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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1998
REGISTRATION NO. 333-60759
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
AQUA-CHEM, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3443 39-1900496
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Number)
Code Number)
</TABLE>
7800 NORTH 113TH STREET
P.O. BOX 421
MILWAUKEE, WISCONSIN, 53201
(414) 359-0600
(Address, including zip code, and telephone number, including area code, of
Registrants' principal executive offices)
JEFFREY A. MILLER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AQUA-CHEM, INC.
7800 NORTH 113TH STREET
P.O. BOX 421
MILWAUKEE, WISCONSIN, 53201
(414) 359-0600
(Address, including zip code, and telephone number, including area code, of
agent for service of process)
Please address a copy of all communications to:
ANDREW J. GUZIKOWSKI, ESQ.
WHYTE HIRSCHBOECK DUDEK S.C.
111 EAST WISCONSIN AVENUE
SUITE 2100
MILWAUKEE, WISCONSIN 53202
(414) 273-2100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
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.
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PROSPECTUS
[AQUA-CHEM LOGO]
AQUA-CHEM, INC.
OFFER TO EXCHANGE 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008 FOR ANY AND ALL
EXISTING NOTES (AS DEFINED) AS DESCRIBED HEREIN. WITHDRAWAL RIGHTS WITH RESPECT
TO THE EXCHANGE OFFER (AS DEFINED) ARE EXPECTED TO EXPIRE AT THE EXPIRATION OF
THE EXCHANGE OFFER.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
Aqua-Chem, Inc., a Delaware corporation (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this prospectus (the "Prospectus") and the accompanying letter of transmittal
(the "Letter of Transmittal"), to exchange up to $125,000,000 aggregate
principal amount of its 11 1/4% Senior Subordinated Notes Due 2008 (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement (as
defined) of which this Prospectus is a part, for a like principal amount of its
outstanding 11 1/4% Senior Subordinated Notes Due 2008 (the "Existing Notes"
and, together with the Exchange Notes, the "Notes"). The Existing Notes were
originally issued in a transaction that was exempt from registration under the
Securities Act (the "Private Offering") and since such issuance have been resold
to (i) qualified institutional buyers ("QIBs") in reliance on, and subject to
the restrictions imposed pursuant to, Rule 144A under the Securities Act ("Rule
144A") and (ii) non-U.S. persons outside the United States of America in
accordance with Regulation S under the Securities Act ("Regulation S"). The
terms of the Exchange Notes are identical in all material respects to the terms
of the Existing Notes that are to be exchanged therefor, except that the
Exchange Notes have been registered under the Securities Act and will not bear
legends restricting the transferability thereof, certain registration rights
relating to the Existing Notes will terminate upon completion of the Exchange
Offer, and, if the Exchange Offer is not consummated by December 21, 1998,
additional interest will accrue at the rate of 0.50% per annum until but not
including the date the Exchange Offer is consummated. See "Description of the
Notes" and "The Exchange Offer." For federal income tax purposes, an exchange
made pursuant to the Exchange Offer should not constitute a taxable exchange.
See "The Exchange Offer -- Certain Effects of the Exchange Offer."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission" or "SEC"), as set forth in no-action letters issued
to third parties, the Company believes the Exchange Notes issued pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
holders thereof (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, such holders are not engaged in and do not
intend to engage in, a distribution of such Exchange Notes and such holders have
no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. However, the Commission has not considered
the Exchange Offer in the context of a no-action letter and therefore there can
be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
The Existing Notes are, and the Exchange Notes will be, general unsecured
senior subordinated obligations of the Company and subordinate in right of
payment to all existing and future Senior Indebtedness (as defined) of the
Company. The Existing Notes rank, and the Exchange Notes will rank, pari passu
in right of payment to all existing and future Senior Subordinated Indebtedness
(as defined) of the Company and senior to any future subordinated indebtedness
of the Company. As of June 30, 1998, the Company had no outstanding Senior
Indebtedness, and could have incurred up to $77.7 million of Senior
Indebtedness, including $45.0 million of borrowing availability under the
Company's credit facility entered into with Comerica Bank as of June 23, 1998
(the "New Credit Facility"), which, when borrowed, will be Senior Indebtedness,
and will be secured by substantially all of the assets of the Company. See
"Summary -- Summary of Terms of the Exchange Notes -- Certain Covenants."
SEE "RISK FACTORS" ON PAGE 15 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN
THE EXCHANGE NOTES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY 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.
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Each holder of Existing Notes that desires to participate in the Exchange
Offer, other than a broker-dealer, must acknowledge that it is not engaged in,
and does not intend to engage in, a distribution of Exchange Notes and has no
arrangement or understanding to participate in a distribution of Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Existing Notes where such Existing Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"The Exchange Offer" and "Plan of Distribution."
EXCEPT AS DESCRIBED IN THE PRECEDING PARAGRAPH, THIS PROSPECTUS MAY NOT BE
USED FOR AN OFFER TO RESELL, A RESALE OR ANY OTHER RETRANSFER OF EXCHANGE NOTES.
The Exchange Offer is not conditioned upon any minimum number of Existing
Notes being tendered. The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 1998, unless extended (the "Expiration Date"). Subject to
the terms and conditions of the Exchange Offer, including the reservation of
certain rights by the Company and the right of holders of Existing Notes to
withdraw tenders prior to the acceptance thereof, Existing Notes validly
tendered prior to the Expiration Date will be accepted on or promptly after the
Expiration Date. Exchange Notes to be issued in exchange for properly tendered
Existing Notes will be mailed by the Exchange Agent (as defined) promptly after
the acceptance thereof. In the event the Company terminates the Exchange Offer
and does not accept for exchange any Existing Notes, the Company will promptly
return the Existing Notes to the holders thereof. See "The Exchange Offer."
The Notes will mature on July 1, 2008. Interest on the Notes will be
payable semiannually on January 1 and July 1 of each year, commencing January 1,
1999. The Existing Notes are not, and the Exchange Notes will not be, redeemable
at the option of the Company, prior to July 1, 2003, except that, until July 1,
2001, the Company may redeem, at its option, up to an aggregate of 20% of the
original principal amount of the Notes with the net cash proceeds of one or more
Public Equity Offerings (as defined) at a redemption price equal to 111.25% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of redemption; provided, however, that at least $100.0 million principal
amount of the Notes originally issued remains outstanding immediately after any
such redemption. On or after July 1, 2003, the Notes may be redeemed at the
option of the Company, in whole or in part, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the date of redemption.
Upon a Change of Control (as defined), each holder of Notes will have the right
to require the Company to purchase all or a portion of 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 date of purchase. See "Description of the
Notes -- Optional Redemption" and "-- Change of Control."
There has not previously been any public market for the Existing Notes or
the Exchange Notes. The Company does not intend to list the Exchange Notes 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
Exchange Notes will develop. See "Risk Factors -- Absence of a Public Market for
the Notes; Volatility; Restrictions on Resale." Moreover, to the extent that
Existing Notes are tendered and accepted in the Exchange Offer, the trading
market, if any, for untendered and tendered but unaccepted Existing Notes could
be adversely affected.
The Company will not receive any proceeds from the Exchange Offer, but will
bear certain offering expenses pursuant to the Registration Rights Agreement,
dated June 18, 1998 (the "Registration Agreement"), among the Company and the
Initial Purchasers (as defined) of the Existing Notes. The Exchange Offer is
intended to satisfy certain of the Company' obligations under the Registration
Agreement, including the obligation to register the Existing Notes under the
Securities Act. See "The Exchange Offer -- Registration Agreement." Upon the
completion of the Exchange Offer, certain special rights under the Registration
Agreement will terminate with respect to Existing Notes, and holders of Exchange
Notes will not
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be entitled to such rights. See "The Exchange Offer -- Termination of Certain
Rights." No dealer manager is being utilized in connection with the Exchange
Offer.
------------------------
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements. Forward-looking
statements include statements regarding the intent, belief of current
expectations of the Company, primarily with respect to the future operating
performance of the Company or related industry developments. When used in this
Prospectus, terms such as "anticipate," "believe," "estimate," "expect,"
"indicate," "may be," "objective," "plan," "predict," and "will be" are intended
to identify such statements. All statements other than statements of historical
facts included in this Prospectus, including, without limitation, such
statements under "Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Aqua-Chem," "Business of the Company,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of NDC," and located elsewhere herein, regarding the financial
position and capital expenditures of the Company are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from such expectations ("Cautionary
Statements") are disclosed in this Prospectus, including, without limitation, in
conjunction with the forward-looking statements included in this Prospectus
and/or under "Risk Factors." All subsequent written or oral forward-looking
statements attributable to the Company or persons acting on behalf of the
Company are expressly qualified in their entirety by the Cautionary Statements.
------------------------
The industry size and growth, market share and competitive position data
contained in this Prospectus are based on internal, industry and other sources
that are believed to be reliable. Such data are inherently imprecise, but the
Company believes that such data are generally indicative of industry size and
growth and the Company's relative market share and competitive position.
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the historical and pro
forma financial statements contained elsewhere in this Prospectus. Unless the
context requires otherwise, as used in this Prospectus: (i) "Aqua-Chem" refers
to Aqua-Chem, Inc., a Delaware corporation, and its predecessors and
subsidiaries on a historical basis prior to the Acquisition; (ii) "NDC" refers
to National Dynamics Corporation, a Nebraska corporation, and its predecessors
on a historical basis prior to the Acquisition; (iii) "Acquisition" refers to
the acquisition of substantially all of the assets of NDC by Aqua-Chem which was
consummated on June 23, 1998; (iv) "Company" refers to the combined businesses
of Aqua-Chem and NDC following the Acquisition; (v) "Management Buy-Out" refers
to the July 31, 1997 acquisition of Aqua-Chem by certain members of its
management and Whitney Equity Partners, L.P.; and (vi) "twelve months ended
December 31, 1997" refers to Aqua-Chem's seven-month period ended July 31, 1997
and its five-month period ended December 31, 1997 on a combined basis (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Aqua-Chem").
THE COMPANY
The Company is the world's leading manufacturer of commercial and
industrial boilers, burners, related equipment and aftermarket parts. The
Company believes that in the U.S. market for each of its three principal boiler
product lines it enjoys the #1 or #2 market position. In addition, management
believes that the Company has the largest installed base of boilers in the world
(estimated at over 80,000 boilers), which facilitates the Company's sale of
higher margin aftermarket parts. Management attributes the Company's leading
market positions to its extensive global distribution network, well-recognized
Cleaver-Brooks and Nebraska Boiler brand names, and its reputation for providing
high-quality, energy-efficient, low-emission boilers with a demonstrated record
of safety and durability.
The Company is also a world leader in the design and production of water
purification and treatment products and systems sold under the Aqua-Chem brand
name for selected commercial, government, military, and industrial applications.
On a pro forma basis for the twelve months ended December 31, 1997, the Company
generated net sales and Adjusted EBITDA (as defined) of $250.5 million and $26.8
million, respectively, of which approximately 82% and 90%, respectively, were
attributable to the Company's boiler business and related product lines. For the
same period pro forma net income from continuing operations was $2.4 million.
COMPETITIVE STRENGTHS
The Company believes it has a strong competitive position attributable to a
number of factors, including the following:
Leading Market Positions and Recognized Brands. The Company believes it has
the #1 or #2 market position in North America in each of its three principal
boiler product lines and the largest installed base of commercial and industrial
boilers in the industry. The Company believes that its Cleaver-Brooks and
Nebraska Boiler products (manufactured by the Company's Cleaver-Brooks Division
("Cleaver-Brooks") and National Dynamics Division ("National Dynamics"),
respectively) enjoy industry-leading brand recognition, as well as estimated
combined market shares of approximately 25% to 85%.
Extensive Global Boiler Distribution Network. Management believes that the
Company has the most extensive global distribution network for commercial and
industrial boilers, with 50 sales representatives in North America and 43
independent international sales representatives representing Cleaver-Brooks
product lines, and an additional 46 independent sales representatives in North
America who represent Nebraska Boiler product lines. The Company enjoys
longstanding relationships with its sales representatives, many of whom have
sold the Company's products for more than 25 years, and the majority of whom do
not sell competing products. The Company has agreements with its Cleaver-Brooks
sales representatives to sell Cleaver-Brooks products to the exclusion of
competitive products.
Large Installed Product Base. The Company has an installed base estimated
at over 80,000 boilers. The Company believes that this large installed product
base provides a significant competitive advantage in obtaining orders to
refurbish, repair or replace boilers, principally because customers tend to
purchase
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equipment and parts from the original supplier. The installed product base also
provides the Company with a recurring source of demand for aftermarket boiler
parts, which generally carry higher margins than new boilers. Aftermarket parts
accounted for approximately 20% of Cleaver-Brooks' net sales for the twelve
months ended December 31, 1997, as compared with approximately 3% of NDC's net
sales for fiscal 1997. Management intends to implement initiatives to increase
the sale of aftermarket parts to existing Nebraska Boiler customers.
Diverse Customer Base. The Company sells its products to over 2,000
customers annually in a wide variety of industries with no significant customer
concentration. The Company believes that its broad, diverse customer base
mitigates its exposure to economic dislocations in any particular industry or
geographic region.
Commitment to Quality and Service. The Company believes that its strong
customer relationships result from its demonstrated commitment to provide
high-quality, energy-efficient, low-emission products with a demonstrated record
of safety and durability. The Company employs a staff of highly-trained
engineers and constantly strives to improve product quality. Although its
customers vary from year to year, the Company believes that a substantial
portion of annual net sales are generally to repeat customers, such as Ford,
Cargill, Coca-Cola, Weyerhaeuser, Anheuser-Busch, Baxter Healthcare,
Ralston-Purina, Hewlett-Packard, Georgia Pacific, Chrysler-Jeep, Wrigley,
Sheraton, IBM, and NASA.
Experienced Management Team with Significant Equity Ownership. Led by
Chairman and CEO Jeffrey A. Miller, the Company has an experienced senior
management team with strong manufacturing, marketing, and general management
skills and significant equity ownership. A group consisting primarily of senior
management collectively owns 49% of the common equity of the Company, including
34% owned by Mr. Miller.
BUSINESS STRATEGY
The Company intends to enhance its leading market positions and to increase
net sales and profitability by pursuing the following business strategies:
Achieve Integration of NDC. Management is focused on achieving the
successful integration of NDC and believes that there are numerous opportunities
to achieve annual cost savings and synergies totaling over $3.1 million as a
result of the combination of Aqua-Chem and NDC. See "-- Acquisition Rationale"
and "Unaudited Pro Forma Financial Data."
Leverage Leading Market Positions. Management believes it can grow its core
boiler business by capitalizing on the Company's leading market positions to
increase net sales and profitability by, among other things: (i) leveraging its
extensive global distribution network, brand recognition, and longstanding
customer relationships to sell new and enhanced products through established
channels; and (ii) taking increased advantage of its large installed base of
equipment to generate incremental sales of replacement products and higher
margin aftermarket parts.
Continue to Improve Manufacturing Efficiency. Senior management is
instilling a culture of continuous improvement intended to make the Company a
world-class manufacturer. Due in part to the implementation of a variety of
modern manufacturing practices, Aqua-Chem improved its gross profit margin from
approximately 19% for fiscal 1995 to approximately 27% for the twelve months
ended December 31, 1997. These new manufacturing practices, which have been
implemented at certain of the Company's manufacturing facilities, have improved
throughput, reduced production cycle times and inventory levels, and improved
the Company's ability to respond to customer needs. Management believes that it
can further improve manufacturing efficiency and reduce production costs by
continuing to implement these processes on a Company-wide basis.
Enhance and Extend Product Lines. Historically, Aqua-Chem has established
its leading market positions by enhancing its principal products and by
designing and developing new and complementary products. Management believes
that pursuing this strategy will generate continued growth within its core
product lines. The Acquisition also expands Aqua-Chem's product offerings and
improves its overall market position. The Company will continue to evaluate
opportunities to expand product lines, increase market shares, and develop
complementary products internally and through selective strategic acquisitions.
Increase International Penetration. Overseas markets are generally expected
to experience greater long-term growth than the U.S. market, and the Company
intends to leverage its strong global distribution network
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and focus on further penetrating international markets, including Central and
South America, Europe, the Middle East, Russia, China and other Asian markets.
In addition to directly marketing its products to international customers, the
Company will market its products to domestic customers that are developing
foreign production facilities.
THE ACQUISITION
On June 23, 1998, Aqua-Chem completed the acquisition of substantially all
of the assets of National Dynamics Corporation ("NDC") for a purchase price of
$47.0 million plus the assumption of certain liabilities and subject to certain
post-closing adjustments. The Company used a portion of the proceeds of the
Private Offering to finance the Acquisition. See "The Exchange Offer -- Use of
Proceeds" and "The Acquisition." Since the consummation of the Acquisition, the
former business of NDC has been operated as the Company's National Dynamics
Division. There can be no assurance that the expected benefits of the
Acquisition will be realized. See "Risk Factors -- Realization of the Benefits
of the Acquisition."
ACQUISITION RATIONALE
Cleaver-Brooks sells firetube boilers, commercial and industrial watertube
boilers, and related boiler room accessories and aftermarket parts. National
Dynamics' principal product line is industrial watertube boilers with larger
capacities than those manufactured by Cleaver-Brooks. The Acquisition creates
the largest global manufacturer of industrial watertube boilers and will provide
the Company with (i) a broader, more diverse product portfolio and an enhanced
market position; (ii) significant cost savings and operating efficiencies; (iii)
increased aftermarket parts sales opportunities; and (iv) the ability to
leverage its extensive sales and distribution channels.
Enhanced Product Portfolio and Market Position. With the Acquisition, the
Company has become the #1 global producer of industrial watertube boilers, with
the broadest product line available in the market. In addition to producing
boilers with higher capacities than Cleaver-Brooks boilers, National Dynamics
manufactures boilers that incorporate certain design features not available from
Cleaver-Brooks. For example, National Dynamics offers an "O" design boiler,
which is used primarily in the rental boiler industry, a customer base
Cleaver-Brooks does not currently focus on.
Cost Savings and Operating Efficiencies. Management believes that the
Company can achieve annual cost savings of more than $3.1 million by (i) closing
a redundant manufacturing facility; (ii) rationalizing duplicative corporate,
general and administrative functions; (iii) in-sourcing certain components
currently procured from third parties that either Cleaver-Brooks or National
Dynamics already produces; and (iv) realizing additional advantages resulting
from increased scale (e.g., enhanced purchasing power). See "-- Summary
Unaudited Pro Forma Financial Data" and "Unaudited Pro Forma Financial Data."
Penetration of Aftermarket Parts Market. In recent years aftermarket boiler
parts and accessories have accounted for approximately 20% of Cleaver-Brooks'
net sales as compared to approximately 3% of NDC's net sales. Aqua-Chem
attributes its relative success in selling aftermarket parts to management's
focus on this higher margin business and its policy of requiring sales
representatives to stock and sell Cleaver-Brooks brand parts. By extending these
practices to National Dynamics' business, management expects to increase the
Company's penetration of aftermarket parts sales among the installed base of
Nebraska Boiler customers.
Sales and Distribution Leverage. Cleaver-Brooks has the most extensive
global distribution network in the boiler industry, with international sales
accounting for approximately 23% of its total net sales for the twelve months
ended December 31, 1997. Although NDC had an effective domestic distribution
system, international sales only accounted for approximately 12% of NDC's total
fiscal 1997 net sales due, in part, to its lack of an effective international
distribution system. Management intends to sell Nebraska Boiler products through
Cleaver-Brooks' established international distribution network to increase the
Company's overseas sales.
RECENT HISTORY
The 1994 and 1996 Restructurings. Prior to recruiting Jeffrey A. Miller as
Chief Executive Officer in July 1996, Aqua-Chem had undertaken two separate
restructurings. In December 1994, Aqua-Chem announced a plan (the "1994
Restructuring") to consolidate its boiler manufacturing operations. Aqua-Chem
closed its high-cost facility in Lebanon, Pennsylvania in the first half of 1995
and consolidated its large firetube
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boiler production in its Thomasville, Georgia plant and its smaller firetube
boiler production in its Stratford, Ontario facility. Manufacturing costs were
initially higher than anticipated as these facilities absorbed the increased
production and due to additional training costs for new employees required to
handle the increase in volume; however, in 1996 Aqua-Chem began to resolve these
issues, and manufacturing efficiency improved accordingly. In November 1995,
Aqua-Chem hired Mr. Miller's predecessor, who initiated a second restructuring
program in 1996 (the "1996 Restructuring") that was designed to dramatically
reduce Aqua-Chem's cost structure. The 1996 Restructuring consisted principally
of across-the-board reductions in salaried personnel and other selling, general
and administrative expenses.
Recruitment of Jeffrey A. Miller as CEO. The 1996 Restructuring achieved a
reduction of selling, general and administrative expenses; however, Aqua-Chem's
board of directors determined that its business was being adversely affected
and, consequently, the board recruited Mr. Miller as Chief Executive Officer in
July 1996. Mr. Miller has over 20 years of experience in a broad range of
positions managing manufacturing companies, including 19 years in numerous
managerial and executive positions with The General Electric Company. Eschewing
short-term approaches to increasing profits, Mr. Miller began implementing a
long-term strategy designed to improve competitiveness, productivity and
quality, increase manufacturing efficiency, and leverage Aqua-Chem's market
positions. Mr. Miller has recruited certain new senior managers and introduced
more focused and innovative management, manufacturing and purchasing practices.
The 1998 Restructuring. The Company has determined that it will close its
Greenville, Mississippi manufacturing facility and relocate the manufacturing
operations currently located there to other Company facilities, including the
Lincoln, Nebraska facility acquired from NDC as part of the Acquisition (the
"1998 Restructuring"). In conjunction with this closure, the Company has
recorded $4.7 million of restructuring charges to operating income during the
second quarter of 1998. A portion of the anticipated $3.1 million of annual cost
savings discussed under "-- Acquisition Rationale -- Cost Savings and Operating
Efficiencies" are attributable to the 1998 Restructuring. The Company has
reached an agreement with the union representing production workers at the
Greenville facility with respect to the closure of that facility and severance
and other benefits payable to union workers displaced as a result. The Company
is currently in the planning stages of transferring production to other
facilities. This process is expected to be completed within approximately one
year, at which time the Greenville plant will be closed.
COMPANY OWNERSHIP
On July 31, 1997, Aqua-Chem management, led by Chairman and CEO Jeffrey A.
Miller, and Whitney Equity Partners, L.P. (a fund managed by J. H. Whitney &
Co.) acquired Aqua-Chem (the "Management Buy-Out") from its former owners, a
French conglomerate that owned 80% of Aqua-Chem and a privately held company
that owned 20%. As of the date of this Prospectus, all of the common equity of
the Company is held by Rush Creek LLC ("Rush Creek"), a holding company whose
only asset is the capital stock of the Company. Through Rush Creek, Whitney
Equity Partners L.P. and Jeffrey A. Miller own approximately 51% and 34%,
respectively, of the common equity of the Company, with the remainder owned
primarily by certain other members of senior management. See "Capital Stock and
Principal Stockholders." J. H. Whitney & Co., founded by Jock Whitney in 1946,
is a private equity investment firm headquartered in Stamford, Connecticut.
Through Rush Creek, Whitney Equity Partners L.P. has the ability to control the
management and affairs of the Company by virtue of its ownership of a majority
of the Company's capital stock, its ability to designate two of the Company's
six directors and, in certain instances, a majority of the Company's directors.
See "Risk Factors -- Control by Principal Shareholder" and "Capital Stock and
Principal Stockholders -- Voting Agreement." In addition, an affiliate of
Whitney Equity Partners L.P. holds a warrant to acquire 15% of the Company's
Common Stock on a fully-diluted basis. See "Capital Stock and Principal
Stockholders -- Capital Structure" and "-- Principal Stockholders." The Company
is also obligated to pay annual fees to J.H. Whitney & Co., an affiliate of
Whitney Equity Partners L.P. See "Certain Relationships and Related Transactions
- -- Other."
RECENT DEVELOPMENTS
Purchase Price Dispute. Pursuant to the Asset Purchase Agreement, NDC was
required to deliver to the Company by August 22, 1998 a closing date balance
sheet on which the post-closing purchase price adjustments were to be based. The
Asset Purchase Agreement provided that the closing date balance sheet
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would be audited on behalf of the Company by Arthur Andersen LLP. As a result of
such audit, the Company has disputed certain items and requested a purchase
price reduction. The amount of the purchase price in dispute is approximately
$1.6 million. The Company and NDC are presently attempting to negotiate a
settlement of this dispute; if they are unable to do so, the dispute will be
submitted to binding arbitration in accordance with the terms of the Asset
Purchase Agreement. There can be no assurance whether, or when, a settlement
will be reached or, if a settlement is not reached and the dispute is submitted
to arbitration, whether the arbitration will be resolved in the Company's favor.
However, the Company does not believe that, even if such dispute is not resolved
either through settlement or arbitration in the Company's favor, it will have a
material adverse effect on the Company's financial position or results of
operations.
RISK FACTORS
The Company is subject to significant business, economic, and competitive
uncertainties that are beyond its control and may adversely affect the Company's
future operations, financial performance or ability to repay the Notes.
Generally, these risks involve both financial restrictions on the Company, such
as the Company's substantial leverage and restrictive debt covenants, and
business-related considerations, such as the cyclical and competitive nature of
the industry in which the Company competes, the prices of raw materials and
component parts for the Company's products, the Company's success at
implementing its business strategy and realizing the benefits of the
Acquisition, and the extent of litigation and government regulation to which the
Company may be subject. In addition, certain characteristics of the Notes may
result in risks to their holders, such as the subordinate ranking of the Notes,
the obligation of the Company to repurchase Notes upon a Change of Control, the
absence of a public market for the Notes, volatility of the Notes and
restrictions on resale of the Notes.
Although these risks are generally applicable to the Existing Notes as well
as the Exchange Notes, holders of Existing Notes should consider carefully the
factors described in "Risk Factors," particularly the consequences of failure to
exchange their Existing Notes, and all other information set forth in this
Prospectus, before tendering their Existing Notes in the Exchange Offer.
5
<PAGE> 10
SUMMARY OF TERMS OF THE EXCHANGE OFFER
Registration Agreement..... The Existing Notes were sold by the Company on June
23, 1998 (the "Issue Date") to Credit Suisse First
Boston Corporation and Bear, Stearns & Co. Inc.
(the "Initial Purchasers"), which resold the
Existing Notes to certain QIBs in reliance on Rule
144A and to certain non-U.S. persons in accordance
with Regulation S. In connection therewith, the
Company executed and delivered, for the benefit of
the holders of the Existing Notes, the Registration
Agreement providing for, among other things, the
Exchange Offer. See "The Exchange
Offer -- Registration Agreement" and "Plan of
Distribution."
The Exchange Offer......... The Company is offering to exchange up to
$125,000,000 aggregate principal amount of Exchange
Notes for a like principal amount of Existing
Notes. The Company will issue the Exchange Notes on
the earliest practicable date following the
Expiration Date.
Based on interpretations by the staff of the
Commission, as set forth in several no-action
letters issued to third parties, the Company
believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Existing Notes
may be offered for resale, resold and otherwise
transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business
and that such holder is not engaged in, and does
not intend to engage in, a distribution of such
Exchange Notes and has no arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes. The
Commission, however, has not considered the
Exchange Offer in the context of a no-action letter
and there can be no assurance that the staff of the
Commission would make a similar determination with
respect to the Exchange Offer as in such other
circumstances.
Each broker-dealer that receives Exchange Notes for
its own account in exchange for Existing Notes
pursuant to the Exchange Offer must acknowledge
that such Existing Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities and that it
will deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes
received in exchange for Existing Notes where such
Existing Notes were acquired by such broker-dealer
as a result of market-making activities or other
trading activities. The Company has agreed that,
for a period of 180 days after the Expiration Date,
it will make this Prospectus available to any
broker-dealer (which may include the Initial
Purchasers) that elects to exchange Existing Notes,
acquired for its own account as a result of
market-making activities or other trading
activities, for Exchange Notes (collectively,
"Participating Broker-Dealers") for use in
connection with any such resale. See "Plan of
Distribution."
6
<PAGE> 11
Each holder of Existing Notes that desires to
participate in the Exchange Offer, other than a
broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a
distribution of Exchange Notes and has no
arrangement or understanding to participate in a
distribution of Exchange Notes. See "The Exchange
Offer" and "Plan of Distribution."
Expiration Date............ The Exchange Offer will expire at 5:00 p.m. New
York City time, on , 1998, unless the
Exchange Offer is extended by the Company in its
sole discretion, in which case the term "Expiration
Date" means the latest date and time to which the
Exchange Offer is extended.
Accrued Interest on the
Exchange Notes and Existing
Notes...................... Holders of Existing Notes that are accepted for
exchange will not receive any accrued interest
thereon. However, each Exchange Note will bear
interest from the most recent date on which
interest has been paid on the corresponding
Existing Note, or, if no interest has been paid,
from June 23, 1998.
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions." The Exchange
Offer is not conditioned upon any minimum aggregate
principal amount of Existing Notes being tendered
for exchange.
Withdrawal Rights.......... Subject to the conditions set forth herein, tenders
of Existing Notes may be withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date.
See "The Exchange Offer -- Withdrawal Rights."
Acceptance of Existing
Notes
and Delivery of Exchange
Notes...................... Subject to the terms and conditions of the Exchange
Offer, including the reservation of rights by the
Company, the Company will accept for exchange any
and all Existing Notes that are properly tendered
in the Exchange Offer, and not withdrawn, prior to
5:00 p.m., New York City time, on the Expiration
Date. Subject to such terms and conditions, the
Exchange Notes issued pursuant to the Exchange
Offer will be delivered on the earliest practicable
date following the Expiration Date. Any Existing
Notes not accepted for exchange for any reason will
be returned without cost to the tendering holder
thereof promptly after the Expiration Date. See
"The Exchange Offer -- Acceptance of Tenders."
Certain Federal Income Tax
Consequences............... For federal income tax purposes, the exchange of an
Existing Note for a Exchange Note should not
constitute a taxable exchange by its holder.
Accordingly, the holders should not recognize any
taxable gain or loss upon such exchange. See "The
Exchange Offer -- Certain Effects of the Exchange
Offer."
Untendered Existing
Notes...................... Holders of Existing Notes who do not tender their
Existing Notes in the Exchange Offer or whose
Existing Notes are not accepted for exchange will
continue to hold such Existing Notes and will be
entitled to all the rights and preferences and will
be subject to the limitations applicable thereto
under the Indenture (as defined), except for any
such rights, preferences or limitations which, by
their terms, terminate or cease to be
7
<PAGE> 12
effective as a result of this Exchange Offer. All
untendered and tendered but unaccepted Existing
Notes will continue to be subject to certain
restrictions on transfer provided therein. See
"Risk Factors -- Consequences of Failure to
Exchange." To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the
trading market, if any, for untendered and tendered
but unaccepted Existing Notes could be adversely
affected. See "Risk Factors -- Absence of a Public
Market for the Notes; Volatility; Restrictions on
Resale" and "The Exchange Offer -- Certain Effects
of the Exchange Offer."
Broker-Dealers............. Each broker-dealer that receives Exchange Notes for
its own account in exchange for Existing Notes,
where such Existing Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
See "Plan of Distribution."
Exchange Agent/Trustee..... United States Trust Company of New York is serving
as Exchange Agent (the "Exchange Agent") in
connection with the Exchange Offer and as Trustee
("Trustee") under the Indenture (as defined).
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The terms of the Exchange Notes and the Existing Notes are identical in all
material respects, except for certain transfer restrictions and registration
rights relating to the Existing Notes and except that, if the Exchange Offer is
not consummated by December 21, 1998, additional interest will accrue at the
rate of 0.50% per annum until but not including the date the Exchange Offer is
consummated.
Indenture.................. The Existing Notes were, and the Exchange Notes
will be, issued pursuant to an indenture dated as
of June 23, 1998 between the Company and the
Trustee (the "Indenture").
Exchange Notes............. $125,000,000 in aggregate principal amount of
11 1/4% Senior Subordinated Notes Due 2008 of
Aqua-Chem, Inc. which have been registered under
the Securities Act.
Maturity Date.............. July 1, 2008.
Interest Payment Dates..... Each January 1 and July 1, commencing January 1,
1999.
Ranking; Guarantees........ The Existing Notes are, and the Exchange Notes will
be, general unsecured senior subordinated
obligations of the Company and subordinate in right
of payment to all existing and future Senior
Indebtedness (as defined) of the Company. The
Existing Notes rank, and the Exchange Notes will
rank, pari passu in right of payment to all
existing and future Senior Subordinated
Indebtedness (as defined) of the Company and senior
to any future subordinated indebtedness of the
Company.
Optional Redemption........ The Existing Notes are not, and the Exchange Notes
will not be, redeemable at the option of the
Company, prior to July 1, 2003, except that, until
July 1, 2001, the Company may redeem, at its
option, up to an aggregate of 20% of the original
principal amount of the Notes with the net cash
proceeds of one or more Public Equity Offerings (as
defined) at a redemption price equal to 111.25% of
the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption;
provided, however, that at least $100.0 million
principal amount of the Notes originally issued
remains outstanding immediately after any such
redemption. On or after July 1, 2003, the Notes may
be redeemed at the option of the Company, in whole
or in part, at the redemption prices set
8
<PAGE> 13
forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. See "Description of
the Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control (as defined), each holder
of Notes will have the right to require the Company
to purchase all or a portion of 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 date of purchase. In the event of a
Change of Control, there can be no assurance that
the Company will have the financial resources or be
permitted under the terms of its other indebtedness
to purchase the Notes. See "Description of the
Notes -- Change of Control."
Certain Covenants.......... The Indenture contains certain covenants that,
among other things, limit (i) the incurrence of
additional Indebtedness (as defined) by the Company
and its Restricted Subsidiaries (as of June 30,
1998, the Company could have incurred additional
Indebtedness of approximately $77.7 million under
this limitation; see "Risk Factors -- Substantial
Leverage; Ability to Service the Notes"); (ii) the
payment of dividends and other restricted payments
by the Company and its Restricted Subsidiaries;
(iii) the creation of restrictions on distributions
from Restricted Subsidiaries, (iv) asset sales; (v)
transactions with affiliates; (vi) sales or
issuances of Restricted Subsidiary capital stock,
and (vii) mergers and consolidations; provided,
however, that all these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Risk
Factors -- Restrictive Debt Covenants" and
"Description of the Notes -- Certain Covenants."
Registration Rights........ The Company has filed a registration statement on
Form S-4 (together with any amendments thereto, the
"Registration Statement") with respect to the
Exchange Offer made hereby, and has agreed to use
its best efforts to cause the Registration
Statement to become effective on or prior to
November 21, 1998. In the event that any changes in
law or the applicable interpretations of the staff
of the Commission do not permit the Company to
effect the Exchange Offer made hereby, if the
Exchange Offer is not consummated on or prior to
December 21, 1998 for any reason attributable to
actions or inactions of the Company, or under
certain other circumstances, the Company will, as
promptly as practicable, file with the Commission a
shelf registration statement with respect to the
resale of the Existing Notes (the "Shelf
Registration Statement"), use its best efforts to
cause such Shelf Registration Statement to become
effective generally within 30 days after the date
on which the Company is required to file the Shelf
Registration Statement, and to keep the Shelf
Registration Statement effective for a period of
two years after the effective date thereof (unless
extended by certain events described in the
Registration Agreement) or for such shorter period
that will terminate when all the Existing Notes
have been sold pursuant to the Shelf Registration
Statement or are eligible for sale under Rule
144(k) of the Securities Act. Upon consummation of
the Exchange Offer, the Company generally will have
no further obligation to register the Existing
Notes. See "The Exchange Offer -- Registration
Agreement" and "-- Termination of Certain Rights."
Termination of Certain
Rights..................... Holders of Exchange Notes will not be entitled to
certain rights under the Registration Agreement,
including the right to require the Company to file
a registration statement with respect to the
Exchange Notes, and
9
<PAGE> 14
to file a Shelf Registration Statement, except in
certain limited circumstances. See "The Exchange
Offer -- Termination of Certain Rights."
Absence of a Public Market
for the Exchange Notes..... The Exchange Notes will be new securities for which
there currently is no market. Although the Initial
Purchasers have informed the Company that they
currently intend to make a market in the Exchange
Notes, they are not obligated to do so, and any
such market making may be discontinued at any time
without notice. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the Exchange Notes. The Company does not
intend to apply for listing of the Exchange Notes
on any securities exchange or seek the admission
thereof to trading on The Nasdaq Stock Market. See
"Risk Factors -- Absence of Public Market for the
Notes; Volatility; Restrictions on Resale."
Use of Proceeds............ The Company will not receive any proceeds from the
Exchange Offer. The net proceeds to the Company
from the sale of the Existing Notes were used: (i)
to pay the purchase price of the Acquisition; (ii)
to repay the Company's Outstanding Indebtedness (as
defined); (iii) to retire a portion of the
Company's Series A Preferred Stock; (iv) to pay
accumulated interest and dividends, fees and
expenses associated with the Transactions (as
defined) (other than the Management Buy-Out); and
(v) for general corporate purposes. See "The
Exchange Offer -- Use of Proceeds."
For further information regarding the Exchange Notes, see "Description of
the Notes."
10
<PAGE> 15
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table sets forth the summary unaudited pro forma financial
information for the Company. This information is derived from the Unaudited Pro
Forma Financial Data appearing elsewhere in this Prospectus that gives effect to
the Private Offering, the Acquisition, the Management Buy-Out, the repayment of
Aqua-Chem's Outstanding Indebtedness (as defined), the execution of the New
Credit Facility, the retirement of a portion of Aqua-Chem's Series A Preferred
Stock, and the payment of accrued interest and dividends, fees and expenses in
connection with the foregoing (collectively, the "Transactions"). See "The
Exchange Offer -- Use of Proceeds."
The pro forma statement of operations data and other financial data for the
twelve months ended December 31, 1997 and the six months ended June 30, 1998
give effect to the Transactions as if the Transactions had occurred on January
1, 1997. The balance sheet data as of June 30, 1998 represents actual, rather
than pro forma, data. The summary unaudited pro forma financial data is
presented for comparative and informational purposes only and is not necessarily
indicative of future results or of the results that would have been obtained had
the Transactions assumed therein actually been completed on the dates indicated.
The pro forma data presented below should be read in conjunction with the
"Unaudited Pro Forma Financial Data" and the financial statements of Aqua-Chem
and of NDC included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $250,451 $ 97,687
Cost of goods sold.......................................... 186,913 73,089
-------- --------
Gross margin................................................ 63,538 24,598
Selling, general and administrative expenses................ 45,612 21,245
Restructuring charges....................................... -- 4,720
-------- --------
Operating income (loss)..................................... 17,926 (1,367)
OTHER FINANCIAL DATA:
EBITDA(a)................................................... $ 23,764 $ 1,358
Adjusted EBITDA(b).......................................... 26,751 7,228
Depreciation and amortization............................... 5,838 2,725
Capital expenditures........................................ 4,811 1,422
Cash interest expense(c).................................... 14,063 7,032
Ratio of total debt to Adjusted EBITDA(b)(d)................ 4.7x --(e)
Ratio of Adjusted EBITDA to cash interest expense(b)(c)..... 1.9x --(e)
Ratio of earnings to fixed charges(f)....................... 1.3x --(g)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................................ $175,734
Total debt.................................................. 125,000
Stockholders' deficit....................................... (1,611)
</TABLE>
- ------------------------------------
(a) EBITDA is defined as operating income before depreciation and amortization.
While EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles ("GAAP") and should not
be considered as an indicator of operating performance or an alternative to
cash flow (as measured by GAAP) as a measure of liquidity, it is included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditures and working
capital requirements. The Company's measure of EBITDA may not be comparable
to similarly titled measures of other companies.
11
<PAGE> 16
(b) Adjusted EBITDA for the periods presented is EBITDA, excluding for the year
ended December 31, 1997 $687 of non-cash purchase accounting adjustments to
cost of goods sold related to writing up inventory to fair market value at
the time of Management Buy-Out, and for all periods presented, excluding
restructuring charges plus anticipated cost savings arising from: (i) the
Company's closure of its Greenville, Mississippi facility pursuant to the
1998 Restructuring and (ii) the in-sourcing of certain boiler components
currently procured from third parties that either Cleaver-Brooks or National
Dynamics already produces, as set forth below:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
<S> <C> <C>
EBITDA................................................. $23,764 $1,358
Non-cash purchase accounting adjustment.............. 687 --
Restructuring charges (i)............................ -- 4,720
Facility rationalization (ii)........................ 1,800 900(iii)
In-sourcing of certain components (iv)............... 500 250(iii)
------- ------
Adjusted EBITDA........................................ $26,751 $7,228
======= ======
</TABLE>
- ------------------------------------
(i) For the six months ended June 30, 1998, consists of $3,021 to write
down the value of certain fixed assets and inventory, $1,460 of
employee termination benefits and $239 of other costs. The Company
anticipates capital expenditures of approximately $1,500 within the
year following the closure of the Greenville facility to accommodate
increased production levels at other manufacturing facilities.
(ii) Consists of estimated annual cash savings of approximately $1,800
attributable to the rationalization of approximately 35 employees
engaged in general management, administrative and indirect
manufacturing functions.
(iii) Estimated cost savings for the pro forma six months ended June 30,
1998 consist of one-half of the estimated annual cost savings for the
twelve months ended December 31, 1997.
(iv) Consists of estimated annual cash savings of approximately $500
attributable to the in-sourcing of burners produced by Cleaver-Brooks
that will be incorporated into certain Nebraska Boiler industrial
watertube boilers and certain fabricated components produced by
National Dynamics that will be incorporated into Cleaver-Brooks
boilers.
(c) Calculated using an interest rate of 11.25% per annum on the Notes excluding
non-cash amortization of deferred financing costs.
(d) The ratio of total debt to Adjusted EBITDA is calculated using actual total
debt as of June 30, 1998, which management believes would have approximated
pro forma total debt as of December 31, 1997 had a pro forma balance sheet
been prepared as of such date, and Adjusted EBITDA for the twelve months
ended December 31, 1997.
(e) Due to the seasonal nature of the Company's business, the ratios of Adjusted
EBITDA to cash interest expense and total debt to Adjusted EBITDA for the
six months ended June 30, 1998 are not accurate representations of full year
results.
(f) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before taxes, extraordinary item and fixed charges.
Fixed charges consist of the total of (i) interest, whether expensed or
capitalized, and (ii) amortization of debt expense and discount or premium
relating to any indebtedness, whether expensed or capitalized.
(g) Earnings would have been inadequate to cover fixed charges by $7,986 for the
six months ended June 30, 1998.
12
<PAGE> 17
SUMMARY HISTORICAL FINANCIAL DATA OF AQUA-CHEM
The following summary historical financial data of Aqua-Chem as of and for
each of the fiscal years ended December 31, 1995 and 1996, and the six months
ended June 30, 1997 and 1998, has been derived from the consolidated financial
statements of Aqua-Chem. The summary pro forma financial data for the twelve
months ended December 31, 1997 has been prepared to reflect the financial
results of Aqua-Chem for the seven-month period from January 1, 1997 through
July 31, 1997 (while under prior ownership) and the five-month period from
August 1, 1997 through December 31, 1997 (following the Management Buy-Out),
after giving effect to the purchase accounting adjustments for the Management
Buy-Out as if the Management Buy-Out occurred on January 1, 1997 (see Note (a)
to the Unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1997 under "Unaudited Pro Forma Financial Data"). The
financial data for Aqua-Chem before and after the Management Buy-Out is not
comparable in all material respects. This summary historical financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Aqua-Chem" and the consolidated
financial statements of Aqua-Chem included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEARS ENDED TWELVE MONTHS SIX MONTHS ENDED
DECEMBER 31, ENDED JUNE 30,
------------------- DECEMBER 31, -------------------
1995 1996 1997 1997 1998
-------- -------- ------------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $183,368 $199,552 $191,159 $83,211 $ 76,222
Cost of goods sold....................................... 148,650 153,446 140,950 62,087 55,930
-------- -------- -------- ------- --------
Gross margin............................................. 34,718 46,106 50,209 21,124 20,292
Selling, general and administrative expenses............. 37,772 34,446 39,602 18,069 17,446
Restructuring charges(a)................................. 4,593 5,038 -- -- 4,720
-------- -------- -------- ------- --------
Operating income (loss).................................. $ (7,647) $ 6,622 $ 10,607 $ 3,055 $ (1,874)
OTHER FINANCIAL DATA:
EBITDA(b)................................................ $ (4,494) $ 9,606 $ 15,539 $ 4,778 $ 28
Adjusted EBITDA(c)....................................... 99 14,644 15,539 4,778 4,748
Depreciation and amortization............................ 3,153 2,984 4,245 1,723 1,902
Gross profit margin...................................... 18.9% 23.1% 26.3% 25.4% 26.6%
Capital expenditures..................................... $ 4,867 $ 2,789 $ 3,392 $ 1,097 $ 1,023
Cash provided by (used for) operating activities......... (1,551) 8,052 1,766 (10,342)
Cash provided by (used for) investing activities......... (939) (1,025) 35 (48,912)
Cash provided by (used for) financing activities......... 538 1,492 69 56,618
Ratio of earnings to fixed
charges(d)............................................. --(f) 4.2x 1.9x 5.6x --(e)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................................. $101,381 $101,000 $97,008 $175,734
Total debt............................................... 18,636 20,128 20,198 125,000
Stockholders' equity (deficit)........................... 36,636 39,960 41,653 (1,611)
</TABLE>
- ------------------------------------
(a) For 1995, reflects restructuring charges required to complete the 1994
Restructuring. For 1996, reflects restructuring charges required to complete
the 1996 Restructuring. For the six months ended June 30, 1998, reflects
restructuring charges to complete the 1998 Restructuring. For further
information on such restructurings, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Aqua-Chem,"
Note (3) to the consolidated financial statements of Aqua-Chem and Note (7)
to the consolidated condensed interim financial statements of Aqua-Chem, all
included elsewhere in this Prospectus.
(b) EBITDA is defined as operating income before depreciation and amortization.
While EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow (as measured by GAAP) as a
measure of liquidity, management believes it provides additional information
with respect to the ability of a company to meet its future debt service,
capital expenditures and working capital requirements. EBITDA should be
evaluated in conjunction with the Company's cash flows from operating,
investing and
13
<PAGE> 18
financing activities. The measure of EBITDA presented above may not be
comparable to similarly titled measures of other companies.
(c) Adjusted EBITDA for the periods presented is defined as EBITDA excluding
restructuring charges and, for the pro forma twelve months ended December
31, 1997, excludes $687 of non-cash purchase accounting adjustments to cost
of goods sold related to writing up inventory to fair market value at the
time of the Management Buy-Out.
(d) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before taxes, extraordinary item and fixed charges.
Fixed charges consist of the total of (i) interest, whether expensed or
capitalized; (ii) amortization of debt expense and discount or premium
relating to any indebtedness, whether expensed or capitalized.
(e) Earnings were inadequate to cover fixed charges by $6,265 and $4,779 for the
year ended December 31, 1995 and the six months ended June 30, 1998,
respectively.
14
<PAGE> 19
SUMMARY HISTORICAL FINANCIAL DATA OF NDC
The following summary historical financial data of NDC as of and for each
of the fiscal years ended October 31, 1995, 1996 and 1997, and for the five
months ended March 31, 1997 and 1998 have been derived from the financial
statements of NDC. This summary historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of NDC" and the financial statements of NDC included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED FIVE MONTHS ENDED
OCTOBER 31, MARCH 31,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $49,717 $54,853 $59,292 $21,722 $25,561
Cost of goods sold............................. 40,916 43,461 45,862 17,150 19,973
------- ------- ------- ------- -------
Gross margin................................... 8,801 11,392 13,430 4,572 5,588
Selling, general and administrative expenses... 6,601 5,516 5,815 1,888 2,472
------- ------- ------- ------- -------
Operating income............................... 2,200 5,876 7,615 2,684 3,116
OTHER FINANCIAL DATA:
EBITDA(a)...................................... $ 2,650 $ 6,339 $ 8,112 $ 2,877 $ 3,316
Gross profit margin............................ 17.7% 20.8% 22.7% 21.0% 21.9%
Depreciation................................... $ 450 $ 463 $ 497 $ 193 $ 200
Capital expenditures........................... 1,758 571 1,419 262 222
Cash provided by (used in) operating
activities................................... 54 5,427 5,263 3,159 6,822
Cash provided by (used in) investing
activities................................... (1,176) (571) (1,419) (262) (222)
Cash provided by (used in) financing
activities................................... 1,084 (4,739) (4,000) (2,572) (3,122)
Ratio of earnings to fixed charges(b).......... 16.6x 138.9x 43.3x 39.5x 57.8x
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................... $23,600 $22,144 $25,991 $22,166 $24,076
Total debt..................................... 2,441 1,472 1,422 -- --
Stockholders' equity........................... 8,335 10,887 14,665 13,207 16,918
</TABLE>
- ------------------------------------
(a) EBITDA is defined as operating income before depreciation and amortization.
While EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow (as measured by GAAP) as a
measure of liquidity, management believes it provides additional information
with respect to the ability of a company to meet its future debt service,
capital expenditures and working capital requirements. The measure of EBITDA
presented above may not be comparable to similarly titled measures of other
companies.
(b) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income before taxes and fixed charges. Fixed charges consist of
the total of (i) interest, whether expensed or capitalized; and (ii)
amortization of debt expense and discount or premium relating to any
indebtedness, whether expensed or capitalized.
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<PAGE> 20
RISK FACTORS
HOLDERS OF EXISTING NOTES SHOULD CONSIDER CAREFULLY ALL OF THE INFORMATION
SET FORTH IN THIS PROSPECTUS AND, IN PARTICULAR, SHOULD EVALUATE THE FOLLOWING
RISKS BEFORE TENDERING THEIR EXISTING NOTES IN THE EXCHANGE OFFER, ALTHOUGH THE
RISK FACTORS SET FORTH BELOW ARE GENERALLY APPLICABLE TO THE EXISTING NOTES AS
WELL AS THE EXCHANGE NOTES.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Existing Notes who do not exchange them for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to certain
restrictions on transfer of such Existing Notes. In general, the Existing Notes
may not be reoffered or resold by their holders except pursuant to an effective
registration statement under the Securities Act or pursuant to an applicable
exemption from such registration, and the Existing Notes are legended to so
restrict their transfer. Based on interpretations by the staff of the SEC, as
set forth in no-action letters issued to third parties, the Company believes
that each holder (other than any holder who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) who duly exchanges
Existing Notes for Exchange Notes in the Exchange Offer will receive Exchange
Notes that are freely transferable under the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
that such holder is not engaged in, and does not intend to engage in, a
distribution of such Exchange Notes and has no arrangement or understanding with
any person to participate in the distribution of such Exchange Notes. By
tendering Existing Notes and executing the Letter of Transmittal, the holder
thereof shall represent and agree that (i) it is neither an affiliate of the
Company nor a broker-dealer tendering Existing Notes acquired directly from the
Company for its own account, (ii) it acquired the Exchange Notes in the ordinary
course of its business and (iii) it is not engaged in, and does not intend to
engage in, a distribution of the Exchange Notes and it has no arrangement or
understanding to participate in a distribution of Exchange Notes. The SEC,
however, has not considered the Exchange Offer in the context of a no-action
letter, and therefore there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in such other
circumstances. Holders of Existing Notes who participate in such Exchange Offer
should be aware, however, that, except in the case of certain broker-dealers as
described below, if they accept Exchange Notes in the Exchange Offer for the
purpose of engaging in secondary resales, such Exchange Notes may not be
publicly reoffered or resold without complying with the registration and
prospectus delivery requirements of the Securities Act. The same registration
and prospectus delivery requirements would apply to any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "The Exchange Offer" and "Plan of
Distribution."
