmit a properly completed separate bond power
with this Letter of Transmittal, with the signature(s) on the endorsement or
bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Debentures, such Tendered Debentures must
be endorsed or accompanied by appropriate bond powers, in each case, signed as
the name(s) of the registered holder(s) appear(s) on the Tendered Debentures,
with the signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Tendered Debentures 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
Issuer, evidence satisfactory to the Issuer of their authority to so act must be
submitted with this Letter of Transmittal.
Endorsements on Tendered Debentures or signatures on bond powers required
by this Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Debentures are tendered (i) by a registered
holder who has not completed the box set forth herein entitled "Special Delivery
Instructions" (Box 3) or (ii) by an Eligible Institution.
6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate, in
the applicable box (Box 3), the name and address to which the New Debentures
and/or substitute Debentures for principal amounts not tendered or not accepted
for exchange are to be sent, if different from the name and address of the
person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
7. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the exchange of Tendered Debentures pursuant to the Exchange
Offer. If, however, a transfer tax is imposed for any reason other than the
transfer and exchange of Tendered Debentures pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or on any other person) will be payable by the tendering holder. If
10
<PAGE> 11
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with this Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Debentures listed in this
Letter of Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the
holder(s) of any Tendered Debentures which are accepted for exchange must
provide the Issuer (as payor) with its correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Issuer is not provided with the correct TIN, the
Holder may be subject to backup withholding and a $50 penalty imposed by the
Internal Revenue Service. (If withholding results in an over-payment of taxes, a
refund may be obtained.) Certain holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
To prevent backup withholding, each holder of Tendered Debentures must
provide such holder's correct TIN by completing the Substitute Form W-9 set
forth herein, certifying that the TIN provided is correct (or that such holder
is awaiting a TIN), and that (i) the holder has not been notified by the
Internal Revenue Service that such holder is subject to backup withholding as a
result of failure to report all interest or dividends or (ii) the Internal
Revenue Service has notified the holder that such holder is no longer subject to
backup withholding. If the Tendered Debentures are registered in more than one
name or are not in the name of the actual owner, consult the "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
information on which TIN to report.
The Issuer reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Issuer's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of Tendered
Debentures will be determined by the Issuer in its sole discretion, which
determination will be final and binding. The Issuer reserves the right to reject
any and all Debentures not validly tendered or any Debentures the Issuer's
acceptance of which would, in the opinion of the Issuer or its counsel, be
unlawful. The Issuer also reserves the right to waive any conditions of the
Exchange Offer or defects or irregularities in tenders of Debentures as to any
ineligibility of any holder who seeks to tender Debentures in the Exchange
Offer. The interpretation of the terms and conditions of the Exchange Offer
(including this Letter of Transmittal and the instructions hereto) by the Issuer
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Debentures must be cured within
such time as the Issuer shall determine. Neither the Issuer, the Exchange Agent
nor any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Debentures, nor shall any of them
incur any liability for failure to give such notification. Tenders of Debentures
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any Debentures 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 be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date.
10. WAIVER OF CONDITIONS. The Issuer reserves the absolute right to
amend, waive or modify any of the conditions in the New Exchange Offer in the
case of any Tendered Debentures.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Debentures or transmittal of this Letter of Transmittal
will be accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED DEBENTURES. Any tendering
Holder whose Debentures have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated herein for further
instructions.
11
<PAGE> 12
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
indicated herein. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
14. ACCEPTANCE OF TENDERED DEBENTURES AND ISSUANCE OF DEBENTURES; RETURN
OF DEBENTURES. Subject to the terms and conditions of the Exchange Offer, the
Issuer will accept for exchange all validly tendered Debentures as soon as
practicable after the Expiration Date and will issue New Debentures therefor as
soon as practicable thereafter. For purposes of the Exchange Offer, the Issuer
shall be deemed to have accepted tendered Debentures when, as and if the Issuer
has given written or oral notice (immediately followed in writing) thereof to
the Exchange Agent. If any Tendered Debentures are not exchanged pursuant to the
Exchange Offer for any reason, such unexchanged Debentures will be returned,
without expense, to the undersigned at the address shown in Box 1 or at a
different address as may be indicated herein under "Special Delivery
Instructions" (Box 3).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offer."
12
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
13 3/4% SENIOR DISCOUNT DEBENTURES DUE 2009
OF
STEEL HEDDLE GROUP, INC.
PURSUANT TO THE PROSPECTUS DATED ___________________, 1998
This form must be used by a holder of 13 3/4% Senior Discount Debentures
due 2009 (the "Debentures") of Steel Heddle Group, Inc., a Delaware corporation
(the "Company"), who wishes to tender Debentures to the Exchange Agent pursuant
to the guaranteed delivery procedures described in "The Exchange Offer --
Guaranteed Delivery Procedures" of the Company's Prospectus, dated
_____________________, 1998 (the "Prospectus"), and in Instruction 2 to the
related Letter of Transmittal. Any holder who wishes to tender Debentures
pursuant to such guaranteed delivery procedures must ensure that the Exchange
Agent receives this Notice of Guaranteed Delivery prior to the Expiration Date
of the Exchange Offer. Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON _________________, 1998, UNLESS EXTENDED (THE
"EXPIRATION DATE").