The Existing Notes may be sold without registration under the Securities
Act pursuant to the restrictions set forth in Rule 144A or Regulation S.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE THE NOTES
As a result of the Private Offering, the Company has substantial
indebtedness and significant debt service obligations. At June 30, 1998 the
Company had total long-term indebtedness, including current maturities, of
$125.0 million, as well as undrawn borrowing availability under the New Credit
Facility of $45.0 million. The Indenture permits the Company to incur additional
indebtedness, including secured indebtedness, subject to certain limitations.
See "The Exchange Offer -- Use of Proceeds," "Capitalization," "Description of
Certain Indebtedness," and "Description of the Notes -- Certain Covenants."
The Company's high degree of leverage could have important consequences to
holders of the Notes, including, without limitation: (i) a substantial portion
of the Company's cash flow from operations will be committed to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to the Company for its operations and other purposes; (ii) the Company's ability
to obtain additional financing in the future for working capital expenditures,
acquisitions or other purposes may be limited; (iii) a substantial
16
<PAGE> 21
decrease in net operating cash flows or an increase in expenses could make it
difficult for the Company to meet its debt service requirements and force it to
modify its operations; (iv) the Company may be more highly leveraged than its
competitors, which may place it at a competitive disadvantage; (v) certain
indebtedness under the New Credit Facility is at variable rates of interest,
which will cause the Company to be vulnerable to increases in interest rates;
and (vi) all of the indebtedness outstanding under the New Credit Facility is
secured by substantially all the assets of the Company and becomes due prior to
the time the principal on the Notes becomes due. See "Description of Certain
Indebtedness" and "Description of the Notes."
The Indenture prohibits the Company from incurring additional Indebtedness
unless, on the date of such incurrence and after giving effect thereto, the
Consolidated Coverage Ratio exceeds 2.0 to 1 if such Indebtedness is incurred
prior to January 1, 2000, 2.25 to 1 if such Indebtedness is incurred on or after
January 1, 2000 and prior to July 1, 2001 or 2.5 to 1 thereafter (the "Coverage
Limitation"). As of June 30, 1998, the Company could not have incurred any
additional Indebtedness under the Coverage Limitation.
The Indenture further provides that, in addition to the additional
Indebtedness which the Company may incur under the Coverage Limitation, the
Company may incur additional Indebtedness of certain types up to certain
limitations applicable to each type (the "Basket Limitations"). The basket
limitations are described under "Description of the Notes -- Certain Covenants
- -- Limitation on Indebtedness." The amount of additional Indebtedness which the
Company could have incurred as of June 30, 1998 under certain of the Basket
Limitations is impossible to quantify as of the date of this Prospectus because
those Basket Limitations relate to transactions or other events or conditions
that had not occurred or did not exist as of such date, and the applicable
dollar limitations thereunder depend upon the nature of such events or the
nature and terms of such transactions. Certain of the Basket Limitations relate
to intercompany transactions and guarantees, which would not increase the
aggregate amount of additional Indebtedness that may be incurred. However, the
Company could have incurred approximately $77.7 million of additional
Indebtedness under the remaining Basket Limitations on June 30, 1998, including
the following: (a) Indebtedness pursuant to the New Credit Facility of up to the
greater of (i) $45.0 million or (ii) the sum of 50% of the book value of
inventory and 85% of the book value of accounts receivable as of such date
(however, the limitation under clause (ii) would have been approximately $47.9
million at June 30, 1998; this limitation would not have affected the maximum
amount that could have been borrowed under the New Credit Facility as of June
30, 1998 because the maximum amount of the New Credit Facility on that date was
$45.0 million); (b) Indebtedness by foreign subsidiaries not exceeding the sum
of (i) 60% of the book value of inventory and (ii) 85% of the book value of
accounts receivable; (c) purchase money Indebtedness not exceeding the greater
of (i) $20 million or (ii) 5% of the consolidated net worth of the Company; and
(d) an additional $10 million without regard to the nature or purpose of such
Indebtedness.
The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the Notes) will
depend on the Company's future performance, which to a certain extent will be
subject to economic, financial, competitive and other factors beyond its
control. There can be no assurance, however, that the Company's business will
continue to generate sufficient cash flow from operations in the future to
service its indebtedness and make necessary capital expenditures. If it is
unable to do so, the Company may be required to refinance all or a portion of
its indebtedness, including the Notes, to sell assets or to obtain additional
financing. There can be no assurance that any such refinancing would be
possible, that any assets could be sold (or, if sold, of the timing of such
sales and the amount of proceeds realized therefrom) or that additional
financing could be obtained.
IMPLEMENTATION OF BUSINESS STRATEGY
The Company intends to continue the implementation of its business
strategy, elements of which are to improve manufacturing efficiency and make
strategic acquisitions. The Company's ability to successfully implement its
business strategy is subject to a number of factors, many of which are beyond
the control of the Company. There can be no assurance that the Company will be
able to continue to successfully implement its business strategy following the
Private Offering and a failure to successfully implement its business strategy
may have a material adverse effect on the Company's results of operations. See
"Summary -- Business Strategy."
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<PAGE> 22
Realizing the full benefits of any acquisition may require the integration
of one or more of the acquired company's administrative, finance, manufacturing,
engineering, sales, or marketing functions with those of the Company and the
implementation of appropriate operations, financial and management systems and
controls in order to capture anticipated efficiencies, manufacturing
improvements and cost reductions. These efforts would require substantial
attention from the Company's management team. The diversion of management
attention, as well as any other difficulties which may be encountered in such a
transition and integration process, could have a material adverse impact on the
revenue and operating results of the Company. There can be no assurance that the
Company will be able to realize the potential benefits of any such acquisition.
If any such acquisition is completed, the failure to achieve a substantial
portion of the anticipated benefits could have a material adverse impact on the
Company.
CYCLICAL NATURE OF INDUSTRY; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's business is cyclical in nature and sensitive to changes in
general economic conditions, including the rate of expansion and new
construction by its customers, and the associated demand for new boilers. The
Company's customers are in turn influenced by a variety of factors beyond the
Company's control, including interest rates, currency exchange rates, and
general economic conditions throughout the world. The Company has experienced,
and in the future could experience, reduced net sales and margins, which may
affect the Company's ability to satisfy its debt service obligations, including
payments on the Notes, on a timely basis. The Company's boiler business is also
seasonal in nature and net sales and operating results may fluctuate
significantly from quarter to quarter. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Aqua-Chem" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
NDC."
Given the magnitude of certain of the Company's water purification and
treatment projects, one or a limited number of projects may account for a
substantial portion of net sales in any particular period. Although the Company
recognizes net sales on a percentage-of-completion basis for new projects, the
timing of one or a small number of contracts in any particular period may
nevertheless affect operating results, and the profitability of these projects
can vary from original estimates. In addition, net sales and gross margin may
fluctuate depending upon the size and the requirements of the particular
contracts entered into in that period. As a result of these and other factors,
the Company may experience significant fluctuations in net sales and operating
results in future periods. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Aqua-Chem."
REALIZATION OF BENEFITS OF THE ACQUISITION
On June 23, 1998, Aqua-Chem completed the purchase of substantially all of
the assets of NDC. Management has estimated that cost savings and other benefits
can be achieved as a result of the Acquisition. The estimates of potential cost
savings and other benefits are forward-looking statements that are inherently
uncertain, and actual results could differ materially from those anticipated.
All of these forward-looking statements are based on estimates and assumptions
made by management, which although believed to be reasonable, are inherently
uncertain and difficult to predict; therefore, undue reliance should not be
placed upon such estimates.
Full realization of the potential benefits and savings of the Acquisition
will be dependent upon a variety of factors, including (i) rationalization of
manufacturing facilities; (ii) retention of a substantial portion of NDC's
sales; and (iii) successful application of Aqua-Chem's modern manufacturing
practices to increase efficiency in the production of NDC products. Full
realization of the potential annual benefits and savings is expected to occur
within two years of the acquisition date. The Company estimates that the costs
associated with the retention of NDC's sales and implementation of modern
manufacturing techniques at former NDC facilities will be less than $0.4
million. The Company expects to incur certain costs associated with the
rationalization of the manufacturing facilities, such as manufacturing
inefficiencies in the production of products transferred from other facilities,
which, due to their nature, cannot be practically estimated, but which may have
a material adverse effect on the Company's results of operations. Any material
delays or unexpected costs incurred in connection with the integration of
Aqua-Chem and NDC could have a material adverse effect on the Company and its
results of operations, liquidity and financial condition.
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<PAGE> 23
The Company has no previous experience acquiring or integrating a business
as large as NDC, and the successful integration of Aqua-Chem and NDC will
require substantial attention from the Company's management team. The diversion
of management's attention, as well as any other difficulties which may be
encountered in the transition and integration process, could have a material
adverse effect on the revenue and operating results of the Company. There can be
no assurance that the Company will be able to integrate the operations of
Aqua-Chem and NDC successfully or the extent to which the Company will be able
to realize the potential benefits of the Acquisition or the timing of any such
benefits. Failure to achieve a substantial portion of these benefits within the
time frame expected by the Company could have a material adverse effect on the
Company, including its ability to make payments on the Notes. See "Unaudited Pro
Forma Financial Data" and "The Acquisition."
RESTRICTIVE DEBT COVENANTS
The terms of the New Credit Facility and the Indenture contain numerous
covenants that limit the discretion of management with respect to certain
business matters and place significant restrictions on, among other things, the
ability of the Company to incur additional indebtedness, to create liens or
other encumbrances, to make certain payments or investments, loans and
guarantees and to sell or otherwise dispose of assets and merge or consolidate
with another entity. See "Description of Certain Indebtedness" and "Description
of the Notes -- Certain Covenants."
The New Credit Facility also contains a number of financial covenants that
require the Company to maintain certain financial ratios (including a fixed
charge coverage ratio and a funded debt to EBITDA ratio) and tests (including
maintenance of the Company's net worth at a specified level). A breach of any of
these covenants or the inability of the Company to comply with the required
financial ratios could result in an event of default under the New Credit
Facility or under the Indenture. In the event of any such default, depending on
the actions taken by the lenders under the New Credit Facility, the Company
could be prohibited from making any payments of principal or interest on the
Notes. In addition, the lenders under the New Credit Facility could elect to
declare all amounts borrowed thereunder, together with accrued interest, to be
due and payable. If the Company were unable to repay such borrowings, such
lenders could proceed against their collateral. If the indebtedness under the
New Credit Facility were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay such indebtedness and the
Notes in full. See "-- Substantial Leverage; Ability to Service the Notes," "--
Ranking of the Notes," "Description of Certain Indebtedness" and "Description of
the Notes -- Ranking."
RANKING OF THE NOTES
The indebtedness evidenced by the Existing Notes is, and by the Exchange
Notes will be, general unsecured senior subordinated obligations of the Company,
subordinated in right of payment to all Senior Indebtedness of the Company,
including all indebtedness under the New Credit Facility. As of June 30, 1998,
the Company had no outstanding Senior Indebtedness; however, the Company had
approximately $45.0 million of borrowing availability under the New Credit
Facility, all of which, when borrowed, will be Senior Indebtedness, and will be
secured by substantially all the assets of the Company. The Indenture and the
New Credit Facility permit the Company to incur additional Senior Indebtedness
in the future, subject to certain conditions. Moreover, the Indenture does not
limit the Company's ability to secure Senior Indebtedness.
In the event of the bankruptcy, administration, insolvency, liquidation,
reorganization, dissolution or other winding-up of the Company or upon a default
in payment with respect to, or the acceleration of, any Senior Indebtedness, the
lenders under the New Credit Facility and any other creditors who are holders of
Senior Indebtedness must be paid in full before any holder of Notes may be paid.
Accordingly, there may be insufficient assets remaining after such payments to
pay principal of or interest on the Notes. In addition, the subordination
provisions of the Indenture provide that no cash payments may be made with
respect to the Notes during the continuance of a payment default under certain
Senior Indebtedness of the Company. Furthermore, if certain nonpayment defaults
exist with respect to certain Senior Indebtedness, the holders of such Senior
Indebtedness would be able to prevent payments on the Notes for certain periods
of time. See "Description of the Notes -- Ranking."
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<PAGE> 24
INTERNATIONAL EXPANSION
The Company currently sells its products internationally primarily through
export from the United States and through foreign manufacturing operations in
Canada and Mexico. During the twelve months ended December 31, 1997, $50
million, or approximately 26%, of Aqua-Chem's net sales were generated outside
the United States. The Company typically transacts international sales and
exports in U.S. dollars.
The Company's strategy to increase export sales will depend on numerous
factors which are beyond its control, including its ability to develop or
acquire additional manufacturing and distribution capabilities outside the
United States. In addition, international expansion may increase the Company's
exposure to certain risks inherent in doing business outside the United States,
such as currency exchange rate fluctuations, restrictions on the repatriation of
profits or dividends, export duties and quotas, domestic and foreign customs and
tariffs, compliance with foreign codes and standards, labor unrest, political
risks and potentially adverse tax consequences. Currently, the Company performs
very few exchange rate hedges as the majority of its sales are denominated in
U.S. currency. There can be no assurance that these factors would not have a
material adverse effect on the Company or its international operations or sales.
See "Summary -- Business Strategy -- Increase International Penetration."
CONTROL BY PRINCIPAL SHAREHOLDER
All of the Common Stock and Series C Preferred Stock of the Company is
owned by Rush Creek, of which 51% of the Common Stock and 63% of the Series C
Preferred Stock is allocated to the capital account of Whitney Equity Partners,
L.P. (a fund managed by J. H. Whitney & Co.). See "Capital Stock and Principal
Stockholders" and "Management." Through Rush Creek, Whitney Equity Partners,
L.P. will have the ability to control the management and affairs of the Company
and there may be circumstances under which its interests as a stockholder may
differ from the interests of holders of the Notes. See "Summary -- Company
Ownership."
COMPETITION
The Company operates in a highly competitive environment. It competes
directly and indirectly with other manufacturers of industrial and commercial
boilers and water desalination and process evaporation systems, as well as with
manufacturers of parts and components for all of the foregoing. Some of the
Company's competitors are larger, have greater financial resources, and may be
less leveraged than the Company. There can be no assurance that the Company will
be able to compete successfully with its competitors or that competitive
pressures faced by the Company will not materially and adversely affect its
business, operating results or financial condition. See "Business of the
Company -- Boiler Market," "-- Cleaver-Brooks Division -- Sales, Marketing and
Customers," "-- National Dynamics Division -- Sales, Marketing and Customers,"
and "-- Water Technologies Division -- Sales, Marketing and Customers."
PRICES OF RAW MATERIALS AND COMPONENT PARTS
The principal raw materials in most of the Company's products are steel,
standard alloys and refractory materials, as well as controls, pumps, motors and
various other component parts. The prices for such raw materials are influenced
by numerous factors beyond the control of the Company, including general
economic conditions, competition, labor costs, import duties and other trade
restrictions and currency exchange rates. Changing prices for such raw materials
may cause the Company's results of operations to fluctuate significantly.
Although the Company has never experienced a material shortage of raw materials,
a large, rapid increase in the price of raw materials could have a material
adverse effect on the Company's operating margins unless and until the increased
cost can be passed along to customers. See "Business of the Company --
Cleaver-Brooks Division -- Raw Materials and Suppliers," "-- National Dynamics
Division -- Raw Materials and Suppliers," and "-- Water Technologies
Division -- Raw Materials and Suppliers."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend largely on the efforts and abilities of
its executive officers, in particular Mr. Miller, and certain other key
employees, and there can be no assurance that the Company will be able to retain
all such officers and employees. The failure of such key personnel to remain
active in the
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<PAGE> 25
Company's management could have a material adverse effect on the Company's
operations. See "Management."
ENVIRONMENTAL AND RELATED MATTERS
The Company's operations and properties are subject to foreign, federal,
state and local laws and regulations relating to the use, storage, handling,
generation, transportation, treatment, emission, discharge, disposal and
remediation of, and exposure to, hazardous and non-hazardous substances,
materials and wastes. The Company's operations also are subject to laws and
regulations governing employee health and safety. The nature of the Company's
current and former operations exposes it to the risk of liabilities or claims
with respect to environmental matters, including on-site and off-site releases
and emissions of hazardous substances, materials and wastes. There can be no
assurance that the Company will not incur material costs in connection with such
liabilities or claims. In addition, changes in existing laws or regulations, or
the discovery of additional environmental liabilities associated with the
Company's current or former operations, could have a material adverse effect on
the Company's business, results of operations, or financial condition. See
"Business of the Company -- Environmental and Related Matters."
PRODUCT LIABILITY LITIGATION
The Company has been named as one of a number of defendants in
approximately 5,900 lawsuits (of which approximately 3,600 are still pending)
alleging personal injury arising from exposure to asbestos-containing materials
allegedly contained in certain boilers manufactured by the Company or its
subsidiaries in the past. There can be no assurance that the ongoing costs and
liabilities associated with current and future asbestos-related litigation will
not have a material adverse effect on the Company's business, results of
operation, or financial condition. See "Business of the Company -- Legal
Proceedings."
LABOR RELATIONS
As of June 30, 1998, the Company had approximately 1,445 active employees,
of whom approximately 30% were represented by various unions. There can be no
assurance that additional employees not currently represented by unions will not
elect to be so represented in the future. The Company's agreements with its
unions expire on January 1, 1999 at its facilities in Mexico; on June 5, 2000 in
Stratford, Ontario; on January 19, 2001 in Monroe, Wisconsin and on November 1,
1999 in Lincoln, Nebraska. There can be no assurance that such agreements will
be renewed when they expire or that the Company will not experience strikes,
work stoppages or other situations. In the last five years, Aqua-Chem has not
experienced any strikes or other work stoppages; however, in 1994, NDC employees
represented by the International Boilermakers Union went on strike for six weeks
in connection with a dispute over employee contributions for health benefits.
The Company has reached an agreement with the Union representing production
workers at its Greenville, Mississippi facility regarding the transfer of
production from, and the closing of, that facility. Although management believes
that its relations with its employees are satisfactory, a dispute between the
Company and its employees could have a material adverse effect on the Company.
See "Business of the Company -- Properties and Employees."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or void the Notes (and
payments of principal and/or interest in respect thereof could be voided and
recovered) in favor of other existing or future creditors of the Company.
Proceeds of the Private Offering were used, in part, to repay certain
senior and subordinated debt of the Company. If a court in a lawsuit brought by
an unpaid creditor or representative of creditors, such as a trustee in
bankruptcy or the Company, as a debtor-in-possession, were to find under
relevant federal or state fraudulent conveyance statutes that the Company did
not receive fair consideration or reasonably equivalent value for issuing the
Notes, as the case may be, and that, at the time of such incurrence, the Company
(i) was insolvent; (ii) was rendered insolvent by reason of such incurrence or
grant; (iii) was engaged or about to engage in a business or transaction for
which the assets remaining with the Company, as the case may be, constituted
unreasonably small capital; or (iv) intended to incur, or believed or reasonably
should have
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believed that it would incur, debts beyond its ability to pay such debts as they
become due, then such court, subject to applicable statutes of limitation, could
void the Notes, subordinate the Notes to other indebtedness of the Company, or
take other action detrimental to the holders of the Notes.
The measure of insolvency for these purposes will depend upon the governing
law of the relevant jurisdiction. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property or if the present
fair salable value of that company's 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. Moreover, regardless of solvency, a court could void an
incurrence of indebtedness, including the Notes, if it determined that such
transaction was made with the intent to hinder, delay or defraud creditors. In
addition, a court could subordinate the indebtedness, including the Notes, to
the claims of all existing and future creditors on similar grounds.
There can be no assurance as to what standard a court would apply in order
to determine whether the Company was "insolvent" upon consummation of the sale
of the Notes or that, regardless of the method of valuation, a court would not
determine that the Company was insolvent as a result of the foregoing.
There can be no assurance that a court would conclude (i) that the Notes
are being incurred for proper purposes in good faith, or (ii) that the Company
(a) is solvent and will continue to be solvent after issuing the Notes, (b) will
have sufficient capital for carrying on the business it intends to conduct after
such issuance, and (c) will be able to pay its debts as they become due. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Aqua-Chem -- Liquidity and Capital Resources" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
NDC."
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, the Company is required, subject to certain
conditions, to offer to purchase all outstanding Notes at 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase. The source of funds for any such purchase would be the Company's
available cash or cash generated from other sources, including borrowings, sales
of assets, sales of equity or funds provided by a new controlling person. A
Change of Control likely would constitute an event of default under the New
Credit Facility that would permit the lenders to accelerate the debt under the
New Credit Facility because the New Credit Facility prohibits repurchase of the
Notes without the requisite senior lenders' prior written consent. In such
event, the Company likely would attempt to refinance the indebtedness
outstanding under the New Credit Facility and the Notes. In addition, the terms
governing the outstanding preferred stock require it to be redeemed upon a
change in ownership control. The aggregate amount attributable to redemption of
this stock would have been $12.3 million as of June 30, 1998. There can be no
assurance that sufficient funds will be available at the time of any Change of
Control to make any required purchases of Notes tendered, to repay indebtedness
under the New Credit Facility or to make the required redemptions of the
Company's preferred stock. See "Description of Certain Indebtedness" and
"Description of the Notes -- Change of Control."
The Company could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations or highly
leveraged transactions, that would not constitute a Change of Control under the
Indenture but that could increase the amount of Indebtedness outstanding at such
time or otherwise affect the Company's capital structure or credit ratings or
otherwise adversely affect the Holders.
ABSENCE OF A PUBLIC MARKET FOR THE NOTES; VOLATILITY; RESTRICTIONS ON RESALE
The Exchange Notes are being offered to the holders of Existing Notes. The
Existing Notes were originally issued on the Issue Date to the Initial
Purchasers pursuant to Section 4(2) of the Securities Act. The Company has been
advised that the Existing Notes subsequently have been resold to (i) qualified
institutional buyers as defined in Rule 144A ("Qualified Institutional Buyers"
or "QIBs") in reliance on, and subject to the restrictions imposed pursuant to,
Rule 144A, and (ii) certain non-U.S. persons outside the United States of
America in accordance with Regulation S. The Existing Notes beneficially owned
by Qualified Institutional Buyers are eligible for trading in the Private
Offering, Resale and Trading through Automated Linkages ("PORTAL") Market, which
is the National Association of Securities Dealers' screen-based automated market
for trading of securities eligible for resale under Rule 144A.
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To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the remaining untendered or tendered but not
accepted Existing Notes could be adversely affected. The Exchange Notes will
constitute a new issue of securities, have no established trading market and may
not be widely distributed. Although the Initial Purchasers have informed the
Company that they currently intend to make a market in the Exchange Notes, they
are not obligated to do so and may discontinue market making at any time without
notice. The Company does not intend to list the Notes on any national securities
exchange or to seek the admission thereof to trading in The Nasdaq Stock Market.
Accordingly, there can be no assurance as to the development or liquidity of any
market for either Exchange Notes or the Existing Notes. If a market does
develop, the Notes may trade at a discount from their principal amount, and the
price of the Notes may fluctuate depending on many factors including, but not
limited to, prevailing interest rates, the Company's operating results and the
market for similar securities, and liquidity may therefore be limited. If a
market for the Notes does not develop, purchasers may be unable to resell such
securities for an extended period of time, if at all.
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THE EXCHANGE OFFER
GENERAL
The Existing Notes were originally sold by the Company on June 23, 1998 to
the Initial Purchasers pursuant to a purchase agreement dated June 18, 1998 (the
"Purchase Agreement"). The Initial Purchasers subsequently resold the Existing
Notes to QIBs in reliance on Rule 144A and to non-U.S. persons in accordance
with Regulation S.
The Company hereby offers, upon the terms and conditions set forth herein
and in the related Letter of Transmittal, to exchange Exchange Notes for a like
principal amount of outstanding Existing Notes. An aggregate of $125 million
principal amount of Existing Notes are outstanding. The Exchange Offer is not
conditioned upon any minimum principal amount of Existing Notes being tendered.
REGISTRATION AGREEMENT
As a condition to the Purchase Agreement, the Company agreed pursuant to
the Registration Rights Agreement with the Initial Purchasers dated as of June
18, 1998 (the "Registration Agreement"), for the benefit of the holders of the
Existing Notes, that the Company will, at its cost, (i) within 45 days after the
date of original issue of the Existing Notes, file a registration statement (the
"Exchange Offer Registration Statement") with the SEC with respect to a
registered offer to exchange the Existing Notes for the Exchange Notes that will
be issued under the Indenture in the same aggregate principal amount and having
terms substantially identical in all material respects to the Existing Notes
(except that the Exchange Notes will not contain terms with respect to transfer
restrictions) and (ii) use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
150 days after the date of original issue of the Existing Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer the Exchange Notes in exchange for surrender of the Existing Notes. The
Company will keep the Exchange Offer open for not less than 30 days (or longer
if required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Existing Notes. For each Existing Note surrendered
to the Company pursuant to the Exchange Offer, the holder of such Existing Note
will receive an Exchange Note having a principal amount equal to that of the
surrendered Existing Note. Interest on each Exchange Note will accrue from the
last interest payment date on which interest was paid on the Existing Note
surrendered in exchange thereof or, if no interest has been paid on such
Existing Note, from the date of its original issue.
If the Company effects the Exchange Offer, it will be entitled to close the
Exchange Offer 30 days after the commencement thereof provided that it has
accepted all Existing Notes theretofore validly tendered in accordance with the
terms of the Exchange Offer.
In the event that applicable interpretations of the staff of the SEC do not
permit the Company to effect a registered Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the date of the
Registration Agreement, or if the Initial Purchasers so request with respect to
Existing Notes not eligible to be exchanged for Exchange Notes in the Exchange
Offer, or if any holder of Existing Notes is not eligible to participate in the
Exchange Offer or does not receive freely tradeable Exchange Notes in the
Exchange Offer, the Company will, at its cost, (a) as promptly as practicable,
file a shelf registration statement (a "Shelf Registration Statement") covering
resales of the Existing Notes or the Exchange Notes, as the case may be, (b) use
its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) keep the Shelf Registration Statement
effective until the time when the Existing Notes covered by the Shelf
Registration Statement can be sold pursuant to Rule 144 without any limitations
under clauses (c), (e), (f) and (h) of Rule 144. The Company will, in the event
a Shelf Registration Statement is filed, among other things, provide to each
holder for whom such Shelf Registration Statement was filed 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
Existing Notes or the Exchange Notes, as the case may be. A holder selling such
Existing Notes or Exchange Notes pursuant to the Shelf Registration Statement
generally would be required to be named as a selling security holder 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
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<PAGE> 29
with such sales and will be bound by the provisions of the Registration
Agreement which are applicable to such holder (including certain indemnification
obligations).
Pursuant to the Registration Agreement, if (i) by August 7, 1998, neither
the Exchange Offer Registration Statement nor the Shelf Registration Statement
has been filed with the SEC; (ii) by December 21, 1998, the Exchange Offer is
not consummated and, if applicable, the Shelf Registration Statement is not
declared effective; or (iii) after either the Exchange Offer Registration
Statement or the Shelf Registration Statement is declared effective, such
Registration Statement thereafter ceases to be effective or usable (subject to
certain exceptions) in connection with resales of Existing Notes or Exchange
Notes in accordance with and during the periods specified in the Registration
Agreement (each such event referred to in clauses (i) through (iii) a
"Registration Default"), additional interest will accrue on the applicable
Existing Notes and the Exchange Notes at the rate of 0.50% per annum from and
including the date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured. Such
interest is payable in addition to any other interest payable from time to time
with respect to the Existing Notes and the Exchange Notes.
The Company's purpose in making the Exchange Offer is to comply with the
Registration Agreement and to avoid the payment of additional interest which the
Company would incur if the Exchange Offer were not duly and timely consummated.
The full terms of the Company's obligations with respect to the Exchange Offer
are set forth in the Registration Agreement which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The summary
herein of certain provisions of the Registration Agreement does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Registration Agreement, a copy of which is available
from the Company upon request.
CERTAIN EFFECTS OF THE EXCHANGE OFFER
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, the Company believes that the
Exchange Offer will provide holders of Existing Notes with Exchange Notes that
will generally be freely transferable by holders thereof (other than any holder
who is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), who may offer for resale, resell or otherwise transfer such
Exchange Notes without complying with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of each such holder's business and such holders are not
engaged in, and do not intend to engage in, a distribution of such Exchange
Notes and have no arrangement or understanding with any person to participate in
a distribution of such Exchange Notes, provided, further that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will have a prospectus delivery requirement with respect to resales of such
Exchange Notes. The SEC has taken the position that Participating Broker-Dealers
may fulfill their prospectus delivery requirements with respect to Exchange
Notes (other than a resale of an unsold allotment from the original sale of the
Existing Notes) with the prospectus contained in the Exchange Offer Registration
Statement. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." Under the
Registration Agreement, the Company is required to allow Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such Exchange Notes. The Company has
not sought, and does not intend to seek, a no-action letter from the Commission
with respect to the effects of the Exchange Offer.
The Existing Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities under the Securities Act.
Accordingly, such Existing Notes may be resold only (i) to the Company, (ii)
pursuant to a registration statement that has been declared effective under the
Securities Act, (iii) for so long as the Existing Notes are eligible for resale
pursuant to Rule 144A, to a person reasonably believed to be a QIB that
purchases for its own account or for the account of a QIB to whom notice is
given that the transfer is being made in reliance on Rule 144A, (iv) pursuant to
offers and sales to non-U.S. persons that occur outside the United States within
the meaning of Regulation S, (v) to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
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<PAGE> 30
Act and referred to in this Prospectus as an "Institutional Accredited
Investor") that is acquiring the security for its own account or for the account
of such an Institutional Accredited Investor for investment purposes and not
with a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act or (vi) pursuant to any other available
exemption from the registration requirements of the Securities Act, subject in
each of the foregoing cases (a) to any requirement of law that the disposition
of its property or the property of such investor account or accounts be at all
times within its or their control and (b) to compliance with any applicable
state or other securities laws. After the Exchange Offer is completed, holders
of Existing Notes will not have certain registration rights under the
Registration Agreement. See "-- Termination of Certain Rights."
Because the Exchange Offer is for any and all Existing Notes, the number of
Existing Notes tendered and exchanged in the Exchange Offer will reduce the
principal amount of Existing Notes outstanding. As a result, the liquidity of
any remaining Existing Notes may be substantially reduced. The Existing Notes
beneficially owned by QIBs are currently eligible for sale pursuant to Rule 144A
through PORTAL. Because the Company anticipates that most holders of Existing
Notes will elect to exchange such Existing Notes for Exchange Notes due to the
absence of restrictions on the resale of Exchange Notes under the Securities
Act, the Company anticipates that the liquidity of the market for any Existing
Notes remaining after the consummation of the Exchange Offer may be
substantially limited.
The exchange of an Existing Note for an Exchange Note should not constitute
a taxable exchange of the Existing Note if the interest rate on the Exchange
Note is equal to the interest rate on the Existing Note. Although there is no
definitive guidance on the issue, even if the interest rate on the Exchange Note
is not equal to the interest rate on the Existing Note because Additional
Interest is payable on the Existing Note but not on the Exchange Note, the
exchange should not constitute a taxable exchange of the Existing Note. See
"Certain United States Federal Income Tax Considerations."
EXPIRATION AND EXTENSION
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998, unless extended by the Company. The Exchange Offer may be extended by
oral or written notice from the Company to the Exchange Agent at any time or
from time to time, on or prior to the date then fixed for the expiration of the
Exchange Offer. The term "Expiration Date" means 5:00 p.m., New York City time,
on , 1998, unless the Company, in its sole discretion, notifies the
Exchange Agent that the period of the Exchange Offer has been extended, in which
case the term "Expiration Date" means the latest time and date on which the
Exchange Offer, as so extended, will expire. Notwithstanding any extension of
the Exchange Offer, if the Exchange Offer is not consummated by December 21,
1998, additional interest will accrue. Public announcement of any extension of
the Exchange Offer will be timely made by the Company, but, unless otherwise
required by law or regulation, the Company will not have any obligation to
communicate such public announcement other than by making a release to the Dow
Jones News Service.
ACCRUED INTEREST
Holders of Existing Notes that are accepted for exchange will not receive
any accrued interest thereon. However, each Exchange Note will bear interest
from the most recent date on which interest has been paid on the corresponding
Existing Note, or, if no interest has been paid, from June 23, 1998.
CONDITIONS
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to cause the
issuance of Exchange Notes in respect of any validly tendered Existing Notes not
accepted and, prior to the acceptance of tendered Existing Notes, may terminate
the Exchange Offer (by oral or written notice to the Exchange Agent and by
timely public announcement communicated, unless otherwise required by applicable
law or regulation, by making a release to the Dow Jones News Service) or,
subject to compliance with the applicable rules of the Commission, delay the
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<PAGE> 31
acceptance of the tendered Existing Notes, if any material change occurs which
is likely to affect the Exchange Offer, including, but not limited to, the
following:
(i) there shall occur (a) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (b) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (c) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States or any limitation by
any governmental agency or authority which adversely affects the extension
of credit or (d) a commencement of a war, armed hostilities or other
similar international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time of the
commencement of the Exchange Offer, a material acceleration or worsening
thereof;
(ii) any statute, rule or regulation shall have been proposed or
enacted, or any action shall have been taken or proposed to be taken by any
governmental authority which, in the sole judgment of the Company, would or
might prohibit, restrict or delay completion of the Exchange Offer;
(iii) there shall be instituted or threatened any action or proceeding
before any court or governmental agency challenging the Exchange Offer or
otherwise directly or indirectly relating to the Exchange Offer;
(iv) there shall occur any development in any pending action or
proceeding which, in the sole judgment of the Company, would or might
prohibit, restrict or delay consummation of the Exchange Offer;
(v) there exists, in the sole judgment of the Company, any actual or
threatened legal impediment (including a default or prospective default
under an agreement, indenture or other instrument or obligation to which
the Company is a party or by which it is bound) to the completion of the
Exchange Offer; or
(vi) prior to the completion of the Exchange Offer, the Company
determines there has been a change in law or applicable interpretation
thereof by the staff of the Commission such that the Exchange Notes that
would be received by holders in the Exchange Offer in exchange for Existing
Notes would not be transferable, upon receipt, by each such holder (other
than a holder that is an affiliate of the Company, a holder who acquires
the Exchange Notes outside the ordinary course of such holder's business, a
holder who is engaged in or intends to engage in a distribution of such
Exchange Notes or a holder who has arrangements or understandings with any
person to participate in the Exchange Offer for the purpose of distributing
the Exchange Notes) without restriction under the Securities Act.
Subject to the obligations under the Registration Agreement to use its best
efforts to complete the Exchange Offer, the Company expressly reserves the
right, at any time prior to the acceptance of tendered Existing Notes, to
terminate the Exchange Offer and not accept for exchange any Existing Notes upon
the occurrence of any of the foregoing conditions. In addition, the Company may
amend the Exchange Offer at any time prior to the acceptance of tendered
Existing Notes if any of the conditions set forth above occur. Moreover,
regardless of whether any of the foregoing conditions has occurred, the Company
reserves the right, in its reasonable discretion, to amend the Exchange Offer in
any manner prior to the acceptance of tendered Existing Notes, although it has
no current intention to do so.
The Company reserves the right to waive any condition or otherwise amend
the Exchange Offer prior to the acceptance of tendered Existing Notes. If any
amendment by the Company of the Exchange Offer or waiver by the Company of any
condition thereto constitutes a material change in the information previously
disclosed to the holders of Existing Notes, the Company will, in accordance with
the applicable rules of the Commission, promptly disseminate disclosure of such
change in a manner reasonably calculated to inform such holders of such change.
If it is necessary to permit an adequate dissemination of information regarding
such material change, the Company will extend the Exchange Offer to permit an
adequate time for holders of Existing Notes to consider the additional
information.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company, in whole
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or in part, at any time and from time to time in its sole discretion. Any
determination made by the Company concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties to the Exchange Offer.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no Exchange Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended.
If the event referred to in clause (vi), above, shall occur, the Company
shall be under no continuing obligation under the Registration Agreement to
complete the Exchange Offer, but in lieu thereof will be obligated to file and
use its best efforts to secure and maintain the effectiveness under the
Securities Act of a "shelf" registration statement providing for the resale of
Existing Notes.
HOW TO TENDER
A holder of Existing Notes may tender Existing Notes by (i) properly
completing and signing the Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to the Letter of Transmittal shall be deemed to
include a facsimile thereof), having their signatures guaranteed if required,
and delivering the same, together with the Existing Notes being tendered (or a
confirmation of an appropriate book-entry transfer), to the Exchange Agent on or
prior to the Expiration Date, or (ii) requesting a broker, dealer, bank, trust
company or other nominee to effect the transaction for such holder prior to the
Expiration Date.
Exchange Notes will not be issued in the name of a person other than that
of a registered holder of the Existing Notes appearing on the Note register.
The Exchange Agent will establish an account with respect to the Existing
Notes at The Depository Trust Company ("DTC" or the "Depository") for purposes
of the Exchange Offer promptly after the date of this Prospectus, and any
financial institution which is a participant in DTC may make book-entry delivery
of the Existing Notes by causing DTC to transfer such Existing Notes into the
Exchange Agent's account in accordance with DTC's procedure for such transfer.
Although delivery of Existing Notes may be effected through book-entry transfer
into the Exchange Agent's account at DTC, the Letter of Transmittal, with any
required signature guarantees and any other required documents, must in any case
be transmitted to and received by the Exchange Agent on or prior to the
Expiration Date at the address set forth below under "-- Exchange Agent," or the
guaranteed delivery procedure described below must be complied with. Delivery of
documents to DTC does not constitute delivery to the Exchange Agent. See
"-- Exchanging Book-Entry Notes."
THE METHOD OF DELIVERY OF EXISTING NOTES AND ALL OTHER DOCUMENTS, INCLUDING
DELIVERY THROUGH DTC, IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED,
AND PROPER INSURANCE BE OBTAINED.
If a holder desires to tender Existing Notes pursuant to the Exchange Offer
and such holder's Existing Notes are not immediately available or time will not
permit all of the above documents to reach the Exchange Agent prior to the
Expiration Date, or such holder cannot complete the procedure of book-entry
transfer on a timely basis, such tender may be effected if the following
conditions are satisfied:
(i) such tenders are made by or through an eligible guarantor
institution which is a member of one of the following Signature Guarantee
Programs: The Securities Transfer Agents Medallion Program (STAMP); The New
York Stock Exchange's Medallion Signature Program (MSP) and The Stock
Exchanges Medallion Program (SEMP) (each, an "Eligible Institution");
(ii) a properly completed and duly executed notice of guaranteed
delivery ("Notice of Guaranteed Delivery"), in substantially the form
provided by the Company, is received by the Exchange Agent as provided
below on or prior to the Expiration Date; and
(iii) the Existing Notes, in proper form for transfer (or confirmation
of book-entry transfer of such Existing Notes into the Exchange Agent's
account at the Depository as described above), together with a properly
completed and duly executed Letter of Transmittal and all other documents
required by the
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Letter of Transmittal, are received by the Exchange Agent within five New
York Stock Exchange, Inc. trading days after the date of execution of such
Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile transmission or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such Notice of
Guaranteed Delivery.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Existing
Notes (or a timely confirmation received of a book-entry transfer of Existing
Notes into the Exchange Agent's account at DTC) or a Notice of Guaranteed
Delivery from an Eligible Institution is received by the Exchange Agent.
Issuances of Exchange Notes in exchange for Existing Notes tendered pursuant to
a Notice of Guaranteed Delivery by an Eligible Institution will be made only
against delivery of the Letter of Transmittal (and any other required documents)
and the tendered Existing Notes (or a timely confirmation received of a
book-entry transfer of Existing Notes into the Exchange Agent's account at DTC)
to the Exchange Agent or confirmation of the Book-Entry Transfer Facility
Automated Tender Offer Program ("ATOP") procedures set forth below. See
"-- Exchanging Book-Entry Notes."
Partial tenders of Existing Notes may be made only if (i) the principal
amount tendered is equal to $1,000 or an integral multiple thereof and (ii) the
remaining untendered portion of such Existing Notes is in a principal amount of
$250,000, or any integral multiple of $1,000 in excess of such amount. Holders
tendering less than the entire principal amount of any Existing Note they hold
in accordance with the foregoing restrictions must appropriately indicate such
fact on the Letter of Transmittal accompanying the tendered Existing Note.
With respect to tenders of Existing Notes, the Company reserves full
discretion to determine whether the documentation is complete and generally to
determine all questions as to tenders, including the date of receipt of a
tender, the propriety of execution of any document, and any other questions as
to the validity, form, eligibility or acceptability of any tender. The Company
reserves the right to reject any tender not in proper form or otherwise not
valid or the acceptance of exchange of which, in the opinion of the Company's
counsel, may be unlawful or to waive any irregularities or conditions, and the
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions on the Letter of Transmittal) will be final. The
Company shall not be obligated to give notice of any defects or irregularities
in tenders and shall not incur any liability for failure to give any such
notice. The Exchange Agent may, but shall not be obligated to, give notice of
any irregularities or defects in tenders, and shall not incur any liability for
any failure to give any such notice. Existing Notes shall not be deemed to have
been duly or validly tendered unless and until all defects and irregularities
have been cured or waived. All improperly tendered Existing Notes, as well as
Existing Notes in excess of the principal amount tendered for exchange, will be
returned (unless irregularities and defects are timely cured or waived), without
cost to the tendering holder (or, in the case of Existing Notes delivered by
book-entry transfer within DTC, will be credited to the account maintained
within DTC by the participant in DTC which delivered such shares), promptly
after the Expiration Date.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Existing Notes, such Existing Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
Existing Notes.
If the Letter of Transmittal or any Existing Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
EXCHANGING BOOK-ENTRY NOTES
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in the DTC may utilize ATOP to tender Existing Notes.
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Any DTC participant may make book-entry delivery of Existing Notes by
causing DTC to transfer such Existing Notes into the Exchange Agent's account in
accordance with DTC's ATOP procedures for transfer. However, the exchange for
the Existing Notes so tendered will only be made after timely confirmation (a
"Book-Entry Confirmation") of such book-entry transfer of Existing Notes into
the Exchange Agent's account, and timely receipt by the Exchange Agent of an
Agent's Message (as defined) and any other documents required by the Letter of
Transmittal. The term "Agent's Message" means a message, transmitted by the DTC
and received by the Exchange Agent and forming part of a Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
a participant tendering Existing Notes that 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 the Company may enforce such
agreement against such participant.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, certain terms and
conditions which are summarized below and are part of the Exchange Offer.
By tendering Existing Notes and executing the Letter of Transmittal, the
holder thereof shall represent and agree that (i) it is neither an affiliate of
the Company nor a broker-dealer tendering Existing Notes acquired directly from
the Company for its own account, (ii) it acquired the Exchange Notes in the
ordinary course of its business and (iii) it is not engaged in, and does not
intend to engage in, a distribution of the Exchange Notes and it has no
arrangement or understanding to participate in a distribution of Exchange Notes.
Holders of Existing Notes who participate in the Exchange Offer should be aware
that, except in the case of certain broker-dealers as described below, if they
accept the Exchange Offer for the purpose of participating in a distribution of
the Exchange Notes, they cannot rely on such interpretations by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act. A holder of Existing Notes (other than
certain specified holders) who wishes to exchange such Existing Notes for
Exchange Notes in the Exchange Offer will be required to represent that any
Exchange Notes to be received by it will be acquired in the ordinary course of
its business and that at the time of the commencement of the Exchange Offer it
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and that it is not an "affiliate" of the Company, as defined in Rule 405 of the
Securities Act, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus with any resale
of such Exchange Notes. See "Plan of Distribution." The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
Existing Notes tendered in exchange for Exchange Notes (or a timely
confirmation of a book-entry transfer of such Existing Notes into the Exchange
Agent's account at DTC) must be received by the Exchange Agent, with the Letter
of Transmittal and any other required documents, by 5:00 p.m., New York City
time, on or prior to , 1998, unless extended, or within the time
periods set forth above in "-- How to Tender" pursuant to a Notice of Guaranteed
Delivery from an Eligible Institution. The party tendering the Existing Notes
for exchange (the "Tendering Holder") shall be deemed to have sold, assigned and
transferred the Existing Notes to the Exchange Agent, as agent of the Company,
and irrevocably constituted and appointed the Exchange Agent as the Tendering
Holder's agent and attorney-in-fact to cause the Existing Notes to be
transferred and exchanged. The Tendering Holder shall also warrant that it has
full power and authority to tender, exchange, sell, assign, and transfer the
Existing Notes and to acquire the Exchange Notes issuable upon the exchange of
such tendered Existing Notes, that the Exchange Agent, as agent of the Company,
will acquire good and unencumbered title to the tendered Existing Notes, free
and clear of all liens, restrictions, charges and encumbrances, and that the
Existing Notes tendered for exchange are not subject to any adverse claims when
accepted by the Exchange Agent, as agent of the Company. The Tendering Holder
shall also warrant that it will, upon request, execute and deliver any
additional documents
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deemed by the Company or the Exchange Agent to be necessary or desirable to
complete the exchange, sale, assignment and transfer of the Existing Notes. All
authority conferred or agreed to be conferred in the Letter of Transmittal by
the Tendering Holder will survive the death or incapacity of the Tendering
Holder and any obligation of the Tendering Holder shall be binding upon the
heirs, executors, administrators, personal representatives, trustees in
bankruptcy, legal representatives, successors and assigns of such Tendering
Holder.
Signature(s) on the Letter of Transmittal will be required to be guaranteed
as set forth above in "-- How to Tender." All questions as to the validity,
form, eligibility (including time of receipt) and acceptability of any tender
will be determined by the Company, in its sole discretion, and such
determination will be final and binding. Unless waived by the Company,
irregularities and defects must be cured by the Expiration Date.
WITHDRAWAL RIGHTS
All tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date. To be effective, a notice of withdrawal must be timely received
by the Exchange Agent at the address set forth below under "-- Exchange Agent."
Any notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered the Existing Notes to be withdrawn. If the
Existing Notes have been physically delivered to the Exchange Agent, the
Tendering Holder must also submit the serial number shown on the particular
Existing Notes to be withdrawn. If the Existing Notes have been delivered
pursuant to the book-entry procedures set forth above under "-- How to Tender,"
any notice of withdrawal must specify the name and number of the participant's
account at the Depository to be credited with the withdrawn Existing Notes. The
Exchange Agent will return the properly withdrawn Existing Notes as soon as
practicable following receipt of the notice of withdrawal. All questions as to
the validity, including time of receipt, of notices and withdrawals will be
determined by the Company, and such determination will be final and binding on
all parties.
ACCEPTANCE OF TENDERS
Subject to the terms and conditions of the Exchange Offer, including the
reservation of certain rights by the Company, Existing Notes tendered (either
physically or through book-entry delivery as described in "-- How to Tender")
with a properly executed Letter of Transmittal and all other required
documentation, and not withdrawn, will be accepted on or promptly after the
Expiration Date. At the option of the holder of an Exchange Note, such Exchange
Note may be held in the form of either (i) a certificated Exchange Note or (ii)
a beneficial interest in one or more of the Global Notes (as defined).
Beneficial interests in the Global Notes will be shown on, and transfers thereof
will be effected only through, records maintained by the Depository and its
participants. Subject to the terms and conditions of the Exchange Offer,
certificated Exchange Notes to be issued in exchange for properly tendered
Existing Notes will be mailed by the Exchange Agent promptly after the
acceptance of such tendered Existing Notes and the Exchange Notes to be issued
in the form of Global Notes will be deposited with the Depository promptly after
acceptance of the related tendered Existing Notes. Acceptance of tendered
Existing Notes will be effected by the delivery of a notice to that effect by
the Company to the Exchange Agent. Subject to the applicable rules of the
Commission, the Company, however, reserves the right, prior to the acceptance of
tendered Existing Notes, to delay acceptance of tendered Existing Notes upon the
occurrence of any of the conditions set forth above under the caption
"-- Conditions." The Company confirms that its reservation of the right to delay
acceptance of tendered Existing Notes is subject to the provisions of Rule
14e-1(c) under the Securities Exchange Act of 1934, as amended, which requires
that a tender offeror pay the consideration offered or return the tendered
securities promptly after the termination or withdrawal of a tender offer.
Although the Company does not currently intend to do so, if it modifies the
terms of the Exchange Offer, such modified terms will be available to all
holders of Existing Notes, whether or not their Existing Notes have been
tendered prior to such modification. Any material modification will be disclosed
in accordance with the applicable rules of the Commission and, if required, the
Exchange Offer will be extended to permit holders of Existing Notes adequate
time to consider such modification.
The tender of Existing Notes pursuant to any one of the procedures set
forth in "-- How to Tender" will constitute an agreement between the Tendering
Holder and the Company upon the terms and subject to the conditions of the
Exchange Offer.
31
<PAGE> 36
EXCHANGE AGENT
United States Trust Company of New York has agreed to provide certain
services as Exchange Agent for the Exchange Offer. Tendering Holders who require
assistance should contact the Exchange Agent. Letters of Transmittal and any
inquiries with respect to the Exchange Offer must be addressed to the Exchange
Agent as follows:
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission By Hand up to 4:30 p.m.:
Number:
United States Trust (212) 780-0592 United States Trust Company
Company of New York (For Eligible Institutions of New York
P.O. Box 844 Only) 111 Broadway
Cooper Station Lower Level
New York, New York Confirm by Telephone: New York, New York 10006
10276-0844 (800) 548-6565 Attn: Corporate Trust
Attn: Corporate Trust Services
Services
(Registered or Certified Mail
Recommended)
By Overnight Courier:
United States Trust Company
of New York
770 Broadway -- 13th Floor
New York, New York 10003
Attn: Corporate Trust
Services
</TABLE>
DELIVERY TO OTHER THAN THE ADDRESS SET FORTH ABOVE OR FACSIMILE
TRANSMISSION TO OTHER THAN THE FACSIMILE TRANSMISSION NUMBER SET FORTH ABOVE
WILL NOT CONSTITUTE VALID DELIVERY.
SOLICITATION OF TENDERS; EXPENSES
Except as described above under "-- Exchange Agent," the Company has not
retained any agent in connection with the Exchange Offer and will not make any
payments to brokers, dealers or other persons for soliciting or recommending
acceptances of the Exchange Offer. The Company, will, however, reimburse the
Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company will also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus and related documents to the beneficial
owners of the Existing Notes and in handling or forwarding tenders for their
customers.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the transfer
of Existing Notes to it or its order pursuant to the Exchange Offer. If,
however, Exchange Notes and/or substitute Existing Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Existing Notes tendered, or if tendered
Existing Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the transfer of Existing Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other person) will be payable by the
Tendering Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such Tendering Holder.
ACCOUNTING TREATMENT
The carrying value of the Existing Notes is expected to become the carrying
value of the Exchange Notes at the time of the Exchange Offer. Accordingly, no
gain or loss for accounting purposes will be recognized. The expenses of the
Exchange Offer will be amortized over the term of the Exchange Notes.
32
<PAGE> 37
TERMINATION OF CERTAIN RIGHTS
Holders of the Exchange Notes will not be entitled to certain special
rights under the Registration Agreement, which rights will terminate when the
Exchange Offer is completed. Pursuant to the Registration Agreement, the
Exchange Offer shall be deemed to be "completed" upon the occurrence of (i) the
filing and effectiveness under the Securities Act of a registration statement
relating to the Exchange Notes to be issued in the Exchange Offer, (ii) the
maintenance of such registration statement continuously effective for a period
of not less than 30 days after notice has been sent to holders of Existing Notes
and (iii) the delivery by the Company in exchange for all Existing Notes that
have been duly tendered and not validly withdrawn on or prior to the Expiration
Date of Exchange Notes transferable by each holder thereof (other than a holder
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act, a broker-dealer tendering Existing Notes acquired directly from
the Company for its own account, a holder who acquires the Exchange Notes
outside the ordinary course of such holder's business or a holder who is engaged
in or who intends to engage in a distribution of the Exchange Notes or who has
arrangements or understandings with any person to participate in the Exchange
Offer for the purpose of distributing the Exchange Notes) without restrictions
under the Securities Act. The rights that will terminate include the right to
require the Company (i) to file with the Commission, and use its best efforts to
cause to become effective under the Securities Act, a registration statement
with respect to the Exchange Notes and (ii) other than in certain limited
circumstances, to file with the Commission, use its best efforts to cause to
become effective under the Securities Act and keep continuously effective for a
period of up to three years a "shelf" registration statement providing for the
registration of, and the sale on a continuous or delayed basis by the holders
of, Existing Notes.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Agreement. The Company will not receive any
cash proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive in exchange Existing Notes in like principal amount,
the form and terms of which are identical in all material respects to the form
and terms of the Exchange Notes, except as otherwise described herein. The
Existing Notes surrendered in exchange for the Exchange Notes will be retired
and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase in the indebtedness of the Company.
The proceeds to the Company for the sale of the Existing Notes were
approximately $121.3 million, net of Initial Purchasers' discount. The net
proceeds to the Company from the sale of the Existing Notes were used as
follows: (i) approximately $47.9 million was used to pay the purchase price of
the Acquisition and related expenses; (ii) approximately $63.9 million was used
to repay the Company's existing revolving credit facility and term loan
facility, existing subordinated debt, and an existing note payable
(collectively, the "Outstanding Indebtedness"); (iii) approximately $3.3 million
was used to retire a portion of the Company's Series A Preferred Stock; (iv)
approximately $1.3 million was used to pay fees and expenses of the Private
Offering; and (v) approximately $4.9 million was used for general corporate
purposes.
33
<PAGE> 38
CAPITALIZATION
The following table sets forth, as of June 30, 1998, the consolidated
capitalization of the Company. The information set forth below should be read in
conjunction with the consolidated financial statements of Aqua-Chem included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 9,300
========
Long-term debt:
New Credit Facility(a).................................... $ --
The Notes................................................. 125,000
--------
Total debt............................................. 125,000
Preferred stock............................................. 4,704
Stockholders' deficit....................................... (1,611)
--------
Total capitalization................................. $128,093
========
</TABLE>
- ------------------------------------
(a) Consists of a $45,000 revolving facility, none of which was drawn at June
30, 1998. See "Description of Certain Indebtedness."
34
<PAGE> 39
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data include the unaudited pro forma
consolidated statements of operations of the Company for the twelve months ended
December 31, 1997, and the six months ended June 30, 1998 (the "Pro Forma
Statements of Operations"). The Pro Forma Statements of Operations for the
twelve months ended December 31, 1997 have been prepared using NDC's results for
the fiscal year ended October 31, 1997. The Pro Forma Statements of Operations
for the six months ended June 30, 1998 have been prepared using NDC's historical
results for the period from January 1, 1998 through June 23, 1998, the date the
Acquisition was consummated (the operations of the Company's National Dynamics
Division, consisting of the former business of NDC, for the period June 24,
1998, to June 30, 1998, are not included in Aqua-Chem's historical results for
the six months ended June 30, 1998, as management has determined the impact is
not material to the Company's Consolidated Statement of Operations). The results
of NDC's operations for the year ended October 31, 1997 are not necessarily
indicative of the results of NDC's operations for the twelve months ended
December 31, 1997. NDC's net sales and net income for the combined months of
November and December 1997 were $12,916 and $1,901, respectively. NDC management
has advised the Company that there were no material or unusual events outside of
the normal course of business which occurred during this two month period. The
pro-forma and actual results of operations for any interim period are not
necessarily indicative of the results for an entire year. The Pro Forma
Statements of Operations give effect to the Transactions as if they had occurred
on January 1, 1997.
The Company is implementing a business plan designed to achieve certain
synergies and costs savings arising from (i) the Company's closure of its
Greenville, Mississippi facility; and (ii) the in-sourcing of certain boiler
components currently procured from third parties that either Cleaver-Brooks or
National Dynamics already produces. See Note (b) to the table under
"Summary -- Summary Unaudited Pro Forma Financial Data." The Pro Forma
Statements of Operations do not include these cost savings or the cost of
achieving these cost savings.
The Acquisition will be accounted for by the purchase method of accounting.
Under purchase accounting, the total purchase price will be allocated to the
tangible and intangible assets and liabilities acquired based upon their
respective fair values as of the closing of the Acquisition based on valuations
and studies which are not yet available. A preliminary allocation of the
purchase price has been made to major categories of assets and liabilities in
the Pro Forma Financial Statements based on available information. The final
allocation of purchase price and resulting effect on income from operations may
differ from the pro forma amounts included herein. Management does not expect
that differences between the preliminary and final purchase price allocation
will have a material impact on the Company's financial position or results of
operations. Pursuant to the Asset Purchase Agreement, the purchase price is
subject to certain post-closing adjustments based upon a closing balance sheet
and NDC's physical inventory as of the closing date. See "Summary -- Recent
Developments -- Purchase Price Dispute."
The Pro Forma Financial Statements are based on certain estimates and
assumptions made by the management of the Company as to the combined operations
of Aqua-Chem and NDC which the Company believes to be reasonable. The Pro Forma
Financial Statements do not purport to be indicative of the results of
operations or financial position of Aqua-Chem and NDC that actually would have
been obtained had the Transactions been completed as of the assumed dates, or to
project the results of operations or financial position of the Company for any
future date or period.
The Pro Forma Financial Statements should be read in conjunction with the
financial statements of Aqua-Chem and of NDC included elsewhere in this
Prospectus. See also "Risk Factors -- Realization of Benefits of the
Acquisition," "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Aqua-Chem," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of NDC."
35
<PAGE> 40
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
PRO FORMA HISTORICAL --------------------------
AQUA-CHEM(A) NDC ACQUISITION OFFERING PRO FORMA
------------ ---------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................... $191,159 $59,292 $ -- $ -- $250,451
Cost of goods sold.................. 140,950 45,862 101(b) -- 186,913
-------- ------- -------- -------- --------
Gross margin...................... 50,209 13,430 (101) -- 63,538
Selling, general and administrative
expenses.......................... 39,602 5,815 195(b) -- 45,612
-------- ------- -------- -------- --------
Operating income.................... 10,607 7,615 (296) -- 17,926
Other income (expenses):
Interest income................... 459 242 -- -- 701
Interest expense.................. (5,745) (183) 183(c) (8,823)(e) (14,568)
Other............................. 445 54 -- -- 499
-------- ------- -------- -------- --------
(4,841) 113 183 (8,823) (13,368)
Income before income taxes, minority
interest and extraordinary item... 5,766 7,728 (113) (8,823) 4,558
Income tax expense (benefit)........ 2,289 -- 3,023(d) (3,502)(f) 1,810
Minority interest in earnings of
consolidated subsidiary........... 345 -- -- -- 345
-------- ------- -------- -------- --------
Net income from continuing
operations........................ 3,132 7,728 (3,136) (5,321) 2,403
======== ======= ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Operations.
36
<PAGE> 41
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS
------------------- ----------------------------
AQUA-CHEM NDC ACQUISITION OFFERING PRO FORMA
--------- ------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............................ $76,222 $21,465 $ -- $ -- $97,687
Cost of goods sold................... 55,930 17,109 50(b) -- 73,089
------- ------- ----- ------- -------
Gross margin.................... 20,292 4,356 (50) -- 24,598
Selling, general and administrative
expenses........................... 17,446 3,450 349(b) -- 21,245
Restructuring charges................ 4,720 -- -- -- 4,720
------- ------- ----- ------- -------
Operating income (loss).............. (1,874) 906 (399) -- (1,367)
Other income (expenses):
Interest income................. 209 572 -- -- 781
Interest expense................ (3,004) (78) 78(c) (4,280)(e) (7,284)
Other........................... 26 (6) -- -- 20
------- ------- ----- ------- -------
(2,769) 488 78 (4,280) (6,483)
Income (loss) before income taxes,
minority interest and extraordinary
item............................... (4,643) 1,394 (321) (4,280) (7,850)
Income tax expense (benefit)......... (1,448) -- 427(d) (2,095)(f) (3,116)
Minority interest in earnings of
consolidated subsidiary............ 136 -- -- -- 136
------- ------- ----- ------- -------
Net income (loss) from continuing
operations......................... (3,331) 1,394 (748) (2,185) (4,870)
======= ======= ===== ======= =======
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Operations.
37
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) Represents Aqua-Chem's Statement of Operations for the period January 1,
1997 to July 31, 1997, prepared using Aqua-Chem's historical basis of
accounting and Aqua-Chem's Statement of Operations for the period August 1,
1997 to December 31, 1997, prepared under a new basis of accounting that
reflects the fair values of assets acquired and liabilities assumed, the
related financing cost and all debt incurred in connection with the
Management Buy-Out, on a combined basis, adjusted as follows:
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------- PRO FORMA
SEVEN MONTHS FIVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED MANAGEMENT ENDED
JULY 31, DECEMBER 31, DECEMBER 31, BUY-OUT DECEMBER 31,
1997 1997 1997 ADJUSTMENTS 1997
------------ ------------ ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................. $99,618 $91,541 $191,159 $ -- $191,159
Cost of goods sold.................... 73,656 66,333 139,989 961(i) 140,950
------- ------- -------- ------- --------
Gross margin........................ 25,962 25,208 51,170 (961) 50,209
Selling, general and administrative
expenses............................ 23,549 17,136 40,685 (1,083)(i) 39,602
------- ------- -------- ------- --------
Operating income...................... 2,413 8,072 10,485 122 10,607
Other income (expenses):
Interest income..................... 450 202 652 (193)(ii) 459
Interest expense.................... (753) (2,559) (3,312) (2,433)(iii) (5,745)
Other............................... 336 57 393 52(iv) 445
------- ------- -------- ------- --------
33 (2,300) (2,267) (2,574) (4,841)
Income before income taxes and
minority interest................... 2,446 5,772 8,218 (2,452) 5,766
Income tax expense.................... 421 2,289 2,710 (421)(v) 2,289
Minority interest in earnings of
consolidated subsidiary............. 171 174 345 -- 345
------- ------- -------- ------- --------
Net income from continuing
operations.......................... 1,854 3,309 5,163 (2,031) 3,132
======= ======= ======== ======= ========
</TABLE>
--------------------------------------------------
<TABLE>
<S> <C> <C>
(i) Reflects the historical results of operations of Aqua-Chem adjusted
for the period from January 1, 1997 to the Management Buy-Out date as
follows:
</TABLE>
<TABLE>
<CAPTION>
COST OF SELLING, GENERAL
GOODS SOLD AND ADMINISTRATIVE
---------- ------------------
<S> <C> <C> <C>
Additional depreciation expense due to the
recording of fixed assets at fair market
value........................................ $961 $ 290
Reduction of postretirement benefits expense
due to the recognition of the full
accumulated postretirement benefit
liability.................................... -- (102)
Amortization of intangible assets resulting
from the Management Buy-Out (40 year
amortization)................................ -- 20
Elimination of certain payments to management
from the Management Buy-Out (See "Management
-- Executive Compensation.")................. -- (1,291)
---- -------
$961 $(1,083)
==== =======
</TABLE>
<TABLE>
<S> <C> <C>
(ii) Reflects a reduction of interest income for $6,600 of cash used in
the Management Buy-Out at a rate of 5.0%.
(iii) Reflects additional interest expense determined as follows:
Amortization of deferred financing costs.................... $ 333
Annualized interest on existing subordinated debt ($21,000 @
10.5%)...................................................... 2,205
Annualized interest on existing revolving credit facility
($5,000 @ 8.0%)............................................. 400
Annualized interest on existing term loan facility ($40,000
@ 8.0%)..................................................... 3,200
Less: interest on $6,000 of principal payments against the
existing debt............................................... (393)
-------
5,745
Less: historical interest expense........................... (3,312)
-------
$ 2,433
=======
</TABLE>
38
<PAGE> 43
<TABLE>
<S> <C> <C>
A one-eighth of 1% (0.125%) change in the interest rate
payable on the outstanding amount of the existing revolving
credit facility would change annual interest expense by $6
before the effect of income taxes.
(iv) Reflects the elimination of amortization of deferred
financing for debt retired in conjunction with the
Management Buy-Out.
(v) Reflects the pro forma tax effects of all adjustments using
Aqua-Chem's consolidated effective tax rate for the
applicable period. See Note 10 to Aqua-Chem's consolidated
financial statements for a reconciliation from the statutory
tax rate to the effective tax rate.
</TABLE>
(b) Reflects the historical results of operations of NDC, adjusted as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
------------------------------ ------------------------------
SELLING, SELLING,
COST OF GOODS GENERAL AND COST OF GOODS GENERAL AND
SOLD ADMINISTRATIVE SOLD ADMINISTRATIVE
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Additional depreciation expense due to
the recording of fixed assets at
fair market value................... $181 $ 45 $ 90 $ 23
Additional depreciation expense due to
the recording of fixed assets at the
Company's lives..................... 120 30 60 16
Amortization of intangible assets
resulting from the Acquisition (40
year amortization).................. -- 720 -- 360
Reduction of insurance premiums....... (200) -- (100) --
Elimination of employment costs of
former owners (net of estimated
costs of replacing management)...... -- (600) -- (50)
---- ----- ---- ----
$101 $ 195 $ 50 $349
==== ===== ==== ====
</TABLE>
(c) Reflects the elimination of interest expense on NDC's short term borrowings
that would not be required.
(d) Reflects the pro forma tax effects of NDC being taxed as a C-Corporation.
(e) Reflects additional interest expense resulting from the Private Offering as
follows:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------- ----------
<S> <C> <C>
The Notes................................................... $14,063 $ 7,032
Amortization of deferred financing fees associated with the
Private Offering.......................................... 505 252
------- -------
14,568 7,284
Less historical interest expense............................ (5,745) (3,004)
------- -------
$ 8,823 $ 4,280
======= =======
</TABLE>
(f) Reflects the pro forma tax effects of all adjustments using Aqua-Chem's
effective tax rate for the applicable period. See Note 10 to Aqua-Chem's
consolidated financial statements for a reconciliation from the statutory
tax rate to the effective tax rate.
39
<PAGE> 44
SELECTED FINANCIAL DATA OF AQUA-CHEM
The following table sets forth selected historical financial data of
Aqua-Chem as of and for: (i) each of the two years ended December 31, 1996 and
1995, derived from the consolidated financial statements of Aqua-Chem, which
have been audited by KPMG Peat Marwick LLP, Milwaukee, Wisconsin and are
included elsewhere in this Prospectus; (ii) each of the years ended December 31,
1994 and 1993, derived from the consolidated financial statements of Aqua-Chem,
which have been audited by KPMG Peat Marwick LLP, Milwaukee, Wisconsin but are
not included in this Prospectus; (iii) the seven-month period ended July 31,
1997 and the five-month period ended December 31, 1997, derived from the
consolidated financial statements of Aqua-Chem, which have been audited by
Arthur Andersen LLP, Milwaukee, Wisconsin, and are included elsewhere in this
Prospectus; and (iv) the six month periods ended June 30, 1997 and 1998, derived
from the unaudited financial statements of Aqua-Chem included elsewhere in this
Prospectus, which include all adjustments that management considers necessary to
present fairly the financial results for these interim periods, all of which
were of a normal recurring nature. The results of operations for such interim
periods are not necessarily indicative of results to be expected for the full
year. This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Aqua-Chem" and the
consolidated financial statements of Aqua-Chem included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEVEN
FISCAL YEAR ENDED MONTHS FIVE MONTHS SIX MONTHS ENDED
DECEMBER 31, ENDED ENDED JUNE 30,
-------------------------------------------- JULY 31, DECEMBER 31, -------------------
1993 1994 1995 1996 1997(A) 1997(A) 1997(A) 1998
-------- -------- -------- -------- -------- ------------ ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $184,254 $187,486 $183,368 $199,552 $ 99,618 $ 91,541 $83,211 $ 76,222
Cost of goods sold............. 139,980 144,490 148,650 153,446 73,656 66,333 62,087 55,930
-------- -------- -------- -------- -------- -------- ------- --------
Gross margin................. 44,274 42,996 34,718 46,106 25,962 25,208 21,124 20,292
Selling, general and
administrative expenses...... 39,080 40,981 37,772 34,446 23,549 17,136 18,069 17,446
Restructuring charges(b)....... -- 9,011 4,593 5,038 -- -- -- 4,720
-------- -------- -------- -------- -------- -------- ------- --------
Operating income (loss)...... 5,194 (6,996) (7,647) 6,622 2,413 8,072 3,055 (1,874)
Other income (expense):
Interest income.............. 301 252 358 464 450 202 390 209
Interest expense............. (1,075) (1,200) (1,663) (1,448) (753) (2,559) (597) (3,004)
Other income (expense)....... 734 639 2,635 (806) 336 57 22 26
-------- -------- -------- -------- -------- -------- ------- --------
Earnings (loss) before income
taxes, minority interest and
extraordinary item........... 5,154 (7,305) (6,317) 4,832 2,446 5,772 2,870 (4,643)
Income tax expense (benefit)... 2,191 (2,806) 189 507 421 2,289 494 (1,448)
Minority interest in earnings
(loss) of consolidated
subsidiary................... 211 179 (52) 231 171 174 136 136
-------- -------- -------- -------- -------- -------- ------- --------
Net income (loss) before
extraordinary item........... 2,752 (4,678) (6,454) 4,094 1,854 3,309 2,240 (3,331)
Extraordinary item, net of
tax.......................... -- -- -- -- -- -- -- 1,260
-------- -------- -------- -------- -------- -------- ------- --------
Net income (loss)............ $ 2,752 $ (4,678) $ (6,454) $ 4,094 $ 1,854 $ 3,309 $ 2,240 $ (4,591)
======== ======== ======== ======== ======== ======== ======= ========
OTHER FINANCIAL DATA:
EBITDA(c)...................... $ 9,310 $ (3,028) $ (4,494) $ 9,606 $ 4,103 $ 10,043 $ 4,778 $ 28
Adjusted EBITDA(d)............. 9,310 5,983 99 14,644 4,103 10,043 4,778 4,748
Gross profit margin............ 24.0% 22.9% 18.9% 23.1% 26.1% 27.5% 25.4% 26.6%
Total depreciation and
amortization................. $ 4,116 $ 3,968 $ 3,153 $ 2,984 $ 1,690 $ 1,284 $ 1,723 $ 1,902
Capital expenditures........... 4,832 1,594 4,867 2,789 2,195 1,197 1,097 1,023
Cash provided by (used for)
operating activities......... (1,373) 891 (1,551) 8,052 4,857 9,311 1,766 (10,342)
Cash provided by (used for)
investing activities......... (4,741) 1,973 (939) (1,025) (881) (50,699) 35 (48,912)
Cash provided by (used for)
financing activities......... 1,003 (1,498) 538 1,492 6 40,715 69 56,618
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets................... $109,744 $104,133 $101,381 $101,000 $ -- $124,661 $97,008 $175,734
Total debt..................... 19,296 18,098 18,636 20,128 -- 59,691 20,198 125,000
Redeemable preferred stock..... -- -- -- -- -- 7,365 -- --
Stockholders' equity
(deficit).................... 46,738 42,254 36,636 39,960 -- 3,638 41,653 (1,611)
</TABLE>
- ------------------------------------
(a) On July 31, 1997, Aqua-Chem management and its shareholders acquired
Aqua-Chem in the Management Buy-Out, which was treated as a purchase. As a
result, all periods presented prior to August 1, 1997 were prepared using
Aqua-Chem's historical basis of accounting. All periods presented subsequent
to July 31, 1997 reflect the fair values of the assets acquired and
liabilities assumed in the Management Buy-Out.
40
<PAGE> 45
(b) For 1994 and 1995, reflects restructuring charges required to complete the
1994 Restructuring. For 1996, reflects restructuring charges required to
complete the 1996 Restructuring. For the six months ended June 30, 1998,
reflects restructuring charges to complete the 1998 Restructuring. For
further information on such restructurings, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Aqua-Chem,"
Note (3) to the consolidated financial statements of Aqua-Chem and Note (7)
to the consolidated condensed interim financial statements of Aqua-Chem, all
included elsewhere in this Prospectus.
(c) EBITDA is defined as operating income (loss) before depreciation and
amortization. While EBITDA is not intended to represent cash flow from
operations as defined by GAAP and should not be considered as an indicator
of operating performance or an alternative to cash flow (as measured by
GAAP) as a measure of liquidity, management believes it provides additional
information with respect to the ability of a company to meet its future debt
service, capital expenditures and working capital requirements. The measure
of EBITDA presented above may not be comparable to similarly titled measures
of other companies.
(d) Adjusted EBITDA for the periods presented is defined as EBITDA excluding
restructuring charges, and, in the five months ended December 31, 1997,
excludes $687 of non-cash purchase accounting adjustments related to the
Management Buy-Out.
41
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF AQUA-CHEM
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to the consolidated financial statements
of Aqua-Chem appearing elsewhere in this Prospectus. For information regarding
the pro forma financial condition of Aqua-Chem, see "Unaudited Pro Forma
Financial Data" and " -- Liquidity and Capital Resources."
The pro forma financial data for the twelve months ended December 31, 1997
was prepared using Aqua-Chem's historical results for the year then ended,
adjusted to reflect the Management Buy-Out as if the Management Buy-Out had
occurred on January 1, 1997. See footnote (a) to the Notes to Unaudited Pro
Forma Consolidated Statements of Operations under "Unaudited Pro Forma Financial
Data."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
to net sales of certain items included in Aqua-Chem's statement of operations.
<TABLE>
<CAPTION>
PRO FORMA
TWELVE
FISCAL YEAR ENDED MONTHS SIX MONTHS ENDED
DECEMBER 31, ENDED JUNE 30,
------------------- DECEMBER 31, -------------------
1995 1996 1997 1997 1998
----- ----- ------------ ----- -----
<S> <C> <C> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.......................... 81.1 76.9 73.7 74.6 73.4
----- ----- ----- ----- -----
Gross margin........................... 18.9 23.1 26.3 25.4 26.6
Selling, general and administrative
expenses.................................. 20.6 17.3 20.7 21.7 22.9
Restructuring charges....................... 2.5 2.5 -- -- 6.2
----- ----- ----- ----- -----
Operating income (loss)................ (4.2)% 3.3% 5.6% 3.7% (2.5)%
===== ===== ===== ===== =====
</TABLE>
Composition of net sales for Cleaver-Brooks and Water Technologies for the
periods indicated is listed below.
<TABLE>
<CAPTION>
PRO FORMA
TWELVE
FISCAL YEAR ENDED MONTHS SIX MONTHS ENDED
DECEMBER 31, ENDED JUNE 30,
------------------- DECEMBER 31, -----------------
1995 1996 1997 1997 1998
------ ------ ------------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales:
Cleaver-Brooks.............................. $144.7 $155.6 $154.9 $67.9 $58.3
Water Technologies.......................... 38.7 44.0 36.3 15.3 17.9
------ ------ ------ ----- -----
Total............................... $183.4 $199.6 $191.2 $83.2 $76.2
====== ====== ====== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net Sales. Net sales for the six month period ended June 30, 1998 declined
$7.0 million to $76.2 million from $83.2 million. Net sales of Cleaver-Brooks
declined $9.6 million (14.1%). Approximately 41% of the decrease resulted from
the sale of the contract machining business in the fourth quarter of 1997 with
the remainder attributable to soft orders during the second half of 1997 through
the first quarter of 1998. Water Technologies sales increased $2.6 million
(17.0%) during the same time period primarily due to a large land-based water
desalination project.
Gross Margin. Gross margin declined $0.8 million (3.9%) to $20.3 million
from $21.1 million for the same period in 1997. The gross margin percentage
increased 1.2% to 26.6% due to margin improvements on a
42
<PAGE> 47
large contract and on parts at Water Technologies and due to certain cost
reductions at Cleaver-Brooks which were facilitated by improvements in
management of the facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expense declined $0.6 million (3.4%) to $17.4 million.
Commissions to independent representatives and to internal sales personnel were
$0.5 million lower in the current period due to the reduced sales volume while
post retiree health care costs declined $0.3 million as a result of recognition
of the transition obligation at the time of the Management Buy Out.
Restructuring Charges. A restructuring charge of $4.7 million was recorded
in the current period as a result of the Board of Directors' approval of the
1998 Restructuring. The provision included $3.0 million to write down the value
of certain fixed assets and inventory, $1.5 million for employee severance and
additional workers compensation-related costs and $0.2 million for other related
costs.
Operating Income. For the reasons set forth above, operating income
decreased $4.9 million to a loss of $1.9 million. Excluding the $4.7 million
restructuring charge, operating income decreased $0.3 million to $2.8 million
compared to $3.1 million for the six months ended June 30, 1997.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales. Net sales declined $8.4 million (4.2%) in 1997 to $191.2 million
from $199.6 million in 1996. Net sales attributable to Cleaver-Brooks were
relatively flat at $154.9 million in 1997, primarily due to a decline of $5.5
million in sales to the Asia Pacific region and $2.0 million in reduced sales
resulting from the sale of two small product lines, offset by continued strong
domestic demand for firetube boilers. Net sales attributable to Water
Technologies decreased $7.7 million (17.5%) to $36.3 million in 1997, primarily
due to the deferral of certain significant orders for water purification and
treatment systems during the period, partially offset by increased demand for
distillation systems for pharmaceutical and offshore oil applications.
Gross Margin. Gross margin increased $4.1 million (8.9%) in 1997 to $50.2
million from $46.1 million in 1996 despite a 4.2% decline in net sales. Gross
margin as a percentage of net sales improved to 26.3% in 1997 from 23.1% in 1996
due to (i) improved manufacturing efficiencies at Aqua-Chem's Thomasville boiler
plant, (ii) improvements in the product mix, (iii) the completion of a large,
unprofitable water purification and treatment project in 1996 for which the
Company accrued $2.0 million in 1996 for additional estimated losses and (iv)
the in-sourcing of certain key boiler components.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $39.6 million in 1997, an increase of $5.2 million
(15.1%) from $34.4 million in 1996. Selling, general and administrative expenses
as a percentage of net sales was 20.7% in 1997 as compared with 17.3% in 1996.
This increase was due primarily to a $1.0 million increase in information
systems spending and increased travel expenditures related to Aqua-Chem's sales
and marketing efforts as such expenditures returned to normalized levels
following their curtailment in 1996.
Restructuring Charges. Aqua-Chem did not record any restructuring charges
in 1997 as compared with $5.0 million in 1996 related to the 1996 Restructuring.
Operating Income. For the reasons set forth above, operating income
increased $4.0 million (60.6%) in 1997 to $10.6 million from $6.6 million in
1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales increased $16.2 million (8.8%) in 1996 to $199.6
million from $183.4 million in 1995. Excluding the impact of product lines or
businesses sold during 1995 and 1996, net sales increased $20.2 million (11.8%)
in 1996. This increase was primarily attributable to (i) significantly improved
throughput at the Thomasville facility, which allowed Aqua-Chem to reduce a
backlog of boiler orders that had grown substantially in the second half of
1995; (ii) improved pricing; and (iii) higher sales to the U.S. Navy by Water
Technologies. Net sales attributable to Cleaver-Brooks increased $10.9 million
(7.5%) in 1996 to $155.6 million. During 1996, significant improvements were
made to the Thomasville plant which assumed
43
<PAGE> 48
production of large firetube boilers during 1995. Additional training, opening a
component shop and a tube mill, and various improvements in quality allowed
Cleaver-Brooks to reduce the backlog of boiler orders which accumulated during
late 1995 as a result of the combination of strong order activity and production
inefficiencies associated with the transition of production from Lebanon to
Thomasville and Stratford. Net sales attributable to Water Technologies
increased $5.3 million (13.9%) in 1996 to $44.0 million, primarily due to
increased U.S. Navy volume resulting from progress on large percentage of
completion contracts and a large land-based water desalination project.
Gross Margin. Gross margin increased $11.4 million (32.8%) to $46.1 million
in 1996 from $34.7 million in 1995. Gross margin as a percentage of net sales
improved to 23.1% in 1996 from 18.9% in 1995 primarily due to (i) smaller losses
attributed to a certain large water purification and treatment contract ($2.0
million was accrued in 1996 for additional estimated losses while $5.9 million
was originally accrued in 1995), (ii) improved pricing, (iii) manufacturing
efficiencies at Aqua-Chem's Thomasville facility, and (iv) the in-sourcing of
certain components in Thomasville that previously had been purchased from third
party vendors. Additionally, the improvement in the gross margin was impacted by
greater operating leverage as Aqua-Chem spread more volume over its fixed cost
base.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $3.4 million (8.8%) to $34.4 million in 1996
from $37.8 million in 1995 primarily due to the impact of the 1996
Restructuring. Selling, general and administrative expense as a percentage of
net sales was 17.3% in 1996 as compared with 20.6% in 1995.
Restructuring Charges. Restructuring charges were $5.0 million in 1996 as
compared with $4.6 million in 1995. The restructuring charges incurred in 1995
represented expenditures that resulted from 1995 activity under the 1994
Restructuring that could not be accrued in 1994. The restructuring charges
incurred in 1995 included $0.6 million for employee termination expenditures,
$1.6 million for expenditures related to closing and selling the Lebanon
facility and $2.4 million for expenditures related to manufacturing
inefficiencies incurred at the Thomasville and Stratford plants during the
transfer and start-up of certain boiler manufacturing operations previously
performed at Lebanon.
Operating Income. For the reasons set forth above, operating income
increased $14.2 million in 1996 to $6.6 million from a loss of $7.6 million in
1995.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Cash used in operating activities was $10.3 million for the six months
ended June 30, 1998 compared to $1.8 million of cash provided by operating
activities for the same period in 1997. The decrease of $12.1 million is due
primarily to a build of inventory of $4.1 million, $2.3 million of additional
interest expense due to the increased debt levels resulting from the Management
Buy-Out and a decrease in accrued expenses of $7.5 million, which includes $2.6
million in litigation settlement payments, $2.3 million in increased performance
related incentives and $2.0 of income tax payments.
Cash used in investing activities was $48.9 million for the six months
ended June 30, 1998 compared to a net of $0.0 million for the same period in
1997. The current period included $47.9 million for the purchase of National
Dynamics Corporation and capital expenditures of $1.0 million. The prior year
period included $1.4 million of proceeds from the collection of notes receivable
offset by $1.1 million of capital expenditures and $0.3 million of additions to
intangible assets.
Cash provided by financing activities was $56.6 million for the six months
ended June 30, 1998 compared to $0.1 million for the same period in 1997. The
current period included $125.0 million of proceeds from the issuance of the
Existing Notes and advances under the Revolving Credit Facility and repayments
of senior and subordinated debt and preferred stock of $66.3 million in
conjunction with the Private Offering. The increase is also offset by deferred
financing costs of $5.1 million related to the issuance of the Existing Notes in
the current period.
44
<PAGE> 49
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Cash provided by operating activities was $14.2 million for the twelve
months ended December 31, 1997 compared to $8.1 million for the same period in
1996. The increase of $6.1 million was attributable primarily to changes in
billings in excess of revenues which increased principally due to progress
billings on large contracts. Accrued expenses and other current liabilities also
increased over the prior year as a result of performance related incentives.
Less cash was generated by reductions in inventory during the twelve months
ended December 31, 1997 than in the prior year. For the fiscal year ended
December 31, 1995, cash used in operating activities was $1.6 million.
Cash used in investing activities was $51.6 million in the twelve months
ended December 31, 1997 compared to $1.0 million in 1996 and $0.9 million in
1995. The current period included $52.1 million for the Management Buy-Out.
Capital expenditures for the current period were $3.4 million as compared to
$2.8 million in fiscal 1996 and $4.9 million in fiscal 1995. These expenditures
relate to ongoing maintenance and upgrades to Aqua-Chem's manufacturing
equipment and facilities and to certain replacement software systems. During the
most recent twelve months, Aqua-Chem invested $0.7 million in new mainframe
financial systems to replace aging systems. In 1995, Aqua-Chem spent $1.4
million for certain building additions and equipment upgrades at its Thomasville
facility, in part to accommodate the transfer of production from its Lebanon
facility.
Cash provided by financing activities was $40.7 million in the twelve
months ended December 31, 1997 compared to $1.5 million in 1996 and $0.5 million
in 1995. The twelve months ended December 31, 1997 included $65.6 million in
proceeds from debt issued in connection with the Management Buy-Out and
repayments of $26.1 million, of which $20.0 million related to repayment of debt
outstanding at the time of the Management Buy-Out and $6.0 million related to
repayment of debt incurred as a result of the Management Buy-Out.
The Company intends to fund future working capital, capital expenditures
and debt service requirements through cash flows generated from operating
activities and from borrowings under the New Credit Facility. The New Credit
Facility provides $45.0 million of borrowing availability and is secured by
substantially all assets of the Company. See "Description of Certain
Indebtedness." The Company expects to make approximately $1.5 million of capital
expenditures related to the proposed closure of its Greenville facility and $0.5
million to $1.0 million for certain equipment at National Dynamics. Apart from
these items, the Company believes that its manufacturing facilities and computer
software and hardware are generally adequate to meet projected needs.
Management believes that cash generated from operating activities together
with borrowing availability under the New Credit Facility will be adequate to
cover the Company's working capital, debt service and capital expenditure
requirements on a short and long term basis. The Company may, however, consider
other options available to it in connection with funding future working capital
and capital expenditure needs, including the issuance of additional debt and the
issuance of equity securities.
Under the New Credit Facility the Company is required to maintain an
adjusted consolidated tangible net worth (consolidated tangible net worth plus
an amount equal to the aggregate outstanding principal amount of subordinated
debt) of not less than $70 million plus (on a cumulative basis) for each fiscal
quarter ending on or after June 23, 1998, the sum of (a) 50% of consolidated net
income if positive and 100% of the cash proceeds of the issuance of any equity
interest of the Company during such fiscal quarter. In addition, the New Credit
Facility requires the Company to maintain a fixed charge coverage ratio of not
less than 1.25 to 1 and a senior funded debt to consolidated EBITDA ratio of not
more than 3.5 to 1.
The Indenture prohibits the Company from incurring additional Indebtedness
unless, on the date of such incurrence and after giving effect thereto, the
Consolidated Coverage Ratio exceeds 2.0 to 1 if such Indebtedness is incurred
prior to January 1, 2000, 2.25 to 1 if such Indebtedness is incurred on or after
January 1, 2000 and prior to July 1, 2001 or 2.5 to 1 thereafter (the "Coverage
Limitation"). As of June 30, 1998, the Company could not have incurred any
additional Indebtedness under the Coverage Limitation.
The Indenture further provides that, in addition to the additional
indebtedness which the Company may incur under the Coverage Limitation, the
Company may incur additional Indebtedness of certain types up to
45
<PAGE> 50
certain limitations applicable to each type (the "Basket Limitations"). The
Basket Limitations are described under "Description of the Notes -- Certain
Covenants -- Limitation on Indebtedness." The amount of additional Indebtedness
which the Company could have incurred as of June 30, 1998 under certain of the
Basket Limitations is impossible to quantify as of the date of this Prospectus
because those Basket Limitations relate to transactions or other events or
conditions that had not occurred or did not exist as of such date, and the
applicable dollar limitations thereunder depend upon the nature of such events
or the nature and terms of such transactions. Certain of the Basket Limitations
relate to intercompany transactions and guarantees, which would not increase the
aggregate amount of additional Indebtedness that may be incurred. However, the
Company could have incurred approximately $77.7 million of additional
Indebtedness under the remaining Basket Limitations on June 30, 1998, including
the following: (a) Indebtedness pursuant to the New Credit Facility of up to the
greater of (i) $45.0 million or (ii) the sum of 50% of the book value of
inventory and 85% of the book value of accounts receivable as of such date
(however, the limitation under clause (ii) would have been approximately $47.9
million at June 30, 1998; this limitation would not have affected the maximum
amount that could have been borrowed under the New Credit Facility as of June
30, 1998 because the maximum amount of the New Credit Facility on that date was
$45.0 million); (b) Indebtedness by foreign subsidiaries not exceeding the sum
of (i) 60% of the book value of inventory and (ii) 85% of the book value of
accounts receivable; (c) purchase money Indebtedness not exceeding the greater
of (i) $20 million or (ii) 5% of the consolidated net worth of the Company; and
(d) an additional $10 million without regard to the nature or purpose of such
Indebtedness.
YEAR 2000
Many computer software applications, hardware and equipment and embedded
chip systems identify dates using only the last two digits of the year. These
products may be unable to distinguish between dates in the year 2000 and dates
in the year 1900. That inability (referred to as the "Year 2000 Issue"), if not
addressed, could cause applications, equipment or systems to fail or provide
incorrect information after December 31, 1999, or when using dates after
December 31, 1999. The Company uses a number of computer software programs,
operating systems, and types of equipment with computer chips in its internal
operations, including applications used in its financial business systems, order
entry and manufacturing systems, manufacturing processes, and administrative
functions. The Company also manufactures products that incorporate components
purchased from other manufacturers that contain computer chips. To the extent
that the above listed items contain source code or computer chips that are
unable to interpret appropriately the upcoming calendar year 2000,
distinguishing it from the year 1900, some level of modification or possible
replacement will be necessary.
STATE OF READINESS
The Company has assessed and continues to assess the impact of the Year
2000 Issue on its operations. The Company's assessments have focused on the
three major element of the Year 2000 Issue: IT systems; Non-IT systems; and
third party relationships.
IT SYSTEMS. Since 1996 the Company has been executing an IT system upgrade
plan, which includes leasing a new mainframe computer at an annual cost of $0.6
million and the expansion of and improvements to its networks and capital
spending on hardware totaling $0.2 million. Additionally, the Company has spent
$1.5 million on new financial systems software, of which $1.3 million has been
capitalized. These systems are replacing software that has been in use since the
early 1980s. The IT system upgrade plan was not undertaken in response to the
Year 2000 Issue, nor was it accelerated due to the Year 2000 Issue.
Of these new financial systems, the general ledger and reporting packages
have been implemented, while the accounts receivable and accounts payable
packages are in the installation phase with a March 1999 targeted completion
date. Management believes these projects are currently on schedule to meet this
target date. The current human resource/payroll system has been upgraded to
address the Year 2000 Issue.
The Company has received written assurances from the manufacturers that the
following hardware and software are Year 2000 compliant as a result of the IT
system upgrade plan: mainframe hardware; mainframe
46
<PAGE> 51
systems software; mainframe operating system; LAN/WAN hardware; LAN/WAN
operating systems; LAN/WAN system software; personal computers and related
software; and financial systems software.
The Company's order entry and manufacturing systems are in the process of
being upgraded to address the Year 2000 Issue. The databases for all of these
systems have been expanded and regenerated. Management believes the application
programs for these systems are on schedule to be converted by the end of
October, 1998, with testing to occur until production turnover in March, 1999.
Other non-Year 2000 IT efforts have not been materially delayed or impacted by
Year 2000 initiatives.
NON-IT SYSTEMS. The Company has reviewed all of its communication systems
(phone and data transmission systems), fax machines, photocopiers, postage
machines, elevators, HVAC systems, security systems and shop floor equipment
with the manufacturers or vendors of those systems and equipment and has
received verbal assurances that these systems are Year 2000 compliant. Written
certifications of Year 2000 compliance for these systems has been requested from
the manufacturers or vendors. The Company is currently reviewing the responses
it has received to date and has sent a follow up letter to any manufacturers or
vendors who have not responded.
THIRD PARTY RELATIONSHIPS. All of the Company's suppliers of raw materials,
components, and other goods and services have been sent a questionnaire
regarding their Year 2000 compliance and their plans to be Year 2000 compliant.
Over half of the suppliers contacted have responded. A follow up letter has been
sent to those suppliers who have yet to respond. For those remaining suppliers
who do not respond to this questionnaire, or who do not have a Year 2000
compliance plan in place, the Company has identified alternative suppliers and
will use an alternative supplier who has certified that it is Year 2000
compliant. For all suppliers of equipment containing computer chips which are
incorporated into the Company's products, the Company has received written
assurance that this equipment is Year 2000 compliant.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUE.
Costs incurred by the Company to date to address the Year 2000 Issue,
excluding the IT system upgrade costs, are approximately $0.1 million. The
Company estimates total costs remaining to be incurred prior to the year 2000
range from $0.2 million to $0.3 million. Maintenance or modification costs will
be expensed as incurred, while the costs of new software will be capitalized and
amortized over the software's useful life. These costs will be funded from
operating cash flows.
RISKS AND CONTINGENCY PLANS. Although the Company believes its efforts will
adequately address the Year 2000 Issue internally, it is possible that the
Company will be adversely affected by problems encountered by its vendors or
suppliers. Despite any vendor's or supplier's certification regarding Year 2000
compliance there can be no assurance that the vendor's or supplier's ability to
provide goods and services will not be adversely affected by the Year 2000
Issue. The most likely worst case scenario would be that a failure by the
Company or one or more of its vendors or suppliers to adequately and timely
address the Year 2000 Issue, interrupts manufacturing of the Company's products
for a undeterminable period of time. The Company has identified and will
continue to identify alternative vendors should a vendor's ability to meet the
Company's raw material and supply requirements be impacted by the Year 2000
Issue. While the Company believes it can minimize the impact of such
non-compliance through the use of these alternative vendors, a disruption in
production could have a material adverse impact on the Company. The Company does
not currently expect to develop a formal contingency plan.
GENERAL
The costs of the Company's efforts to address the Year 2000 Issue and the
dates on which the Company believes it will complete such efforts are based upon
management's best estimates, which were derived using numerous assumptions
regarding future events. There can be no assurance that these estimates will
prove to be accurate, and actual results could differ materially from those
currently anticipated. Specific factors that could cause such material
differences include, but are not limited to, the Company's ability to identify,
assess, remediate and test relevant computer codes and embedded technology, the
Company's reliance on third-party assurances and the variability of definitions
of "Year 2000 compliance" which may be used by such third parties, and similar
uncertainties.
47
<PAGE> 52
SELECTED FINANCIAL DATA OF NDC
The following table sets forth selected historical financial data of NDC as
of and for each of fiscal years ended October 31, 1995, 1996 and 1997 and the
five-month periods ended March 31, 1997 and 1998. The historical financial data
under the captions Statement of Operations Data, Other Financial Data and
Balance Sheet Data for the fiscal years ended October 31, 1995 through 1997 have
been derived from the financial statements of NDC, which have been audited by
KPMG Peat Marwick LLP, Omaha, Nebraska, and are included elsewhere in this
Prospectus. The historical financial data for the five-month periods ended March
31, 1997 and 1998 have been derived from the unaudited condensed financial
statements of NDC included in this Prospectus, which include all adjustments
that management considers necessary to present fairly the financial results for
this interim period, all of which were of a normal recurring nature. The results
of operations for the five-month periods are not necessarily indicative of
results to be expected for the full year. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of NDC" and the financial statements of NDC included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FIVE MONTHS ENDED
OCTOBER 31, MARCH 31,
----------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $49,717 $54,853 $59,292 $21,722 $25,561
Cost of goods sold........................... 40,916 43,461 45,862 17,150 19,973
------- ------- ------- ------- -------
Gross margin.............................. 8,801 11,392 13,430 4,572 5,588
Selling, general and administrative
expenses.................................. 6,601 5,516 5,815 1,888 2,472
------- ------- ------- ------- -------
Operating income.......................... 2,200 5,876 7,615 2,684 3,116
Other income (expense):
Interest income........................... 55 22 242 291 344
Interest expense.......................... (135) (43) (183) (76) (61)
Other income (expense).................... (2) 42 54 21 54
------- ------- ------- ------- -------
Earnings before income taxes.............. 2,118 5,897 7,728 2,920 3,453
Income tax expense........................ -- -- -- -- --
------- ------- ------- ------- -------
Net earnings......................... $ 2,118 $ 5,897 $ 7,728 $ 2,920 $ 3,453
======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDA (a)................................... $ 2,650 $ 6,339 $ 8,112 $ 2,877 $ 3,316
Gross profit margin.......................... 17.7% 20.8% 22.7% 21.0% 21.9%
Total depreciation........................... $ 450 $ 463 $ 497 $ 193 $ 200
Capital expenditures......................... 1,758 571 1,419 262 222
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................. $23,600 $22,144 $25,991 $22,166 $24,076
Total debt................................... 2,441 1,472 1,422 -- --
Stockholders' equity......................... 8,335 10,887 14,665 13,207 16,918
</TABLE>
- ------------------------------------
(a) EBITDA is defined as operating income before depreciation and amortization.
While EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow (as measured by GAAP) as a
measure of liquidity, management believes it provides additional information
with respect to the ability of a company to meet its future debt service,
capital expenditures and working capital requirements. The measure of EBITDA
presented above may not be comparable to similarly titled measures of other
companies.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF NDC
The following discussion relates to the historical business, financial
condition and results of operations of NDC prior to the consummation of the
Acquisition on June 23, 1998.
OVERVIEW
NDC designed, manufactured and sold industrial watertube boilers, waste
heat recovery systems and related components for industrial and commercial
applications. In addition, NDC manufactured standard and customized fabricated
steel products.
Net Sales. Industrial watertube boilers, waste heat recovery systems and
related components accounted for substantially all of NDC's net sales for the
fiscal years ended October 31, 1997, 1996 and 1995, respectively. Less than 10%
of net sales were attributable to other products.
Cost of Goods Sold. The principal elements of NDC's cost of goods sold were
raw materials, component parts, engineering and manufacturing overhead, direct
labor and related start-up and warranty expenses. NDC's major raw materials
varied by plant but included steel, tubes and various manufactured and purchased
component parts. Raw materials and component parts represented approximately 62%
of NDC's total cost of goods sold for fiscal 1997.
NDC's gross margin improved from 17.7% in fiscal 1995 to 22.7% in fiscal
1997. This increase in gross margin was primarily attributed to an increase in
volume at the Gonzales, Texas manufacturing facility, which was acquired in
1995, as well as improved pricing in the industrial watertube and waste heat
recovery product lines.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses declined from 13.3% of net sales in fiscal 1995 to 9.8%
in fiscal 1997 primarily due to a 19.3% increase in sales volume during the
period and associated operating efficiencies.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
to net sales of certain items included in NDC's statement of earnings.
<TABLE>
<CAPTION>
FIVE MONTHS
FISCAL YEAR ENDED ENDED
OCTOBER 31, MARCH 31,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin................................................ 17.7 20.8 22.7 21.0 21.9
Selling, general and administrative expenses................ 13.3 10.1 9.8 8.7 9.7
----- ----- ----- ----- -----
Total operating income...................................... 4.4% 10.7% 12.8% 12.3% 12.2%
===== ===== ===== ===== =====
</TABLE>
FIVE MONTHS ENDED MARCH 31, 1998 COMPARED FIVE MONTHS ENDED MARCH 31, 1997
Net Sales. Net sales increased $3.9 million (17.7%) to $25.6 million in
1998 from $21.7 million in 1997 primarily due to increased volume of waste heat
recovery systems.
Gross Margin. Gross margin increased $1.0 million (22.2%) to $5.6 million
in 1998 compared to $4.6 million in 1997 and improved to 21.9% of net sales from
21.0% in the prior year. This improvement was primarily attributable to a more
favorable product mix as NDC sold more waste heat recovery systems with higher
gross margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.6 million to $2.5 million in 1998 (9.7% of
net sales) compared to $1.9 million (8.7% of net sales) in 1997.
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Operating Income. Operating income increased to $3.1 million in 1998 from
$2.7 million in 1997 due to the preceding factors.
YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996
Net Sales. Net sales increased $4.4 million (8.1%) to $59.3 million from
$54.9 million in 1996 primarily due to volume increases in waste heat recovery
systems and from increased volume of fabricated boiler and waste heat recovery
components, partially offset by a modest decline in industrial watertube boiler
net sales from fiscal 1996's historically strong levels.
Gross Margin. Gross margin increased $2.0 million (17.9%) to $13.4 million
in 1997 from $11.4 million in 1996. As a percentage of net sales, gross margins
improved to 22.7% in 1997 from 20.8% in 1996 primarily due to an improved mix of
product sales, operating leverage associated with NDC's overall increase in net
sales and volume, and modest price increases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $5.5 million in 1996 (10.1% of net sales)
to $5.8 million in 1997 (9.8% of net sales), primarily due to the increase in
net sales.
Operating Income. As a result of the foregoing factors, operating income
increased $1.7 million to $7.6 million in 1997 from $5.9 million in 1996.
YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER 31, 1995
Net Sales. Net sales increased $5.2 million (10.3%) to $54.9 million in
1996 from $49.7 million in 1995. The increase was primarily due to strong sales
of industrial watertube boilers as the overall market improved, partially offset
by a decline in waste heat recovery volume due to the completion of two large
jobs in 1995. NDC also increased sales of fabricated components to other waste
heat recovery manufacturers in 1996.
Gross Margin. Gross margin increased $2.6 million (29.4%) to $11.4 million
in 1996 compared to $8.8 million in 1995. As a percentage of net sales, gross
margin improved to 20.8% in 1996 from 17.7% in 1995, primarily due to the
increase in net sales and increased utilization of the Gonzales facility.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses declined $1.1 million to $5.5 million in 1996 from $6.6
million in 1995, primarily due to a decline in bad debt expense and salaries,
offset by an increase due to the increase in sales.