United States Trust Company of New York
(the "Exchange Agent")
<TABLE>
<CAPTION>
By Overnight Courier: By Hand: By Registered or Certified Mail:
<S> <C> <C>
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway, Lower Level P.O. Box 844
New York, New York 10003 New York, New York 10006 Cooper Station
Attn: Corporate Trust Attn: Corporate Trust New York, New York 10276-0844
Services Services Attn: Corporate Trust Services
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT
800-548-6565, OR BY FACSIMILE AT 212-780-0592.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Debentures set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Debentures listed below:
CERTIFICATE NUMBER(S) (IF KNOWN) OF AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
DEBENTURES OR ACCOUNT NUMBER AT THE AMOUNT REPRESENTED AMOUNT TENDERED
BOOK-ENTRY FACILITY
2
<PAGE> 3
PLEASE SIGN AND COMPLETE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Signatures of Registered Holder(s) or
Authorized Signatory: Date: _______________________, 1998
- --------------------------------------- Address:
------------------------------------------------
------------------------------------------------
Name(s) of Registered Holder(s): Area Code and Telephone No.
--------------------------
- ---------------------------------------
- ---------------------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Debentures or on a security position
listing as the owner of Debentures, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Please print name(s) and address(es)
Name(s):
------------------------------------------
--------------------------------------------
Capacity:
-----------------------------------------
--------------------------------------------
Address(es):
-------------------------------------
---------------------------------------
3
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Debentures tendered hereby in proper
form for transfer (or confirmation of the book-entry transfer of such Debentures
into the Exchange Agent's account at the Book-Entry Transfer Facility described
in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures" and in the Letter of Transmittal) and any other required documents,
all by 5:00 p.m., New York City time, on the fifth New York Stock Exchange
trading day following the Expiration Date.
<TABLE>
<S> <C>
Name of Firm:
------------------------------------- ----------------------------------------
(Authorized Signature)
Address: Name:
----------------------------------------- ----------------------------------
(Please Print)
-----------------------------------------
(Include Zip Code) Title:
----------------------------------
Area Code and Tel. No. ( ) Dated _____________________________, 1998
------ -------------------
</TABLE>
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST
BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
4
<PAGE> 5
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Debentures
referred to herein, the signature must correspond with the name(s) written on
the face of the Debentures without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing such participant as the owner of the Debentures, the signature must
correspond with the name shown on the security position listing as the owner of
the Debentures.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Debentures listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the Debentures or signed as the name of the participant shown on the
Book-Entry Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
5
<PAGE> 1
EXHIBIT 99.3
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
STEEL HEDDLE GROUP, INC.
13 3/4% SENIOR DISCOUNT DEBENTURES DUE 2009
To Registered Holder and/or Participant of the Book-Entry Transfer
Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated
________________, 1998 (the "Prospectus"), of Steel Heddle Group, Inc., a
Delaware corporation (the "Company"), and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 13 3/4% Senior Discount Debentures due 2009 (the
"Debentures") held by you for the account of the undersigned.
The aggregate face amount of the Debentures held by you for the account of
the undersigned is (FILL IN AMOUNT):
$_____________ of the 13 3/4% Senior Discount Debentures due 2009.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] TO TENDER the following Debentures held by you for the account of
the undersigned (INSERT PRINCIPAL AMOUNT OF DEBENTURES TO BE
TENDERED, IF ANY): $___________________________.
[ ] NOT TO TENDER any Debentures held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Debentures held by you for
the account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (FILL IN STATE), (ii) the
undersigned is acquiring the New Debentures in the ordinary course of business
of the undersigned, (iii) the undersigned is not participating, does not
participate, and has no arrangement or understanding with any person to
participate in the distribution of the New Debentures, (iv) the undersigned
acknowledges that any person participating in the Exchange Offer for the purpose
of distributing the New Debentures must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"Act"), in connection with a secondary resale transaction of the New Debentures
acquired by such person and cannot rely on the position of the Staff of the
Securities and Exchange Commission set forth in no-action letters that are
discussed in the section of the Prospectus entitled "The Exchange Offer--Resales
of the New Debentures," and (v) the undersigned is not an "affiliate," as
defined in Rule 405 under the Act, of the Company; (b) to agree, on behalf of
the undersigned, as set forth in the Letter of Transmittal; and (c) to take such
other action as necessary under the Prospectus or the Letter of Transmittal to
effect the valid tender of such Debentures.
<PAGE> 2
- --------------------------------------------------------------------------------
SIGN HERE
Name of beneficial owner(s):
-------------------------------------------------
Signature(s):
-----------------------------------------------------------------
Name (please print):
----------------------------------------------------------
Address:
---------------------------------------------------------------------
Telephone number: ( )
----- --------------------------
Taxpayer Identification or Social Security Number:
----------------------------
Date:
--------------------------
- --------------------------------------------------------------------------------
2