Operating Income. As a result of the foregoing factors, operating income
increased $3.7 million (168.2%) to $5.9 million in 1996 from $2.2 million in
1995.
YEAR 2000
NDC has assessed and continues to assess the impact of the year 2000 issue
on its operations. Although ultimate costs cannot yet be estimated, management
does not expect to incur significant costs in order to become year 2000
compliant.
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BUSINESS OF THE COMPANY
HISTORY
Founded in 1929 as the John C. Cleaver Company and later known as
Cleaver-Brooks, the Company began as an innovative manufacturer of small,
portable boilers that were packaged and fully assembled. Cleaver-Brooks, which
continues to operate as a division of the Company, eventually became, and for
over 20 years has been, the world's largest manufacturer of commercial and
industrial boilers, burners, related boiler-room equipment and aftermarket
parts. Cleaver-Brooks began manufacturing steam-powered water purification
stills in the early 1940's in response to a military request for a portable
system capable of purifying unfit drinking water. This business, which currently
operates as the Company's Water Technologies division, has become a leading
manufacturer of innovative water treatment products and systems for a variety of
commercial, government, military and industrial applications. The Company
completed the acquisition of substantially all of the assets of NDC on June 23,
1998 and now conducts NDC's former operations through its National Dynamics
Division.
BOILER MARKET
Boilers burn a variety of fuels to provide: (i) hot water for residential,
commercial, institutional and industrial uses; (ii) hot water or low-pressure
steam for use in circulatory heating systems; and (iii) process steam for a wide
variety of industrial applications and to drive turbines for the generation of
electricity. The boiler market can generally be segmented according to boiler
capacity and end use. Residential boilers are the smallest, followed by
commercial boilers, industrial boilers, and utility boilers, which are the
largest. Boiler capacities generally are measured in British Thermal Units
("BTU") or boiler horsepower ("BHP") output for smaller boilers, and in pounds
of steam per hour ("PPH") for larger boilers. One BHP equals 33,472 BTU per
hour, which in turn produces approximately 28 to 35 PPH, depending on pressure
and feedwater temperature.
Commercial boilers generally range from 15 BHP (or approximately 500,000
BTU per hour) up to 250 BHP and are used in apartment buildings, hotels, office
buildings, schools, hospitals, and government buildings primarily to provide hot
water or low-pressure steam for circulatory heating systems, and, to a lesser
extent, for potable hot water. Commercial boilers range in price between $15,000
and $50,000.
Industrial boilers, with capacities from approximately 250 BHP to over
250,000 PPH, are larger, more powerful and more expensive than commercial
boilers, and are generally used to provide high-pressure process steam for
industrial applications, such as driving steam-operated presses, mill equipment
or machine tools, sterilizing equipment and products, and processing chemicals,
foods, beverages, and other products. Industrial boilers are used in a broad
range of industries including paper, chemicals, electronics, pharmaceutical,
textiles, automotive, and heavy machinery. Industrial boilers range in price
between $50,000 and $1 million.
Based on industry sources, the annual worldwide market for boilers of all
types is estimated to be in excess of $1 billion, of which approximately $400
million is attributable to the North American commercial and industrial boiler
market.
CLEAVER-BROOKS DIVISION
The Company's Cleaver-Brooks Division ("Cleaver-Brooks") is the world's
largest manufacturer of commercial and industrial boilers. It has an estimated
installed base of approximately 80,000 boilers that remain in use and believes
it has the #1 or #2 market position in each of its principal product lines. The
division's products include firetube and watertube boilers, burners, and
combustion and emission controls, boiler room accessories, and aftermarket
parts. Management believes that Cleaver-Brooks' reputation for providing
high-quality, energy-efficient, low-emission boilers and ancillary equipment
with a demonstrated record of safety and durability often enables it to command
a premium price for its products from its diverse customer base. Cleaver-Brooks
accounted for approximately 81% ($154.9 million) of Aqua-Chem's net sales, and
an even higher percentage of EBITDA, for the twelve months ended December 31,
1997.
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<PAGE> 56
PRODUCTS
Cleaver-Brooks manufactures two types of boilers, firetube and watertube,
for commercial and industrial applications. Most Cleaver-Brooks boilers can
operate on multiple fuel options using both natural gas and fuel oil.
Cleaver-Brooks primarily manufactures "packaged" boilers, which are shipped
fully assembled and require minimum on-site installation, and also manufactures
a limited number of boilers that are designed to be "field-erected" at the
customer's facility. The high-quality boilers manufactured by Cleaver-Brooks
generally have a useful life of 20 years or more, depending upon use and
maintenance.
FIRETUBE BOILERS. Firetube boilers heat water or produce steam by directing
hot gas from the combustion process through tubes which are submerged in a
chamber of water inside the boiler. Heat is transferred from the hot gas in the
tube through the tube walls to the water.
Cleaver-Brooks offers the industry's broadest line of firetube boilers,
which are generally used in low- and high-pressure industrial applications, and
to produce heat and hot water for large commercial and institutional buildings.
Cleaver-Brooks firetube boilers range in capacity from 15 to 800 BHP. Although
each Cleaver-Brooks firetube boiler is manufactured to specific customer
requirements, each is based on relatively standardized pressure vessel sizes and
other basic components. The prices of Cleaver-Brooks firetube boilers range from
approximately $25,000 to $150,000. Firetube boilers represented approximately
$68 million, or 44%, of Cleaver-Brooks' net sales for the twelve months ended
December 31, 1997.
Cleaver-Brooks firetube boilers are highly regarded for their quality,
efficiency, safety, design simplicity, and ease of operation and maintenance, as
well as their long product life and low emission levels. High efficiency is
often the primary criterion in selecting a boiler as annual fuel costs can
greatly exceed a boiler's purchase price. Because a $50,000 boiler system could
consume over $150,000 per year in fuel, a slight increase in boiler efficiency
can translate into substantial annual savings. Cleaver-Brooks boilers are
designed to operate efficiently to reduce customers' fuel costs. They include
what Aqua-Chem believes to be the world's highest efficiency "four-pass" design
and maintain high gas velocity which provides maximum heat transfer. They also
utilize a single tube sheet design that maintains consistent temperatures for
maximum operating life. Aqua-Chem believes that these factors provide it with a
competitive advantage in the firetube boiler market.
WATERTUBE BOILERS. Watertube boilers produce hot water or steam by
directing water through tubes installed in a chamber filled with hot gas from
the combustion process. This fundamental difference between the firetube and
watertube process allows watertube boilers to be designed with greater capacity
and makes watertube boilers more suitable for certain large, multi-step
industrial applications than firetube boilers. Cleaver-Brooks produces watertube
boilers in a range of models and capacities. Like its firetube boilers,
Cleaver-Brooks watertube boilers are manufactured for maximum efficiency and
ease of maintenance and are purchased by both industrial and commercial
end-users.
Cleaver-Brooks commercial watertube boilers range in capacity from 15 to
250 BHP, which is comparable to its smaller capacity firetube boilers, and
include flexible watertube boilers designed to simplify installation,
maintenance and tube replacement. The division's flexible watertube boilers
minimize potential thermalshock damage due to temperature fluctuation, an
especially important consideration with hot water applications.
Cleaver-Brooks manufactures industrial watertube boilers of only the "D"
design (so named because the watertubes inside the boiler are shaped in the
configuration of the letter "D"), which is preferred by manufacturers for most
industrial applications. Cleaver-Brooks industrial watertube boilers range in
capacity from 40,000 to 140,000 PPH (the approximate equivalent of 1,400 to
4,000 BHP).
Cleaver-Brooks watertube boilers range in price from approximately $25,000
to $500,000. Watertube boilers represented approximately $25 million (16%) of
the division's net sales for the twelve months ended December 31, 1997.
BURNERS. Cleaver-Brooks is a leading supplier of highly-engineered, single
and multi-fuel engineered burners. These burners are installed as original
equipment on certain Cleaver-Brooks product lines, as a retrofit
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<PAGE> 57
to existing boilers where an upgraded or new burner is required, or, under the
Industrial Combustion brand name, on new boilers manufactured by competitors.
Cleaver-Brooks manufactures a broad range of burners that give customers the
flexibility to burn most liquid and gaseous fuels in use today. The Industrial
Combustion product line has an exceptionally strong market position
(approximately 90%) for heavy oil burners and is increasing its share of the gas
burner market. It was instrumental in originating the conversion burner business
and pioneered air atomizing and fuel metering technologies for using heavy fuel
oil.
BOILER ROOM ACCESSORIES. Cleaver-Brooks also offers a wide range of boiler
room accessories, most of which are used to ensure that corrosive gases and
impurities found in water do not seriously affect boiler performance. This
equipment includes deaerators, water softeners, boiler feed water systems and
chemical feed systems. Other boiler room accessories regulate the flow of water
to and from the boiler.
AFTERMARKET PARTS. Taking advantage of its industry-leading installed base
of approximately 80,000 boilers, Cleaver-Brooks offers over 15,000 aftermarket
parts for its own and other manufacturers' boilers through its computerized
immediate access system. The immediate access system electronically links
Cleaver-Brooks' sales representatives and provides information regarding parts
availability, price lists and lead time. Cleaver-Brooks' sales representatives
and distributors stock Cleaver-Brooks parts inventory on a worldwide basis.
Aftermarket parts, which generally carry higher gross margins than new boilers,
represented approximately $31 million (20%) of Cleaver-Brooks' net sales for the
twelve months ended December 31, 1997. As part of several strategic initiatives,
management is emphasizing further penetration of the aftermarket parts business
through additional training and support of its extensive sales representative
network.
Aftermarket products sold by Cleaver-Brooks include a wide range of
combustion and emission controls that generally enhance boiler performance or
safety, including low nitrous oxide ("NO(X)") emissions packages, conversion or
replacement burners, boiler control management systems, high turndown burners,
oxygen trim systems, and flame safeguard controls. For example, Cleaver-Brooks'
industry-leading low NO(X) emissions packages are guaranteed to as low as 20
parts per million ("ppm") of NO(X) levels and are extremely effective at
maintaining system efficiency levels. The majority of these parts are offered as
options to a boiler package.
Although boilers generally have a useful life of up to 20 years, certain
boiler parts are subject to wear and require periodic replacement. These parts
consist primarily of combustion-oriented components such as burners,
burner-safety components, and emissions controls, but also include certain
water-bearing components. The need for aftermarket parts is a function of the
level of use to which a boiler is subjected. Boilers that "cycle" (turn on and
off) more frequently tend to wear more quickly. In addition, oil-burning
components tend to wear more quickly than natural gas-burning components.
Water-bearing components of a boiler can wear more quickly if the end-user does
not properly treat the water used in the boiler to reduce corrosive gases and
impurities that accumulate in untreated water.
Commercial boiler wear can also be affected by cold weather, when a boiler
is more likely to cycle more frequently. Many Cleaver-Brooks boilers are
equipped with multi-fuel options and can readily be switched by the end-user
from one fuel to the other. In many locations, boilers are required by law to
switch from burning natural gas to oil during extended periods of cold weather,
when demand for natural gas for residential and commercial forced-air heating is
high and available gas pressure is reduced. Industrial applications can also
involve high-cycle use, causing boilers to wear more quickly. Inadequate
maintenance practices can also affect boiler wear.
In addition, the demand for aftermarket parts generally increases during
periods of economic difficulty when many businesses elect to defer the purchase
of new boilers in favor of repairing or retrofitting existing boilers. Aqua-Chem
believes that this phenomenon partially offsets the reduced demand for new
boilers during such periods.
COMMITMENT TO QUALITY
Cleaver-Brooks has received numerous industry and quality awards, including
the State of Wisconsin's 1995 Governor's New Product Award. Several of the
division's products have been recognized by the
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Wisconsin Society of Professional Engineers and the Model CB-LE was among a
select group of winners in a statewide competition which singled out new product
innovations in large, medium and small business segments. Additionally, with the
introduction of its low nitrous oxide (NO(X)) emissions product in 1995,
Aqua-Chem was the first boiler manufacturer cited by the California Clean Air
Board and South Coast Air Quality Management District for meeting California's
stringent emissions standards, as well as by the New York Bureau of Air
Research.
SALES, MARKETING AND CUSTOMERS
Cleaver-Brooks maintains strong relationships with its worldwide network of
sales and service representatives, which management believes to be the most
extensive global distribution network for commercial and industrial boilers.
Cleaver-Brooks sells boilers through 50 domestic sales representatives located
throughout North America and 43 international sales representatives located in
Eastern Europe, Asia, Australia, Central and South America, and the Middle East.
These sales representatives have sold Cleaver-Brooks products for an average of
more than 25 years, and, pursuant to agreements with the Company, do not sell
products that compete directly with Cleaver-Brooks. No sales representative
accounted for more than approximately 5% of Cleaver-Brooks' net sales in the
twelve months ended December 31, 1997.
Cleaver-Brooks' sales representatives primarily offer on-demand service and
parts support to consulting engineers, contractors and end-users, as well as
offering multi-year service contracts for boiler parts and accessories.
Additionally, as is customary in the industry, sales representatives provide
on-site start-up assistance and personnel training by factory-qualified
specialists and preventive maintenance programs as part of the range of services
available to keep boiler and pretreatment equipment operating at peak
performance.
Cleaver-Brooks sells boilers to a diverse customer base in a broad range of
industries, with no significant customer concentration. Although Cleaver-Brooks'
customers vary from year to year, management believes that a substantial portion
of annual net sales are generally to repeat customers. Recent customers include
Ford, Cargill, Coca-Cola, Weyerhaeuser, Anheuser-Busch, Baxter Healthcare,
Ralston-Purina, Hewlett-Packard, Georgia Pacific, Chrysler-Jeep, Wrigley,
Sheraton, IBM, and NASA. For a further discussion of sales by geographic area,
see Note 15 to the Company's Consolidated Financial Statements contained
elsewhere in this Prospectus.
RAW MATERIALS AND SUPPLIERS
Cleaver-Brooks' primary raw materials include steel plate and coil steel.
The division also purchases finished components for its products, such as
burners, tubes, controls, insulation, refractory materials, valves, gauges and
pumps. Cleaver-Brooks maintains one-year supply agreements with its steel
suppliers. These arrangements generally specify volume and price, but are
cancelable at any time by either party. For raw materials not covered by supply
agreements, Cleaver-Brooks generally chooses a particular supplier based on
market conditions, availability and pricing. Cleaver-Brooks works closely with
its major suppliers and is not dependent on any single supplier for any of its
raw material or component needs. Cleaver-Brooks is currently implementing new
purchasing procedures to reduce material costs, including consolidation of its
suppliers.
MANUFACTURING
Cleaver-Brooks operates through five manufacturing facilities located in
Stratford, Ontario, Canada; Thomasville, Georgia; Monroe, Wisconsin; Mexico
City, Mexico and Greenville, Mississippi (however, the Company plans to close
its Greenville facility and transfer production to certain other facilities).
Additionally, Cleaver-Brooks conducts applied engineering and product
development activities at a Milwaukee, Wisconsin location, which is shared with
Water Technologies. See "-- Properties and Employees."
The Company has intensified its efforts to develop world-class
manufacturing facilities. Beginning in 1995, Aqua-Chem closed its Lebanon,
Pennsylvania facility, and consolidated its large firetube boiler production in
its Thomasville facility, and its smaller firetube boiler production in its
Stratford facility. These consolidations reduced labor and overhead costs by up
to one-third and took advantage of certain economies of scale in each facility.
In addition, the Company has been engaged in a program to improve its
manufacturing processes by adopting cellular manufacturing techniques,
just-in-time inventory controls and demand flow
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processing. These initiatives have minimized scrap, identified manufacturing
inefficiencies, significantly reduced manufacturing cycle times and have already
improved manufacturing efficiency and inventory management at the Thomasville
facility. Aqua-Chem expects to implement similar cost reduction initiatives and
manufacturing improvements at its other facilities. Aqua-Chem has also
established an internal manufacturing council to address ongoing process
improvements, share best practices and instill a broad base of manufacturing
expertise throughout the organization.
NATIONAL DYNAMICS DIVISION
The Company's National Dynamics Division ("National Dynamics") consists of
the former operations of NDC which were acquired by Aqua-Chem on June 23, 1998.
All references to historical data of NDC, and the term "NDC," refer to the
National Dynamics Division's operations under the ownership of NDC.
PRODUCTS
National Dynamics primarily designs and manufactures industrial watertube
boilers, waste heat recovery systems, and related accessories, as well as a
variety of standard and customized fabricated steel components, such as ductwork
and stacks, which are insourced for use in National Dynamics' products and
produced on a contract basis for other waste heat recovery systems
manufacturers. For the year ended October 31, 1997, NDC's net sales of
industrial watertube boilers and waste heat recovery systems, including related
accessories and components, represented approximately 90% of NDC's net sales.
INDUSTRIAL WATERTUBE BOILERS. National Dynamics produces shop-assembled
industrial watertube boilers, components and other boiler accessories under the
Nebraska Boiler brand-name, chiefly for industrial and institutional
applications. The Nebraska Boiler product line consists primarily of industrial
watertube boilers with larger capacities than those manufactured by
Cleaver-Brooks. Although National Dynamics manufactures industrial watertube
boilers with capacities as low as 7,000 PPH, its primary focus is on large
industrial watertube boilers that range in capacity from 100,000 to 250,000 PPH.
In contrast, Cleaver-Brooks focuses on commercial and industrial watertube
boilers with capacities under 100,000 PPH. The Nebraska Boiler product line also
includes industrial watertube boilers that are capable of producing steam at
much higher temperatures and pressures than those manufactured by
Cleaver-Brooks. NDC manufactured approximately 80 to 90 industrial watertube
boilers per year, which typically ranged in price from approximately $150,000 to
$1 million each.
National Dynamics' primary unit is the "D" design watertube boiler, which
accounted for approximately 72% of NDC's boiler sales in fiscal 1997. Nebraska
Boiler industrial watertube boilers generally utilize the "membrane" tube
design, in contrast to Cleaver-Brooks boilers, which utilize the "tangent" tube
design, each of which is preferred by certain end users for various reasons.
National Dynamics is also one of the few boiler manufacturers that produces "O"
and "A" design boilers in addition to the "D" design. Although the "D" design is
preferred for most industrial applications, the symmetrically designed "O" and
"A" boilers are more readily transportable and better suited for certain uses.
"O" design boilers in particular are compact, fully assembled, easily
transported by truck, and for these reasons are considered ideal for use as
"rental" boilers (boilers installed temporarily to provide supplemental, backup
or replacement service). "A" design boilers typically are designed to have
greater capacity than the "O" or "D" designs and can be designed to burn a
variety of alternative fuels (such as coal, wood and saw dust). "O" and "A"
design boilers accounted for approximately 8% and 20%, respectively, of NDC's
boiler sales in fiscal 1997.
National Dynamics also manufactures industrial watertube boiler components
and accessories, such as ducts, stacks, superheaters (an integral unit in the
boiler that heats the steam produced by the boiler to temperatures in excess of
750 degreesF for particular industrial applications) and economizers (an
integral or add-on unit that captures the heated air and flue gases vented from
the boiler's combustion chamber and uses them to preheat water entering the
boiler to conserve energy).
WASTE HEAT RECOVERY SYSTEMS. National Dynamics designs and produces a
variety of packaged, modular and field-erected waste heat recovery systems under
the Energy Recovery International or "ERI" brand-name.
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The general principle behind these systems is that the waste heat generated by a
turbine or industrial process can be recaptured and directed into a pressure
vessel (resembling a burnerless boiler) to generate hot water or steam, which
can in turn be used to drive a turbine to generate electricity (a process
referred to as "co-generation") or for other industrial applications.
Co-generated electric power may be used internally; however, if it is generated
at levels in excess of internal need, which is often the case, the excess
electricity is generally sold to the local power company, which has been made
possible through the deregulation of the domestic electrical power industry over
the last few years. For certain applications, waste heat recovery systems can
also be designed to operate with a supplemental heat source, such as a duct
burner, that raises the temperature and pressure to levels comparable with
conventional boilers.
NDC's sales of ERI products grew rapidly in the last few years and the
Company expects that such growth will continue due to increased demand for
energy efficient and environmentally conscious power projects, as well as
increased deregulation. Waste heat recovery systems are increasingly popular
because they provide an alternative source of power at significantly reduced
fuel cost.
National Dynamics offers complete system design and service, based on the
customer's specific needs and requirements. In particular, waste heat recovery
systems are generally custom-designed for integration with the individual
customer's facility and equipment at the time of construction. NDC manufactured
approximately 15 to 20 waste heat recovery systems per year.
SALES, MARKETING AND CUSTOMERS
National Dynamics markets its products primarily on the basis of quality,
dependability and custom engineering, which is complemented by the longstanding
working relationships NDC developed with customers and premier engineering
firms. National Dynamics products are marketed worldwide through its 46 sales
representatives and distributors, most of whom sell both Nebraska Boiler and ERI
products. No sales representative accounted for more than approximately 11% of
NDC's net sales for the year ended October 31, 1997. For the year ended October
31, 1996, one customer, Thai Petrochemical, accounted for more than 10% of NDC's
net sales.
National Dynamics sells its products to a diverse customer base in a broad
range of industries, with no significant customer concentration. Recent NDC
customers included Anheuser-Busch, Warner-Lambert, Bristol-Myers, General
Motors, Westinghouse, and Cargill, as well as engineering firms such as
Fluor-Daniels, Bechtel, Black & Veach, and Day and Zimmerman.
RAW MATERIALS AND SUPPLIERS
National Dynamics' primary raw material is steel, and it also purchases
finished components for its products, such as burners, tubes, controls,
insulation, refractory materials, valves, gauges and pumps. National Dynamics is
not dependent on any single supplier for any of its raw material or component
needs.
MANUFACTURING
National Dynamics operates three manufacturing facilities, two of which are
located in Lincoln, Nebraska and one of which is located in Gonzales, Texas. See
"-- Properties and Employees."
WATER TECHNOLOGIES DIVISION
With over 50 years of experience, Water Technologies is a world leader in
the design and production of water purification and treatment products, systems,
aftermarket parts and service for selected commercial, government, military and
industrial applications. Water Technologies, which markets and sells its
products under the Aqua-Chem brand name, has two product categories: (i)
Freshwater and Military Products, which consist of products with relatively
standard components and configurations that are generally sold to customers in
the military, bottled water and pharmaceutical markets; and (ii) Seawater and
Process Systems, which consist primarily of large, highly engineered projects
and products that generally are sold to customers in markets for seawater
desalination and industrial evaporation processes. Water Technologies accounted
for
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<PAGE> 61
approximately 19% ($36.3 million) of Aqua-Chem's net sales for the twelve months
ended December 31, 1997.
PRODUCTS AND SERVICES
Water Technologies manufactures products that utilize evaporation and
filtration technologies to create purified water for use in a variety of
applications. Water Technologies' primary products are thermal distillation
units, which convert seawater or contaminated fresh water into clean water for
drinking and manufacturing processes by passing feedwater over a heated surface
to create steam that is then condensed as distillate. Water Technologies also
offers reverse osmosis units, which pressurize contaminated fresh or salt water
to force it through a semipermeable membrane to produce drinking water.
FRESHWATER AND MILITARY PRODUCTS. Freshwater and Military Products are
primarily pre-engineered water purification and treatment products and systems
for the bottled water and pharmaceutical industries and for the military. Water
Technologies also provides services and replacement parts for its Freshwater and
Military Products. Most Freshwater and Military Products are various types of
thermal distillation units, including an all-electric thermal distillation unit
that is installed on all U.S. Navy Trident submarines. Aqua-Chem believes that
every U.S. aircraft carrier and nuclear submarine utilizes Water Technologies
products to purify water for use by onboard personnel. Water Technologies also
manufactures a reverse osmosis unit marketed under the "ROWPU" (Reverse Osmosis
Water Purification Unit) name that is sold primarily to the U.S. military.
Freshwater and Military Products also include heat exchangers, which are used by
food, chemical and other industries to cool liquids. For example, the U.S. Navy
uses Water Technologies' heat exchangers for seawater cooling of nuclear reactor
waste water and feedwater preheating in steam propulsion plants of nuclear
aircraft carriers. Freshwater and Military water purification units and heat
exchangers generally sell for between $100,000 and $500,000.
Although individual units may be adapted to meet unique customer
specifications, Water Technologies manufactures all Freshwater and Military
Products to basic design parameters at its Knoxville, Tennessee facility.
Freshwater and Military Products are shipped from the Knoxville facility to the
customer as fully-manufactured systems that require a minimum number of piping
and electrical connections for installation. Once installed, the unit is ready
for operation.
SEAWATER AND PROCESS SYSTEMS. Seawater and Process Systems are highly
engineered systems for land-based and offshore desalination and manufacturing
process plants. Water Technologies utilizes a number of thermal distillation
technologies to meet the specific needs of its Seawater and Process Systems
customers. Water Technologies offers both single effect systems, which are
low-cost and simple to operate, and multi-effect systems, which conserve energy
by linking two, three or more evaporators in series and, as a result, are more
popular for industrial applications. For example, Water Technologies has
installed a 10 million gallon per day seawater desalination system which
produces the entire fresh water supply for the Caribbean island of Aruba.
Seawater and Process Systems include thermal distillation units used by the pulp
and paper industry to concentrate heavy scaling sulfite pulping liquors. Water
Technologies also offers reverse osmosis units for industrial applications.
Many Seawater and Process Systems component parts are fabricated, assembled
and hydro-tested at the Knoxville facility prior to shipment to the customer's
job site, where they are assembled into a field erected plant. Seawater and
Process Systems are highly project oriented, may take from 10 to 14 months to
complete, and are contracted on a fixed-price basis, typically ranging between
$1 million and $10 million in installed value.
SALES, MARKETING AND CUSTOMERS
Water Technologies utilizes a network of over 40 representatives,
distributors and licensees worldwide to sell and market its Freshwater and
Military Products. Sales representatives are compensated on a commission-only
basis, while distributors typically make a profit margin on the purchase and
resale of Water Technologies parts. Due to the unique engineering considerations
and the magnitude of the projects, most Seawater and Process Systems are sold by
Water Technologies directly to end-users.
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<PAGE> 62
For the twelve months ended December 31, 1997, Water Technologies had
approximately 325 customers worldwide, with no one customer representing more
than 10% of its gross sales. Water Technologies' leading customers generally
vary from year to year, due in part to the project-oriented nature of many of
its Seawater and Process Systems. Recent customers include Arvind Mills, the
Aruba Water and Energy Authority, and Newport News Shipbuilding. International
customers represented approximately 50% of Water Technologies' sales over the
last three years, with revenues generated from over 35 countries. Payment terms
on international sales are typically denominated in U.S. dollars and satisfied
via letters of credit.
Typically, over half of Water Technologies' annual revenue is based upon
fixed-priced, long-term contracts. Generally, the term of the contract for
Freshwater and Military Products extends from the order date through shipment,
which usually ranges from 4 to 12 months. A start-up or test period may follow
shipment and last for 1 to 3 months. Customers are generally billed at the time
of shipment. Contract terms for Seawater and Process Systems may vary between 10
and 14 months. Seawater and Process Systems are contracted on a fixed-priced
basis, and customers are billed for work performed according to a pre-arranged
schedule detailed in the sales contract. For a further discussion of sales by
geographic area, see Note 15 to the Company's Consolidated Financial Statements
contained elsewhere in this Prospectus.
PRODUCT SERVICE AND SUPPORT
Water Technologies supports its products with a staff of engineers and
service specialists who provide parts, service, technical training, service
publications, overhaul and repair for customers around the world. For instance,
Water Technologies provides qualified technical training anywhere in the world
through a team of training specialists who work closely with customers to
develop productive and dependable operators for all equipment.
When service is needed, Water Technologies dispatches a qualified service
representative who assesses the customer's system and its repair requirements.
To meet customer needs quickly, Water Technologies distributors maintain
authorized parts and service centers across the continental United States, as
well as service centers in Alaska, Canada, South America, Northern Europe,
Southeast Asia, the Middle East and India.
RAW MATERIALS AND SUPPLIERS
Water Technologies utilizes a wide variety of raw materials in the
construction of its products, including copper-nickel, alloys, stainless steel,
electrical control systems and a number of plastic and metal component parts.
Water Technologies maintains relationships with a select group of suppliers to
leverage its purchasing power and may enter into purchasing agreements to ensure
a reliable source of materials. Water Technologies has never experienced a
significant shortage of raw materials.
MANUFACTURING
Water Technologies' primary production facility is located in Knoxville,
Tennessee. The Knoxville plant, an ISO 9001 certified facility, provides
fabrication, machining, welding and assembly work for the production of both
Freshwater and Military Products and the component parts of Seawater and Process
Systems. Units are tested at the Knoxville plant prior to shipment to the
customer's site for installation. The division is currently implementing
cellular manufacturing techniques, just-in-time inventory controls and
demand-flow processing to improve manufacturing efficiency and reduce production
costs.
The Seawater and Process Systems business also utilizes subcontract
manufacturers in connection with international contracts when Aqua-Chem believes
that it provides a competitive advantage. To implement this international
subcontracting strategy, Water Technologies employs pre-qualified subcontractors
and project managers who are responsible for ensuring that quality, schedule and
other specifications of its Seawater and Process Systems contracts are met.
These project managers are supported by engineers who specialize in the
erection, commissioning, performance testing and overall service and
troubleshooting of the systems.
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<PAGE> 63
Water Technologies shares an applied engineering and product development
facility with Cleaver-Brooks for evaluating the practical application of
evaporator technology on a broad range of processing needs. This capability is
an important part of Water Technologies' operations, enabling it to test the
performance and cost effectiveness of the systems it offers.
PROPERTIES AND EMPLOYEES
The following table sets forth certain information regarding the Company's
properties and employees as of June 30, 1998:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE NUMBER OF
SQUARE EMPLOYEES AT
FACILITY LOCATION USAGE FOOTAGE OWNERSHIP FACILITY
- ------------------------------- --------------------------------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Milwaukee, Wisconsin........... Aqua-Chem, Inc. 81,000 Leased (a) 229
Corporate Headquarters
Milwaukee, Wisconsin........... Cleaver-Brooks and Water 27,000 Owned 9
Technologies
Product Development and Design
Greenville, Mississippi........ Cleaver-Brooks 88,000 Leased (b) 149(b)
Manufacturing (Commercial and
Industrial Watertube Boilers)
Stratford, Ontario, Canada..... Cleaver-Brooks of Canada, Ltd. 74,000 Owned 103(c)
Manufacturing (Firetube and
Commercial Watertube Boilers)
Mexico City, Mexico............ Cleaver-Brooks de Mexico 40,000 Owned 93(c)
Manufacturing (Miscellaneous
Parts and Components)
Thomasville, Georgia........... Cleaver-Brooks 185,000 Owned 253
Manufacturing (Firetube Boilers)
Knoxville, Tennessee........... Water Technologies 162,000 Owned 152
Manufacturing
Monroe, Wisconsin.............. Cleaver-Brooks 81,000 Owned 100(c)
Manufacturing (Burners and
Combustion and Emissions
Controls)
Lincoln, Nebraska.............. National Dynamics 150,000 Owned 218(c)
Manufacturing (Industrial
Watertube Boilers, Waste Heat
Recovery Systems)
Lincoln, Nebraska.............. National Dynamics 50,000 Owned 51
Manufacturing (Fabricated Steel
Components)
Gonzales, Texas................ National Dynamics 75,000 Owned 98
Manufacturing (Industrial
Watertube Boilers, Waste Heat
Recovery Systems and Fabricated
Steel Products)
Elk Grove Village, Illinois.... CB-Kramer Sales & Service, Inc. 46,000 Leased (d) 30
Sales, Service, Warehouse
Lebanon, Pennsylvania.......... (e) 164,000 Owned (e) --(e)
-----
Total: 1,445
</TABLE>
- ------------------
(a) The Company was formerly a limited partner in a partnership that owned this
facility. In July 1998 the partnership sold this facility to a third party
and the partnership was liquidated. The Company occupies the facility under
a lease which expires in June 2006.
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<PAGE> 64
(b) The Company plans to close the Greenville facility and transfer all
production currently located there to other Company facilities. The process
of transferring production is expected to be completed, and the Greenville
facility closed within approximately one year. The Company has entered into
an agreement with the union representing production workers at the
Greenville facility regarding the transfer of production and closure of that
facility. The Company occupies this facility under a year to year lease
which automatically renews until 2061 unless terminated by either party upon
six months' notice.
(c) As of June 30, 1998, approximately 30% of the Company's employees were
represented by various unions. The Company's agreements with its unions
expire on January 1, 1999 in Mexico City, Mexico; on June 5, 2000 in
Stratford, Ontario; on January 19, 2001 in Monroe, Wisconsin and on November
1, 1999 in Lincoln, Nebraska. The Company has not experienced any strikes or
work stoppages in the past five years, except that in 1994, the employees
represented by the International Boilermakers Union at NDC's main
manufacturing facility in Lincoln went on strike for approximately six weeks
in connection with a dispute over employee contributions for health
benefits. See "Risk Factors -- Labor Relations."
(d) The Company occupies this facility under a lease which expires in November
1999.
(e) The Company's Lebanon, Pennsylvania facility, a 164,000 square foot
manufacturing plant, is currently partially leased to third parties and is
held for sale.
ENVIRONMENTAL AND RELATED MATTERS
The Company is subject to a variety of foreign, federal, state and local
laws and regulations relating to the use, storage, handling, generation,
transportation, treatment, emission, discharge, disposal and remediation of, and
exposure to, hazardous and non-hazardous substances, materials, and wastes
("Environmental Laws"). The Company is also subject to laws and regulations
governing employee health and safety.
Under certain Environmental Laws, the Company could be held strictly,
jointly and severally liable for the investigation and remediation of hazardous
substances, materials or wastes at currently or formerly owned or operated
properties, or at third-party waste disposal sites. In addition, the Company
could be held responsible for third-party property or personal injury claims
relating to such contamination or for other violations of Environmental Laws.
The Company has, in some cases, agreed to indemnify the owners of properties
formerly owned by the Company for liabilities under Environmental Laws with
respect to such properties and could be held liable for environmental conditions
which arose while these properties were owned by the Company regardless of such
indemnification. The Company has discovered environmental conditions at a number
of on-site locations that may require additional action, investigation and/or
remediation for which the Company, alone or with others, is or may be
responsible. The Company also has been identified as a responsible party at one
off-site disposal location. Although the Company does not believe that the
aggregate future costs associated with these matters will have a material
adverse effect on its business, results of operations or financial condition,
the amount of such costs in any one year could be substantial.
Certain Environmental Laws impose stringent permitting, operating,
reporting, and other compliance obligations on the Company's operations,
particularly with respect to air and wastewater emissions and to hazardous
substance management and disposal. Failure to comply with such Environmental
Laws could result in substantial fines or penalties, costly corrective action
requirements or operational changes, stringent monitoring or reporting
requirements, and, in certain instances, cessation of operations. The Company is
presently evaluating and addressing various environmental conditions at certain
of its facilities, including the potential that air permits will be required at
certain of its facilities. Although the Company believes that there are no
instances of non-compliance with Environmental Laws that would require it to
incur material costs, there can be no assurance that additional environmental
issues will not arise, either with respect to the Company's existing or formerly
owned facilities, which could have a material adverse effect on the Company's
business, results of operations, or financial condition.
LEGAL PROCEEDINGS
The Company has been named as one of a number of defendants in
approximately 5,900 lawsuits (of which approximately 3,600 are still pending)
alleging personal injury arising from exposure to asbestos-
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<PAGE> 65
containing materials allegedly contained in certain boilers manufactured by the
Company or its subsidiaries in the past. The Company believes that substantially
all of these lawsuits are without merit and has not admitted liability or been
found liable for the plaintiff's injuries in any of these cases. The Company has
disposed of the vast majority of the closed cases without payment, and is
vigorously defending the open cases, although many may not be resolved for
several years. The Company believes that it has adequate insurance coverage from
a number of different insurance carriers for any potential liability it may face
as a result of such claims, although it has agreed to bear a portion of the
defense costs and indemnity payments with regard to a number of these suits. The
Company has established a reserve on its balance sheet to cover any such
exposure and believes this reserve to be adequate. It is the view of management
that the final resolution of said claims and other similar claims which are
likely to arise in the future will not individually or in the aggregate have a
material effect on the Company's financial position or results of operations,
although no assurance to that effect can be given. See "Risk Factors -- Product
Liability Litigation."
The Company is involved in various other litigation matters arising in the
normal course of business. It is the view of management that the Company's
recovery or liability, if any, under pending litigation is not expected to have
a material effect on the Company's financial position or results of operations,
although no assurance to that effect can be given.
PATENTS, TRADEMARKS AND COPYRIGHTS
The Company has a number of United States and foreign patents, patent
applications, patent licensing agreements, trademarks, trademark applications
and copyrights. The Company does not consider its business to be materially
dependent upon any patent, patent application, patent license agreement,
trademark, trademark application or copyright.
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<PAGE> 66
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF AQUA-CHEM
The following table sets forth certain information concerning the directors
and executive officers of the Company. Each director is elected for a one year
term or until such person's successor is duly elected and qualified. The
Company's by-laws provide for six directors; the Board is currently comprised of
five directors and there is one vacancy on the Board to be designated by
Management (as defined).
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- --------------------------------------------------------
<S> <C> <C>
Jeffrey A. Miller.................... 48 President, Chief Executive Officer and Director
(Chairman of the Board)
J. Scott Barton...................... 49 Vice President, Chief Financial Officer
James A. Feddersen................... 54 Secretary
James H. Fordyce..................... 39 Director
James W. Hook........................ 61 Director
Daniel J. Johnson.................... 48 President-Water Technologies Division
William P. Killian................... 62 Director
Rand E. McNally...................... 46 Executive Vice President and General Manager-
Cleaver-Brooks Division
Charles J. Norris.................... 51 Vice President, Chief Information Officer
Michael R. Stone..................... 35 Director
Daniel B. Teich...................... 51 Division President, National Dynamics
Ronald G. Thimm...................... 42 Treasurer
</TABLE>
Jeffrey A. Miller has served as President and Chief Executive Officer of
the Company since July 1996 and assumed the role of Chairman of the Board in
August, 1997. Prior to such time, Mr. Miller had undertaken permanent and
interim Chief Executive Officer and Chief Operating Officer assignments for
various major industrial companies, including serving as interim President and
Chief Operating Officer of Donnelly Corporation (an automotive supplier) from
October, 1995 to May, 1996, performing various independent consulting and
interim management positions from June, 1993 to October, 1995, and serving as
Group Vice President of the Automotive Products Group of Aeroquip Corporation
(an automotive supplier) from August, 1992 to June, 1993. Mr. Miller also spent
19 years in numerous managerial and executive positions within various business
groups of The General Electric Company, including transportation systems
(locomotives, transit cars, transit equipment), major appliances, mining, oil
well drilling, industrial electronics, industrial controls, factory automation
and automotive.
J. Scott Barton has served as Vice President and Chief Financial Officer of
the Company since 1994. Mr. Barton served as Vice President and Controller of
the Company from 1992 to 1994, Corporate Controller of the Company from 1982 to
1992, and Controller of Water Technologies from 1980 to 1982.
James A. Feddersen has served as Secretary of the Company since 1990. Mr.
Feddersen is a shareholder of the law firm of Whyte Hirschboeck Dudek S.C.,
which he joined in 1973. See "Certain Relationships and Related Transactions"
and "Legal Matters."
James H. Fordyce has served as a Director of the Company since August,
1997. Mr. Fordyce is a general partner of J. H. Whitney & Co., a private equity
and mezzanine capital investment firm, which he joined in 1996. Mr. Fordyce
serves on the board of directors of several private companies. Mr. Fordyce was
Senior Vice President of Heller Financial, Inc., a commercial finance firm, from
1988 to 1996.
James W. Hook has served as a Director of the Company since January, 1998.
Mr. Hook has been a professor at the Robert J. McCormick School of Engineering
at Northwestern University since 1992. Mr. Hook served as consultant to
MascoTech, Inc. from 1992 to 1996.
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<PAGE> 67
Daniel J. Johnson has served as the President of Water Technologies since
September 1997. Prior to joining the Company, Mr. Johnson served as Vice
President and General Manager of MagneTek Corporation -- Power Electronics and
Drives Division from 1995 to 1997, as MagneTek's Division Vice President --
Operations from 1994 to 1995, and as Vice president of MagneTek's Engineered
Systems Business Unit from 1991 to 1994. MagneTek Corporation designs,
manufactures and markets variable speed drive automation products and systems.
William P. Killian has served as a Director of the Company since 1993. Mr.
Killian has served as Vice President -- Corporate Development and Strategy at
Johnson Controls, Inc., a global manufacturer of automotive systems and
controls, since 1987. Mr. Killian is also a director of Gehl Company and Q.E.P.
Company, Inc.
Rand E. McNally has served as the Company's Executive Vice President and
General Manager-Cleaver-Brooks Division since November, 1994, and served as
Cleaver-Brooks' Senior Vice President from March, 1990 to November, 1994.
Charles J. Norris has served as Vice President and Chief Information
Officer of the Company since 1996. Prior to joining the Company, Mr. Norris
spent 16 years at Norris Systems Group, Inc., a business systems consulting
company founded and owned by Mr. Norris.
Michael R. Stone has served as a Director of the Company since August,
1997. Mr. Stone is a general partner of J. H. Whitney & Co., a private equity
and mezzanine capital investment firm, which he joined in 1989. Mr. Stone is an
alternate director of Steel Dynamics, Inc., and serves on the board of directors
of several private companies.
Daniel B. Teich has served as the Company's Division President, National
Dynamics since he joined the Company in August, 1998. From January, 1997 until
he joined the Company, Mr. Teich served as the President of Ransomes America, a
manufacturer and distributor of golf course and professional lawn care equipment
and products. During 1996 Mr. Teich served as Managing Director of Pitney Bowes
Management Services Canada, Inc., and from 1993 to 1995 Mr. Teich served as the
President of Monarch Marketing Systems, Inc.
Ronald G. Thimm has served as Treasurer of the Company since 1990, and
prior to that as Assistant Treasurer since 1981.
DIRECTOR COMPENSATION
Directors of the Company, other than Messrs. Hook and Killian, receive no
compensation for their services as directors. The Company has entered into
written agreements with Messrs. Hook and Killian with regard to compensation for
their services as directors.
In accordance with the agreement entered into between the Company and Mr.
Killian on December 17, 1997, effective August 1, 1997, for so long as Mr.
Killian remains a director of the Company, the Company will pay him $2,500 on
the first day of February, April, July and November each year, regardless of the
number of meetings held or attended. In addition, the Company agreed to grant
Mr. Killian an option to purchase 600 shares of Common Stock of the Company at a
price of $3.75 per share on August 1 of each year, for so long as Mr. Killian
remains a director. Each option granted to Mr. Killian under this agreement
vests and becomes fully exercisable on July 31 of the year subsequent to the
date of grant and, if not previously exercised, expires and terminates on August
1, 2007; provided, however, that in the event of a Stock Sale, Reorganization or
Termination, as those terms are defined in the December 17, 1997 agreement, the
option may expire and terminate prior to such date.
In accordance with the agreement entered into between the Company and Mr.
Hook on February 19, 1998, effective January 23, 1998, the Company paid Mr. Hook
a one-time fee of $20,000 upon his acceptance of such agreement and, for so long
as Mr. Hook remains a director of the Company, the Company will pay him $2,500
on the first day of February, April, July and November each year, regardless of
the number of meetings held or attended. In addition, the Company granted Mr.
Hook an option to purchase 1,125 shares of Common Stock of the Company at a
price of $3.75 per share, which vest and become fully exercisable at the rate of
225 shares per year commencing on December 31, 1998 through and including
December 31, 2002, and which, if not previously exercised, expires and
terminates on February 11, 2008; provided, however, that in
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<PAGE> 68
the event of a Stock Sale, Reorganization or Termination, as those terms are
defined in the February 19, 1998 agreement, the option may expire and terminate
prior to such date.
The options granted to Messrs. Killian and Hook pursuant to their
compensation agreements with the Company are non-statutory options that are not
part of Aqua-Chem's employee Stock Option Plan and are non-transferable, except
through inheritance. The stock acquired by Messrs. Killian or Hook pursuant to
such options is subject to certain put-call provisions in the event of death or
disability and to a right of first refusal of the Company in the event of any
sale, transfer or other disposition of such stock.
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<PAGE> 69
EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation paid by the
Company in the fiscal years ended December 31, 1995 and 1996 and in the twelve
months ended December 31, 1997, to the Company's Chief Executive Officer and to
each of the Company's four other most highly compensated executive officers
(collectively, including the Chief Executive Officer, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(A)
----------------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(B) COMPENSATION(C)
- ---------------------------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
Jeffrey A. Miller............................. 1997(d)(e) $182,736 $304,712 $ 292
Chairman of the Board, Chief 1996(e) -- -- --
Executive Officer, President 1995(e) -- -- --
J. Scott Barton............................... 1997(d) $148,086 $ 82,571 $96,420
Vice President, Chief 1996 124,578 45,351 14,187
Financial Officer 1995 118,574 -- 15,181
Rand E. McNally............................... 1997(d) $182,226 $ 79,528 $99,350
Executive Vice President, 1996 145,018 61,285 11,588
General Manager-Cleaver-Brooks 1995 145,018 12,689 11,647
Charles J. Norris............................. 1997(d) $101,478 $ 34,804 $31,534
Vice President, Chief 1996 84,320 27,123 3,942
Information Officer 1995 80,262 2,019 3,779
Ronald G. Thimm............................... 1997(d) $ 89,606 $ 30,977 $ 7,883
Treasurer 1996 86,310 27,123 6,541
1995 82,805 -- 7,400
</TABLE>
- ------------------------------------
(a) Certain personal benefits provided by the Company to the Named Executive
Officers are not included in the table as permitted by regulations of the
Commission because the aggregate amount of such personal benefits for each
Named Executive Officer in each year reflected in the table did not exceed
the lesser of $50,000 or 10% of the sum of such officer's salary and bonus
in such year.
(b) Bonuses are reported for the year or period in which earned, although the
bonuses were paid after the end of the year or period shown.
(c) "All Other Compensation" includes the following:
<TABLE>
<CAPTION>
MILLER BARTON MCNALLY NORRIS THIMM
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Company match under Aqua-Chem's
401(k) savings plan................. 1997 $ -- $ 4,750 $ 4,750 $ -- $2,870
1996 -- 4,069 4,750 -- 2,589
1995 -- 4,046 4,620 -- 2,920
Life insurance premium payments(i).... 1997 $ 292 $10,270 $ 700 $ 390 $ 344
1996 -- 5,135 838 488 500
1995 -- 5,135 1,027 568 586
Company Retirement Plan
contribution........................ 1997 $ -- $ 6,400 $ 6,400 $ 6,144 $4,669
1996 -- 4,983 6,000 3,454 3,452
1995 -- 6,000 6,000 3,211 3,894
"Change In Control" bonus(ii)......... 1997 $ -- $75,000 $87,500 $25,000 $ --
</TABLE>
----------------------------------------
(i) The premiums paid for Mr. Barton's policy in calendar 1997 were for two
years of coverage.
(ii) See "Employment Agreements," below.
(d) Represents aggregate compensation for the twelve months ended December 31,
1997 (combining the seven-month fiscal year ended July 31, 1997 and the five
months ended December 31, 1997).
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<PAGE> 70
(e) Mr. Miller became President and Chief Executive Officer pursuant to an
Interim Management Agreement (the "Management Agreement"), dated July 8,
1996, as amended, between the Company and J. Miller Management, Inc.
("JMM"). Amounts paid by the Company under the Management Agreement were
paid to JMM and Mr. Miller was separately compensated by JMM. Mr. Miller
served as President and Chief Executive Officer pursuant to the Management
Agreement until July 31, 1997, when he became employed by the Company. See
"Certain Relationships and Related Transactions."
EMPLOYMENT AGREEMENTS
The Company has employment agreements with all of the Named Executive
Officers except Mr. Thimm. These agreements govern the compensation, benefits
and treatment upon termination under various circumstances, including voluntary
termination by either party or termination by reason of retirement, death or
disability.
Compensation under these employment agreements includes a base salary plus
a bonus calculated under the Company's management incentive program as a
percentage of the executive's base salary. Each Named Executive Officer is
entitled to participate in all employee benefit plans made available to the
Company's senior executive officers, including, without limitation, medical,
disability, life insurance, retirement and management incentive plans. The
employment agreements for the Named Executive Officers provide for additional
benefits, such as club membership, vacation, use of a Company car and
supplemental life insurance. The employment agreements of Messrs. Barton,
McNally and Norris provide for a bonus calculated as a percentage of base salary
(50% in the case of Mr. Norris and 100% in the case of Messrs. Barton and
McNally) in the event of a Change In Control, as that term is defined in the
respective employment agreements. In connection with the Management Buy-Out, in
July 1997 Messrs. Barton, McNally and Norris were awarded bonuses of $150,000,
$175,000, and $50,000, respectively, pursuant to such Change In Control
provisions. One-half of the amount of each Named Executive Officer's Change In
Control bonus was paid in August 1997 and is reflected in the Summary
Compensation Table under "All Other Compensation." Payment of the remaining
one-half was contingent upon continued employment with Aqua-Chem for a period of
six months following the Change In Control, was paid to the Named Executive
Officers on February 1, 1998. The February 1998 payment is not reflected in the
Summary Compensation Table.
Each employment agreement continues indefinitely until terminated as
provided in the agreement, except for Mr. Miller's employment agreement which is
for a six year term expiring on July 31, 2003, unless terminated prior to the
end of such term as provided in the agreement. Each employment agreement may be
terminated by either the Company or the executive at any time by giving notice
as required under the agreement; provided, however, that under certain
conditions the executive may be entitled to certain severance benefits as
described in that executive's individual agreement. Each agreement also imposes
certain confidentiality obligations on the executive and places restrictions on
the executive's involvement in activities that may compete with the Company and
on engaging fellow employees both during employment and following termination.
Violation of such provisions, or other termination for cause, as defined in the
agreements, may result in forfeiture of severance and other benefits that may
otherwise accrue.
RETIREMENT AND SAVINGS PROGRAMS
The Company maintains a defined contribution retirement plan which includes
a 401(k) savings plan. Substantially all employees who are not members of
collective bargaining groups are eligible to participate. The Company's
retirement contribution equals 4% of eligible compensation while 401(k)
contributions equal 50% of employee contributions to a maximum Company
contribution of 3% of eligible compensation. Under provisions of the 401(k)
savings plan, employees may voluntarily contribute a maximum of 17% of eligible
compensation.
In connection with the Acquisition, the Company assumed the sponsorship of
the National Dynamics Corporation 401(k) Plan and the National Dynamics
Corporation Union Pension Plan that were previously maintained by NDC, for the
benefit of employees of the Company's National Dynamics Division.
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<PAGE> 71
The Company also maintains employee incentive plans covering substantially
all employees who are not members of collective bargaining groups. The Company's
contribution to these plans is based upon defined levels of profitability.
The Company maintains unfunded health care plans covering certain eligible
retirees and employees. The estimated costs of postretirement benefits,
principally health care, are accrued over the period the benefits are earned.
The Company's policy is to fund postretirement benefits as incurred.
MANAGEMENT INCENTIVE PLANS
On November 15, 1996, the Company adopted the Aqua-Chem, Inc. Management
Incentive Plan (the "Management Incentive Plan") and the Aqua-Chem, Inc.
Executive Management Incentive Plan (the "Executive Management Incentive Plan").
The Management Incentive Plan was implemented to provide an incentive to
motivate and reward key management eligible employees for achievement of
short-term results. The incentive payment to participants is calculated through
a formula that utilizes Return On Net Assets, or RONA (subject to adjustment in
the event of certain extraordinary charges, such as acquisitions, divestitures
and/or major new strategic initiatives) as the critical financial performance
measure. Participation is limited to selected senior level employees from each
of the business units and at the corporate level. An Administrative Committee is
responsible for administration of the Management Incentive Plan (including
selection of participants, setting individual incentive opportunity ranging from
10% to 100% of the participant's annual salary, setting financial targets, and
evaluation of performance), subject to the review and final approval of the
Compensation Committee of the Board.
The purpose of the Executive Management Incentive Plan, which was
terminated on December 31, 1997, was to focus the senior management team on
implementing and achieving long-term strategic business plans and financial
performance goals to enhance shareholder value. The incentive payment to
participants was calculated each year through a formula based on three-year
Return On Equity, or ROE, goals. Participation was limited to senior level
executives and officers and who had typically been with the Company for at least
one full three-year period.
STOCK OPTION PLANS
In connection with the Management Buy-Out, the Company adopted the
Aqua-Chem, Inc. 1997 Stock Option Plan (as amended and restated, the "1997 Stock
Option Plan"), which provides for the grant to key employees, from time to time
of non-statutory stock options to purchase up to an aggregate of 61,919 shares
of Common Stock of Aqua-Chem at exercise prices to be determined in accordance
with the provisions of the 1997 Stock Option Plan. The 1997 Stock Option Plan
provides that between 10% and 20% of the aggregate number of shares of Common
Stock underlying each series of options shall vest each year on the anniversary
of the date of the grant, provided that in the prior fiscal year (i) the option
holder completed at least twelve consecutive Months of Service (as defined in
the 1997 Stock Option Plan), and (ii) the Company attained 80% to 100% of a
specified target of EBITDA (as defined therein) ($18.3 million in the current
year, subject to adjustment in the event of certain extraordinary activities,
such as the Acquisition (the "EBITDA Goal")). In the event that an installment
does not vest on an anniversary date because the EBITDA Goal is not met, such
installment shall vest on the next succeeding anniversary date as to which (i)
the option holder has completed at least twelve consecutive Months of Service,
and (ii) the Company met the EBITDA Goal by a cumulative amount greater than or
equal to the prior cumulative EBITDA shortfalls. Notwithstanding the foregoing,
options granted under the 1997 Stock Option Plan shall vest automatically on the
seventh anniversary of the date of the grant regardless of performance criteria.
As of the date of this Prospectus, the Company has granted an option to purchase
4,000 shares of Common Stock to Mr. Johnson at an exercise price of $3.75 per
share under the 1997 Stock Option Plan.
On August 4, 1998 the Board adopted the Aqua-Chem, Inc. 1998 Stock Option
Plan (the "1998 Stock Option Plan") which provides for the grant to key
advisors, consultants and employees, from time to time, of non-statutory stock
options to purchase up to an aggregate of 61,919 shares of Common Stock at
exercise
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<PAGE> 72
prices to be determined in accordance with the provisions of the 1998 Stock
Option Plan. Options granted under the 1998 Stock Option Plan shall vest on
seventh anniversary of the date of grant, but may be accelerated subject to the
terms of a written agreement entered into between the Company and the optionee
at the time of the grant. As of the date of this Prospectus, the Company has
granted an option to purchase 15,740.40 shares to Mr. Teich at an exercise price
of $5.00 per share, the vesting of which shall be accelerated in the event that
certain performance criteria are met at the National Dynamics Division.
PHANTOM STOCK PLAN
On January 23, 1998, the Board approved the Aqua-Chem, Inc. 1998 Phantom
Stock Plan (the "Phantom Stock Plan"), effective April 1, 1998, as a replacement
for the Executive Management Incentive Plan, which was terminated as of December
31, 1997.
The objective of the Phantom Stock Plan is to provide certain senior level
executives and officers with the opportunity to share in future increases in the
value of the Company's Common Stock. The Board (or a committee appointed by the
Board) selects participants and determines the number of shares of phantom stock
to be awarded to each participant. Participants who remain employed by the
Company as of the scheduled payment dates (with certain exceptions) become
entitled to receive the value of their phantom stock awards for that year if a
specified percentage of the EBITDA goal (as specified in the Phantom Stock Plan)
is attained (90% in the current year, subject to decrease in future years). The
value of a participant's phantom stock is determined by multiplying the number
of shares of phantom stock initially awarded to the participant that year by the
value of a share of Common Stock determined in accordance with a formula set
forth the Phantom Stock Plan which is based a multiple of Actual EBITDA with
certain balance sheet adjustments. Two-thirds of the value of a participant's
phantom stock award is scheduled to be paid in the June following the end of the
period to which the award relates, with the remaining third to be paid in the
June of the subsequent year. Regardless of the foregoing, in the event that the
amount that would have been paid out at the end of the 1998 or 1999 calendar
years under the Executive Management Incentive Plan is greater than the amount
payable under the Phantom Stock Plan as of June immediately following the end of
the twelve-month period to which the award relates (i.e. two-thirds of the total
value of the award), then the participant shall be entitled to the amount that
would have been payable under the Executive Management Incentive Plan. On April
1, 1998, the following awards were made to Named Executive Officers under the
Phantom Stock Plan, portions of which mature in 1999, 2000 and 2001: Mr. Barton
received 2,518 shares; Mr. McNally received 3,264 shares; Mr. Norris received
1,479 shares; and Mr. Thimm received 1,506 shares.
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<PAGE> 73
CAPITAL STOCK AND PRINCIPAL STOCKHOLDERS
CAPITAL STRUCTURE
The Company has a single class of common stock and three classes of
preferred stock (denominated Series A, Series B, and Series C). As of June 30,
1998, the Company had 2,006,260 shares of authorized capital stock, itemized by
class and series as follows:
(i) 2,000,000 shares of Common Stock, par value $.01 per share
("Common"), of which 1,000,000 shares are issued and outstanding;
(ii) 6,260 shares of Preferred Stock, par value $.01 per share, divided
into the following series:
(a) 130 shares of Series A Cumulative Preferred Stock, par value $.01
per share ("Series A Preferred"), of which 52 shares are issued and
outstanding.
(b) 130 shares of Series B Cumulative Preferred Stock, par value $.01
per share ("Series B Preferred"), of which 130 shares are issued and
outstanding.
(c) 6,000 shares of Series C Cumulative Preferred Stock, par value $.01
per share ("Series C Preferred"), of which 2,755 shares are issued
and outstanding.
(iii) The Company has issued a warrant (the "Warrant") to purchase up to
176,471 shares of Common at a price of one cent ($0.01) per share.
The Warrant is exercisable at any time by the holder thereof on or
prior to July 31, 2007.
Series A Preferred. The Company formerly had 130 shares of Series A
Preferred outstanding, and used approximately $3.1 million of the proceeds of
the Private Offering to redeem 78 of such shares (see "The Exchange Offer -- Use
of Proceeds"). The remaining 52 shares of Series A Preferred will remain
outstanding subject to redemption as follows: one-half (26) of such shares will
be redeemed (at a redemption price of $1 million plus accrued dividends, if any)
on August 1, 2000 and the remainder will be redeemed (at a redemption price of
$1 million plus accrued dividends, if any) on August 1, 2001. Under the
Company's Certificate of Incorporation (the "Certificate"), holders of the
outstanding nonvoting Series A Preferred are entitled to receive cumulative cash
dividends of $577 per share per quarter beginning August 1, 1998. Holders of
Series A Preferred have the right to require the Company to redeem Series A
Preferred at an aggregate redemption price of $2 million plus accrued dividends
(i) simultaneous with the occurrence of an "overall ownership shift," "employee
ownership shift," or "asset shift" (each as defined in the Certificate); or (ii)
within the 120-day period following an initial public offering of the Company's
equity securities. The Company may call the outstanding shares at any time at
the redemption price of $38,462 per share plus accrued dividends.
Series B Preferred. Holders of the nonvoting Series B Preferred are
entitled to receive cumulative cash dividends of approximately $1,538 per share
per year beginning August 1, 1997 payable at redemption. The redemption price of
Series B Preferred shall be the "Normal Redemption Price," which is generally
based upon Water Technologies' cumulative earnings before taxes for the period
1997 through 2001. The redemption price is modified in the event that prior to
December 31, 2001, either (i) Water Technologies is sold to an unrelated third
party; (ii) there occurs an initial public offering of the Company's equity
securities; or (iii) there occurs an "overall ownership shift," "employee
ownership shift" or "asset shift" (each as defined in the Certificate). The
maximum redemption price, under any circumstance, is $57,692 per share. Holders
of Series B Preferred generally have the right to require the Company to redeem
the Series B Preferred at the applicable redemption price plus accrued dividends
(i) simultaneous with the occurrence of an "overall ownership shift" (as defined
by the Certificate); (ii) within the 120-day period following an initial public
offering of the Company's equity securities; (iii) within the 120-day period
following a refinancing and retirement of the Existing Subordinated Debt; or
(iv) on July 31, 2004. Under certain circumstances the redemption of the Series
B Preferred could result in an event of default under the Indenture. See
"Description of the Notes -- Certain Covenants -- Limitation on Restricted
Payments." The holders of the Series B
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<PAGE> 74
Preferred elected not to require that the Series B Preferred be redeemed in
connection with the Private Offering.
Series C Preferred. Holders of Series C Preferred are entitled to receive
quarterly dividends at the rate of 10.17% per year on the original issue price
per share ($964) beginning on August 1, 1997. Holders of Series C Preferred
generally shall have the right to require the Company to redeem all or any part
of Series C Preferred at a price equal to $1,000 per share, plus accrued
dividends (i) upon an "overall ownership shift," "employee ownership shift," or
"asset shift" (each as defined by the Certificate); (ii) within the 120-day
period following an initial public offering of the Company's equity securities;
or (iii) on July 31, 2005. Any time after July 31, 2004, the Company may call
the outstanding shares at the redemption price of $1,000 per share plus accrued
dividends, provided that the Series A Preferred and Series B Preferred have each
been redeemed. Each share of Series C Preferred has one vote per share,
equivalent to the voting rights of one share of Common.
PRINCIPAL STOCKHOLDERS
Series A and Series B Preferred. The Company's Series A Preferred and
Series B Preferred are owned as follows:
<TABLE>
<CAPTION>
SERIES A PREFERRED SERIES B PREFERRED
----------------------- -----------------------
NUMBER PERCENT NUMBER PERCENT
OF SHARES OF CLASS OF SHARES OF CLASS
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Lyonnaise American Holding, Inc.(b).................. 41.6 80.0% 104 80.0%
Gestra Corporation, N.V.(c).......................... 10.4 20.0% 26 20.0%
</TABLE>
- ------------------------------------
(a) See "-- Capital Structure -- Series A Preferred" above.
(b) c/o Patrick Babin, Northumbrian Water Group, 24. St James's Square, SW1 Y6HZ
London, England.
(c) c/o Miraj Uddin, Rezayat Trading Co. Ltd., P.O. Box 106, Safat, Kuwait
13002.
Common and Series C Preferred. The following table sets forth the
beneficial ownership as of June 30, 1998 of the outstanding Common and Series C
Preferred by (i) each person who is known to the Company to be the beneficial
owner of five percent or more of the outstanding classes shown; (ii) each
director; (iii) each of the Named Executive Officers; and (iv) all directors and
executive officers of the Company as a group.
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All (100%) of the outstanding shares of Common and Series C Preferred are
held by Rush Creek LLC ("Rush Creek"). Pursuant to the Operating Agreement of
Rush Creek, shares of Common and Series C Preferred (and, in the case of the
Whitney Subordinated Debt Fund, L.P., the Warrant) are allocated to each
member's account as set forth in the table below.
<TABLE>
<CAPTION>
SERIES C
COMMON STOCK PREFERRED STOCK TOTAL VOTING POWER
----------------------- ----------------------- -------------------
NUMBER OF NUMBER OF
SHARES PERCENT SHARES PERCENT NUMBER PERCENT
BENEFICIALLY OF BENEFICIALLY OF OF OF
OWNED(A) CLASS(B) OWNED(A) CLASS(B) VOTES(C) VOTES(B)
------------ -------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Whitney Equity Partners, L.P.(d)...... 510,000 51.0% 1,743 63.3% 511,743 51.0%
Whitney Subordinated Debt Fund
L.P.(e)............................. 176,471 15.0 -- -- -- --
Jeffrey A. Miller (f), (g)............ 343,002 34.3 709 25.7 343,711 34.3
James H. Fordyce(f)................... -- -- -- -- -- --
James W. Hook......................... -- -- -- -- -- --
William Killian(h).................... 8,166 * 17 * 8,183 *
Michael R. Stone(f)................... -- -- -- -- -- --
Rand E. McNally(i).................... 57,200 5.7 118 4.3 57,318 5.7
J. Scott Barton(j).................... 49,000 4.9 101 3.7 49,101 4.9
Charles Norris(k)..................... 16,300 1.6 34 1.2 16,334 1.6
Ronald G. Thimm....................... -- -- -- -- -- --
All directors and executive officers
as a group (consisting of 11
persons)............................ 481,834 48.2 996 36.1 482,830 48.2
</TABLE>
- ------------------------------------
(a) "Beneficial ownership" is defined under regulations of the Commission as the
power directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise to vote (or direct the voting of)
or dispose of (or direct the disposition of) stock, including stock of which
an individual has the right to acquire beneficial ownership (as defined)
within 60 days. In the above table, beneficial ownership reflects the number
of shares of Common or Series C Preferred allocated to the Rush Creek
capital account of the entity and individual members shown. Fractional
shares are not shown in the table, rather, the numbers of shares are rounded
to the nearest whole share.
(b) Asterisk (*) denotes less than 1%.
(c) Voting power is combined because each share of Common and each share of
Series C Preferred has one (1) vote per share.
(d) 177 Broad Street, Stamford, Connecticut 06901. Whitney Equity Partners, L.P.
("WEP") has 510,000 shares of Common and 1,743 shares of Series C Preferred
allocated to its Rush Creek capital account. WEP is a manager of Rush Creek
(see Note (f)).
(e) 177 Broad Street, Stamford, Connecticut 06901. The Whitney Subordinated Debt
Fund, L.P., a fund managed by J. H. Whitney & Co. ("WSDF") has the Warrant
(see "-- Capital Structure") allocated to its Rush Creek capital account.
WSDF is a manager of Rush Creek (see Note (f)). The percentage shown in the
table assumes the Warrant is exercised in full. If the Warrant were
exercised in full, the voting power (with respect to allocated shares of
Series C Preferred and Common) of all other entities,
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<PAGE> 76
individuals, and the group listed in the above table would be diluted, with
the resulting voting percentages as follows:
<TABLE>
<CAPTION>
RESULTING
VOTING POWER
ASSUMING
BENEFICIAL OWNER EXERCISE OF WARRANT
---------------- -------------------
<S> <C>
WEP......................................................... 43.4%
WSDF........................................................ 15.0
Jeffrey A. Miller (see Note (g), below...................... 29.1
Rand E. McNally (see Note (i), below)....................... 4.9
J. Scott Barton (see Note (j), below)....................... 4.2
Charles Norris (see Note (k), below)........................ 1.4
All directors and executive officers as a group (consisting
of 11 persons)............................................ 40.9
</TABLE>
(f) There are six managers of Rush Creek: WEP, WSDF, and Messrs. Miller,
Fordyce, Stone and Barton. As managers of Rush Creek, these entities and
individuals may be deemed to share voting and dispositive power with respect
to all (100%, or 1,000,000 shares) of Common and all (100%, or 2,755 shares)
Series C Preferred held by Rush Creek. Each such individual or entity
disclaims beneficial ownership with respect to all 1,000,000 shares of
Common and all 2,755 shares of Series C Preferred other than those shares
set forth opposite their respective names in the above table; in addition,
Messrs. Miller and Barton further disclaim beneficial ownership with respect
to certain of the shares set forth opposite their respective names in the
above table. See Notes (g) and (j), below.
(g) 325,002 of these shares are beneficially owned by two entities controlled by
Mr. Miller. The Jeffrey A. Miller Family LLC ("Miller LLC") is a limited
liability company of which Jeffery A. Miller is the manager and sole voting
member. The Miller LLC is a member of Rush Creek and has 130,001 shares of
Common and 269 shares of Class C Preferred allocated to its Rush Creek
capital account. The Jeffrey A. Miller Trust u/a/d/ May 10, 1997 ("Miller
Trust") is a revocable trust of which Jeffery A. Miller (the president and
chief executive officer of the Company) is the grantor, beneficiary, and
trustee. The Miller Trust is a member of Rush Creek and has 195,001 shares
of Common and 403 shares of Series C Preferred allocated to its Rush Creek
capital account. Mr. Miller is a manager of Rush Creek (see Note (f)). In
addition, Mr. Miller is required under the Stockholders' and Members'
Agreement among the stockholders of the Company and the Members of Rush
Creek (see "Voting Agreements," below) to purchase 18,000 shares of Common
and 37 shares of Series C Preferred which were owned by Mr. Bruce Dickson,
the Company's former Vice President of Human Resources, who passed away in
April, 1998. Although Mr. Miller has not yet completed the purchase of such
shares, they are included in the above totals for Mr. Miller.
(h) Mr. Killian is a member of Rush Creek and has 8,166 shares of Common and 17
shares of Series C Preferred allocated to his Rush Creek capital account.
(i) These shares are beneficially owned by two entities controlled by Mr.
McNally. The Rand Eugene McNally Family LLC ("McNally LLC") is a limited
liability company of which Mr. McNally is the manager and sole voting
member. The McNally LLC is a member of Rush Creek and has 17,160 shares of
Common and 35 shares of Series C Preferred allocated to its Rush Creek
capital account. The Rand E. McNally Trust u/a/d/ November 4, 1997 ("McNally
Trust") is a revocable trust of which Mr. McNally is the grantor,
beneficiary, and trustee. The McNally Trust is a member of Rush Creek and
has 40,040 shares of Common and 83 shares of Series C Preferred allocated to
its Rush Creek capital account.
(j) These shares are beneficially owned by an entity controlled by Mr. Barton,
the J. Scott Barton Trust u/a/d December 22, 1997 ("Barton Trust"), a
revocable trust of which Mr. Barton is the grantor, beneficiary, and
trustee. The Barton Trust is a member of Rush Creek and has 49,000 shares of
Common and 101 shares of Series C Preferred allocated to its Rush Creek
capital account.
(k) These shares are beneficially owned by two entities controlled by Mr.
Norris. The Charles J. Norris Family LLC ("Norris LLC") is a limited
liability company of which Mr. Norris is the manager and sole
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<PAGE> 77
voting member. The Norris LLC is a member of Rush Creek and has 3,260 Shares
of Common and 7 shares of Series C Preferred allocated to its Rush Creek
capital account. The Charles Norris Trust u/a/d/ November 21, 1997 ("Norris
Trust") is a revocable trust of which Mr. Norris is the grantor,
beneficiary, and trustee. The Norris Trust is a member of Rush Creek and has
13,040 shares of Common and 27 shares of Series C Preferred allocated to its
Rush Creek capital account.
VOTING AGREEMENT
Pursuant to a Stockholders' and Members' Agreement among the stockholders
of the Company and the Members of Rush Creek, the parties thereto have agreed to
vote to elect a six-member board of directors consisting of (i) two directors
designated by J. H. Whitney & Co. (or WEP and WSDF) (currently, Messrs. Fordyce
and Stone); (ii) two directors designated by certain senior executive officers
of the Company ("Management") (currently, Mr. Miller; the one vacancy on the
Board being a director to be designated by Management); and (iii) two
independent directors who are agreeable to each of J. H. Whitney & Co. and
Management (currently, Messrs. Hook and Killian). The Stockholders' and Members'
Agreement further provides that, in the event of a material breach of certain
documents entered into by the parties in connection with the Management Buy-Out
("Transaction Documents"), the parties agree to increase the number of directors
to nine and to elect three additional directors designated by J. H. Whitney &
Co. (or WEP and WSDF). Each Member of Rush Creek has one vote per Membership
Unit. However, pursuant to the Rush Creek Operating Agreement, the Membership
Units of Rush Creek are designated as either "Institutional Investor Membership
Units" (which includes the Membership Units held by WEP and WDSF) or "Management
Membership Units" (which includes the Membership Units held by the Miller LLC,
the Miller Trust, the McNally LLC, the McNally Trust, the Barton Trust, the
Norris LLC, and the Norris Trust). The election of the Managers of Rush Creek is
subject to a provision of the Operating Agreement which requires that two
managers shall be elected by a majority of the Institutional Investor Membership
Units and two managers shall be elected by a majority of the Management
Membership Units. The Operating Agreement further provides that, in the event of
a material breach of a Transaction Document, one additional manager shall be
designated by a majority of the Institutional Investor Membership Units.
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<PAGE> 78
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
The Company entered into an Interim Management Agreement ("Management
Agreement") with J. Miller Management, Inc. ("JMM") dated July 8, 1996, pursuant
to which the Company engaged JMM to provide the services of Mr. Miller as the
Company's President and Chief Executive Officer. Mr. Miller is the President and
co-owner of JMM. The Management Agreement provided that Mr. Miller would serve
as Interim Chief Executive Officer, provide management services and expertise to
the Company, and manage the operations of the Company, commencing on July 8,
1996. The Management Agreement was terminable at will by either party; however,
if the Company were to have terminated the Management Agreement without cause it
would have been liable for all compensation due thereunder. If the Company were
to have terminated the Management Agreement with cause (including Mr. Miller's
failure to obtain government security clearance) it would have been liable only
for accrued obligations through the date of termination.
Pursuant to the Management Agreement, the Company agreed to pay JMM $10,000
per week, plus the cost of living accommodations for Mr. Miller in the Milwaukee
area. The Company also agreed to reimburse JMM for out-of-pocket expenses
incurred by JMM on behalf of the Company under the Management Agreement,
including the cost of a company car and weekly travel to and from Mr. Miller's
home in Michigan.
The Management Agreement was amended on January 12, 1997 to extend its term
through December 31, 1997 and to provide for the payment to JMM of incentive
compensation for 1997 in accordance with the Company's Management Incentive
Plan. See "Management -- Management Incentive Plans." Under the Management
Agreement, the amount of incentive compensation that JMM would be paid was based
on base incentive compensation of $356,000 multiplied by a percentage based on a
sliding scale of from 50% to 150% tied to the Company's EBIT (as defined
therein) for the twelve months ended December 31, 1997. If 1997 EBIT were less
than $6.7 million, no incentive compensation would be due under the Management
Agreement; if 1997 EBIT were equal to or greater than $6.7 million but less than
$11.0 million, the base incentive compensation would have been multiplied by
50%; if 1997 EBIT were equal to or greater than $11.0 million but less than
$14.0 million, the base incentive compensation would have been multiplied by
100%; if 1997 EBIT were equal to or greater than $14.0 million but less than
$17.0 million, the base incentive compensation would have been multiplied by
125%; and if 1997 EBIT were equal to or greater than $17.0 million, the base
incentive compensation would have been multiplied by 150%.
The Management Agreement, as amended, also provided for additional
compensation in the event of a completed sale of the Company by December 31,
1998, based on a formula which provided for a Sale Bonus of $356,000 (the "Sale
Bonus") payable if the "net consideration" (as defined in the Management
Agreement) received for the Company was less than $40 million and a percentage
of the excess over $40 million ("Excess Consideration"). The percentage was 1%
of the first $5 million of Excess Consideration, 2% of the second $5 million of
Excess Consideration, 3% of the third $5 million of Excess Consideration, 4% of
the fourth $5 million of Excess Consideration, and 5% of any additional Excess
Consideration (that is, the amount by which the net consideration exceeded $60
million). The Sale Bonus became payable as a result of the Management Buy-Out.
The Management Agreement was terminated on July 31, 1997 when Mr. Miller
became employed by, and entered into an employment agreement with, the Company
(see "Management -- Employment Agreements"). The total cost to the Company for
Mr. Miller's services under the Management Agreement for 1997 was approximately
$1,514,000, including incentive compensation of approximately $267,000 and a
Sale Bonus of $861,000. The total cost to the Company for Mr. Miller's services
under the Management Agreement for 1996 was approximately $286,000.
OTHER
Three of the directors of the Company (Messrs. Fordyce, Miller and Stone)
are managers of Rush Creek, which holds 100% of the Common and Series A
Preferred Stock of the Company. Two of the directors of the Company (Messrs.
Fordyce and Stone) are general partners of J. H. Whitney & Co., which manages
Whitney Equity Partners, L.P., a principal owner of Rush Creek. See "Capital
Stock and Principal
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<PAGE> 79
Stockholders -- Principal Stockholders." Contemporaneous with the closing of the
Management Buy-Out, the Company paid J.H. Whitney & Co. a debt placement fee of
$630,000 as compensation for its services in connection with the placement of
$21.0 million in subordinated debt with Whitney Subordinated Debt Fund, L.P. and
a transaction fee of $210,000 related thereto, and reimbursed the reasonable
out-of-pocket expenses incurred by Whitney Equity Partners, L.P. and Whitney
Subordinated Debt Fund, L.P. in connection with the Management Buy-Out and
related transactions. In addition, the Company has agreed to pay J. H. Whitney &
Co. a monitoring fee of $50,000 annually on the first business day of each year
commencing in 1998, and an annual recognition fee of $25,000, also commencing in
1998. In exchange for these fees, J.H. Whitney & Co. performs financial and
strategic investment advisory services for the Company. The recognition fee is
accrued annually and will become payable upon the occurrence of an initial
public offering or an "Organic Transaction" (as defined in the Company
Certificate of Incorporation to include a sale of substantially all the assets
of the Company or a merger of the Company or other similar transaction) or an
initial public offering of the Company's securities.
James A. Feddersen, Secretary of Aqua-Chem, is a shareholder in the law
firm of Whyte Hirschboeck Dudek S.C., which performs legal services for
Aqua-Chem. Through Rush Creek, Mr. Feddersen owns approximately 8,166 shares, or
approximately 0.8% of the outstanding Common Stock and approximately 17 shares,
or approximately 0.6% of the outstanding Series C Preferred Stock. See "Capital
Stock and Principal Stockholders -- Common and Series C Preferred" and "Legal
Matters."
The Company has, pursuant to its Certificate of Incorporation and Bylaws,
established a policy indemnifying officers and directors, to the fullest extent
allowed by the Delaware General Corporation Law, for liabilities and expenses
arising out of their actions in their capacities as officers and directors. This
provision does not exclude indemnification for liability on the part of officers
and directors under the Securities Act arising out of material
misrepresentations or omissions contained in a registration statement filed
under the Securities Act. However, insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers, and
controlling persons pursuant to the foregoing provisions, the Company have been
informed that, in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
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THE ACQUISITION
THE PURCHASE AGREEMENT
On May 28, 1998, Aqua-Chem entered into a definitive agreement (the "Asset
Purchase Agreement") with National Dynamics Corporation ("NDC"), a Nebraska
corporation, and three of NDC's individual shareholders who collectively held
83.3% of the issued and outstanding shares of NDC (the "Shareholders"), to
acquire substantially all of the assets of NDC for a purchase price of $47.0
million plus the assumption of certain liabilities. Pursuant to the Asset
Purchase Agreement, the purchase price is subject to certain post-closing
adjustments based upon a closing balance sheet and NDC's physical inventory as
of the closing date. See "Summary -- Recent Developments -- Purchase Price
Dispute."
The Asset Purchase Agreement provided for the assumption of certain of
NDC's liabilities by Aqua-Chem, including without limitation, contractual
obligations to furnish goods and services or to pay for goods and services that
were acquired; provided, however, that Aqua-Chem did not assume any liabilities
for personal or property damage related to Products Sold (as defined therein).
The Asset Purchase Agreement included customary representations and warranties
by Aqua-Chem, NDC and the Shareholders regarding business and legal issues and
customary indemnification provisions. In the Asset Purchase Agreement, NDC and
the Shareholders covenanted not to compete with Aqua-Chem, as described therein,
for a period of 48 months following the closing date and not to disclose
Confidential Information (as defined therein) except as provided therein.
FINANCING
Aqua-Chem used a portion of the proceeds of the Private Offering to finance
the Acquisition, which was closed on June 23, 1998, concurrently with the
Private Offering. See "The Exchange Offer -- Use of Proceeds." Since the
Acquisition, the former business of NDC has been operated as the National
Dynamics Division of the Company. There can be no assurance that the expected
benefits of the Acquisition will be realized. See "Risk Factors -- Realization
of the Benefits of the Acquisition."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
In connection with the Private Offering, the Company amended and restated
its existing revolving credit facility (as amended and restated, the "New Credit
Facility"). Borrowings under the New Credit Facility bear interest at variable
rates and permit borrowings and letters of credit totaling $45.0 million.
The obligations of the Company under the New Credit Facility are guaranteed
by all existing and future domestic subsidiaries and by Rush Creek, and
borrowings under the New Credit Facility are secured by substantially all of the
assets of the Company, other than assets (including real property) of foreign
subsidiaries. Pricing on the New Credit Facility is, at the option of the
Company, (i) a base rate equal to the higher of Comerica's prime rate or the
Federal funds rate plus 1.00%, or (ii) a Eurodollar-based rate plus an
applicable margin ranging from 1.00% to 1.75% dependent on the ratio of total
debt to EBITDA. Letters of credit are priced at 1.00% to 1.75% dependent on the
ratio of total debt to EBITDA plus a facing fee. The Company also pays a
revolving credit facility fee of 0.25% to 0.50% dependent on the ratio of total
debt to EBITDA.
The New Credit Facility contains certain restrictive covenants that impose
limitations upon, among other things, the ability of the Company and the
guarantors (other than Rush Creek) to incur liens; merge, consolidate or dispose
of assets; make loans and investments; incur indebtedness; engage in certain
transactions with affiliates; incur contingent obligations; enter into joint
ventures; enter into lease agreements; pay dividends and make other
distributions; change its business; and make capital expenditures.
The New Credit Facility also contains covenants requiring the Company (a)
to maintain certain financial ratios as follows: (i) a fixed charge coverage
ratio; and (ii) a funded debt to EBITDA ratio; and (b) to maintain a minimum
base tangible net worth.
Under the New Credit Facility the Company is required to maintain an
adjusted consolidated tangible net worth (consolidated tangible net worth plus
an amount equal to the aggregate outstanding principal amount of subordinated
debt) of not less than $70 million plus (on a cumulative basis) for each fiscal
quarter ending on or after June 23, 1998, the sum of (a) 50% of consolidated net
income if positive and 100% of the cash proceeds of the issuance of any equity
interest of the Company during such fiscal quarter. In addition, the New Credit
Facility requires the Company to maintain a fixed charge coverage ratio of not
less than 1.25 to 1 and a senior funded debt to consolidated EBITDA ratio of not
more than 3.5 to 1.
All extensions of credit under the New Credit Facility are subject to
customary documentation and on the continued accuracy of all representations and
warranties as well as the absence of any Default or Event of Default (as defined
in the New Credit Facility).
The New Credit Facility may be refinanced (as defined in the Indenture)
from time to time in accordance with the limits of the Indenture. See
"Description of the Notes -- Certain Covenants -- Limitation on Indebtedness"
and "-- Certain Definitions."
FOREIGN CREDIT FACILITIES
Cleaver-Brooks of Canada, LTD has in place a Cdn$0.5 million revolving
credit facility established with a Canadian bank for convenience purposes and
for funding its working capital and other financing needs. This facility is
unsecured and payable on demand, and as of June 30, 1998, had no outstanding
balance.
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DESCRIPTION OF THE NOTES
GENERAL
The Existing Notes were, and the Exchange Notes are to be, issued under an
Indenture, dated as of June 23, 1998 (the "Indenture"), between the Company and
United States Trust Company of New York, as Trustee (the "Trustee").
The following is a summary of certain provisions of the Indenture and the
Notes, a copy of which Indenture and the form of Notes is available upon request
to the Company at the address set forth under "Available Information." The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended. For purposes of this summary, the term "Company" refers only to
Aqua-Chem, Inc. and not to any of its subsidiaries.
The Existing Notes were, and the Exchange Notes will be, issued only in
fully registered form, without coupons, in denominations of $1,000 and any
integral multiple of $1,000. No service charge shall be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Existing Notes were, and the Exchange Notes will be, unsecured senior
subordinated obligations of the Company, initially in an aggregate principal
amount of $125.0 million aggregate principal amount, and will mature on July 1,
2008. The Notes bear interest at 11.25% per annum from June 23, 1998, or from
the most recent date to which interest has been paid or provided for, payable
semiannually to Holders of record at the close of business on the December 15 or
June 15 immediately preceding the interest payment date on January 1 and July 1
of each year, commencing January 1, 1999. The Company will pay interest on
overdue principal at 1% per annum in excess of such rate, and it will pay
interest on overdue installments of interest at such higher rate to the extent
lawful. Interest on the Existing Notes is, and the Exchange Notes will be,
computed on the basis of a 360-day year of twelve 30-day months.
The interest rate on the Notes is subject to increase in certain
circumstances if the Company does not file a registration statement relating to
the Exchange Offer or if the registration statement is not declared effective on
a timely basis or if certain other conditions are not satisfied, all as further
described under "The Exchange Offer -- Registration Agreement."
Subject to the covenants described below under "-- Certain Covenants" and
applicable law, the Company may issue additional Notes under the Indenture in an
unlimited aggregate principal amount. The Notes offered hereby and any
additional Notes subsequently issued would be treated as a single class for all
purposes under the Indenture.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to July 1, 2003. Thereafter, the
Notes will be redeemable, at the Company's option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders
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<PAGE> 83
of record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
July 1 of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ ----------------
<S> <C>
2003........................................................ 105.625%
2004........................................................ 104.219
2005........................................................ 102.813
2006........................................................ 101.406
2007 and thereafter......................................... 100.000
</TABLE>
In addition, at any time and from time to time prior to July 1, 2001, the
Company may redeem in the aggregate up to 20% of the original principal amount
of the Notes with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price (expressed as a percentage
of principal amount) of 111.25% plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least $100.0 million aggregate principal amount of the Notes remains
outstanding after each such redemption.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
RANKING
The indebtedness evidenced by the Notes is a senior subordinated, unsecured
obligation of the Company. The payment of the principal of, premium (if any) and
interest on the Notes is subordinate in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness, whether
outstanding on the Issue Date or thereafter incurred, including the Company's
obligations under the Credit Agreement.
As of June 30, 1998 the Company had no Senior Indebtedness outstanding.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company may incur, under certain circumstances the amount
of such Indebtedness could be substantial and, in any case, such Indebtedness
may be Senior Indebtedness. See "-- Certain Covenants -- Limitation on
Indebtedness."
A portion of the operations of the Company are conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including holders of the Notes, even though such obligations will not constitute
Senior Indebtedness. The Notes, therefore, will be effectively subordinated to
creditors (including trade creditors) and preferred stockholders (if any) of
subsidiaries of the Company. At June 30, 1998, the total liabilities of the
Company's subsidiaries were approximately $3.2 million, including trade
payables. Although the Indenture limits the incurrence of Indebtedness and
preferred stock of certain of the Company's subsidiaries, such limitation is
subject to a number of significant qualifications. Moreover, the Indenture does
not impose any limitation on the incurrence by such subsidiaries of liabilities
that are not considered Indebtedness under the Indenture. See "-- Certain
Covenants -- Limitation on Indebtedness."
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not Incur, directly or indirectly, any Indebtedness that is subordinate or
junior in ranking in right of payment to its Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right
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of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not
deemed to be subordinated or junior to Secured Indebtedness merely because it is
unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any Designated Senior Indebtedness is not
paid when due or (ii) any other default on Designated Senior Indebtedness occurs
and the maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, the default has been cured or
waived and any such acceleration has been rescinded or such Designated Senior
Indebtedness has been paid in full. However, the Company may pay the Notes
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the second preceding sentence) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from the Representative of
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing
or (iii) because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions described in the first sentence of this
paragraph), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, the Company may resume payments on the Notes after the end
of such Payment Blockage Period. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of such Senior Indebtedness before the
Noteholders are entitled to receive any payment, and until the Senior
Indebtedness is paid in full, any payment or distribution to which Noteholders
would be entitled but for the subordination provisions of the Indenture will be
made to holders of such Senior Indebtedness as their interests may appear. If a
distribution is made to Noteholders that, due to the subordination provisions,
should not have been made to them, such Noteholders are required to hold it in
trust for the holders of Senior Indebtedness and pay it over to them as their
interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of Designated Senior
Indebtedness or the Representative of such holders of the acceleration.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Company who are not holders of Senior Indebtedness may recover less,
ratably, than holders of Senior Indebtedness and may recover more, ratably, than
the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "-- Defeasance."
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BOOK-ENTRY, DELIVERY AND FORM
The Existing Notes were, and the Exchange Notes will be, issued in the form
of a Global Note. The Global Note is deposited with, or on behalf of, the
Depositary and registered in the name of the Depositary or its nominee. Except
as set forth below, the Global Note may be transferred, in whole and not in
part, only to the Depositary or another nominee of the Depositary. Investors may
hold their beneficial interests in the Global Note directly through the
Depositary if they have an account with the Depositary or indirectly through
organizations which have accounts with the Depositary.
Upon the transfer of a Note in definitive form, such Note will, unless the
Global Note has previously been exchanged for Notes in definitive form, be
exchanged for an interest in the Global Note representing the principal amount
of Notes being transferred.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the Global Note, the Depositary will credit, on its
book-entry registration and transfer system, the principal amount of the Notes
represented by such Global Note to the accounts of participants. The accounts to
be credited shall be designated by the Initial Purchasers of such Notes.
Ownership of beneficial interests in the Global Note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the Global Note will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
the Depositary (with respect to participants' interest) and such participants
(with respect to the owners of beneficial interests in the Global Note other
than participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Note.
So long as the Depositary, or its nominee, is the registered holder and
owner of the Global Note, the Depositary or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for all
purposes of such Notes and the Indenture. Except as set forth below, owners of
beneficial interests in the Global Note will not be entitled to have the Notes
represented by the Global Note registered in their names, will not receive or be
entitled to receive physical delivery of certificated Notes in definitive form
and will not be considered to be the owners or holders of any Notes under the
Global Note. The Company understands that under existing industry practice, in
the event an owner of a beneficial interest in the Global Note desires to take
any action that the Depositary, as the holder of the Global Note, is entitled to
take, the Depositary would authorize the participants to take such action, and
that the participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Payment of principal of and interest on Notes represented by the Global
Note registered in the name of and held by the Depositary or its nominee will be
made to the Depositary or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the
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<PAGE> 86
Depositary or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in the Global Note held through
such participants will be governed by standing instructions and customary
practices and will be the responsibility of such participants. The Company will
not have any responsibility or liability for any aspect of the records relating
to, or payments made on account of, beneficial ownership interests in the Global
Note for any Note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests or for any other aspect of the
relationship between the Depositary and its participants or the relationship
between such participants and the owners of beneficial interests in the Global
Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the Global Note may not be transferred except as a whole by
the Depositary to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depositary, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depositary or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
The Notes represented by the Global Note are exchangeable for certificated
Notes in definitive form of like tenor as such Notes in denominations of U.S.
$1,000 and integral multiples thereof if (i) the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary for the Global Note or
if at any time the Depositary ceases to be a clearing agency registered under
the Exchange Act and a successor Depositary is not appointed by the Company
within 90 days, (ii) the Company in its discretion at any time determines not to
have all of the Notes represented by the Global Note or (iii) an Event of
Default has occurred and is continuing. Any Note that is exchangeable pursuant
to the preceding sentence is exchangeable for certificated Notes issuable in
authorized denominations and registered in such names as the Depositary shall
direct. Subject to the foregoing, the Global Note is not exchangeable, except
for a Global Note of the same aggregate denomination to be registered in the
name of the Depositary or its nominee. In addition, such certificates will bear
the legend referred to under "Transfer Restrictions" (unless the Company
determines otherwise in accordance with applicable law) subject, with respect to
such Notes, to the provisions of such legend.
SAME-DAY PAYMENT
The Indenture requires that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date):
(i) prior to the first public offering of common stock of the Company,
the Permitted Holders cease to be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a
majority in the aggregate of the total voting power of the Voting Stock of
the Company, whether as a result of issuance of securities of the Company,
any merger, consolidation, liquidation or dissolution of the Company, any
direct or indirect transfer of securities or otherwise (for purposes of
this clause (i) and clause (ii) below, the Permitted Holders shall be
deemed to beneficially own any Voting Stock of any Person (the "specified
entity") held by any other Person (the "parent entity") so long as the
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Permitted Holders beneficially own (as so defined), directly or indirectly,
in the aggregate a majority of the voting power of the Voting Stock of the
parent entity);
(ii) following the first public offering of common stock of the
Company, any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (i) above, except that for
purposes of this clause (ii) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 40% of the total
voting power of the Voting Stock of the Company; provided, however, that
the Permitted Holders beneficially own (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the total
voting power of the Voting Stock of the Company than such other person and
do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors (for
the purposes of this clause (ii), such other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a parent
entity, if such other person is the beneficial owner (as defined in this
clause (ii)), directly or indirectly, of more than 40% of the voting power
of the Voting Stock of such parent entity and the Permitted Holders
beneficially own (as defined in clause (i) above), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting
Stock of such parent entity and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of such parent entity);
(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors of the Company then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors then in office;
(iv) the adoption of a plan relating to the liquidation or dissolution
of the Company; or
(v) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person (other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock of
the Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation. The phrase "all or substantially all," as used with
respect to a sale of assets of the Company has no clearly established
meaning under New York law (the law governing the Indenture) and is subject
to judicial interpretation, and accordingly, in certain circumstances,
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of
the assets of the Company and therefore it may be unclear whether a Change
of Control has occurred.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee (the "Change of Control Offer")
stating: (1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Notes at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest on the relevant interest
payment date); (2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company,
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consistent with the covenant described hereunder, that a Holder must follow in
order to have its Notes purchased.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenant described under "-- Certain Covenants -- Limitation on Indebtedness".
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount of the Notes then outstanding. Except for the
limitations contained in such covenants, however, the Indenture will not contain
any covenants or provisions that may afford holders of the Notes protection in
the event of a highly leveraged transaction.
The Credit Agreement will prohibit the Company from purchasing any Notes
and will also provide that the occurrence of certain change of control events
with respect to the Company would constitute a default thereunder. In the event
a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the Credit Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payment to the Holders of Notes.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the holders of their right to require the Company to repurchase
the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases. The
provisions under the Indenture relative to the Company's obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company may Incur Indebtedness if, on the date of
such Incurrence and after giving effect thereto, the Consolidated Coverage Ratio
exceeds 2.00 to 1 if such Indebtedness is Incurred prior to January 1, 2000,
2.25 to 1 if such
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Indebtedness is Incurred on or after January 1, 2000 and prior to July 1, 2001
or 2.50 to 1 if such Indebtedness is incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement; provided,
however, that, after giving effect to any such Incurrence, the aggregate
principal amount of such Indebtedness then outstanding does not exceed the
greater of (i) $45.0 million less the sum of all principal payments with
respect to such Indebtedness pursuant to paragraph (a)(ii)(A) of the
covenant described under "-- Limitation on Sales of Assets and Subsidiary
Stock" and (ii) the sum of (x) 50% of the book value of the inventory of
the Company and its Restricted Subsidiaries (other than any Foreign
Subsidiary that has Indebtedness then outstanding Incurred pursuant to
clause (3) below) and (y) 85% of the book value of the accounts receivable
of the Company and its Restricted Subsidiaries (other than any Foreign
Subsidiary that has Indebtedness then outstanding Incurred pursuant to
clause (3) below);
(2) Indebtedness owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that (i) any subsequent issuance or transfer
of any Capital Stock which results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Wholly Owned Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such Indebtedness
by the obligor thereon and (ii) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the Notes;
(3) Indebtedness of Foreign Subsidiaries in an aggregate principal
amount that, when taken together with the principal amount of all other
Indebtedness Incurred pursuant to this clause (3) (and any Indebtedness
Incurred by Foreign Subsidiaries prior to the Issue Date solely to finance
its working capital) and then outstanding does not exceed the sum of (i)
60% of the book value of the inventory of Foreign Subsidiaries that have
Indebtedness Incurred pursuant to this clause (3) then outstanding and (ii)
85% of the book value of the accounts receivable of Foreign Subsidiaries
that have Indebtedness Incurred pursuant to this clause (3) then
outstanding;
(4) the Notes and the Exchange Notes;
(5) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2), (3) or (4) of this covenant);
(6) Indebtedness of a Subsidiary Incurred and outstanding on or prior
to the date on which such Subsidiary was acquired by the Company (other
than Indebtedness Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Company); provided,
however, that on the date of such acquisition and after giving effect
thereto, the Company would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to clause (a);
(7) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (4), (5) or (6) or this
clause (7); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness of a Subsidiary
Incurred pursuant to clause (6), such Refinancing Indebtedness shall be
Incurred only by such Subsidiary;
(8) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the Company
pursuant to the Indenture;
(9) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided, however, that the maximum assumable
liability in
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respect of all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company and its Restricted Subsidiaries in
connection with such disposition;
(10) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(11) Incurrence by the Company or any of its Restricted 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, plant or equipment used in the
business of the Company or any such Restricted Subsidiaries in an aggregate
principal amount not to exceed the greater of (a) $20 million or (b) 5% of
the Consolidated Net Worth of the Company at any one time outstanding;
(12) Indebtedness of the Company consisting of Guarantees of
Indebtedness of a Foreign Subsidiary Incurred pursuant to clause (3) above;
(13) Indebtedness in respect of performance bonds and surety or appeal
bonds entered into by the Company and its Restricted Subsidiaries in the
ordinary course of their business and letters of credit entered into in the
ordinary course of business by the Company and its Restricted Subsidiaries
to secure such performance bonds or surety or appeal bonds to the extent
such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the 30th Business Day
following payment on such letter of credit; and
(14) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (1) through (13)
above or paragraph (a)) does not exceed $10 million.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not
Incur (i) any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness, unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness or (ii) any Secured Indebtedness
that is not Senior Indebtedness unless contemporaneously therewith effective
provision is made to secure the Notes equally and ratably with such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness;" or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments since the Issue Date would exceed the
sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Notes are
originally issued to the end of the most recent fiscal quarter ending at
least 45 days prior to the date of such Restricted Payment (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
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(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness
of the Company convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash, or the
fair value of any other property, distributed by the Company upon such
conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments
in Unrestricted Subsidiaries resulting from dividends, repayments of loans
or advances or other transfers of assets, in each case to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the
portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of an Unrestricted Subsidiary at
the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however,that the foregoing sum shall not exceed, in
the case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any Restricted Payments made out of the proceeds of the
substantially concurrent sale of, or made by exchange for, Capital Stock
of the Company (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary of the Company or an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); provided, however,
that (A) such Restricted Payment shall be excluded in the calculation of
the amount of Restricted Payments and (B) the Net Cash Proceeds from
such sale shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent
sale of, Indebtedness of the Company which is permitted to be Incurred
pursuant to the covenant described under "-- Limitation on
Indebtedness;" provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value
shall be excluded in the calculation of the amount of Restricted
Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that at the time of payment of
such dividend, no other Default shall have occurred and be continuing
(or result therefrom); provided further, however, that such dividend
shall be included in the calculation of the amount of Restricted
Payments;
(iv) the repurchase or other acquisition of shares of, or options
to purchase shares of, common stock of the Company or any of its
Subsidiaries from employees, former employees, directors or former
directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former
directors), pursuant to the terms of the agreements (including
employment agreements) or plans (or amendments thereto) approved by the
Board of Directors under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such common stock;
provided, however, that the aggregate amount of such repurchases and
other acquisitions shall not exceed $1 million in any calendar year;
provided further, however, that such repurchases and other acquisitions
shall be excluded in the calculation of the amount of Restricted
Payments;
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(v) the repurchase of shares of Series A Preferred Stock (and the
payment of accrued dividends thereon); provided, however, that any such
repurchase shall be excluded in the calculation of the amount of
Restricted Payments; or
(vi) the repurchase of shares of Series B Preferred Stock (and the
payment of accumulated dividends thereon) if on the date of any such
repurchase and after giving effect thereto, the Consolidated Coverage
Ratio exceeds 2.00 to 1; provided, however, that any such repurchase
shall be included in the calculation of the amount of Restricted
Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company, except:
(i) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
(iii) any encumbrance or restriction pursuant to an agreement
evidencing Indebtedness Incurred without violation of the Indenture or
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement referred to in clause (i) or
(ii) of this covenant or this clause (iii); provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such agreement, refinancing agreement or amendment are no
less favorable to the Noteholders than encumbrances and restrictions with
respect to such Restricted Subsidiary contained in such predecessor
agreements;
(iv) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or the property
leased thereunder;
(v) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages; and
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) first, to the extent the
Company elects (or is required by the terms of any Indebtedness), to prepay,
repay, redeem or purchase Senior Indebtedness or Indebtedness (other than any
Disqualified Stock) of a Wholly Owned Subsidiary (in
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each case other than Indebtedness owed to the Company or an Affiliate of the
Company) within one year from the later of the date of such Asset Disposition or
the receipt of such Net Available Cash; (B) second, to the extent of the balance
of such Net Available Cash after application in accordance with clause (A), to
the extent the Company elects, to acquire Additional Assets within one year from
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (C) third, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A) and (B), to make an offer
to the holders of the Notes (and to holders of other Senior Subordinated
Indebtedness designated by the Company) to purchase Notes (and such other Senior
Subordinated Indebtedness) pursuant to and subject to the conditions contained
in the Indenture; and (D) fourth, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A), (B) and (C) to
(x) the acquisition by the Company or any Wholly Owned Subsidiary of Additional
Assets or (y) the prepayment, repayment or purchase of Indebtedness (other than
any Disqualified Stock) of the Company (other than Indebtedness owed to an
Affiliate of the Company) or Indebtedness of any Subsidiary (other than
Indebtedness owed to the Company or an Affiliate of the Company), in each case
within one year from the later of the receipt of such Net Available Cash and the
date the offer described in clause (b) below is consummated; provided,
however,that in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such
Restricted Subsidiary shall permanently retire such Indebtedness and shall cause
the related loan commitment (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased. Notwithstanding
the foregoing provisions of this paragraph, the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this paragraph except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which are not applied in accordance with this
paragraph exceeds $5 million. Pending application of Net Available Cash pursuant
to this covenant, such Net Available Cash shall be invested in Permitted
Investments.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of the Company or any
Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(ii)(C)
above, the Company will be required to purchase Notes tendered pursuant to an
offer by the Company for the Notes (and other Senior Subordinated Indebtedness)
at a purchase price of 100% of their principal amount (without premium) plus
accrued but unpaid interest (or, in respect of such other Senior Subordinated
Indebtedness, such lesser price, if any, as may be provided for by the terms of
such Senior Subordinated Indebtedness) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of Notes (and any other Senior
Subordinated Indebtedness) tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Company will be required to
apply the remaining Net Available Cash in accordance with clause (a)(ii)(D)
above. The Company shall not be required to make such an offer to purchase Notes
(and other Senior Subordinated Indebtedness) pursuant to this covenant if the
Net Available Cash available therefor is less than $5 million (which lesser
amount shall be carried forward for purposes of determining whether such an
offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or
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such Restricted Subsidiary than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an Affiliate,
(2) if such Affiliate Transaction involves an amount in excess of $2 million,
(i) are set forth in writing and (ii) have been approved by a majority of the
members of the Board of Directors having no personal stake in such Affiliate
Transaction and (3) if such Affiliate Transaction involves an amount in excess
of $10 million, have been determined by a nationally recognized investment
banking firm to be fair, from a financial standpoint, to the Company and its
Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit
(i) any Restricted Payment permitted to be paid pursuant to the covenant
described under "-- Limitation on Restricted Payments," (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (iii) the grant of stock
options or similar rights to employees and directors of the Company pursuant to
plans approved by the Board of Directors, (iv) loans or advances to employees in
the ordinary course of business in accordance with the past practices of the
Company or its Restricted Subsidiaries, but in any event not to exceed $1
million in the aggregate outstanding at any one time, (v) the payment of
reasonable fees to directors of the Company and its Restricted Subsidiaries who
are not employees of the Company or its Restricted Subsidiaries, (vi) any
Affiliate Transaction between the Company and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries, (vii) the payment by the Company (A) of
customary annual management fees and related expenses to WEP and (B) of fees
paid to WEP, J. H. Whitney & Co., or an affiliate of J. H. Whitney & Co.
pursuant to any financing, underwriting or placement agreement, or in respect of
other investment banking activities, in each case as determined by the Board of
Directors in good faith and (viii) the issuance or sale of any Capital Stock
(other than Disqualified Stock) of the Company.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital
Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
of its Capital Stock except (i) to the Company or a Wholly Owned Subsidiary,
(ii) if, immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries owns any Capital
Stock of such Restricted Subsidiary or (iii) if, immediately after giving effect
to such issuance, sale or other disposition, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect thereto would have been permitted to be made under
the covenant described under "-- Limitation on Restricted Payments" if made on
the date of such issuance, sale or other disposition.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a Person organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia and the Successor Company (if not
the Company) shall expressly assume, by an indenture supplemental thereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Successor Company would be able to Incur an
additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant
described under "-- Limitation on Indebtedness;" (iv) the Company 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 and (v) the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the Holders
will not recognize income, gain or loss for Federal income tax purposes as a
result of such transaction 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 transaction had not occurred.
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The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the SEC and provide the Trustee and Noteholders with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company to comply with its obligations under "--
Certain Covenants -- Merger and Consolidation" above, (iv) the failure by the
Company to comply for 30 days after notice with any of its obligations in the
covenants described above under "Change of Control" (other than a failure to
purchase Notes) or under "-- Certain Covenants" under "-- Limitation on
Indebtedness," "-- Limitation on Restricted Payments," "-- Limitation on
Restrictions on Distributions from Restricted Subsidiaries" or "-- Limitation on
Sales of Assets and Subsidiary Stock" (other than a failure to purchase Notes),
"-- Limitation on Affiliate Transactions," "-- Limitation on the Sale or
Issuance of Capital Stock of Restricted Subsidiaries" or "-- SEC Reports," (v)
the failure by the Company to comply for 60 days after notice with its other
agreements contained in the Indenture, (vi) Indebtedness of the Company or any
Significant Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because of a default and
the total amount of such Indebtedness unpaid or accelerated exceeds $7.5 million
(the "cross acceleration provision"), (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or a Significant Subsidiary (the
"bankruptcy provisions") or (viii) any judgment or decree for the payment of
money in excess of $7.5 million is entered against the Company or a Significant
Subsidiary, remains outstanding for a period of 60 days following such judgment
and is not discharged, waived or stayed within 10 days after notice (the
"judgment default provision"). However, a default under clauses (iv), (v) and
(viii) will not constitute an Event of Default until the Trustee or the holders
of 25% in principal amount of the outstanding Notes notify the Company of the
default and the Company does not cure such default within the time specified
after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences. Subject to the provisions of the Indenture relating to the duties
of the Trustee, in case an Event of Default occurs and is continuing, the
Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the holders of the
Notes unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no holder
of a Note may pursue any remedy with respect to the Indenture or the Notes
unless (i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not
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complied with such request within 60 days after the receipt thereof and the
offer of security or indemnity and (v) the holders of a majority in principal
amount of the outstanding Notes have not given the Trustee a direction
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder of a Note or
that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the amount payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption," (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes or (vii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions or
(viii) make any change to the subordination provisions of the Indenture that
would adversely affect the Noteholders.
Without the consent of any holder of the Notes, the Company and Trustee may
amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the holders of the
Notes or to surrender any right or power conferred upon the Company, to make any
change that does not adversely affect the rights of any holder of the Notes or
to comply with any requirement of the SEC in connection with the qualification
of the Indenture under the Trust Indenture Act. However, no amendment may be
made to the subordination provisions of the Indenture that adversely affect the
rights of any holders of Senior Indebtedness then outstanding unless the holders
of such Senior Indebtedness (or their representative) consent to such change.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
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After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "Change of
Control" and under the covenants described under "-- Certain Covenants" (other
than the covenant described under "-- Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under "--
Defaults" above and the limitations contained in clauses (iii) and (iv) under
"-- Certain Covenants -- Merger and Consolidation" above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "-- Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under "-- Certain
Covenants -- Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue or resign.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not 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 Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
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GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.
"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; provided, however, that the owners of the
Series A Preferred Stock and Series B Preferred Stock on the Issue Date and
their respective Affiliates shall not be considered Affiliates of the Company or
any Restricted Subsidiary solely by virtue of such ownership. For the purposes
of this definition, "control" when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of the provisions described under "--
Certain Covenants -- Limitation on Restricted Payments," "-- Certain Covenants
- -- Limitation on Affiliate Transactions" and "-- Certain Covenants -- Limitation
on Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any
beneficial owner of Capital Stock representing 5% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of the Company or of rights
or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of the Company or any Restricted Subsidiary or (iii) any
other assets of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary (other than, in
the case of (i), (ii) and (iii) above, (w) a disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary to a
Wholly Owned Subsidiary, (x) for purposes of the covenant described under "--
Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition that constitutes a Restricted Payment permitted by the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments," (y)
a disposition of obsolete or worn out equipment or equipment that is no longer
useful in the conduct of the business of the Company and its Restricted
Subsidiaries and that is disposed of, in each case, in the ordinary course of
business and (z) disposition of assets with a fair market value of less than
$500,000).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
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redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means all Indebtedness outstanding under the Credit
Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period (provided that if
such Indebtedness is Incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness (as determined in good faith by senior
management of the Company and assuming a constant level of sales) shall be
deemed outstanding for purposes of this calculation) and the discharge of any
other Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such period, (2) if the Company or any Restricted Subsidiary has
repaid, repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid, repurchased,
defeased or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and
Consolidated Interest Expense for such period shall be calculated on a pro forma
basis as if such discharge had occurred on the first day of such period and as
if the Company or such Restricted Subsidiary has not earned the interest income
actually earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge such
Indebtedness, (3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in connection
with such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary to the
extent the Company and its continuing Restricted Subsidiaries are no longer
liable for such
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Indebtedness after such sale), (4) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction requiring a calculation to be
made hereunder, which constitutes all or substantially all of an operating unit
of a business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the
pro forma calculations shall be determined in good faith, without duplication,
by a responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest of such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication, (i)
interest expense attributable to capital leases and the interest expense
attributable to leases constituting part of a Sale/Leaseback Transaction, (ii)
amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) non-cash interest expenses, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs associated with Hedging Obligations (including
amortization of fees), (vii) Preferred Stock dividends in respect of all
Preferred Stock held by Persons other than the Company or a Wholly Owned
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by (or secured by the
assets of) the Company or any Restricted Subsidiary and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in the calculation of such Consolidated Net Income:
(i) any net income of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to a Restricted Subsidiary,
to the limitations contained in clause (iii) below) and (B) the Company's
equity in a net loss of any such Person for such period shall be included
in determining such Consolidated Net Income;
(ii) any net income (or loss) of any Person acquired by the Company or
a Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such
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Restricted Subsidiary, directly or indirectly, to the Company, except that
(A) subject to the exclusion contained in clause (iv) below, the Company's
equity in the net income of any such Restricted Subsidiary for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash that could have been distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to another Restricted Subsidiary, to
the limitation contained in this clause) and (B) the Company's equity in a
net loss of any such Restricted Subsidiary for such period shall be
included in determining such Consolidated Net Income;
(iv) any gain or loss realized upon the sale or other disposition of
any assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and
any gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person;
(v) extraordinary gains or losses;
(vi) the cumulative effect of a change in accounting principles; and
(vii) any restructuring charges related to the closing of the
Company's Greenville, Mississippi manufacturing facility.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants-Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Credit Agreement" means (i) the Second Amended and Restated Credit
Agreement dated as of June 23, 1998, between the Company, the lenders party
thereto in their capacities as lenders thereunder and Comerica Bank, as agent,
together with all exhibits, schedules and appendices thereto, as the same may be
amended, supplemented or otherwise modified from time to time and (ii) any
renewal, extension, refunding, restructuring, replacement or refinancing thereof
(whether under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders).
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $25 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which 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 (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable or must be
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purchased, upon the occurrence of certain events or otherwise, by such Person at
the option of the holder thereof, in whole or in part, in each case on or prior
to the first anniversary of the Stated Maturity of the Notes; provided, however,
that any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or
"change of control" occurring prior to the first anniversary of the Stated
Maturity of the Notes shall not constitute Disqualified Stock if (x) the "asset
sale" or "change of control" provisions applicable to such Capital Stock are not
more favorable to the holders of such Capital Stock than the terms applicable to
the Notes and described under "-- Certain Covenants -- Limitation on Sales of
Assets and Subsidiary Stock" and "-- Certain Covenants -- Change of Control" and
(y) any such requirement only becomes operative after compliance with such terms
applicable to the Notes, including the purchase of any Notes tendered pursuant
thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company and its consolidated Restricted Subsidiaries, (b) depreciation expense
of the Company and its consolidated Restricted Subsidiaries, (c) amortization
expense of the Company and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (d) all other non-cash charges of the Company and its
consolidated Restricted Subsidiaries (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash expenditures in any
future period), in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization and non-cash charges of, a Restricted Subsidiary shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Restricted 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 such
Restricted Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in
a jurisdiction other than the United States or a State thereof or the District
of Columbia and with respect to which more than 80% of any of its sales,
earnings or assets (determined on a consolidated basis in accordance with GAAP)
are located in, generated from or derived from operations located in territories
outside of the United States of America and jurisdictions outside the United
States of America.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"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 or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, 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
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endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the
30th Business Day following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, the liquidation preference
with respect to, any Preferred Stock (but excluding, in each case, any
accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
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"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries as a result of such Asset Disposition and
(iv) the deduction of appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by the Company or
any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Permitted Holders" means (i) J. H. Whitney & Co. and any Person who on the
Issue Date is an Affiliate of J. H. Whitney & Co. and (ii) any Person who, on
the Issue Date, is a member of the senior management and a beneficial
shareholder of the Company.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired
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in the ordinary course of business and payable or dischargeable in accordance
with customary trade terms; provided, however, that such trade terms may include
such concessionary trade terms as the Company or any such Restricted Subsidiary
deems reasonable under the circumstances; (v) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vi) loans or advances to employees made in
the ordinary course of business consistent with past practices of the Company or
such Restricted Subsidiary; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments; (viii)
Permitted Joint Ventures not in excess of $7.5 million at any time outstanding;
and (ix) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "-- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock."
"Permitted Joint Ventures" means joint ventures conducting a Related
Business primarily outside of the United States.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Company has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company and the Restricted Subsidiaries on the Issue
Date.
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"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation)), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition) or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Indebtedness" means (i) Indebtedness of the Company, whether
outstanding on the Issue Date or thereafter Incurred, and (ii) accrued and
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent post-filing interest is allowed in such proceeding) in respect of (A)
Indebtedness of the Company for money borrowed and (B) Indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
the Company is responsible or liable (in the case of each of (A) and (B),
whether outstanding on the Issue Date or thereafter Incurred) unless, in the
case of any particular Indebtedness, the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are subordinate in right of payment to the Notes; provided, however,
that Senior Indebtedness shall not include (1) any obligation of the Company to
any Subsidiary, (2) any liability for Federal, state, local or other taxes owed
or owing by the Company, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities), (4) any Indebtedness of the
Company (and any accrued and unpaid interest in respect thereof) which is
subordinate or junior in any respect to any other Indebtedness or other
obligation of the Company or (5) that portion of any Indebtedness which at the
time of Incurrence is Incurred in violation of the Indenture.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness.
"Series A Preferred Stock" means the Series A Cumulative Preferred Stock,
par value $.01 per share, of the Company.
"Series B Preferred Stock" means the Series B Cumulative Preferred Stock,
par value $.01 per share, of the Company.
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"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) 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 (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of
America or any agency thereof or obligations guaranteed by the United
States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000
(or the foreign currency equivalent thereof) and has outstanding debt which
is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard & Poor's Ratings
Group, and
(v) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments." The
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Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "-- Certain Covenants --
Limitation on Indebtedness" and (y) no Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the resolution of the
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"WEP" means Whitney Equity Partners, L.P. and its successors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and similar ownership
required or made necessary to conduct business by the laws or regulations of the
jurisdiction under which it is incorporated) is owned by the Company or one or
more Wholly Owned Subsidiaries.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Following is a general discussion of all material United States federal
income tax consequences of the purchase, ownership and disposition of the Notes
to initial holders thereof. Except as provided below under "Foreign Holders,"
this discussion is limited to investors that are United States Holders (that is,
a holder that is, for United States federal income tax purposes, (i) a citizen
or resident of the United States; (ii) a corporation or other entity taxable as
a corporation created or organized in or under the laws of the United States or
any political subdivision thereof; (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source; or
(iv) a trust if (X) a U.S. court is able to exercise primary supervision over
the administration of the trust, and (Y) one or more U.S. persons have the
authority to control all substantial decisions of the trust.
This discussion is based on currently existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed U.S.
Treasury regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and all
of which are subject to change, possibly with retroactive effect, or different
interpretations. This discussion does not address the tax consequences to
subsequent purchasers of Notes, and is limited to investors who hold the Notes
as capital assets as defined in section 1221 of the Code. Moreover, the
discussion is for general information only, and does not address all of the tax
consequences that may be relevant to particular investors in light of their
personal circumstances, or to certain types of investors (such as certain
financial institutions, insurance companies, tax exempt entities, dealers in
securities or foreign currencies or persons who hold the Notes as a position in
a straddle or as part of a "conversion transaction" or who have hedged the
interest rate on the Notes).
UNITED STATES HOLDERS
Interest on the Notes
In general, interest paid or payable on a Note will be taxable to a United
States Holder as ordinary interest income at the time it is received or accrued,
in accordance with such holder's method of accounting for federal income tax
purposes.
Disposition of the Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a Note, a United States Holder will generally recognize taxable
gain or loss equal to the difference between the sum of the cash plus the fair
market value of all other property received on such disposition and such
holder's adjusted tax basis in the Note (except to the extent such cash or
property is attributable to accrued interest, which will be taxable as ordinary
income).
Gain or loss recognized on the disposition of a Note generally will be
capital gain or loss and will be long-term capital gain or loss if the Notes
were held for more than one year at the time of disposition. In the case of
individuals, capital gain will be subject to a maximum rate of (i) 20% if, at
the time of such disposition, the United States Holder's holding period for the
Note is more than 18 months, and (ii) 28% if, at the time of such disposition,
the United States Holder's holding period for the Notes is 18 months or less but
more than one year.
Exchange Offer and Registration
The exchange of an Existing Note for an Exchange Note pursuant to the
Exchange Offer should not constitute a taxable exchange for United States
federal income tax purposes. As a result, holders who exchange Existing Notes
for Exchange Notes pursuant to the Exchange Offer will not recognize any taxable
gain or loss for United States federal income tax purposes at the time of the
exchange and any such holder should have the same adjusted tax basis and holding
period in the Exchange Notes as it had in the Existing Notes immediately before
the exchange.
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Upon failure to comply with certain of its obligations under the
Registration Agreement, the Company would be required to pay additional interest
on the Existing Notes. Although the matter is not free from doubt, if additional
interest becomes payable on the Existing Notes, such additional interest should
be treated in the same manner as stated interest on the Existing Notes. It is
also possible, however, that if additional interest becomes payable on the
Existing Notes, all or a portion of any interest or additional interest earned
on the Existing Note may constitute original issue discount for Unites States
federal income tax purposes and, to that extent, a holder would be required to
report such original issue discount over the remaining term of the Notes on a
constant yield basis. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE TAX
CONSIDERATIONS RELATING TO THE PAYMENT OF ADDITIONAL INTEREST.
FOREIGN HOLDERS
For purposes of this discussion, a Foreign Holder means any holder of a
Note that is not a United States Holder. Subject to the discussion of backup
withholding below, a Foreign Holder generally will not be subject to United
States federal income or withholding tax on payments of interest on a Note,
provided that (i) the holder is not (A) a direct or indirect owner of 10 percent
or more of the total voting power of all voting stock of the Company or (B) a
controlled foreign corporation related to the Company through stock ownership
(actually or constructively), (ii) such interest payments are not effectively
connected with the conduct by the Foreign Holder of a trade or business within
the United States and (iii) the Company or its paying agent receives certain
information from the holder (or a financial institution that holds the Notes in
the ordinary course of its trade or business) certifying that such holder is a
Foreign Holder. See " -- Information Reporting and Backup Withholding" for
recent changes to the requirements described in (iii) above. Subject to the
discussion of backup withholding below, a Foreign Holder generally will not be
subject to United States federal income or withholding tax on gains from the
sale or other disposition of a Note, provided that (i) such gains are not
effectively connected with the conduct by the Foreign Holder of a trade or
business within the United States and (ii) such Foreign Holder is not an
individual who (A) is present in the United States for 183 days or more in the
taxable year of disposition and (B) meets certain other requirements.
INFORMATION REPORTING AND BACKUP WITHHOLDING
On October 6, 1997, the Treasury Department issued final regulations
relating to withholding, information reporting and backup withholding that unify
current certification procedures and forms and clarify reliance standards (the
"Final Regulations"). The Final Regulations generally will be effective with
respect to payments made after December 31, 1999. Except as provided below, this
section describes rules applicable to payments made on or before December 31,
1999.
A holder of a Note may be subject to backup withholding at a rate of 31%
with respect to interest paid on the Note and proceeds from the sale, exchange,
redemption or retirement of the Note, unless such holder (a) is a corporation or
comes within with certain other exempt categories and, when required,
demonstrates that fact or (b) provides a correct taxpayer identification number
(social security number or employer identification number), certifies as to its
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. Certain penalties may be imposed
by the Internal Revenue Service on a holder that is required to supply
information but does not do so in the proper manner.
A Foreign Holder generally will be exempt from backup withholding and
information reporting requirements, but may be required to comply with
certification and identification procedures in order to obtain an exemption from
backup withholding and information reporting.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against such holder's United States federal
income tax (which might entitle such holder to a refund), provided that such
holder furnishes the required information to the Internal Revenue Service.
The Final Regulations impose certain certification and documentation
requirements on Foreign Holders claiming an exemption from withholding,
information reporting and backup withholding on interest paid on the Notes and
proceeds of a sale of the Notes. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS
TO THE EFFECT, IF ANY, OF THE FINAL REGULATIONS ON THEIR PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES.
106
<PAGE> 111
The exchange of an Existing Note for an Exchange Note should not constitute
a taxable exchange of the Existing Note if the interest rate on the Exchange
Note is equal to the interest rate on the Existing Note. Although there is no
definitive guidance on the issue, even if the interest rate on the Exchange Note
is not equal to the interest rate on the Existing Note because Additional
Interest is payable on the Existing Note but not on the Exchange Note, the
exchange should not constitute a taxable exchange of the Existing Note.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR GIFT TAX LAWS
OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND
ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS. IN ADDITION, INDIVIDUAL
NOTEHOLDERS WHO ARE NOT CITIZENS OF THE UNITED STATES SHOULD CONSULT THEIR TAX
ADVISORS AS TO WHETHER THEY WILL OR WILL NOT BE DEEMED TO BE "RESIDENTS" OF THE
UNITED STATES FOR PURPOSES OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986,
AS AMENDED.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer in exchange for Existing Notes must acknowledge
and agree that it will deliver a prospectus in connection with any resale of
such Exchange Notes. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Existing Notes where such Existing Notes
were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 199 , all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through broker-dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any person that participates in the
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging and agreeing that it will deliver and
by delivering this Prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
By acceptance of this Exchange Offer, each broker-dealer agrees that, upon
receipt of notice from the Company of the happening of any event which makes any
statement in the Prospectus untrue in any material respect or which requires the
making of any changes in the Prospectus in order to make the statements therein
not misleading, such broker-dealer will suspend use of the Prospectus until (i)
the Company has amended or supplemented the Prospectus to correct such
misstatement or omission and (ii) either the Company has
107
<PAGE> 112
furnished copies of the amended or supplemented Prospectus to such broker-dealer
or, if the Company has not otherwise agreed to furnish such copies and declines
to do so after such broker-dealer so requests, such broker-dealer has obtained a
copy of such amended or supplemented Prospectus as filed with the Commission.
The Company has agreed to deliver such notice and such amended or supplemented
Prospectus promptly to any Participating Broker-Dealer that has so notified the
Company.
Pursuant to the Registration Agreement, the Company and the Guarantors have
jointly and severally agreed to indemnify the Initial Purchasers against certain
liabilities, including certain liabilities incurred in connection with the
offering of the Existing Notes, and contribute to payments the Initial
Purchasers may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance and sale
of the Exchange Notes offered hereby will be passed upon for the Company by
Whyte Hirschboeck Dudek S.C., Milwaukee, Wisconsin, of which James A. Feddersen,
Secretary of the Company, is a shareholder (see "Management" and "Certain
Relationships and Related Transactions").
INDEPENDENT AUDITORS
The consolidated financial statements of Aqua-Chem, Inc. for the periods
from January 1, 1997 to July 31, 1997, and August 1, 1997 to December 31, 1997,
included in this Prospectus, have been audited by Arthur Andersen LLP,
Milwaukee, Wisconsin, independent public accountants, as stated in their report
appearing herein.
The consolidated financial statements of Aqua-Chem, Inc. for the period
from January 1, 1995 to December 31, 1996, included in this Prospectus, have
been audited by KPMG Peat Marwick LLP, independent certified public accountants,
Milwaukee, Wisconsin, as stated in their report appearing herein.
KPMG Peat Marwick LLP was previously the principal accountants for Aqua
Chem, Inc. On January 23, 1998, that firm's appointment as principal accountants
was terminated and Arthur Andersen LLP was engaged as principal accountants. The
decision to change accountants was approved by the board of directors.
In connection with the audits of the two fiscal years ended December 31,
1996 and the subsequent interim period through January 23, 1998 there were no
disagreements with KPMG Peat Marwick LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreement.
The financial statements of National Dynamics Corporation for the period
from November 1, 1995 to October 31, 1997, included in this Prospectus, have
been audited by KPMG Peat Marwick LLP, independent certified public accountants,
Omaha, Nebraska, as stated in their report appearing herein.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act for the registration of the Exchange Notes offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
and certain information contained in the Registration Statement has been
omitted, as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Exchange Notes offered
hereby, reference is made to the Registration Statement, including the exhibits
and financial statements, notes and schedules thereto filed as a part thereof or
incorporated by reference therein. This Prospectus contains summaries of
material terms and provisions of certain documents, including the Registration
Agreement and the Indenture. With respect to each such document filed with the
Commission as
108
<PAGE> 113
an exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved. The Registration Statement and
the exhibits and schedules thereto may be inspected without charge and copied at
prescribed rates at the Public Reference Section maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, the Commission's
regional offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street (Suite 1400),
Chicago, Illinois 60661-2511. The Commission maintains a Web Site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov.
The principal executive offices of the Company are located at 7800 North
113th Street, P.O. Box 421, Milwaukee, Wisconsin, 53201, and the telephone
number is (414) 359-0600.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO EXCHANGE, OR A SOLICITATION OF
AN OFFER TO EXCHANGE, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO EXCHANGE OR A SOLICITATION OF AN OFFER TO EXCHANGE SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE 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 THE COMPANY SINCE THE DATE HEREOF.
The Indenture provides that the Company shall file with the Trustee and
provide holders of Notes, within 15 days after it files them with the
Commission, copies of its annual reports and the information, documents and
other reports that they are required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. To the extent permitted by the Exchange
Act, the Company shall continue to file with the Commission and provide the
Trustee and holders with the annual reports and the information, documents and
other reports that are specified in Sections 13 and 15(d) of the Exchange Act.
In the event that the Company is not permitted to file such reports, documents
and information with the Commission or the Company has subsidiaries that
individually or in the aggregate would be deemed to be "substantial
subsidiaries" (as defined in Rule 1-02 of Regulation S-X, as in effect on June
23, 1998), the Company will provide substantially similar information with
respect to itself and its subsidiaries to the Trustee, holders and prospective
holders (upon written request) as if the Company were subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act. The Company shall also
comply with the other provisions of Trust Indenture Act Section 314(a).
109
<PAGE> 114
INDEX TO FINANCIAL STATEMENTS
AQUA-CHEM, INC. AND SUBSIDIARIES AUDITED AND UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
The following audited and unaudited consolidated financial statements of
Aqua-Chem, Inc. and Subsidiaries are presented herein on the pages indicated
below:
<TABLE>
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................... F-2
Independent Auditors' Report................................ F-3
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-4
Consolidated Statements of Operations for the period August
1, 1997 to December 31, 1997, the period January 1 to July
31, 1997, and the years ended December 31, 1996 and
1995...................................................... F-5
Consolidated Statements of Stockholders' Equity for the
period August 1, 1997 to December 31, 1997, the period
January 1 to July 31, 1997, and the years ended December
31, 1996 and 1995......................................... F-6
Consolidated Statements of Cash Flows for the period August
1, 1997 to December 31, 1997, the period January 1 to July
31, 1997, and the years ended December 31, 1996 and
1995...................................................... F-7
Notes to Consolidated Financial Statements.................. F-8
UNAUDITED FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets as of June 30, 1998
and 1997.................................................. F-26
Consolidated Condensed Statements of Operations for the six
months ended June 30, 1998 and 1997....................... F-27
Consolidated Condensed Statements of Cash Flows for the six
months ended June 30, 1998 and 1997....................... F-28
Notes to Consolidated Condensed Financial Statements........ F-29
Schedule II -- Valuation and Qualifying Accounts............ F-32
Computation of Ratio of Earnings to Fixed Charges........... F-33
</TABLE>
NATIONAL DYNAMICS CORPORATION AUDITED AND UNAUDITED FINANCIAL STATEMENTS
The following audited and unaudited financial statements of National
Dynamics Corporation are presented herein on the pages indicated below:
<TABLE>
<S> <C>
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-34
Balance Sheets as of October 31, 1997 and 1996.............. F-35
Statements of Earnings and Retained Earnings for the years
ended October 31, 1997, 1996 and 1995..................... F-36
Statements of Cash Flows for the years ended October 31,
1997, 1996 and 1995....................................... F-37
Notes to Financial Statements............................... F-38
UNAUDITED FINANCIAL STATEMENTS
Condensed Balance Sheets as of March 31, 1998 and 1997...... F-43
Condensed Statements of Earnings for the five months ended
March 31, 1998 and 1997................................... F-44
Condensed Statements of Cash Flows for the five months ended
March 31, 1998 and 1997................................... F-45
Note to Condensed Financial Statements (Unaudited).......... F-46
</TABLE>
F-1
<PAGE> 115
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Aqua-Chem, Inc.:
We have audited the accompanying balance sheet of Aqua-Chem, Inc. and
subsidiaries as of December 31, 1997 and the related statements of operations,
stockholders' equity and cash flows for the period from August 1, 1997 to
December 31, 1997 and the period from January 1, 1997 to July 31, 1997. These
financial statements and the supplemental schedule referred to below are the
responsibility of Aqua-Chem's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aqua-Chem, Inc. and
subsidiaries as of December 31, 1997, and the results of their operations and
their cash flows for the period August 1, 1997 to December 31, 1997 and the
period from January 1, 1997 to July 31, 1997, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The supplemental schedule, Schedule II --
Valuation and Qualifying Accounts, is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. The supplemental schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 4, 1998 (except with respect to
the matters discussed in Notes 16 and
18, as to which the date is May 28,
1998).
F-2
<PAGE> 116
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Aqua-Chem, Inc.:
We have audited the accompanying consolidated balance sheet of Aqua-Chem, Inc.
and subsidiaries (80% owned subsidiary of Lyonnaise American Holding, Inc.) as
of December 31, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1996, as listed in the accompanying index to financial
statements. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule, Schedule II
- -- Valuation and Qualifying Accounts, for each of the years in the two-year
period ended December 31, 1996, as listed in the accompanying index to financial
statements. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aqua-Chem, Inc. and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
1996, in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein for each of
the years in the two-year period ended December 31, 1996.
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
January 24, 1997
F-3
<PAGE> 117
AQUA-CHEM, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF BASIS OF
ACCOUNTING ACCOUNTING
---------------- ----------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
- ------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 11,936 $ 8,627
Accounts receivable, less allowances of $638 and $659 at
December 31, 1997 and 1996 33,332 33,646
Revenues in excess of billings 5,068 5,283
Inventories 20,814 21,652
Deferred income taxes 4,237 4,884
Prepaid expenses and other current assets 1,093 2,180
-------- --------
Total current assets 76,480 76,272
Property, plant and equipment - net 31,555 21,866
Intangible assets, less accumulated amortization of $273 and
$236 at December 31, 1997 and 1996 10,174 647
Deferred income taxes 2,086 --
Other assets 4,366 2,215
-------- --------
TOTAL ASSETS $124,661 $101,000
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------
Current liabilities:
Current maturities on long-term debt $ 1,055 $ 440
Accounts payable
Trade 10,685 9,647
Other 5,324 6,393
Billings in excess of revenues 5,654 1,780
Compensation and profit sharing 5,318 4,169
Accrued litigation settlements 3,200 --
Accrued expenses 17,624 14,922
-------- --------
Total current liabilities 48,860 37,351
Long-term debt 58,636 19,688
Deferred income taxes -- 1,130
Other long-term liabilities 6,006 2,282
-------- --------
64,642 23,100
Minority interest 589 589
Preferred stock with mandatory redemption provisions,
maximum redemption value in aggregate of $15,255 7,365 --
Stockholders' equity:
Common stock, $.01 par value. Authorized 2,000,000
shares; issued and outstanding 1,000,000 shares at
December 31, 1997 10 --
Common stock, $1.00 par value. Authorized 5,000 shares;
issued and outstanding 1,300 shares at December 31,
1996 -- 1
Additional paid-in capital 90 36,924
Retained earnings 3,049 4,445
Accumulated other comprehensive income 56 (1,410)
-------- --------
Total stockholders' equity 3,205 39,960
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $124,661 $101,000
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 118
AQUA-CHEM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
POST-
ACQUISITION
BASIS OF
ACCOUNTING PRE-ACQUISITION BASIS OF ACCOUNTING
------------ -----------------------------------------
AUGUST 1 TO YEARS ENDED DECEMBER 31,
DECEMBER 31, JANUARY 1 TO -------------------------
1997 JULY 31, 1997 1996 1995
------------ ------------- ---- ----
<S> <C> <C> <C> <C>
Net sales $91,541 $99,618 $199,552 $183,368
Cost of goods sold 66,333 73,656 153,446 148,650
------- ------- -------- --------
Gross margin 25,208 25,962 46,106 34,718
Costs and expenses:
Selling, general and administrative 17,136 23,549 34,446 37,772
Restructuring charges -- -- 5,038 4,593
------- ------- -------- --------
17,136 23,549 39,484 42,365
Operating income (loss) 8,072 2,413 6,622 (7,647)
Other income (expense):
Interest income 202 450 464 358
Interest expense (2,559) (753) (1,448) (1,663)
Other, net 57 336 (806) 2,635
------- ------- -------- --------
(2,300) 33 (1,790) 1,330
Income (loss) before income taxes and minority
interest 5,772 2,446 4,832 (6,317)
Income tax expense 2,289 421 507 189
Minority interest in earnings (loss) of
consolidated subsidiary 174 171 231 (52)
------- ------- -------- --------
Net income (loss) $ 3,309 $ 1,854 $ 4,094 $ (6,454)
======= ======= ======== ========
Preferred stock dividends 260 -- -- --
Net income (loss) applicable to common $ 3,049 $ 1,854 $ 4,094 $ (6,454)
======= ======= ======== ========
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment 56 (404) (770) 836
Comprehensive income (loss) $ 3,105 $ 1,450 $ 3,324 $ (5,618)
======= ======= ======== ========
PER SHARE DATA:
Basic net income per share of common stock $ 3.05 N.A. N.A. N.A.
=======
Diluted net income per share of common stock $ 2.59 N.A. N.A. N.A.
=======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 119
AQUA-CHEM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
--------- ------ ---------- --------
<S> <C> <C> <C> <C>
Pre-acquisition basis of accounting
Balance at December 31, 1994 1,300 $ 1 $ 36,924 $ 6,805
Net loss -- -- -- (6,454)
--------- --- -------- -------
Balance at December 31, 1995 1,300 1 36,924 351
Net income -- -- -- 4,094
--------- --- -------- -------
Balance at December 31, 1996 1,300 1 36,924 4,445
Net income -- -- -- 1,854
--------- --- -------- -------
Balance at July 31, 1997 1,300 $ 1 $ 36,924 $ 6,299
========= === ======== =======
Post-acquisition basis of accounting
Balance at July 31, 1997 1,300 1 36,924 6,299
Cancellation of former equity and elimination of retained
earnings and cumulative translation adjustment (1,300) (1) (36,924) (6,299)
Issuance of new common stock 1,000,000 10 90 --
Preferred stock dividends accrued -- -- -- (260)
Net income -- -- -- 3,309
--------- --- -------- -------
Balance at December 31, 1997 1,000,000 $10 $ 90 $ 3,049
========= === ======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 120
AQUA-CHEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-
ACQUISITION
BASIS OF
ACCOUNTING PRE-ACQUISITION BASIS OF ACCOUNTING
------------ -----------------------------------
YEARS ENDED
AUGUST 1 TO JANUARY 1 TO DECEMBER 31,
DECEMBER 31, JULY 31, -------------------
1997 1997 1996 1995
------------ ------------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,309 $ 1,854 $ 4,094 $(6,454)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,284 1,690 2,984 3,153
Deferred tax (benefit) expense (1,784) -- -- 234
Minority interest in earnings (loss) of consolidated
subsidiary 174 171 231 (52)
Increase (decrease) in cash due to changes in:
Accounts receivable (4,852) 5,166 54 4,437
Revenues in excess of billings 3,096 (2,881) (273) (1,113)
Inventories 3,473 (1,948) 8,463 (1,976)
Prepaid expenses and other current assets (332) (623) (57) 737
Accounts payable -- trade (931) 1,969 212 1,954
Accounts payable -- other 674 (1,743) (3,415) 3,183
Billings in excess of revenues 1,624 2,250 (4,489) 3,784
Accrued expenses and other current liabilities 3,800 (999) 880 (6,165)
Other, net (224) (49) (632) (3,273)
-------- ------- ------- -------
Total adjustments 6,002 3,003 3,958 4,903
-------- ------- ------- -------
Net cash provided by (used in) operating activities 9,311 4,857 8,052 (1,551)
Cash flows from investing activities:
Management Buy-Out of Aqua-Chem, Inc. (52,102) -- -- --
Proceeds from sales of property, plant and equipment and
other assets 2,000 73 203 3,639
Additions to property, plant and equipment (1,197) (2,195) (2,789) (4,867)
Additions to intangibles (50) (270) -- --
Proceeds from notes receivable 650 1,511 1,561 289
-------- ------- ------- -------
Net cash used in investing activities (50,699) (881) (1,025) (939)
Cash flows from financing activities:
Proceeds from debt 65,573 118 2,232 538
Principal payments on debt (26,016) (112) (740) --
Issuance of common stock 100 -- -- --
Issuance of warrants 433 -- -- --
Issuance of preferred stock 2,655 -- -- --
Deferred financing costs (2,030) -- -- --
-------- ------- ------- -------
Net cash provided by financing activities 40,715 6 1,492 538
Net increase (decrease) in cash and cash equivalents (673) 3,982 8,519 (1,952)
Cash and cash equivalents at beginning of period 12,609 8,627 108 2,060
-------- ------- ------- -------
Cash and cash equivalents at end of period $ 11,936 $12,609 $ 8,627 $ 108
======== ======= ======= =======
Cash paid (received) during the period for:
Interest $ 2,513 $ 658 $ 1,521 $ 1,601
======== ======= ======= =======
Taxes $ 1,214 $ 11 $ (123) $(1,404)
======== ======= ======= =======
Details of Management Buy-Out
Fair value of assets acquired $116,058
Goodwill 9,689
Liabilities assumed (69,196)
Issuance of Series A Cumulative Preferred Stock (4,449)
--------
Cash paid for assets $ 52,102
========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
<PAGE> 121
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
NOTE 1: MANAGEMENT BUY-OUT
On July 31, 1997, Aqua-Chem, Inc. ("OLDCO") entered into a definitive
merger agreement with A-C Acquisition Corp. ("A-C Acquisition"), a 100% owned
subsidiary of Rush Creek LLC ("Rush Creek"). Rush Creek is a Limited Liability
Company owned by certain management of OLDCO and Whitney Equity Partners L.P.
Also on July 31, 1997, A-C Acquisition Corp. acquired the assets of OLDCO (the
"Management Buy-Out") for $125,747, which includes $69,196 of liabilities
assumed and $5,000 of Series A Cumulative Preferred Stock issued to the sellers.
The amount paid or assumed does not include contingent consideration to be paid
to the sellers based on cumulative earnings of certain operations of OLDCO
subsequent to the Management Buy-Out. Maximum additional consideration is $7,500
and will be settled as part of the Series B Cumulative Preferred Stock as
discussed in Note 11.
Concurrently with the Management Buy-Out, A-C Acquisition amended its
certificate of incorporation to change its name to Aqua-Chem, Inc., (hereinafter
referred to as Aqua-Chem). The Management Buy-Out was accounted for by Aqua-Chem
using the purchase method of accounting. The total purchase cost was allocated
first to the identified tangible and intangible assets and liabilities of OLDCO
based upon their respective fair values, with the remainder of $9,689 being
allocated to goodwill, which will be amortized on a straight-line basis over 40
years. The financial statements reflect the preliminary estimates of allocating
purchase price and may be revised at a later date. Other than to reflect the
impact of the contingent consideration noted above, Aqua-Chem would not expect
the finalization of the purchase price allocation to be materially different
from preliminary estimates. The following information presents pro forma
condensed consolidated statements of operations assuming OLDCO had been acquired
by Aqua-Chem as of January 1, 1996. Such information includes adjustments to
reflect additional interest expense and depreciation expense, amortization of
goodwill and other intangibles and a reduction of other expenses due to
Management Buy-Out-related compensation payments being made by OLDCO.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $191,159 $199,552
Net income (loss) applicable to common shares 2,980 (1,371)
Earnings (loss) per common share (basic) 2.98 N.A.
Earnings (loss) per common share (diluted) 2.53 N.A.
</TABLE>
The above pro forma financial information is not necessarily indicative of
either the results of operations that would have occurred had the Management
Buy-Out been effective at the beginning of the periods presented or of future
operations of Aqua-Chem.
Prior to the Management Buy-Out, OLDCO was an 80% owned subsidiary of
Lyonnaise American Holding, Inc.
NOTE 2: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
Aqua-Chem primarily operates in two industry segments, (1) packaged
firetube and commercial and industrial watertube boilers ("Cleaver-Brooks") and
(2) water purification and desalination systems ("Water Technologies").
Aqua-Chem markets its products through a network of sales representatives,
distributors and an international direct sales force while maintaining
manufacturing facilities in the United States, Canada and Mexico.
F-8
<PAGE> 122
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
(b) Basis of Presentation
The consolidated financial statements for the period from January 1, 1997
to July 31, 1997 and for each of the years in the two-year period ended December
31, 1996, were prepared using OLDCO's historical basis of accounting (the
"pre-acquisition basis of accounting"). The consolidated financial statements
for the period from August 1, 1997 to December 31, 1997 were prepared under a
new basis of accounting that reflects the fair values of assets acquired and
liabilities assumed, the related financing costs and all debt incurred in
connection with the acquisition of OLDCO by Aqua-Chem (the "post-acquisition
basis of accounting"). Accordingly, the accompanying financial statements are
not comparable in all material respects since those financial statements report
financial position, results of operations, and cash flows of two separate
entities.
(c) Consolidation Policy and Use of Estimates
The consolidated financial statements include the accounts of Aqua-Chem and
all of its majority-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
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, liabilities and the
disclosure of commitments and contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(d) Inventories
Inventories are stated at cost determined on the first-in, first-out (FIFO)
basis. The resulting inventory values are not in excess of market. Inventory
cost includes material, labor, burden, and engineering.
Inventories consist of the following:
<TABLE>
<CAPTION>
POST- PRE-
ACQUISITION ACQUISITION
BASIS OF BASIS OF
ACCOUNTING ACCOUNTING
------------ ------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw materials and work-in-process $16,963 $17,834
Finished goods 3,851 3,818
------- -------
Total Inventories $20,814 $21,652
======= =======
</TABLE>
(e) Property, Plant and Equipment
Prior to August 1, 1997, property, plant and equipment was carried at cost,
less allowances for depreciation and adjustments to net realizable value, and
included expenditures which substantially increased the existing useful lives of
plant and equipment. Depreciation of plant and equipment was provided over the
estimated useful lives of the respective assets using accelerated methods for
both financial statement and income tax purposes.
Effective with the Management Buy-Out, property, plant, and equipment was
adjusted to estimated fair values and is being depreciated on a straight-line
basis. Useful lives are 20 years for buildings and building improvements, 3 to
15 years for machinery and equipment, and 3 to 10 years for furniture and
fixtures. Leasehold improvements are depreciated over the term of the related
lease. Depreciation expense totaled $984, $1,622, $2,865, and $2,966 for the
period August 1 to December 31, 1997, the period January 1 to July 31, 1997, and
the years ended December 31, 1996 and 1995, respectively.
F-9
<PAGE> 123
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
(f) Goodwill and Intangible Assets
Goodwill is being amortized on a straight-line basis over 40 years. At
December 31, 1997, goodwill totaled $9,467, net of accumulated amortization of
$222. Amortization expense totaled $222 for the period August 1 to December 31,
1997.
Prior to August 1, 1997, intangible assets, principally licenses and
technology, were carried at cost, less allowances for amortization. Amortization
of intangible assets was provided on the straight-line basis over the estimated
useful lives of the respective asset.
Effective with the Management Buy-Out, intangible assets were adjusted to
estimated fair values and are being amortized on a straight-line basis over
estimated useful lives ranging from 5 to 17 years. At December 31, 1997 and
1996, intangibles totaled $707 and $647, respectively, net of accumulated
amortization of $51 and $236, respectively. Amortization expense totaled $51,
$68, $119, and $187 for the period August 1 to December 31, 1997, the period
January 1 to July 31, 1997, and the years ended December 31, 1996 and 1995,
respectively.
(g) Income Taxes
Aqua-Chem accounts for income taxes under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases, and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. In assessing the
realizability of deferred tax assets, Aqua-Chem considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the years in which those temporary
differences become deductible. Aqua-Chem considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
Prior to the Management Buy-Out, Aqua-Chem filed a consolidated United
States corporate income tax return with Lyonnaise American Holding, Inc.
(Parent). The tax liability was calculated consistent with the provisions of the
1984 tax allocation agreement with the Parent which provided for the allocation
of income tax expense (benefit) based principally on a consolidated return
basis.
(h) Revenue Recognition
Aqua-Chem recognizes revenue utilizing the completed contract method of
accounting, except for large, long-term contracts, for which the percentage of
completion method of revenue recognition is used. The completed contract method
is generally used for contracts which take less than one year to complete.
Revenue is recognized upon shipment of the finished product to the customer.
Under the percentage of completion method, earned revenue is based on the
percentage that incurred costs to date bear to estimates of total costs. The
cumulative impact of revisions in total cost estimates during the progress of
work is reflected in the year in which these changes become known. Earned
revenue reflects the original contract price adjusted for agreed upon change
order revenue, if any. Losses expected to be incurred on jobs in process, after
consideration of estimated recoveries on change orders, are charged to
operations as soon as such losses are known. Progress billings in accounts
receivable are currently due. Estimated revenues in excess of progress billings
and billings in excess of estimated revenues are disclosed in Note 5.
Aqua-Chem has numerous contracts that are in various stages of completion.
Such contracts require estimates to determine the appropriate cost and revenue
recognition. Aqua-Chem has a substantial history of
F-10
<PAGE> 124
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
making reasonably dependable estimates of the extent of progress towards
completion, contract revenues and contract costs. However, current estimates may
be revised as additional information becomes available.
(i) Retainages
Retainages are unpaid amounts due in accordance with the specific terms of
boiler contracts. Certain contracts provide for a percentage of the total
billing price to be retained by the customer until final acceptance of the
product. The amount of retainages included in Aqua-Chem's accounts receivable
balance was $1,485 and $1,034 at December 31, 1997 and 1996, respectively.
(j) Foreign Currency Translation
Substantially all assets and liabilities of foreign subsidiaries are
translated at the exchange rate prevailing at the balance sheet date and
substantially all income and expense accounts are translated at the average
exchange rate in effect during the year. Translation adjustments are accumulated
as a component of stockholders' equity or directly to the consolidated
statements of operations for those countries whose currency has been classified
as highly inflationary. Foreign exchange transaction gains(losses) were not
material for all periods presented in the consolidated statements of operations.
(k) Commissions Payable
Aqua-Chem's domestic and international sales representatives sell products
on a commission basis. The related commissions payable were $2,580 and $3,297 at
December 31, 1997 and 1996, respectively, and are included in accounts payable
- -- other.
(l) Start-Up Accrual
Included in the sales price of Aqua-Chem's products is an estimated future
cost to prepare the product for use. These future costs, referred to as start-up
costs, are accrued by Aqua-Chem at the time of sale. When the customer is ready
for start-up, the service is requested through the sales representative who
performs the necessary work to prepare the product for use. The sales
representative then bills Aqua-Chem for the cost of the work performed. At
December 31, 1997 and 1996, Aqua-Chem had accrued $3,751 and $3,583,
respectively, for future start-up costs, which are included in accrued expenses.
(m) Warranty Costs
Aqua-Chem accrues estimated warranty costs at the time of the sale.
Reserves for warranty costs were $3,646 and $4,257 at December 31, 1997 and
1996, respectively, and are included in accrued expenses.
(n) Research and Development
Research and development costs are expensed as incurred and are included in
selling, general, and administrative expenses. Research and development expense
totaled $872, $1,305, $2,244, and $1,992, for the period August 1 to December
31, 1997, the period January 1 to July 31, 1997, and the years ended December
31, 1996 and 1995, respectively.
(o) Advertising
Advertising costs are expensed as incurred and are included in selling,
general and administrative expenses. Advertising expense totaled $392, $625,
$856, and $1,538 for period August 1 to December 31, 1997, the period January 1
to July 31, 1997, and each of the years ended December 31, 1996 and 1995,
respectively.
(p) Cash Equivalents
For purposes of the consolidated statements of cash flows, Aqua-Chem
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
F-11
<PAGE> 125
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
(q) Impairment of Long-lived Assets.
Effective January 1, 1996, Aqua-Chem adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by a company be reviewed for possible impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. SFAS No. 121 also requires that long-lived
assets and certain identifiable intangibles be reported at the lower of carrying
amount or fair value less costs to sell. Aqua-Chem evaluates its long-lived
assets when changes in circumstances may indicate that the carrying amount of an
asset may not be recoverable. Adoption of this standard did not have a material
impact on Aqua-Chem's financial position or results of operations.
(r) Fair Value of Financial Instruments
The carrying amounts of financial instruments approximate fair value due to
the short maturity of these instruments unless otherwise stated. The carrying
amounts of the long-term debt and short-term borrowings approximate fair value
because their stated interest rates approximate current rates for similar
instruments with similar maturities as of December 31, 1997 and 1996.
(s) New Accounting Pronouncements
Effective December 31, 1997, Aqua-Chem adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
This statement establishes standards for reporting and display of comprehensive
income which includes foreign currency translation adjustments accounted for
under SFAS No. 52. SFAS No. 130 requires that an enterprise classify items of
other comprehensive income by their nature in a financial statement for the
period in which they are recognized. Aqua-Chem has chosen to disclose
comprehensive income in the Consolidated Statements of Operations. Accumulated
other comprehensive income at December 31, 1997 and 1996 is comprised of only
foreign currency translation adjustments. Prior years have been restated to
conform to the SFAS No. 130 requirements.
(t) Legal Defense Costs
The Company expenses legal defense costs in connection with legal
proceedings, claims, and litigation arising in the ordinary course of business
as incurred.
(u) Reclassifications
Certain 1996 and 1995 amounts as originally reported have been reclassified
to conform with the 1997 presentation.
NOTE 3: RESTRUCTURING CHARGES
During 1994, Aqua-Chem adopted a restructuring plan ("1994 Plan") to reduce
its manufacturing costs and excess capacity within Cleaver-Brooks resulting in
charges of $4,593 and $9,011 in 1995 and 1994,
F-12
<PAGE> 126
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
respectively. The 1994 Plan resulted in the elimination of 180 positions and the
closure of the Lebanon facility in June of 1995. A summary of restructuring
activity for the 1994 Plan is as follows:
<TABLE>
<CAPTION>
1995 ACTIVITY 1996 ACTIVITY
------------------------------------------------------------------- ---------------------------
BALANCE AT BALANCE AT BALANCE AT
DECEMBER 31, CHANGE IN ADDITIONAL DECEMBER 31, DECEMBER 31,
1994 ESTIMATE CHARGES EXPENDITURES 1995 EXPENDITURES 1996
------------ --------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination
benefits $4,736 $(891) $ 606 $(3,686) $ 765 $(231) $ 534
Costs related to
closing/selling the
facility 1,381 -- 1,565 (2,220) 726 (256) 470
Other restructuring
costs 251 891 2,422 (3,564) -- -- --
------ ----- ------ ------- ------ ----- ------
Total restructuring
reserve $6,368 $ -- $4,593 $(9,470) $1,491 $(487) $1,004
====== ===== ====== ======= ====== ===== ======
<CAPTION>
1997 ACTIVITY
-------------------------------------
BALANCE AT
CHANGE IN JULY 31,
ESTIMATE EXPENDITURES 1997
--------- ------------ ----------
<S> <C> <C> <C>
Employee termination
benefits $119 -- $ 653
Costs related to
closing/selling the
facility -- (97) 373
Other restructuring
costs -- -- --
---- ---- ------
Total restructuring
reserve $119 $(97) $1,026
==== ==== ======
</TABLE>
During 1996, Aqua-Chem adopted a separate restructuring plan ("1996 Plan")
focused on improving overall performance and profitability. The 1996 Plan
included an early retirement program for 47 salaried individuals and certain
organizational changes within its operating units. As a result, restructuring
charges of $5,038 were incurred in 1996. A summary of restructuring activity for
the 1996 Plan is as follows:
<TABLE>
<CAPTION>
1996 ACTIVITY 1997 ACTIVITY
------------------------------------- ----------------------------
BALANCE AT
INITIAL DECEMBER 31, BALANCE AT
CHARGES EXPENDITURES 1996 EXPENDITURES JULY 31, 1997
------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Employee termination benefits $3,045 $(1,915) $1,130 $(588) $542
Professional services 1,993 (1,993) -- -- --
------ ------- ------ ----- ----
Total restructuring reserve $5,038 $(3,908) $1,130 $(588) $542
====== ======= ====== ===== ====
</TABLE>
The balances in the reserves for the 1994 and 1996 Plans are included in
accrued expenses at December 31, 1996.
As a result of the Management Buy-Out, liabilities were established for the
balance in the reserves for the 1994 and 1996 Plans which are included in
accrued expenses at December 31, 1997.
NOTE 4: DIVESTITURES
During 1995, Aqua-Chem sold a product line and several sales territories
and recognized gains totaling $2,240. These gains, which included the disposal
of $572 of intangible assets, are included in other income in the consolidated
statements of operations. Notes receivable related to these sales were $325 and
$2,573 as of December 31, 1997 and 1996, respectively. Of these notes, $156 and
$1,309 are current and are included in prepaid expenses and other current assets
at December 31, 1997 and 1996, respectively.
F-13
<PAGE> 127
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
NOTE 5: CONTRACTS IN PROGRESS
Components of contracts in progress, the majority of which are accounted
for under the percentage of completion method of revenue recognition, are as
follows:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF BASIS OF
ACCOUNTING ACCOUNTING
---------------- ---------------
DECEMBER 31, DECEMBER 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Revenues in Excess of Billings
Costs and estimated earnings $76,996 $65,396
Billings 71,928 60,113
------- -------
$ 5,068 $ 5,283
======= =======
Billings in Excess of Revenues
Billings $29,139 $33,478
Costs and estimated earnings 23,485 31,698
------- -------
$ 5,654 $ 1,780
======= =======
</TABLE>
All receivables on contracts in progress are considered to be collectible
within twelve months. At December 31, 1997 and 1996, Aqua-Chem has accrued
estimated cumulative losses on contracts of $0 and $7,900, respectively, which
are primarily included within billings in excess of revenues and as a write-down
to inventory.
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF BASIS OF
ACCOUNTING ACCOUNTING
---------------- ---------------
DECEMBER 31, DECEMBER 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Land and land improvements $ 1,872 $ 1,643
Buildings and building improvements 9,715 14,090
Leasehold improvements 1,120 170
Machinery and equipment 15,700 29,263
Furniture and fixtures 4,058 7,159
------- -------
32,465 52,325
Less accumulated depreciation (910) (30,459)
------- -------
$31,555 $21,866
======= =======
</TABLE>
NOTE 7: LEASES
Aqua-Chem leases its corporate offices under a fifteen year operating lease
with two five-year renewal options. This building is owned by a partnership in
which Aqua-Chem has a limited interest.
F-14
<PAGE> 128
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
The future minimum payments under noncancellable operating leases with
initial or remaining terms in excess of one year are as follows:
<TABLE>
<S> <C>
1998 $1,468
1999 1,382
2000 1,026
2001 961
2002 839
Thereafter 2,095
------
Total minimum rental commitments $7,771
======
</TABLE>
Total rent expense for all operating leases was $632 and $891 for the
period from August 1, 1997 to December 31, 1997, and for the period from January
1, 1997 to July 31, 1997, respectively. Total rent expense for all operating
leases for the years ended December 31, 1996 and 1995 was $1,292 and $1,421,
respectively.
NOTE 8: SHORT TERM BORROWINGS
In 1996 and 1995, and in the period January 1 through July 31, 1997,
Aqua-Chem had an unsecured revolving credit agreement for up to $15,000 which
was terminated in conjunction with the Management Buy-Out. No amounts were
outstanding under this revolving credit agreement at December 31, 1996. Interest
under this revolving credit agreement was based on the prime rate, LIBOR or an
adjusted certificate of deposit rate plus a defined interest premium factor.
Aqua-Chem also had available in 1996 and 1995, and in the period January 1
through July 31, 1997 an additional unsecured bank line of credit of $6,500. No
amounts were outstanding under this line of credit at December 31, 1996. This
agreement also was terminated in conjunction with the Management Buy-Out.
NOTE 9: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF BASIS OF
ACCOUNTING ACCOUNTING
---------------- ---------------
DECEMBER 31, DECEMBER 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Secured term loan $39,000 --
Unsecured term loan -- $16,000
Revolving Credit Agreement -- --
Subordinated debt 21,000 --
Less: Unamortized portion of original issue
discount (427) --
Industrial revenue bonds -- 4,128
Note payable 118 --
------- -------
Total long-term debt 59,691 20,128
Less: Current maturities (1,055) (440)
------- -------
Long-term debt $58,636 $19,688
======= =======
</TABLE>
As part of the Management Buy-Out, Aqua-Chem entered into a revolving
credit agreement and a $40,000 secured term loan. The secured term loan is
payable in quarterly principal installments commencing on October 1, 1998,
through June 30, 2003. The term loan bears interest at the eurocurrency rate
(6.425% at December 31, 1997) plus 1.825%, payable in quarterly installments,
commencing on October 1, 1997.
F-15
<PAGE> 129
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
Mandatory prepayments are required if Aqua-Chem has excess cash flow from
operations or receives cash from certain asset dispositions, as defined by the
agreement. The term loan is secured by the assets of Aqua-Chem. At December 31,
1997, $39,000 was outstanding under the term loan. Among other restrictions, the
credit agreements contain covenants relating to financial ratios and other
limitations, as defined by the agreement. As of December 31, 1997, Aqua-Chem was
in compliance with these covenants.
The revolving credit agreement allows maximum advances of $20,000, subject
to certain restrictions, to be made in the form of revolving credit notes. These
notes bear interest at a rate of either eurocurrency plus a factor as defined in
the agreement, prime plus a factor as defined in the agreement or the lender's
going rate. The revolving credit agreement will terminate on July 31, 2002. As
of December 31, 1997, there were no borrowings outstanding under the revolving
credit agreement.
Concurrent with the Management Buy-Out, Aqua-Chem issued seven year,
unsecured, subordinated notes payable bearing interest at 10.5%, payable
quarterly. A principal payment of $21,000 is due July 30, 2004, or upon the
consummation of an initial public offering or a change in ownership control.
Certain covenant requirements include the limitation of senior indebtedness as
defined in the note. As of December 31, 1997, Aqua-Chem was in compliance with
the covenant requirements.
The unsecured term loan, which bore interest at 6.25% at December 31, 1996,
was repaid in a single payment of $16,000 as part of the Management Buy-Out.
The industrial revenue bonds (IRBs), which bore interest at 5.31% at
December 31, 1996, were issued on October 18, 1995 in the amount of $3,000 and
on September 21, 1995 in the amount of $1,900, for expansions and improvements
at Aqua-Chem's Thomasville, GA and Monroe, WI manufacturing facilities,
respectively. The IRBs required combined annual principal payments of $440. The
IRBs were fully collateralized by certain buildings and equipment. As of the
Management Buy-Out date, the outstanding balances were fully escrowed and
subsequently paid on September 4, 1997.
A summary of the minimum annual principal repayments of long-term debt at
December 31, 1997, is as follows:
<TABLE>
<S> <C>
1998 $ 1,055
1999 4,781
2000 7,282
2001 8,500
2002 10,250
Thereafter 27,823
-------
$59,691
=======
</TABLE>
F-16
<PAGE> 130
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
NOTE 10: INCOME TAXES
The sources of income (loss) before income taxes and minority interest were
as follows:
<TABLE>
<CAPTION>
POST-
ACQUISITION
BASIS OF PRE-ACQUISITION BASIS OF ACCOUNTING
ACCOUNTING ------------------------------------
------------ YEARS ENDED DECEMBER
AUGUST 1 TO 31,
DECEMBER 31, JANUARY 1 TO --------------------
1997 JULY 31, 1997 1996 1995
------------ ------------- ------ -------
<S> <C> <C> <C> <C>
U.S. sources $5,058 $1,661 $3,535 $(6,417)
Foreign sources 714 785 1,297 100
------ ------ ------ -------
Income (loss) before income taxes and minority
interest $5,772 $2,446 $4,832 $(6,317)
====== ====== ====== =======
</TABLE>
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
POST-
ACQUISITION
BASIS OF PRE-ACQUISITION BASIS OF ACCOUNTING
ACCOUNTING -----------------------------------
------------ YEARS ENDED
AUGUST 1 TO DECEMBER 31,
DECEMBER 31, JANUARY 1 TO ------------------
1997 JULY 31, 1997 1996 1995
------------ -------------- ----- ------
<S> <C> <C> <C> <C>
Current:
United States $ 3,258 -- $109 $(234)
Foreign 215 $271 310 142
State 600 150 88 47
------- ---- ---- -----
Total current 4,073 421 507 (45)
------- ---- ---- -----
Deferred:
United States (1,507) -- -- 234
Foreign -- -- -- --
State (277) -- -- --
------- ---- ---- -----
Total deferred (1,784) -- -- 234
------- ---- ---- -----
Total income tax provision $ 2,289 $421 $507 $ 189
======= ==== ==== =====
</TABLE>
Total income tax expense differs from amounts expected by applying the
Federal statutory income tax rate to income (loss) before income taxes and
minority interest, as set forth in the following table.
<TABLE>
<CAPTION>
POST-ACQUISITION
BASIS OF ACCOUNTING PRE-ACQUISITION BASIS OF ACCOUNTING
--------------------- ---------------------------------------------------------------
YEARS ENDED DECEMBER 31,
AUGUST 1 TO JANUARY 1 TO -----------------------------------------
DECEMBER 31, 1997 JULY 31, 1997 1996 1995
--------------------- ------------------- ------------------- -------------------
TAX TAX TAX TAX
EXPENSE EXPENSE EXPENSE EXPENSE
(BENEFIT) PERCENT (BENEFIT) PERCENT (BENEFIT) PERCENT (BENEFIT) PERCENT
--------- -------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax expense (benefit) at
Federal statutory rate $1,962 34.0% $ 832 34.0% $ 1,643 34.0% $(2,148) (34.0)%
Alternative minimum tax -- -- -- -- 96 2.0 -- --
</TABLE>
F-17
<PAGE> 131
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
POST-ACQUISITION
BASIS OF ACCOUNTING PRE-ACQUISITION BASIS OF ACCOUNTING
--------------------- ---------------------------------------------------------------
YEARS ENDED DECEMBER 31,
AUGUST 1 TO JANUARY 1 TO -----------------------------------------
DECEMBER 31, 1997 JULY 31, 1997 1996 1995
--------------------- ------------------- ------------------- -------------------
TAX TAX TAX TAX
EXPENSE EXPENSE EXPENSE EXPENSE
(BENEFIT) PERCENT (BENEFIT) PERCENT (BENEFIT) PERCENT (BENEFIT) PERCENT
--------- -------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Impact of foreign subsidiary
income and tax rates (27) (0.5) 4 0.2 (131) (2.7) 109 1.7
Change in estimate of prior
year taxes -- -- -- -- -- -- (279) (4.4)
Change in valuation allowance -- -- (604) (24.7) (1,196) (24.7) 2,323 36.8
State income taxes, net of
Federal income tax benefit 215 3.7 150 6.1 88 1.8 47 0.7
Management Buy-Out goodwill
amortization 78 1.4 -- -- -- -- -- --
Other items 61 1.1 39 1.6 7 0.1 137 2.2
------ ---- ----- ----- ------- ----- ------- -----
Total income tax expense $2,289 39.7% $ 421 17.2% $ 507 10.5% $ 189 3.0%
====== ==== ===== ===== ======= ===== ======= =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF ACCOUNTING BASIS OF ACCOUNTING
------------------- -------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets
Inventory $ 289 $ 526
Employee benefits 3,029 1,291
Litigation settlements 1,558 --
Start-up and warranty expenses 743 1,526
Restructuring charges 481 633
Net operating loss carryforward -- 3,023
Other 970 435
------ -------
Total deferred tax assets 7,070 7,434
Less -- valuation allowance -- (1,224)
------ -------
Total deferred tax assets 7,070 6,210
Deferred tax liabilities
Contract related transactions (112) (500)
Property, plant and equipment (494) (1,875)
Other (141) (81)
------ -------
Total deferred tax liabilities (747) (2,456)
------ -------
Net deferred tax asset $6,323 $ 3,754
====== =======
</TABLE>
F-18
<PAGE> 132
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
The classification of the net deferred tax asset is as follows:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF ACCOUNTING BASIS OF ACCOUNTING
-------------------- --------------------
DECEMBER 31, DECEMBER 31,
1997 1996
-------------------- --------------------
<S> <C> <C>
Current deferred tax asset $4,237 $ 4,884
Long-term deferred tax asset 2,086 --
Long-term deferred tax liability -- (1,130)
------ -------
Net deferred tax asset $6,323 $ 3,754
====== =======
</TABLE>
During 1995, Aqua-Chem incurred a tax net operating loss. Due to a January
1996 modification to the existing tax allocation agreement between Aqua-Chem and
the Parent, a carryback of the loss would not have resulted in a refund of cash
to Aqua-Chem. Accordingly, Aqua-Chem elected to carry the tax loss forward and a
valuation allowance was established.
During the period January 1, 1997 through July 31, 1997 and the year ended
December 31, 1996, Aqua-Chem had sufficient income to realize the value of a
portion of the net operating loss. Accordingly, the valuation reserve was
reduced in both periods by the amount of the benefit realized.
NOTE 11: STOCKHOLDERS' EQUITY AND PREFERRED STOCK WITH MANDATORY REDEMPTION
PROVISIONS
As of December 31, 1997, Aqua-Chem has 2,006,260 shares of authorized
capital stock, itemized by class and series as follows:
(i) 2,000,000 shares of Common Stock, par value $.01 per share, with
1,000,000 shares issued and outstanding;
(ii) 6,260 shares of Preferred Stock, par value $.01 per share, divided
into the following series:
(a) 130 shares of Series A Cumulative Preferred Stock, par value $0.01
per share, with 130 shares issued and outstanding.
(b) 130 shares of Series B Cumulative Preferred Stock, par value $0.01
per share, with 130 shares issued and outstanding.
(c) 6,000 shares of Series C Cumulative Preferred Stock, par value $.01
per share, with 2,755 shares issued and outstanding.
Holders of the nonvoting Series A Cumulative Preferred Stock ("Preferred
A") are entitled to receive cumulative cash dividends of $2,307.70 per share per
year beginning August 1, 1997 payable at redemption. Holders of Preferred A
generally have the right to require Aqua-Chem to redeem the Preferred A at the
$5,000 Redemption Price plus accrued dividends (i) simultaneous with the
occurrence of an "overall ownership shift," "employee ownership shift" or "asset
shift" (each as defined by Aqua-Chem's Certificate of Incorporation); (ii)
within the 120 day period following an initial public offering of Aqua-Chem's
equity securities; (iii) within the 120 day period following a refinancing and
retirement of the subordinated notes payable (see Note 9); or (iv) July 31,
2004. Aqua-Chem may call the outstanding shares at any time at the redemption
price of $5,000 plus accrued dividends. As the Preferred A carries a below
market dividend rate of 6%, Aqua-Chem recorded the Preferred A at a discount.
Aqua-Chem is accreting the discount over the term of the Preferred A with the
accretion charged to retained earnings. The carrying value, including accretion
and dividends, of the Preferred A at December 31, 1997 is $4,594.
F-19
<PAGE> 133
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
Holders of the nonvoting Series B Cumulative Preferred Stock ("Preferred
B") are entitled to receive cumulative cash dividends of $1,538.47 per share per
year beginning August 1, 1997 payable at redemption. The redemption price of the
Preferred B shall be the "Normal Redemption Price," which shall generally be
based upon Aqua-Chem's Water Technologies division's cumulative earnings before
income taxes ("EBIT") for the period 1997 through 2001. The redemption price is
modified in the event that prior to December 31, 2001, either (i) the business
of Aqua-Chem's Water Technologies division is sold to an unrelated third party;
or (ii) there occurs an "overall ownership shift," "employee ownership shift" or
"asset shift" (each as defined by Aqua-Chem's Certificate of Incorporation). The
maximum redemption price, under any circumstance, shall be $7,500. The Holders
of Preferred B generally shall have the right to require Aqua-Chem to redeem the
Preferred B at the applicable Redemption Price plus accrued dividends (i)
simultaneous with the occurrence of an "overall ownership shift" (as defined by
Aqua-Chem's Certificate of Incorporation); (ii) within the 120 day period
following an initial public offering of Aqua-Chem's equity securities; (iii)
within the 120 day period following a refinancing and retirement of the
subordinated notes payable (see Note 9); or (iv) July 31, 2004. The carrying
value of the Preferred B is zero at December 31, 1997, as the redemption value
is contingent upon future events.
Holders of Series C Cumulative Preferred Stock ("Preferred C") are entitled
to receive quarterly cash dividends payable at redemption at the rate of 10.17%
per year on the original issue price per share ($964) beginning on August 1,
1997. The holders of the Preferred C generally shall have the right to require
Aqua-Chem to redeem all or any part of the Preferred C at a price equal to
$1,000 per share, plus accrued dividends upon (i) an "overall ownership shift,"
"employee ownership shift," or "asset shift" (each as defined by Aqua-Chem's
Certificate of Incorporation); (ii) within the 120-day period following an
initial public offering; or (iii) July 31, 2005. Any time after July 31, 2004,
Aqua-Chem may call the outstanding shares at the redemption price of $1,000 per
share plus accrued dividends. Holders of the Preferred C are entitled to voting
rights equivalent to the rights of one share of common stock. As the redemption
price of $1,000 per share exceeds the original issue price of $964, Aqua-Chem
recorded the Preferred C at a discount. Similar to the Preferred A, Aqua-Chem is
accreting the discount over the term of the Preferred C with the accretion
charged to retained earnings. The carrying value, including dividends, of the
Preferred C at December 31, 1997 is $2,771.
NOTE 12: STOCK OPTIONS
In connection with the Management Buy-Out, Aqua-Chem adopted the Aqua-Chem,
Inc. 1997 Stock Option Plan (the "Plan"), which provides for the granting to key
employees, directors, and other individuals of options to purchase an aggregate
of 61,919 shares of Aqua-Chem common stock at a purchase price not less than the
greater of (i) $3.75, or (ii) fair market value as determined by the Plan.
Options vest primarily based upon Aqua-Chem achieving certain operating results
or within 7 years from the date of grant. As of December 31, 1997, there were no
options granted or outstanding under the Plan.
Under a separate agreement from the Plan, the option to purchase 600 shares
of common stock was granted to a director of Aqua-Chem. These options, which
vest one year after the effective date of the grant, allow the holder to
purchase common stock of Aqua-Chem at $3.75 per share, which does not differ
significantly from fair market value. As of December 31, 1997, no options were
exercised.
NOTE 13: COMMON STOCK PURCHASE WARRANTS
The holders of the subordinated notes payable (see Note 9) also received
warrants, whereby they can acquire, at any time through July 31, 2007, in total,
176,471 shares of Aqua-Chem's common stock. The exercise price issuable upon
exercise of the warrants is $.01 per share of stock, with adjustments made to
prevent dilution in the event of any changes in capitalization of Aqua-Chem.
F-20
<PAGE> 134
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
After July 31, 2002, there are put and call features that may require
Aqua-Chem to purchase all or any part of warrants or the common stock obtained
by the exercise of such warrants at the higher of a price determined in the
agreement or the fair market value of the Company's stock. During the period
August 1, 1997 to December 31, 1997, no warrants were exercised.
The warrants were recorded as an increase to other long-term liabilities at
their approximate fair value at the date of issuance.
NOTE 14: EMPLOYEE BENEFIT PLANS
(a) Pension Plans
Aqua-Chem is required to make payments to certain pension and employee
benefit funds, some of which are not controlled or administered by Aqua-Chem and
certain foreign subsidiary maintained government-mandated pension plans. Pension
expense of these plans for the period August 1 to December 31, 1997 and the
period January 1 to July 31, 1997, and for the years ended December 31, 1996 and
1995 was $189, $140, $266 and $233, respectively.
(b) Retirement and Savings Plans
Aqua-Chem maintains a defined contribution retirement plan which includes a
401(k) savings plan. Substantially all employees who are not members of
collective bargaining groups are eligible to participate. Aqua-Chem's retirement
contribution equals 4% of eligible compensation while 401(k) contributions equal
50% of employee contributions to a maximum Aqua-Chem contribution of 3%. Under
provisions of the 401(k) savings plan, employees may voluntarily contribute a
maximum of 13% of eligible compensation. From the period August 1, 1997 to
December 31, 1997, and the period January 1, 1997 to July 31, 1997, Aqua-Chem
contributed $675 and $910, respectively, to this plan. Aqua-Chem contributed
$1,462 and $1,534 for each of the years ended December 31, 1996 and 1995,
respectively.
(c) Postretirement Health Care Plans
Aqua-Chem maintains unfunded health care plans covering certain eligible
retirees and employees. The estimated costs of postretirement benefits,
principally health care, are accrued over the period the benefits are earned.
Aqua-Chem's policy is to fund postretirement benefits as incurred.
The net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
POST-
ACQUISITION
BASIS OF PRE-ACQUISITION BASIS OF ACCOUNTING
ACCOUNTING -----------------------------------
------------ YEARS ENDED
AUGUST 1 TO DECEMBER 31,
DECEMBER 31, JANUARY 1 TO ------------------
1997 JULY 31, 1997 1996 1995
------------ ------------- ---- ----
<S> <C> <C> <C> <C>
Service cost benefits attributed to service during
the year $ 6 $ 9 $ 24 $ 19
Interest cost on accumulated postretirement
benefit obligation 139 203 500 520
Amortization of transition obligation -- 248 426 426
Amortization of unrecognized gain -- (140) (75) (123)
---- ---- ---- -----
Net periodic postretirement benefit cost $145 $320 $875 $ 842
==== ==== ==== =====
</TABLE>
F-21
<PAGE> 135
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
As a result of the plans being unfunded, the liability of the plans was as
follows:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF ACCOUNTING BASIS OF ACCOUNTING
-------------------- -------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $4,261 $ 4,359
Fully eligible active plan participants 106 99
Other active plan participants 340 302
Unrecognized transition obligation -- (6,695)
Unrecognized net gain (loss) (49) 4,217
------ -------
Accumulated postretirement benefit obligation
included in other long-term liabilities $4,658 $ 2,282
====== =======
</TABLE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% for December 31, 1997 and 1996. The
average inflation rates of medical costs over the life of the benefits were
assumed to be 9% in 1998, decreasing 1% per year to 5.5% in 2002 and thereafter.
An increase of 1% in the assumed medical costs trend rates would result in an
increase in the accumulated postretirement benefit obligation of $282 at
December 31, 1997 and an increase in 1997 net periodic postretirement benefit
cost of $9 and $12 for the period August 1 to December 31, 1997 and the period
January 1 to July 31, 1997, respectively.
As a result of the 1996 restructuring plan and the related early retirement
program, Aqua-Chem incurred a curtailment charge of $387, which is included in
the restructuring charges in the year ended December 31, 1996 consolidated
statement of operations.
F-22
<PAGE> 136
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
NOTE 15: SEGMENT INFORMATION
Industry Segments
<TABLE>
<CAPTION>
POST-
ACQUISITION
BASIS OF
ACCOUNTING PRE-ACQUISITION BASIS OF ACCOUNTING
------------ -------------------------------------------
AUGUST 1 TO YEARS ENDED DECEMBER 31,
DECEMBER 31, JANUARY 1 TO ------------------------
SEGMENT 1997 JULY 31, 1997 1996 1995
- -------------------------------------------- ------------ ------------- --------- ---------
<S> <C> <C> <C> <C>
Net sales:
Cleaver-Brooks $ 73,974 $ 80,868 $155,527 $144,711
Water Technologies 17,567 18,750 44,025 38,657
-------- -------- -------- --------
Total $ 91,541 $ 99,618 $199,552 $183,368
======== ======== ======== ========
Operating income (loss):
Cleaver-Brooks $ 7,588 $ 4,086 $ 8,146 $ (3,988)
Water Technologies 1,428 28 750 (2,656)
All others (944) (410) (2,274) (1,003)
-------- -------- -------- --------
Total $ 8,072 $ 3,704 $ 6,622 $ (7,647)
======== ======== ======== ========
Identifiable assets:
Cleaver-Brooks $ 33,707 $ 48,976 $ 65,577 $ 65,247
Water Technologies 13,077 22,734 20,708 19,283
All others 77,877 32,429 14,715 16,851
-------- -------- -------- --------
Total $124,661 $104,139 $101,000 $101,381
======== ======== ======== ========
Capital expenditures:
Cleaver-Brooks $ 337 $ 567 $ 2,339 $ 4,575
Water Technologies 188 1,240 265 187
All others 672 388 185 105
-------- -------- -------- --------
Total $ 1,197 $ 2,195 $ 2,789 $ 4,867
======== ======== ======== ========
Depreciation:
Cleaver-Brooks $ 686 $ 1,160 $ 2,083 $ 2,097
Water Technologies 198 285 462 495
All others 100 177 320 374
-------- -------- -------- --------
Total $ 984 $ 1,622 $ 2,865 $ 2,966
======== ======== ======== ========
</TABLE>
Aqua-Chem does not have any customers who represent 10% of consolidated
sales.
Geographic Segments
Aqua-Chem operates primarily in the United States, with manufacturing
facilities also located in Canada and Mexico. Canadian and Mexican operations
individually represent less than 10% of Aqua-Chem's consolidated net sales and
total assets.
Aqua-Chem's export sales, defined as sales of existing divisions' products
made in the U.S. and sold by Aqua-Chem to foreign customers were approximately
19% of net sales for the period August 1, 1997 through December 31, 1997 and 22%
for the period January 1, 1997 through July 31, 1997. Aqua-Chem's export sales
F-23
<PAGE> 137
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
for the years ended December 31, 1996 and 1995 were approximately 24% of net
sales. Aqua-Chem's export sales are included in the respective segments' sales
presented above.
NOTE 16: COMMITMENTS AND CONTINGENCIES
Aqua-Chem and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. These claims arise
from a variety of factors, including suits alleging personal injury related to
the use and exposure to certain of Aqua-Chem's products (see the "Risk
Factors -- Product Liability Litigation" and "Business of Aqua-Chem -- Legal
Proceedings" sections of this Offering Circular for further information). The
Company has successfully resolved most closed claims and cases without payment
and is vigorously defending open claims, and believes that it has strong
defenses to all claims brought to date. Although Aqua-Chem believes the costs
and liabilities associated with these matters will not have a material adverse
effect on their results of operations or financial condition, there can be no
assurances to this effect.
In the ordinary course of business, Aqua-Chem is contingently liable for
performance under letters of credit totaling approximately $3,900 at December
31, 1997 and 1996, respectively. Additionally, at December 31, 1996, Aqua-Chem
had letters of credit outstanding of $5,000 which collateralized the IRB's.
Management does not expect any material losses to result from these off-balance
sheet instruments, and, therefore, is of the opinion that the fair value of
these instruments is zero.
NOTE 17: EARNINGS PER SHARE
In 1997, Aqua-Chem adopted SFAS No. 128, "Earnings per Share" for all
periods presented. The new standard simplified the computation of earnings per
share (EPS) and provides improved comparability with international standards.
SFAS No. 128 replaces primary EPS with "Basic" EPS, which excludes dilution and
is computed by dividing net earnings or (loss) by the weighted-average number of
common shares outstanding for the period. "Diluted" EPS is computed similarly to
primary EPS by reflecting the potential dilution that occurs if securities or
other contracts to issue common stock were exercised or converted to common
stock or resulted in the issuance of common stock that then shared in the
earnings. The following reconciles the numerators and denominators of the basic
and diluted earnings per share computations.
<TABLE>
<CAPTION>
POST-ACQUISITION
BASIS OF
ACCOUNTING
----------------
AUGUST 1 TO
DECEMBER 31,
1997
----------------
<S> <C>
Basic Earnings Per Share:
Net Income $ 3,309
Less: Preferred Stock Dividends 260
---------
Net Income $ 3,049
=========
Weighted Average Number of Shares 1,000,000
=========
Basic Earnings Per Share $ 3.05
=========
</TABLE>
F-24
<PAGE> 138
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
POST-ACQUISITION
BASIS OF
ACCOUNTING
----------------
AUGUST 1 TO
DECEMBER 31,
1997
----------------
<S> <C>
Diluted Earnings Per Share:
Net Income applicable to common $ 3,049
=========
Weighted Average Number of Shares-Basic 1,000,000
Effect of Dilutive Securities:
Warrants 176,471
---------
Weighted Average Number of Shares-Diluted 1,176,471
=========
Diluted Earnings Per Share $ 2.59
=========
</TABLE>
NOTE 18: SUBSEQUENT EVENTS
Subsequent to December 31, 1997, Aqua-Chem entered into two separate
product performance settlements relating to products sold in 1993. Aqua-Chem
paid $2,150 subsequent to year end and agreed to pay an additional $1,050 in
1998 and $900 in 1999. These amounts have been recorded at December 31, 1997 as
accrued litigation settlements for amounts paid or payable in 1998 and within
other long-term liabilities for amounts due in 1999.
On May 28, 1998, Aqua-Chem entered into a definitive agreement to purchase
substantially all of the assets of National Dynamics Corporation ("NDC"),
located principally in Nebraska, for approximately $47,000 in cash plus the
assumption of certain liabilities. The transaction is subject to the completion
of due diligence.
Aqua-Chem has reached a tentative decision to close its Greenville,
Mississippi facility and has taken steps to initiate discussions concerning this
decision with the Union representing its production workers. Under the proposed
plan, work currently performed at the Greenville facility will be transferred to
other Aqua-Chem facilities and/or outsourced. Aqua-Chem estimates that closing
the Greenville facility will cost approximately $5,500, to be expended in 1998
and 1999.
F-25
<PAGE> 139
AQUA-CHEM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,300 $ 11,936
Accounts receivable, less allowances of $1,331 at June 30,
1998
and $638 at December 31, 1997 36,590 33,332
Revenues in excess of billings 2,834 5,068
Inventories 33,443 20,814
Deferred income taxes 3,903 4,237
Prepaid expenses and other current assets 3,263 1,093
-------- --------
Total current assets 89,333 76,480
Property, plant and equipment -- net 38,439 31,555
Intangible assets, less accumulated amortization of $444 at
June 30, 1998 and $273 at December 31, 1997 38,792 10,174
Deferred income taxes 1,640 2,086
Other assets 7,530 4,366
-------- --------
TOTAL ASSETS $175,734 $124,661
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities on long-term debt $ -- $ 1,055
Accounts payable
Trade 9,057 10,685
Other 4,839 5,324
Billings in excess of revenues 4,671 5,654
Compensation and profit sharing 2,998 5,318
Accrued litigation settlements 1,575 3,200
Accrued expenses 19,359 17,624
-------- --------
Total current liabilities 42,499 48,860
Long-term debt 125,000 58,636
Other long-term liabilities 5,110 6,006
-------- --------
Total other liabilities 130,110 64,642
Minority interest 500 589
Preferred stock with mandatory redemption provisions 4,704 7,365
Stockholders' equity:
Common stock, $.01 par value. Authorized 2,000,000 shares;
issued and outstanding 1,000,000 shares at June 30,
1998 and December 31, 1997 10 10
Additional paid-in capital 90 90
Retained earnings (2,151) 3,049
Accumulated other comprehensive income (28) 56
-------- --------
Total stockholders' equity (deficit) (2,079) 3,205
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $175,734 $124,661
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-26
<PAGE> 140
AQUA-CHEM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF ACCOUNTING BASIS OF ACCOUNTING
------------------- -------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Net sales $76,222 $83,211
Cost of goods sold 55,930 62,087
------- -------
Gross margin 20,292 21,124
Costs and expenses:
Selling, general and administrative 17,446 18,069
Restructuring charges 4,720 --
------- -------
Operating income (loss) (1,874) 3,055
Other income (expense):
Interest income 209 390
Interest expense (3,004) (597)
Other, net 26 22
------- -------
(2,769) (185)
------- -------
Income (loss) before income taxes, minority interest and
extraordinary item (4,643) 2,870
Income tax expense (benefit) (1,448) 494
Minority interest in earnings of consolidated subsidiary 136 136
------- -------
Net income (loss) before extraordinary item (3,331) 2,240
Extraordinary item, net of tax benefit of $840 1,260 --
------- -------
Net income (loss) $(4,591) $ 2,240
Preferred stock dividends (310) --
------- -------
Net income (loss) applicable to common $(4,901) $ 2,240
======= =======
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment (84) (209)
------- -------
Other comprehensive (loss) (84) (209)
------- -------
Comprehensive income (loss) $(4,675) $ 2,031
------- -------
PER SHARE DATA:
Basic net (loss) per share of common stock $ (4.90) N.A.
Diluted net (loss) per share of common stock (4.90) N.A.
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-27
<PAGE> 141
AQUA-CHEM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF ACCOUNTING BASIS OF ACCOUNTING
------------------- -------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,591) $ 2,240
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,902 1,723
Deferred tax expense 1,007 --
Minority interest in earnings of consolidated
subsidiary 136 136
Extraordinary item, net of tax benefit 1,260 --
Restructuring charges 4,720 --
Increase (decrease) in cash due to changes in:
Accounts receivable 7,199 6,286
Revenues in excess of billings 2,234 (2,102)
Inventories (4,094) (247)
Prepaid expenses and other current assets 139 (27)
Accounts payable -- trade (4,151) (3,302)
Accounts payable -- other (1,086) (877)
Billings in excess of revenues (3,507) 780
Accrued expenses and other current liabilities (10,523) (3,052)
Other, net (987) 208
-------- -------
Total adjustments (5,751) (474)
-------- -------
Net cash provided by (used in) operating activities (10,342) 1,766
Cash flows from investing activities:
Purchase of National Dynamics Corporation (47,900) --
Proceeds from sales of property, plant and equipment and
other assets 11 38
Additions to property, plant and equipment (1,023) (1,097)
Additions to intangibles -- (269)
Proceeds from notes receivable -- 1,363
-------- -------
Net cash provided by (used in) investing activities (48,912) 35
Cash flows from financing activities:
Issuance of Notes 125,000 --
Proceeds from revolving credit agreement 3,000 --
Issuance of notes payable -- 118
Principal payments on debt (63,063) (49)
Redemption of preferred stock (3,269) --
Deferred financing costs (5,050)
-------- -------
Net cash provided by (used in) financing activities 56,618 69
-------- -------
Net (decrease) increase in cash and cash equivalents (2,636) 1,870
Cash and cash equivalents at beginning of period 11,936 8,627
-------- -------
Cash and cash equivalents at end of period $ 9,300 $10,497
======== =======
Cash paid during the period for:
Interest $ 2,909 $ 595
Taxes $ 2,033 $ 11
Details of Acquisition of NDC:
Fair value of assets acquired $ 29,174
Goodwill 28,807
Liabilities assumed (10,081)
--------
Cash paid for assets $ 47,900
========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-28
<PAGE> 142
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) In the opinion of Management, the accompanying unaudited financial
statements of Aqua-Chem, Inc. contain all adjustments which are of a normal
recurring nature necessary to present fairly the financial position as of
June 30, 1998, and the results of operations and cash flows for the periods
indicated. Interim financial results are not necessarily indicative of
operating results for an entire year.
(2) Certain notes and other information have been condensed or omitted from
these interim consolidated condensed financial statements. Therefore, these
statements should be read in conjunction with the Aqua-Chem, Inc.
Consolidated Financial Statements as of December 31, 1997 and 1996.
(3) On July 31, 1997, Aqua-Chem, Inc. ("OLDCO") entered into a definitive
merger agreement with A-C Acquisition Corp. ("A-C Acquisition"), a 100%
owned subsidiary of Rush Creek LLC ("Rush Creek"). Rush Creek is a Limited
Liability Company owned by certain management of OLDCO and Whitney Equity
Partners L.P. Also on July 31, 1997, A-C Acquisition acquired the assets of
OLDCO (the "Management Buy-Out") for $125,747, which includes $69,196 of
liabilities assumed and $5,000 of Series A Cumulative Preferred Stock
issued to the sellers. The amount paid does not include contingent
consideration to be paid to the sellers based on cumulative earnings of
certain operations of Aqua-Chem subsequent to the Management Buy-Out. The
Management Buy-Out was accounted for by Aqua-Chem using the purchase method
of accounting.
(4) The consolidated condensed financial statements for the six months ended
June 30, 1997 were prepared using OLDCO's historical basis of accounting
(the "pre-acquisition basis of accounting"). The consolidated condensed
financial statements for the six months ended June 30, 1998 were prepared
under a new basis of accounting that reflects the fair values of assets
acquired and liabilities assumed, the related financing costs and all debt
incurred in connection with the Management Buy-Out (the "post-acquisition
basis of accounting"). Accordingly, the accompanying financial statements
are not comparable in all material respects since those financial
statements report financial position, results of operations, and cash flows
of two separate entities.
(5) Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Raw materials and work-in-process $25,744 $16,963
Finished goods 7,699 3,851
------- -------
Total inventories $33,443 $20,814
======= =======
</TABLE>
(6) On June 23, 1998 Aqua-Chem issued $125,000 in unsecured senior subordinated
notes. The notes carry an interest rate of 11 1/4% and are due July 1,
2008. Interest is payable semi-annually beginning January 1, 1999. Proceeds
from the notes were used to repay Aqua-Chem's existing debt, to redeem
$3,269 of Aqua-Chem's Series A Preferred Stock, to acquire substantially
all of the assets of National Dynamics Corporation ("NDC") (see note (9)),
to pay the accrued interest and dividends, fees and expenses associated
with the foregoing, and for general corporate purposes.
In conjunction with the issuance of the notes and the acquisition of NDC,
Aqua-Chem entered into a revised $45,000 secured revolving credit facility.
Borrowings under this facility are made in the form of revolving credit
notes. These notes bear interest at a rate of either eurocurrency plus a
factor as defined in the agreement, prime, or federal funds rate plus 100
basis points. The revolving credit agreement will terminate June 23, 2003.
The facility is secured by substantially all of the assets of the Company.
At June 30, 1998 there were no borrowings outstanding. Among other
restrictions, the credit agreement contains covenants relating to financial
ratios and other limitations, as defined by the agreement. As of June 30,
1998, the Company was in compliance with these covenants.
(7) On June 25, 1998 the Board of Directors approved a plan of closure for the
Greenville, Mississippi facility and the agreement reached with the Union
representing the facility's production workers. As a result, the Company
recorded a restructuring charge of $4,720 to operations in the six months
ended June 30, 1998. Work currently performed at the facility will be
transferred to other Company facilities
F-29
<PAGE> 143
and/or outsourced. The plan will result in the elimination of 149 positions and
closure of the facility within approximately one year. The Greenville facility
has fixed assets with a net book value of $3,800, which includes $1,828 of
machinery and equipment, $1,846 in lease and leasehold improvements and
$126 in furniture and fixtures. The Company intends to transfer some of the
fixed assets to other facilities and will sell or dispose of the remaining
assets within the next year. The write down associated with the assets to
be sold or disposed of results in a restructuring charge of $2,921. The
remaining change includes $100 to write down the value of inventory, $1,460
of employee termination benefits and $239 of other costs related to post
closure upkeep and maintenance of the facility.
(8) On June 23, 1998, Aqua-Chem acquired substantially all the assets of
National Dynamics Corporation for $57,981, which includes $10,081 of
liabilities assumed. The acquisition was accounted for using the purchase
method of accounting. The total purchase cost was allocated first to
identified tangible and intangible assets and liabilities based upon their
respective fair values, with the remainder of $28,807 being allocated to
goodwill, which will be amortized on a straight-line basis over 40 years.
The financial statements reflect the preliminary estimates of allocating
purchase price and may be revised at a later date. The Company does not
expect the final purchase price allocation to be materially different from
preliminary estimates.
(9) The following information presents pro forma condensed consolidated
statements of operations assuming OLDCO and National Dynamics Corporation
had been acquired by Aqua-Chem as of January 1, 1997. Such information
includes adjustments to reflect additional interest expense and
depreciation expense, amortization of goodwill and other intangibles, a
reduction of other expenses to Management Buy-Out-related payments being
made by OLDCO and the net elimination of employment costs of the former
owners of National Dynamics Corporation.
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Net sales $98,495 $112,833
Net loss applicable to common shares (4,971) (49)
Loss per common share (basic) $ (4.97) $ (0.05)
</TABLE>
(10) Effective December 31, 1997, Aqua-Chem adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No.
130"). This statement establishes standards for reporting and display of
comprehensive income which includes foreign currency translation
adjustments accounted for under SFAS No. 52. SFAS No. 130 requires that an
enterprise classify items of other comprehensive income by their nature in
a financial statement for the period in which they are recognized.
Aqua-Chem has chosen to disclose comprehensive income in the Consolidated
Statements of Operations. Prior years have been restated to conform to the
SFAS No. 130 requirements. Accumulated other comprehensive income at June
30, 1998 and December 31, 1997 is comprised of only foreign currency
translation adjustments. Prior years have been restated to conform to the
SFAS No. 130 requirements.
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" was issued by The
American Institute of Certified Public Accountants in March of 1998 and is
effective for fiscal years beginning after December 15, 1998. Aqua-Chem's
accounting for costs of computer software developed or obtained for
internal use is consistent with the guidelines established in the SOP and,
as a result, Aqua-Chem does not anticipate that the adoption of this
statement will have a material impact on Aqua-Chem's financial position or
results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as an asset or liability measured at its fair
value. Statement 133 is effective for fiscal years beginning after June 15,
1999. The Company has not determined the timing of or method of adoption,
but does not anticipate that the adoption of this standard will have a
material impact on its financial statements.
F-30
<PAGE> 144
(11) In connection with the Management Buy-Out, Aqua-Chem adopted the Aqua-Chem
1997 Stock Option Plan (the "Plan"), which provides for the granting to key
employees, directors, and other individuals of options to purchase an
aggregate of 61,919 shares of Aqua-Chem common stock at a purchase price
not less than the greater of (i) $3.75, or (ii) fair market value as
determined by the Plan. Options vest primarily based upon Aqua-Chem
achieving certain operating results or within 7 years from the date of
grant. As of June 30, 1998, there were no options granted or outstanding
under the Plan.
Under separate agreements from the Plan, the option to purchase 1,725
shares of common stock have been granted to two directors of Aqua-Chem.
Under the terms of the agreements, the option to purchase 600 shares vests
one year from the effective date of the grant, with the remaining 1,125
options vesting at a rate of 225 per year commencing on December 31, 1998
and continuing through December 31, 2002. These options allow the holder to
purchase common stock of Aqua-Chem at $3.75 per share, which does not
differ significantly from fair market value. As of June 30, 1998, no
options were exercised.
F-31
<PAGE> 145
AQUA-CHEM, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------
BALANCE CHARGED CHARGED
AT TO COSTS TO BALANCE
BEGINNING AND OTHER AT END
OF PERIOD EXPENSES ACCOUNT DEDUCTIONS OF PERIOD
--------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts receivable:
January 1 to June 30, 1998..................... $638 $125 $750(a) $182 $1,331
==== ==== ==== ==== ======
August 1 to December 31, 1997.................. $684 $ 28 $ -- $ 74 $ 638
==== ==== ==== ==== ======
January 1 to July 31, 1997..................... $659 $136 $ -- $111 $ 684
==== ==== ==== ==== ======
Year ended December 31, 1996................... $596 $205 $ -- $142 $ 659
==== ==== ==== ==== ======
Year ended December 31, 1995................... $746 $ 97 $ -- $247 $ 596
==== ==== ==== ==== ======
</TABLE>
- ------------------------------------
(a) Reflects the balance acquired as a result of the acquisition of National
Dynamics Corporation.
F-32
<PAGE> 146
AQUA-CHEM, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF ACCOUNTING BASIS OF ACCOUNTING
--------------------------------- -------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
JANUARY 1 TO AUGUST 1 TO JANUARY 1 TO JANUARY 1 TO -----------------------------------
JUNE 30, 1998 DECEMBER 31, 1997 JULY 31, 1997 JUNE 30, 1997 1996 1995 1994 1993
------------- ----------------- ------------- ------------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)........ $(4,591) $3,309 $1,854 $2,240 $4,094 $(6,454) $(4,678) $2,752
Add:
Interest............... 2,837 2,414 753 597 1,448 1,663 1,200 1,075
Amortization of
capitalized debt
expense.............. 167 145 -- -- -- -- -- --
Income tax expense
(benefit)............ (1,448) 2,289 421 494 507 189 (2,806) 2,191
Extraordinary item (net
of tax).............. 1,260 -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------- ------- ------
Earnings (loss)
as defined.... $(1,775) $8,157 $3,028 $3,331 $6,049 $(4,602) $(6,284) $6,018
======= ====== ====== ====== ====== ======= ======= ======
Interest................. 2,837 2,414 753 597 1,448 1,663 1,200 1,075
Amortization of
capitalized debt
expense................ 167 145 -- -- -- -- -- --
------- ------ ------ ------ ------ ------- ------- ------
Fixed charges as
defined....... $ 3,004 $2,559 $ 753 $ 597 $1,448 $ 1,663 $ 1,200 $1,075
Ratio of earnings to
fixed charges.......... --(a) 3.2x 4.0x 5.6x 4.2x --(b) --(c) 5.6x
======= ====== ====== ====== ====== ======= ======= ======
</TABLE>
- ---------------
(a) Earnings were inadequate to cover fixed charges by $4,779 for the six months
ended June 30, 1998.
(b) Earnings were inadequate to cover fixed charges by $6,265 for the year ended
December 31, 1995.
(c) Earnings were inadequate to cover fixed charges by $7,484 for the year ended
December 31, 1994.
F-33
<PAGE> 147
INDEPENDENT AUDITORS' REPORT
The Board of Directors
National Dynamics Corporation:
We have audited the accompanying balance sheets of National Dynamics
Corporation as of October 31, 1997 and 1996 and the related statements of
earnings and retained earnings and cash flows for each of the years in the
three-year period ended October 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Dynamics
Corporation as of October 31, 1997 and 1996 and the results of its operations
and its cash flows for each of the years in the three-year period ended October
31, 1997, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Omaha, Nebraska
December 23, 1997
F-34
<PAGE> 148
NATIONAL DYNAMICS CORPORATION
BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
- ------------------------------------------------------------
Current assets:
Cash $ 66,883 222,415
Trade accounts receivable (including retainage of
$1,822,957 and $1,003,154 in 1997 and 1996,
respectively, net of allowance for doubtful accounts of
$750,000 and $1,534,000 in 1997 and 1996, respectively) 13,398,380 11,279,456
Inventories 2,589,595 1,807,447
Costs in excess of billings on uncompleted contracts 2,711,606 2,661,098
Prepaid expenses 134,807 181,937
----------- ----------
Total current assets 18,901,271 16,152,353
----------- ----------
Property, plant and equipment, at cost 11,251,137 9,835,805
Less accumulated depreciation 4,871,991 4,377,549
----------- ----------
Net property, plant and equipment 6,379,146 5,458,256
----------- ----------
Other assets 710,920 533,505
----------- ----------
$25,991,337 22,144,114
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------
Current liabilities:
Note payable to bank $ 1,422,000 1,472,000
Accounts payable 4,247,628 4,017,391
Accrued expenses 3,545,127 3,744,727
Billings in excess of cost on uncompleted contracts 1,471,422 1,393,237
Stockholders' dividends payable 500,000 500,000
----------- ----------
Total current liabilities 11,186,177 11,127,355
Deferred compensation 140,000 130,000
----------- ----------
Total liabilities 11,326,177 11,257,355
----------- ----------
Stockholders' equity:
Common stock of $1 par value per share.
Authorized 20,000 shares; issued and outstanding 8,000
shares 8,000 8,000
Additional paid-in capital 81,186 81,186
Retained earnings 14,575,974 10,797,573
----------- ----------
Total stockholders' equity 14,665,160 10,886,759
----------- ----------
Commitments and contingencies
$25,991,337 22,144,114
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 149
NATIONAL DYNAMICS CORPORATION
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Net sales $59,292,002 54,852,771 49,717,216
Cost of sales 45,861,865 43,460,577 40,915,723
----------- ---------- ----------
Gross profit 13,430,137 11,392,194 8,801,493
Selling, general and administrative expenses 5,814,695 5,515,591 6,600,609
----------- ---------- ----------
Operating income 7,615,442 5,876,603 2,200,884
Other income 298,186 153,884 170,924
Other deductions, including interest expense of
$182,770, $42,765 and $135,442 in 1997, 1996 and 1995,
respectively (185,227) (133,494) (254,029)
----------- ---------- ----------
Net earnings 7,728,401 5,896,993 2,117,779
Retained earnings at beginning of year 10,797,573 8,245,741 8,020,962
Dividends declared ($493.75, $418.15 and $236.63 per
share in 1997, 1996 and 1995, respectively) (3,950,000) (3,345,161) (1,893,000)
----------- ---------- ----------
Retained earnings at end of year $14,575,974 10,797,573 8,245,741
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 150
NATIONAL DYNAMICS CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 7,728,401 5,896,993 2,117,779
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 496,938 462,719 449,909
Loss on sale and disposal of assets 843 2,581 --
Change in assets and liabilities:
Accounts receivable (2,118,924) 1,005,589 (4,077,443)
Inventories (782,148) (210,511) (146,864)
Costs in excess of billings on uncompleted
contracts (50,508) (37,063) 127,112
Prepaid expenses 47,130 (84,946) (31,297)
Other assets (177,415) (8,341) (117,749)
Accounts payable 230,237 (125,914) 1,209,740
Accrued expenses (199,600) (1,011,590) 1,371,415
Billings in excess of costs on uncompleted
contracts 78,185 (472,180) (858,567)
Deferred compensation 10,000 10,000 10,000
----------- ----------- -----------
Net cash provided by operating activities 5,263,139 5,427,337 54,035
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (1,419,271) (570,767) (1,758,158)
Proceeds from sale of property, plant and equipment 600 -- --
Net payments on note receivable -- -- 582,611
----------- ----------- -----------
Net cash used by investing activities (1,418,671) (570,767) (1,175,547)
----------- ----------- -----------
Cash flows from financing activities:
Dividends paid (3,950,000) (2,845,161) (1,893,000)
Net (payments) advances on note payable to bank (50,000) (662,000) 2,028,000
Proceeds on issuance of long-term debt -- 200,000 1,300,000
Principal payments on long-term debt -- (1,432,136) (351,500)
----------- ----------- -----------
Net cash provided by (used in) financing activities (4,000,000) (4,739,297) 1,083,500
----------- ----------- -----------
Net increase (decrease) in cash (155,532) 117,273 (38,012)
Cash at beginning of year 222,415 105,142 143,154
----------- ----------- -----------
Cash at end of year $ 66,883 222,415 105,142
=========== =========== ===========
Supplemental cash flow information:
Cash paid for interest $ 7,129 102,881 210,562
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 151
NATIONAL DYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
(1) ORGANIZATION
National Dynamics Corporation (the Company) has the following operating
divisions: Lincoln Manufacturing Company (LMC), Nebraska Boiler Company
(Boiler), Energy Recovery International (ERI) and Gonzales Manufacturing Company
(GMC).
Boiler, the largest of the operating divisions, contracts to manufacture,
markets and sells large industrial-use boilers. The boilers are used for
purposes of heat and energy generation in large buildings and at construction
sites. ERI's operations consist of the manufacture and installation of systems
used to operate the boilers at the most efficient rate. LMC is involved in the
manufacture of roadside structure equipment and specialty products. GMC's
operations consist mainly of steel fabrication work for use in the manufacture
of boilers. All significant transactions between divisions have been eliminated
in the financial statements.
The Company's customers are located in the United States and foreign
countries. Sales to foreign customers are transacted in US dollars. Foreign
customers represent 6.8%, 16.2% and 3.5% of net sales for 1997, 1996 and 1995,
respectively. Foreign sales in 1996 included a $6,500,000 sale to a customer in
Thailand.
The Company is an S Corporation and, as such, the income tax liabilities of
an S Corporation are the responsibility of the shareholders, therefore, no
provisions for federal and state income tax expense at the corporate level is
necessary.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories, primarily raw materials, are stated as cost under the last-in,
first-out (LIFO) method, which is less than net realizable value.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment is carried at cost less accumulated
depreciation. Expenditures for maintenance, repairs and renewals of relatively
minor items are generally charged to expense as incurred. Major renewals and
improvements are capitalized. Depreciation is computed on the straight-line
method over the following estimated useful lives:
<TABLE>
<S> <C>
Land improvements........................................... 10 years
Buildings................................................... 40 years
Cranes and building improvements............................ 10 - 40 years
Machinery and equipment..................................... 5 - 10 years
Transportation equipment.................................... 5 years
</TABLE>
Upon retirement or other disposition of property, plant and equipment, the
cost and related accumulated depreciation are removed from the accounts and the
resulting gain or loss is reflected in income for the period.
REVENUE RECOGNITION
Revenue is recognized on boiler sales utilizing the completed contract
method of accounting. Revenue is recognized in accordance with contract terms,
when title passes, either at shipment or when the equipment is ready for
shipment, but held at customer's request. In such instances, revenues are
recognized when the customer accepts the related billing and contracts for
storage and all risks of ownership pass to customer. Related costs incurred to
date are relieved from inventories and charged to cost of sales at the time
revenue is recognized. Shipping, inspection and other costs required to install
the boilers are provided for in the appropriate accounts at the time revenues
are recognized. Any losses on contracts are recognized in the period
F-38
<PAGE> 152
NATIONAL DYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
in which they become estimable and accruable. This method is used because the
typical contract is completed in three months or less and financial position and
results of operations do not vary significantly from those which would result
from use of the percentage of completion method.
For nonboiler, noncontract sales, revenues and cost of sales are recognized
at the time of shipment.
WARRANTY
The Company offers its customers a limited warranty for approximately
eighteen months after installation of the boilers or other manufactured items.
The estimated costs of warranty are accrued and expensed at the time revenue is
recognized. Expense for the years ended October 31, 1997, 1996 and 1995 was
$300,000, $198,000 and $407,000, respectively.
ADVERTISING AND RESEARCH AND DEVELOPMENT
All advertising and promotion as well as research and development costs are
expensed as incurred and are not material to the Company's operations.
OTHER ASSETS
Other assets are primarily comprised of cash surrender value of life
insurance policies and tax deposits required of S Corporations.
LONG-LIVED ASSETS
Long-lived to be held and used are reviewed for impairment whenever events
or change in circumstance dictate that the related carrying amount may not be
recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to future cash flows expected to
be generated by the asset. There have been no write-downs for impairment in the
financial statements.
SELF-INSURANCE
The Company is self-insured for payment of health claims for its employees.
The Company has established a voluntary benefit trust account (VEBA) and funds
the VEBA from time to time, as necessary, from operations. The Company has
stop-loss insurance coverage for individual claims in excess of $50,000 per
person.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-39
<PAGE> 153
NATIONAL DYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) INVENTORIES
Shown below is selected financial information reported under the LIFO
method of inventory valuation for the Company. These amounts are compared to
results had the FIFO method, which approximates replacement cost, been used for
all divisions.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------- -------------------------
AS REPORTED IF REPORTED AS REPORTED IF REPORTED AS REPORTED IF REPORTED
UNDER LIFO UNDER FIFO UNDER LIFO UNDER FIFO UNDER LIFO UNDER FIFO
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Inventories, including costs
incurred on uncompleted
contracts................... $ 6,539,065 $ 7,088,195 $ 5,471,695 $ 5,991,505 $ 5,234,632 $ 5,776,433
Cost of sales................. $45,861,865 $45,782,545 $43,460,577 $43,482,568 $40,915,723 $40,856,236
Net earnings.................. $ 7,728,401 $ 7,807,721 $ 5,896,993 $ 5,875,002 $ 2,117,779 $ 2,177,266
</TABLE>
(4) COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $3,949,470 $3,664,248
Billings on uncompleted contracts........................... 2,709,286 2,396,387
---------- ----------
$1,240,184 $1,267,861
========== ==========
</TABLE>
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Costs in excess of billings on uncompleted contracts........ $2,711,606 $2,661,098
Billings in excess of costs on uncompleted contracts........ 1,471,422 1,393,237
---------- ----------
$1,240,184 $1,267,861
========== ==========
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at October 31, 1997 and 1996, at cost, are
shown below:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Land................................................. $ 306,211 $ 306,211
Land improvements.................................... 398,012 327,781
Building............................................. 5,316,118 4,387,037
Cranes and building fixtures......................... 1,194,695 1,136,888
Machinery and equipment.............................. 3,694,322 3,380,120
Transportation equipment............................. 341,779 297,768
----------- ----------
$11,251,137 $9,835,805
=========== ==========
</TABLE>
(6) NOTE PAYABLE TO BANK
The Company has a revolving loan agreement with a bank with a $6,000,000
maximum credit line available which expires April 1, 1999. The note accrues
interest at the rate of one percentage point under the prime rate (7.5% at
October 31, 1997). There was $1,422,000 and $1,472,000 outstanding under this
agreement at October 31, 1997 and 1996, respectively.
Substantially all assets are pledged as collateral on the revolving loan
agreement. The revolving loan agreement contains certain limitations on
additional borrowing and fixed asset additions, as well as minimum
F-40
<PAGE> 154
NATIONAL DYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
net worth, working capital, current ratio, cash flow and debt to tangible net
worth levels. The Company was in compliance with all the loan covenants at
October 31, 1997 and 1996.
(7) BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all
union employees. The benefits are based on years of service and the employee's
compensation during the last five years of employment. The Company's funding
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be earned
in the future.
Net pension cost for 1997, 1996 and 1995 included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Service cost-benefits earned during the
period........................................ $ 67,762 72,786 127,406
Interest cost on projected benefit obligation... 60,266 56,709 73,870
Actual return on plan assets.................... (70,143) (30,046) (97,392)
Net amortization and deferral................... 11,856 (19,181) 9,016
-------- ------- -------
Net periodic pension cost....................... $ 69,741 80,268 112,900
======== ======= =======
</TABLE>
The funded status of the pension plan as of August 1, 1997, 1996 and 1995,
the most recent actuarial valuation dates, is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- -------- ----------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested -- current employees............................ $ 716,313 510,090 820,983
Nonvested.............................................. 18,355 3,932 94,590
----------- -------- ----------
Accumulated benefit obligation................. 734,668 514,022 915,573
----------- -------- ----------
Projected benefit obligation for service rendered to
date................................................... $(1,266,479) (841,301) (1,502,344)
Fair market value of plan assets......................... 875,521 681,002 1,100,627
----------- -------- ----------
Projected benefit obligation in excess of plan assets.... (390,958) (160,299) (401,717)
Unrecognized net gain (loss) from past experience
different from that assumed and effects of changes in
assumptions............................................ 143,303 (146,829) 16,763
Prior service costs...................................... 99,675 105,344 156,192
Unrecognized net asset at August 1, 1997, 1996 and 1995
being recognized ratably over approximately 13 years... (33,509) (38,049) (41,086)
----------- -------- ----------
Accrued pension cost included in accrued expenses........ $ (181,489) (239,833) (269,848)
----------- -------- ----------
</TABLE>
The assumptions used as of August 1, 1997, 1996 and 1995 in determining the
funded status information and pension expense were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate.......................................... 6.50% 7.25 6.50
Expected long-term inflation rate...................... 4.86 4.86 4.00
Expected long-term rate of return on assets............ 7.50 7.50 7.50
</TABLE>
Effective January 1, 1996, the Company adopted the National Dynamics
Corporation 401(k) Plan (the Plan). This qualified Plan is a defined
contribution plan covering all nonunion employees of the Company who have one
year of service and have attained the age of twenty-one. Participants may
contribute up to 15% of their pay in pretax dollars. Participants' contributions
are 100% vested at all times. The Company made a
F-41
<PAGE> 155
NATIONAL DYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
matching contribution of 50% of each participant's contributions, up to 5% of
pay for 1997 and 1996. This discretionary matching contribution by the Company
may vary from year to year. Additional amounts may be contributed at the option
of the Company's Board of Directors. Vesting in Company contributions is 100%
after five years in the Plan. Plan expenses were $112,727 and $102,709 for the
years ended October 31, 1997 and 1996, respectively.
(8) ACCRUED EXPENSES
Accrued expenses at October 31, 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Accrued wages and bonuses and commissions.............. $ 938,989 1,217,315
Accrued compensated absences........................... 360,000 241,000
Accrued warranty and costs to install.................. 1,735,728 1,810,793
Accrued pension benefits............................... 181,489 239,833
Other.................................................. 328,921 235,786
---------- ---------
$3,545,127 3,744,727
========== =========
</TABLE>
(9) DEFERRED COMPENSATION
The Company has entered into nonqualified deferred compensation agreements
with four key employees. Each employee, upon meeting certain requirements, would
receive annual payments ranging from $10,000 to $30,000 for ten years subsequent
to retirement.
Benefits will be funded with life insurance contracts purchased by the
Company. The cost of these benefits is being charged to expense and accrued
using a present value method over the expected term of employment. Expense for
the years ended 1997, 1996 and 1995 was $10,000 annually.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, trade accounts receivable, note payable to bank, accounts payable and
accrued expenses -- The carrying amount approximates the fair market value due
to the short maturity, less than one year, of these instruments.
(11) LETTERS OF CREDIT
The Company is a party to six letters of credit totaling $3,651,549 at
October 31, 1997. These letters of credit are issued on behalf of the Company by
banks for certain customers as the beneficiaries. The letters of credit are for
specific jobs that are in process and expire on various dates through February
11, 1999. Management does not expect any material losses to result from these
off-balance sheet instruments because performance is not expected to be
required.
(12) LITIGATION
In the normal course of business, the Company is involved in various claims
and suits, the majority of which are covered by insurance. Management does not
believe any of these claims or suits will result in settlements which would
materially affect the financial statements of the Company.
During 1997, a dissident minority shareholder filed suit seeking a variety
of actions. Subsequent to year-end, a conditional settlement was reached with no
cost other than insignificant legal fees to the Company.
(13) LEASE
The Company leases a vehicle under a noncancelable operating lease that
expires in August 1998. The monthly lease expense is $1,330 and the future
minimum lease payments as of October 31, 1997 are $13,300.
F-42
<PAGE> 156
NATIONAL DYNAMICS CORPORATION
CONDENSED BALANCE SHEETS
MARCH 31, 1998 AND OCTOBER 31, 1997
<TABLE>
<CAPTION>
MARCH 31, OCTOBER 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents of $3,292,000 and $-0- in 1998
and 1997, respectively $ 3,544,149 66,883
Trade accounts receivable (including retainage of
$1,270,445 and $1,822,957 in 1998 and 1997,
respectively, net of allowance for doubtful accounts of
$750,000 in 1998 and 1997) 11,837,261 13,398,380
Inventories 1,552,911 2,589,595
Costs in excess of billings on uncompleted contracts -- 2,711,606
Prepaid expenses -- 134,807
----------- ----------
Total current assets 16,934,321 18,901,271
----------- ----------
Property, plant and equipment, at cost 11,473,539 11,251,137
Less accumulated depreciation 5,071,615 4,871,991
----------- ----------
Net property, plant and equipment 6,401,924 6,379,146
----------- ----------
Other assets 739,565 710,920
----------- ----------
$24,075,810 25,991,337
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ -- 1,422,000
Accounts payable 3,348,533 4,247,628
Accrued expenses 3,040,248 3,545,127
Billings in excess of cost on uncompleted contracts 625,169 1,471,422
Stockholders' dividends payable -- 500,000
----------- ----------
Total current liabilities 7,013,950 11,186,177
Deferred compensation 144,200 140,000
----------- ----------
Total liabilities 7,158,150 11,326,177
----------- ----------
Stockholders' equity:
Common stock of $1 par value per share. Authorized 20,000
shares; issued and outstanding 8,000 shares 8,000 8,000
Additional paid-in capital 81,186 81,186
Retained earnings 16,828,474 14,575,974
----------- ----------
Total stockholders' equity 16,917,660 14,665,160
----------- ----------
Commitments and contingencies
$24,075,810 25,991,337
=========== ==========
</TABLE>
See accompanying note to financial statements.
F-43
<PAGE> 157
NATIONAL DYNAMICS CORPORATION
CONDENSED STATEMENTS OF EARNINGS
FIVE-MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net sales $25,561,029 21,722,260
Cost of sales 19,972,678 17,150,280
----------- ----------
Gross profit 5,588,351 4,571,980
Selling, general and administrative expenses 2,471,501 1,887,790
----------- ----------
Operating income 3,116,850 2,684,190
Other income 397,661 312,024
Other deductions, including interest expense of $60,772 and
$75,933 in 1998 and 1997, respectively (62,011) (76,214)
----------- ----------
Net earnings $ 3,452,500 2,920,000
=========== ==========
</TABLE>
See accompanying note to financial statements.
F-44
<PAGE> 158
NATIONAL DYNAMICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FIVE-MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash Flows from operating activities:
Net earnings $ 3,452,500 2,920,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation 199,625 192,999
Change in assets and liabilities:
Accounts receivable 1,561,119 (2,994,452)
Inventories 1,036,684 730,968
Costs in excess of billings on uncompleted contracts 2,711,606 2,661,098
Prepaid expenses 134,807 (168,897)
Other assets (28,645) (26,175)
Accounts payable (899,095) (444,702)
Accrued expenses (504,879) (834,268)
Billings in excess of costs on uncompleted contracts (846,253) 1,118,364
Deferred compensation 4,200 4,200
----------- ----------
Net cash provided by operating activities 6,821,669 3,159,135
----------- ----------
Cash flows from investing activities:
Capital expenditures (222,403) (262,493)
----------- ----------
Cash flows from financing activities:
Dividends paid (1,700,000) (1,100,000)
Net payments on note payable to bank (1,422,000) (1,472,000)
----------- ----------
Net cash used in financing activities (3,122,000) (2,572,000)
----------- ----------
Net increase in cash and cash equivalents 3,477,266 324,642
Cash and cash equivalents at beginning of year 66,883 222,415
----------- ----------
Cash and cash equivalents at end of year $ 3,544,149 547,057
=========== ==========
Supplemental cash flow information:
Cash paid for interest $ 60,772 75,993
=========== ==========
</TABLE>
See accompanying note to financial statements.
F-45
<PAGE> 159
NATIONAL DYNAMICS CORPORATION
NOTE TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of National
Dynamics Corporation (the Company), include all adjustments necessary for a fair
statement of earnings for each period shown, in the opinion of management. All
such adjustments made are of a normal recurring nature. The balance sheet at
October 31, 1997 is derived from the audited balance sheet as of that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Management believes that the disclosures made
are adequate and that the information is fairly presented; costs and billings on
uncompleted contracts are presented net in the interim financial statement. The
results for the interim periods are not necessarily indicative of the results
for the full year. These financial statements should be read in conjunction with
the audited financial statements and notes thereto for the years ended October
31, 1997, 1996 and 1995.
F-46
<PAGE> 160
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY INITIAL PURCHASER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. 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 THE COMPANY SINCE SUCH DATE. UNTIL , 19 ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary.............................. 1
Risk Factors......................... 16
The Exchange Offer................... 24
Capitalization....................... 34
Unaudited Pro Forma Financial Data... 35
Selected Financial Data of
Aqua-Chem.......................... 40
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Aqua-Chem......... 42
Selected Financial Data of NDC....... 48
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of NDC............... 49
Business of the Company.............. 51
Management........................... 62
Capital Stock and Principal
Stockholders....................... 69
Certain Relationships and Related
Transactions....................... 74
The Acquisition...................... 76
Description of Certain
Indebtedness....................... 77
Description of the Notes............. 78
Material United States Federal Income
Tax Considerations................. 105
Plan of Distribution................. 107
Legal Matters........................ 108
Independent Auditors................. 108
Available Information................ 108
Index to Financial Statements........ F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
[AQUA-CHEM LOGO]
$125,000,000
11 1/4% Senior
Subordinated Notes
Due 2008
PROSPECTUS
------------------------------------------------------
<PAGE> 161
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended,
provides in regards to indemnification of directors and officers as follows:
145. Indemnification of Officers, Directors, Employees
and Agents; Insurance.
(a) A corporation shall have power to indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection
with such action, suit or proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
(b) A corporation shall have power to indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the
fact that the person is or was
<PAGE> 162
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by the person in connection with the
defense or settlement of such action or suit if the person acted in
good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
(c) To the extent that a present or former director or
officer of a corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in subsections
(a) and (b)of this section, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in
connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because the person has met the
applicable standard of conduct set forth in subsections (a) and (b) of
this section. Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination,
(1) by a majority vote of the directors who are not parties to such
action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such
directors, even though less than a quorum, or (3) if there are no such
directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (4) by the stockholders.
<PAGE> 163
(e) Expenses (including attorneys' fees) incurred by an officer
or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees)
incurred by former directors or officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other subsections of this section shall not
be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as
to action in another capacity while holding such office.
(g) A corporation shall have power 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, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnity him against such liability under this section.
(h) For purposes of this Section, 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
<PAGE> 164
venture, trust or other enterprise, shall stand in the same position
under the provisions of this section with respect to the resulting or
surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent
with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner
such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this section shall, unless otherwise
provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such a
person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery may summarily determine a
corporation's obligation to advance expenses (including attorneys
fees).
<PAGE> 165
Section 102(b)(7) of the Delaware General Corporation Law, as
amended, provides in regard to the limitation of liability of directors
and officers as follows --
(b) In addition to the matters required to be set forth in the
certificate of incorporation by subsection (a) of this section, the
certificate of incorporation may also contain any or all of the
following matters:
* * * *
(7) A provision eliminating or limiting the personal liability
of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director: (i)
for any breach of the director's duty of loyalty to the corporation or
its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii)
under Section 174 of this title; or (iv) for any transaction from which
the director derived an improper personal benefit. No such provision
shall eliminate or limit the liability of a director for any act or
omission occurring prior to the date when such provision becomes
effective. All references to this paragraph to a director shall also be
deemed to refer (x) to a member of the governing body of a corporation
which is not authorized to issue capital stock, and (y) to such other
person or persons, if any, who, pursuant to a provision of the
certificate of incorporation in accordance with ss.141(a) of this
title, exercise or perform any of the powers or duties otherwise
conferred or imposed upon the board of directors by this title.
Article 7 of the Registrant's Certificate of Incorporation, as amended,
provides in regard to the limitation of liability of directors and officers as
follows:
No director shall be liable to the Company or any of its
stockholders for monetary damages for breach of fiduciary duty as a
director, except with respect to (1) a breach of director's duty of
loyalty to the Company or its stockholders, (2) acts or omissions not
in good faith or which involve intentional misconduct or a knowing
violation of the law, (3) liability under Section 174 of the Delaware
General Corporation Law or (4) a transaction from which the director
derived an improper personal benefit, it being the intention of the
foregoing provision to eliminate the
<PAGE> 166
liability of the Company's directors to the Company or its stockholders
to the fullest extent permitted by Section 102(b)(7) of the Delaware
General Corporation Law, as amended from time to time. The Company
shall indemnify to the fullest extent permitted by Sections 102(b)(7)
and 145 of the Delaware General Corporation Law, as amended from time
to time, each person that such Sections grant the Company the power to
indemnify.
Article 8 of Registrant's By-Laws provide, in summary, that the
corporation will indemnify present or former directors, officers employees or
agents (including those acting at the request of the Corporation in such role
for another entity) against amounts owed in connection with any proceeding
regarding action taken while serving in such role. The indemnification is to the
fullest extent as permitted by applicable law. With regard to directors and
officers, repeal or modification of that section of the by-laws or other
applicable laws will not change the obligations of the corporation in effect at
the time of the act giving rise to the proceeding. The right to indemnification
is not exclusive of any other rights to which the parties may be entitled. The
Corporation shall also have the power to purchase and maintain insurance on
behalf of any such person, without regard to whether the Corporation has the
power to indemnify that person under the by-laws or applicable law.
The Registrant has entered into indemnification agreements with
Jeffrey A. Miller, the Registrant's Chairman, President and Chief Executive
Officer and William B. Killian and James W. Hook, each a Director of the
Registrant, pursuant to which the Registrant has agreed to indemnify them
against Expenses (as defined therein) and Liability (as defined therein)
arising out of their employment by or position as a director of the Registrant.
Rights to indemnification under these indemnification agreements are generally
consistent with, and are specifically defined to include, the fullest extent
of the rights under the Delaware General Corporation Law, and the Registrant's
Certificate of Incorporation and Bylaws set forth as described above.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The Exhibit Index attached hereto following the Signature Pages is
incorporated herein by reference.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) (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;
(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;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(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 Rule 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 Rule 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.
(b) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement 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 the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and persons
controlling the Registrant pursuant to the foregoing
<PAGE> 167
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 person controlling the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or 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.
(d) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of Form S-4,
within one business day of receipt of such request, and to send the incorporated
documents by first-class mail or equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date responding to the request.
(e) 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.
<PAGE> 168
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Aqua- Chem,
Inc. has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee,
State of Wisconsin, on this 27th day of October, 1998.
By: Jeffrey A. Miller *
------------------------------------
Name: Jeffrey A. Miller
Title: Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the date indicated below.
- ---------------------------- ---------------------------
Signature Title
Principal Executive Officer:
Jeffrey A. Miller *
- ------------------------------- President and Chief
Jeffrey A. Miller Executive Officer
Principal Financial and Accounting Officer:
/s/ J. Scott Barton
- ------------------------------- Vice President, Chief
J. Scott Barton Financial Officer
Board of Directors:
Jeffrey A. Miller *
- ------------------------------- Director (Chairman of
Jeffrey A. Miller the Board)
James H. Fordyce * Director
- -------------------------------
James H. Fordyce
<PAGE> 169
- -------------------------- --------------------------------
Signature Title
James W. Hook *
- -------------------------
James W. Hook Director
William P. Killian *
- ------------------------- Director
William P. Killian
Michael R. Stone *
- ------------------------- Director
Michael R. Stone
* J. Scott Barton, by signing his name hereto does sign this document on
behalf of the persons indicated above as of this 27th day of October,
1998, pursuant to the powers of attorney duly executed by such persons and
filed as Exhibit 24.1 to this Amendment No. 2 to Form S-4 Registration
Statement.
By: /s/ J. Scott Barton
----------------------------
J. Scott Barton
Attorney-in-Fact
<PAGE> 170
EXHIBIT INDEX
TO
AMENDMENT NO. 2
TO
REGISTRATION STATEMENT ON FORM S-4
OF
AQUA-CHEM, INC.
- --------------------------------------------------------------------------------
EXHIBIT DESCRIPTION FILED
Number HEREWITH
2.1 Asset Purchase Agreement dated May (1)
28, 1998 among Aqua-Chem, Inc.,
National Dynamics Corporation, and
certain shareholders of National
Dynamics Corporation
3.1 Aqua-Chem, Inc. Certificate of (1)
Incorporation (incorporating amendments)
3.2 Aqua-Chem, Inc. Bylaws (1)
4.1 Indenture of Trust dated June 23, (X)
1998 between Aqua-Chem, Inc. and
United States Trust Company of New
York, as Trustee
4.2 Form of Aqua-Chem, Inc. 11-1/4% (2)
Senior Subordinated Note Due 2008,
to be issued in the Exchange Offer
subject to this Registration
Statement
4.3 Form of Aqua-Chem, Inc. 11-1/4% (3)
Senior Subordinated Note Due 2008
issued on June 23, 1998
----------------
(1) Previously filed.
(2) Included as Exhibit A to the Indenture of
Trust included as Exhibit 4.1 to this
Amendment No. 2 to Registration Statement.
(3) Included as Exhibit 1 to the Rule 144A/
Regulation S Appendix to the Indenture
of Trust included as Exhibit 4.1 to this
Amendment No. 2 to Registration Statement.
<PAGE> 171
- --------------------------------------------------------------------------------
EXHIBIT DESCRIPTION FILED
NUMBER HEREWITH
4.4 Common Stock Purchase Warrant dated July 31, 1997 (1)
5.1 Opinion as to legality of securities (4)
subject to this Registration
Statement
9.1 Stockholders' and Members' Agreement (1)
dated July 31, 1997 among the
Stockholders of Aqua-Chem, Inc. and
the Members of Rush Creek, LLC.
10.1 Credit Agreement dated June 23, 1998 (1)
among Aqua-Chem, Inc. and Comerica
Bank
10.2 Registration Rights Agreement dated (1)
June 18, 1998 among Aqua-Chem,
Inc., Credit Suisse First Boston
Corporation, and Bear, Stearns &
Co. Inc.
10.3 Employment Agreement dated July 31, (1)
1997 between Aqua-Chem, Inc. and
Jeffrey A. Miller, as amended
10.4 Employment Agreement dated February (1)
5, 1997 between Aqua-Chem, Inc.
and Rand E. McNally, as amended
10.5 Employment Agreement dated January (1)
20, 1997 between Aqua-Chem, Inc.
and J. Scott Barton, as amended
10.6 Employment Agreement dated January 7, 1997 (1)
between Aqua-Chem, Inc. and
Charles J. Norris, as amended
10.7 Employment Agreement dated September 1, 1997 (1)
between Aqua-Chem, Inc. and
Daniel L. Johnson, as amended
------------------
(1) Previously filed.
(4) To be filed by amendment.
<PAGE> 172
- --------------------------------------------------------------------------------
EXHIBIT DESCRIPTION FILED
NUMBER HEREWITH
10.8 Interim Management Agreement dated July 8, (1)
1996 between Aqua-Chem, Inc.,
J. Miller Management, Inc. and Jeffery A.
Miller
10.9 Aqua-Chem, Inc. 1997 Stock Option (1)
Plan Amended and Restated
10.10 Aqua-Chem, Inc. Management Incentive (1)
Plan approved November 15, 1996
10.11 Aqua-Chem, Inc. Executive Management (1)
Incentive Plan approved November
15, 1996
10.12 Aqua-Chem, Inc. 1998 Phantom Stock Plan (1)
10.13 Amendment to Interim Management Agreement (X)
between Aqua-Chem, Inc., J. Miller Management,
Inc. and Jeffrey A. Miller
10.14 Aqua-Chem, Inc. 11 1/4% Senior Subordinated (1)
Notes Due 2008, Purchase Agreement dated
June 18, 1998
10.15 Consulting Agreement with Verlyn Westra dated (1)
June 19, 1998
10.16 Consulting Agreement with Roger Swanson dated (1)
June 19, 1998
10.17 Amended and Restated Securities Purchase (1)
Agreement dated December 5, 1997 by and among
Rush Creek, LLC, A-C Acquisition Corp., CB-Kramer
Sales and Service, Inc., Whitney Subordinated Debt
Fund, LP, and Whitney Equity Partners, LP
10.18 First Amendment and Consent Agreement dated June (1)
23, 1998, by and among Rush Creek, LLC,
A-C Acquisition Corp., CB-Kramer Sales and
Service, Inc., Whitney Subordinated Debt Fund, LP,
and Whitney Equity Partners, LP
10.19 Letter Agreement with William P. Killian (1)
dated December 17, 1997
10.20 Letter Agreement with James W. Hook dated (1)
February 11, 1998
- ------------------
(1) Previously filed.
<PAGE> 173
- --------------------------------------------------------------------------------
EXHIBIT DESCRIPTION FILED
NUMBER HEREWITH
10.21 Agreement and Plan of Reorganization (1)
dated July 31, 1997 among Lyonnaise
American Holding, Inc., Gestra
Corporation N.V., Rush Creek LLC,
Aqua-Chem, Inc., A-C Acquisition
Corp. and Jeffrey A. Miller
[REDACTED PORTIONS ARE SUBJECT TO A REQUEST
FOR CONFIDENTIAL TREATMENT ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION]
10.22 Amendment dated June 22, 1998 to Agreement (1)
and Plan of Reorganization among
Lyonnaise American Holding, Inc.,
Gestra Corporation N.V., Rush Creek
LLC, Aqua-Chem, Inc., A-C
Acquisition Corp. and Jeffrey A.
Miller
[REDACTED PORTIONS ARE SUBJECT TO A REQUEST
FOR CONFIDENTIAL TREATMENT ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION]
10.23 Employment Agreement dated August 13, 1998
between Aqua-Chem, Inc. and Daniel B. Teich X
10.24 Aqua-Chem, Inc. 1998 Stock Option Plan X
12.1 Statements Regarding Computation of Ratios (5)
16.1 Letter regarding change in Certifying Accountant (1)
21.1 Subsidiaries of the Registrant (1)
23.1 Consent of Arthur Andersen LLP X
23.2 Consent of KPMG Peat Marwick, LLP, Milwaukee,
Wisconsin X
23.4 Consent of Whyte Hirschboeck Dudek S.C. (1)
24.1 Powers of Attorney of Directors and Officers of
Aqua-Chem, Inc. (1)
25.1 Statement of Eligibility of United States Trust (1)
Company of New York as Trustee under the Indenture
on Form T-1 under the Trust Indenture Act of 1939,
as amended
27.1 Financial Data Schedule (12 months ended 12/31/95) (1)
27.2 Financial Data Schedule (12 months ended 12/31/96) (1)
27.3 Financial Data Schedule (7 months ended 7/31/97) (1)
27.4 Financial Data Schedule (5 months ended 12/31/97) (1)
27.5 Financial Data Schedule (6 months ended 6/30/98) (1)
99.1 Letter of Transmittal (X)
- -------------------------
(1) Previously filed.
(5) Included in the Prospectus which forms a part of this Amendment
No.2 to Registration Statement immediately following the
consolidated condensed financial statements of Aqua-Chem, Inc.
<PAGE> 174
- --------------------------------------------------------------------------------
EXHIBIT DESCRIPTION FILED
NUMBER HEREWITH
99.2 Instructions to Holders of Aqua-Chem, Inc. (X)
11-1/4% Senior Subordinated Notes Due 2008
99.3 Notice of Guaranteed Delivery (X)
- ----------------------------------
<PAGE> 1
EXHIBIT 4.1
===============================================================================
AQUA-CHEM, INC.
Issuer
11 1/4% Senior Subordinated Notes Due 2008
--------------------
INDENTURE
Dated as of June 23, 1998
---------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
===============================================================================
<PAGE> 2
EXHIBIT 4.1
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
310(a)(1) ..............................7.10
(a)(2) ..............................7.10
(a)(3) ..............................N.A.
(a)(4) ..............................N.A.
(b) ..............................7.08; 7.10
(c) ..............................N.A.
311(a) ..............................7.11
(b) ..............................7.11
(c) ..............................N.A.
312(a) ..............................2.05
(b) ..............................11.03
(c) ..............................11.03
313(a) ..............................7.06
(b)(1) ..............................N.A.
(b)(2) ..............................7.06
(c) ..............................11.02
(d) ..............................7.06
314(a) ..............................4.02;
4.10; 11.02
(b) ..............................N.A.
(c)(1) ..............................11.04
(c)(2) ..............................11.04
(c)(3) ..............................N.A.
(d) ..............................N.A.
(e) ..............................11.05
(f) ..............................4.10
315(a) ..............................7.01
(b) ..............................7.05; 11.02
(c) ..............................7.01
(d) ..............................7.01
(e) ..............................6.11
316(a)(last sentence) ..............................11.06
(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) ..............................11.01
N.A. means Not Applicable.
__________________________
Note: This Cross-Reference Table shall not, for any
purpose, be deemed to be part of the Indenture.
i
<PAGE> 3
EXHIBIT 4.1
TABLE OF CONTENTS
ARTICLE 1 Page
Definitions and Incorporation by Reference
SECTION 1.01. Definitions ............................ 1
SECTION 1.02. Other Definitions ...................... 23
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act ........................ 23
SECTION 1.04. Rules of Construction .................. 24
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating ........................ 25
SECTION 2.02. Execution and Authentication ........... 25
SECTION 2.03. Registrar and Paying Agent ............. 26
SECTION 2.04. Paying Agent To Hold Money in Trust..... 27
SECTION 2.05. Securityholder Lists ................... 27
SECTION 2.06. Transfer and Exchange .................. 27
SECTION 2.07. Replacement Securities ................. 28
SECTION 2.08. Outstanding Securities ................. 29
SECTION 2.09. Temporary Securities ................... 29
SECTION 2.10. Cancellation ........................... 29
SECTION 2.11. Defaulted Interest ..................... 30
SECTION 2.12. CUSIP Numbers .......................... 30
SECTION 2.13. Issuance of Additional Securities....... 30
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee ..................... 30
SECTION 3.02. Selection of Securities To Be
Redeemed ............................. 31
SECTION 3.03. Notice of Redemption ................... 31
SECTION 3.04. Effect of Notice of Redemption ......... 32
SECTION 3.05. Deposit of Redemption Price ............ 32
SECTION 3.06. Securities Redeemed in Part ............ 33
i
<PAGE> 4
EXHIBIT 4.1
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities ........................... 33
SECTION 4.02. SEC Reports ..................................... 33
SECTION 4.03. Limitation on Indebtedness ...................... 33
SECTION 4.04. Limitation on Restricted Payments ............... 37
SECTION 4.05. Limitation on Restrictions on
Distributions from Subsidiaries ............... 40
SECTION 4.06. Limitation on Sales of Assets and
Subsidiary Stock .............................. 41
SECTION 4.07. Limitation on Affiliate Transactions ............ 45
SECTION 4.08. Limitation on the Sale or Issuance of
Capital Stock of Restricted
Subsidiaries .................................. 46
SECTION 4.09. Change of Control ............................... 46
SECTION 4.10. Compliance Certificates ......................... 49
SECTION 4.11. Further Instruments and Acts .................... 49
ARTICLE 5
Successor Company
SECTION 5.01. When Company May Merge or Transfer
Assets ........................................ 49
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default ............................... 50
SECTION 6.02. Acceleration .................................... 53
SECTION 6.03. Other Remedies .................................. 53
SECTION 6.04. Waiver of Past Defaults ......................... 53
SECTION 6.05. Control by Majority ............................. 54
SECTION 6.06. Limitation on Suits ............................. 54
SECTION 6.07. Rights of Holders To Receive Payment ............ 55
SECTION 6.08. Collection Suit by Trustee ...................... 55
SECTION 6.09. Trustee May File Proofs of Claim ................ 55
SECTION 6.10. Priorities ...................................... 55
SECTION 6.11. Undertaking for Costs ........................... 56
SECTION 6.12. Waiver of Stay or Extension Laws ................ 56
ii
<PAGE> 5
EXHIBIT 4.1
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee .............................. 56
SECTION 7.02. Rights of Trustee .............................. 58
SECTION 7.03. Individual Rights of Trustee ................... 58
SECTION 7.04. Trustee's Disclaimer ........................... 59
SECTION 7.05. Notice of Defaults ............................. 59
SECTION 7.06. Reports by Trustee to Holders .................. 59
SECTION 7.07. Compensation and Indemnity ..................... 59
SECTION 7.08. Replacement of Trustee ......................... 60
SECTION 7.09. Successor Trustee by Merger .................... 61
SECTION 7.10. Eligibility; Disqualification .................. 62
SECTION 7.11. Preferential Collection of Claims
Against Company ............................. 62
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities;
Defeasance ................................... 62
SECTION 8.02. Conditions to Defeasance ........................ 63
SECTION 8.03. Application of Trust Money ...................... 65
SECTION 8.04. Repayment to Company ............................ 65
SECTION 8.05. Indemnity for Government
Obligations .................................. 66
SECTION 8.06. Reinstatement ................................... 66
ARTICLE 9
Amendments, Supplements and Waivers
SECTION 9.01. Without Consent of Holders ..................... 66
SECTION 9.02. With Consent of Holders ........................ 67
SECTION 9.03. Compliance with Trust Indenture Act ............ 68
SECTION 9.04. Revocation and Effect of Consents
and Waivers ................................. 68
SECTION 9.05. Notation on or Exchange of
Securities .................................. 69
SECTION 9.06. Trustee To Sign Amendments ..................... 69
SECTION 9.07. Payment for Consent ............................ 69
iii
<PAGE> 6
EXHIBIT 4.1
ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate ......................... 70
SECTION 10.02. Liquidation, Dissolution,
Bankruptcy .................................... 70
SECTION 10.03. Default on Senior Indebtedness ................... 70
SECTION 10.04. Acceleration of Payment of
Securities .................................... 72
SECTION 10.05. When Distribution Must Be Paid
Over ........................................... 72
SECTION 10.06. Subrogation ....................................... 72
SECTION 10.07. Relative Rights ................................... 72
SECTION 10.08. Subordination May Not Be Impaired
by Company ..................................... 72
SECTION 10.09. Rights of Trustee and Paying
Agent .......................................... 72
SECTION 10.10. Distribution or Notice to
Representative ................................. 73
SECTION 10.11. Article 10 Not To Prevent Events of
Default or Limit Right To
Accelerate ..................................... 73
SECTION 10.12. Trust Moneys Not Subordinated ..................... 73
SECTION 10.13. Trustee Entitled To Rely .......................... 74
SECTION 10.14. Trustee To Effectuate
Subordination .................................. 74
SECTION 10.15. Trustee Not Fiduciary for Holders
of Senior Indebtedness ......................... 74
SECTION 10.16. Reliance by Holders of Senior
Indebtedness on Subordination
Provisions ..................................... 75
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls ..................... 75
SECTION 11.02. Notices .......................................... 75
SECTION 11.03. Communication by Holders with Other
Holders ........................................ 76
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent ........................... 76
SECTION 11.05. Statements Required in Certificate
or Opinion ..................................... 77
SECTION 11.06. When Securities Disregarded ....................... 77
iv
<PAGE> 7
EXHIBIT 4.1
SECTION 11.07. Rules by Trustee, Paying Agent and
Registrar .......................... 77
SECTION 11.08. Legal Holidays ................................... 77
SECTION 11.09. Governing Law .................................... 78
SECTION 11.10. No Recourse Against Others ....................... 78
SECTION 11.11. Successors ....................................... 78
SECTION 11.12. Multiple Originals ............................... 78
SECTION 11.13. Table of Contents; Headings ...................... 78
Rule 144A/Regulation S Appendix
v
<PAGE> 8
EXHIBIT 4.1
INDENTURE dated as of June 23, 1998, between
AQUA-CHEM, INC., a Delaware corporation (the
"Company"), and UNITED STATES TRUST COMPANY OF NEW
YORK, a New York banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Company's 11
1/4% Senior Subordinated Notes Due 2008 (the "Initial Securities") and, if and
when issued pursuant to a registered exchange for Initial Securities, the
Company's 11 1/4% Senior Subordinated Notes Due 2008 (the "Exchange Securities")
and if and when issued pursuant to a private exchange for Initial Securities,
the Company's 11 1/4% Senior Subordinated Notes Due 2008 (the "Private Exchange
Securities", together with the Exchange Securities and the Initial Securities,
the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Additional Assets" means (i) any property or assets (other
than Indebtedness and Capital Stock) in a Related Business; (ii) the Capital
Stock of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or another Restricted
Subsidiary or (iii) Capital Stock constituting a minority interest in any Person
that at such time is a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in clauses (ii) or (iii) above is primarily
engaged in a Related Business.
"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; provided, however, that the owners of
the Series A Preferred Stock and Series B Preferred Stock on the Issue Date and
their respective Affiliates shall not be considered Affiliates of the Company or
any Restricted Subsidiary solely by virtue of such ownership. For the purposes
of this definition, "control" when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to
<PAGE> 9
2
EXHIBIT 4.1
the foregoing. For purposes of Sections 4.04, 4.06 and 4.07 only, "Affiliate"
shall also mean any beneficial owner of Capital Stock representing 5% or more of
the total voting power of the Voting Stock (on a fully diluted basis) of the
Company or of rights or warrants to purchase such Capital Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares or
shares required by applicable law to be held by a Person other than the Company
or a Restricted Subsidiary), (ii) all or substantially all the assets of any
division or line of business of the Company or any Restricted Subsidiary or
(iii) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary
(other than, in the case of (i), (ii) and (iii) above, (w) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (x) for purposes of Section 4.06 only,
a disposition that constitutes a Restricted Payment permitted under Section
4.04, (y) a disposition of obsolete or worn out equipment or equipment that is
no longer useful in the conduct of the business of the Company and its
Restricted Subsidiaries and that is disposed of, in each case, in the ordinary
course of business and (z) disposition of assets with a fair market value of
less than $500,000).
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Securities, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of numbers of years from the date of
determination to the dates of each successive scheduled principal payment
<PAGE> 10
3
EXHIBIT 4.1
of such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by (ii) the sum of all
such payments.
"Bank Indebtedness" means all Indebtedness
outstanding under the Credit Agreement.
"Board of Directors" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal
Holiday.
"Capital Lease Obligations" means an obligation that is
required to be classified and accounted for as a capital lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP; and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date upon which such lease may be terminated by the
lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Change of Control" means the occurrence of any of
the following events:
(i) prior to the first public offering of common stock of the
Company, the Permitted Holders cease to be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a
majority in the aggregate of the total voting power of the Voting Stock of the
Company, whether as a result of issuance of securities of the Company, any
merger, consolidation, liquidation or dissolution of the Company, any direct or
indirect transfer of securities or otherwise (for purposes of this clause (i)
and clause (ii) below, the Permitted Holders shall be deemed to beneficially own
any Voting Stock of any Person (the "specified entity") held by any other Person
(the "parent entity") so long as the Permitted Holders beneficially own (as so
defined), directly or
<PAGE> 11
4
EXHIBIT 4.1
indirectly, in the aggregate a majority of the voting power of the Voting Stock
of the parent entity);
(ii) following the first public offering of common stock of
the Company, any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that for
purposes of this clause (ii) such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly of more than 40% of the total voting power of the Voting
Stock of the Company; provided, however, that the Permitted Holders beneficially
own (as defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the Company
than such other person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the Board
of Directors (for the purposes of this clause (ii), such other person shall be
deemed to beneficially own any Voting Stock of a specified entity held by a
parent entity, if such other person is the beneficial owner (as defined in this
clause (ii)), directly or indirectly, of more than 40% of the voting power of
the Voting Stock of such parent entity and the Permitted Holders beneficially
own (as defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the voting power of the Voting Stock of such parent entity
and do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the board of directors of such
parent entity);
(iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by a
vote of a majority of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office;
(iv) the adoption of a plan relating to the liquidation or
dissolution of the Company; or
<PAGE> 12
5
EXHIBIT 4.1
(v) the merger or consolidation of the Company with or into
another Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another Person
(other than a Person that is controlled by the Permitted Holders), and, in the
case of any such merger or consolidation, the securities of the Company that are
outstanding immediately prior to such transaction and which represent 100% of
the aggregate voting power of the Voting Stock of the Company are changed into
or exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition to
any other consideration, securities of the surviving corporation that represent
immediately after such transaction, at least a majority of the aggregate voting
power of the Voting Stock of the surviving corporation.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Company" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor and, for
purposes of any provision contained herein and required by the TIA, each other
obligor on the indenture securities.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period (provided that if
such Indebtedness is Incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness (as determined in good faith by senior
management of the Company and assuming a constant level of sales) shall be
deemed outstanding for purposes of this calculation) and the discharge of any
other Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such
<PAGE> 13
6
EXHIBIT 4.1
new Indebtedness as if such discharge had occurred on the first day of such
period, (2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of such
period or if any Indebtedness is to be repaid, repurchased, defeased or
otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and
Consolidated Interest Expense for such period shall be calculated on a pro forma
basis as if such discharge had occurred on the first day of such period and as
if the Company or such Restricted Subsidiary has not earned the interest income
actually earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge such
Indebtedness, (3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in connection
with such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary to the
extent the Company and its continuing Restricted Subsidiaries are no longer
liable for such Indebtedness after such sale), (4) if since the beginning of
such period the Company or any Restricted Subsidiary (by merger or otherwise)
shall have made an Investment in any Restricted Subsidiary (or any person which
becomes a Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period and (5) if since
<PAGE> 14
7
EXHIBIT 4.1
the beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition, any
Investment or acquisition of assets that would have required an adjustment
pursuant to clause (3) or (4) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in good faith, without duplication, by a responsible financial or
accounting Officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest of such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its consolidated Restricted
Subsidiaries, plus, to the extent not included in such total interest expense,
and to the extent incurred by the Company or its Restricted Subsidiaries,
without duplication, (i) interest expense attributable to capital leases and the
interest expense attributable to leases constituting part of a Sale/Leaseback
Transaction, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends in
respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, (viii) interest incurred in connection with Investments
in discontinued operations, (ix) interest accruing on any Indebtedness of any
other Person to the extent such Indebtedness is Guaranteed by (or secured by the
assets of) the Company or any Restricted Subsidiary and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any
<PAGE> 15
8
EXHIBIT 4.1
Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust.
"Consolidated Net Income" means, for any period, the net
income of the Company and its consolidated Subsidiaries; provided, however, that
there shall not be included in the calculation of such Consolidated Net Income:
(i) any net income of any Person (other than the Company) if
such Person is not a Restricted Subsidiary, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net income
of any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution
paid to a Restricted Subsidiary, to the limitations contained in clause (iii)
below) and (B) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net Income;
(ii) any net income (or loss) of any Person acquired by the
Company or a Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary during such period to the Company
or another Restricted Subsidiary as a dividend or other distribution (subject,
in the case of a dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the Company's
equity in a net loss of any such Restricted Subsidiary for such period shall be
included in determining such Consolidated Net Income;
(iv) any gain or loss realized upon the sale or other
disposition of any assets of the Company, its consolidated Subsidiaries or any
other Person (including
<PAGE> 16
9
EXHIBIT 4.1
pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise
disposed of in the ordinary course of business and any gain or loss realized
upon the sale or other disposition of any Capital Stock of any Person;
(v) extraordinary gains or losses;
(vi) the cumulative effect of a change in accounting
principles; and
(vii) any restructuring charges related to the closing of the
Company's Greenville, Mississippi manufacturing facility.
Notwithstanding the foregoing, for the purposes of Section 4.04 only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries to
the Company or a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
Section pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown
on the balance sheet of the Company and its consolidated Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending at least 45 days prior to the
taking of any action for the purpose of which the determination is being made,
as (i) the par or stated value of all outstanding Capital Stock of the Company
plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Credit Agreement" means (i) the Second Amended and Restated
Credit Agreement dated as of June 23, 1998, between the Company, the lenders
party thereto in their capacities as lenders thereunder and Comerica Bank, as
agent, together with all exhibits, schedules and appendices thereto, as the same
may be amended, supplemented or otherwise modified from time to time and (ii)
any renewal, extension, refunding, restructuring, replacement or refinancing
thereof (whether under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders).
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or
<PAGE> 17
10
EXHIBIT 4.1
other similar agreement designed to protect such Person against fluctuations in
currency values.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank
Indebtedness and (ii) any other Senior Indebtedness of the Company which, at the
date of determination, has an aggregate principal amount outstanding of, or
under which, at the date of determination, the holders thereof are committed to
lend up to, at least $25 million and is specifically designated by the Company
in the instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" for purposes of this Indenture.
"Disqualified Stock" means, with respect to any Person, any
Capital Stock which 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 (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable or must be purchased, upon the
occurrence of certain events or otherwise, by such Person at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Securities; provided, however, that
any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or
"change of control" occurring prior to the first anniversary of the Stated
Maturity of the Securities shall not constitute Disqualified Stock if (x) the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are not more favorable to the holders of such Capital Stock than the provisions
of Sections 4.06 and 4.09 and (y) any such requirement only becomes operative
after compliance with such terms applicable to the Securities, including the
purchase of any Securities tendered pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net
Income, plus Consolidated Interest Expense plus the following to the extent
deducted in calculating such Consolidated Net Income: (a) all income tax expense
of the Company and its consolidated Restricted Subsidiaries, (b) depreciation
expense of the Company and its consolidated
<PAGE> 18
11
EXHIBIT 4.1
Restricted Subsidiaries, (c) amortization expense of the Company and its
consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid cash item that was paid in a prior period) and (d) all
other non-cash charges of the Company and its consolidated Restricted
Subsidiaries (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash expenditures in any future period),
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
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 such
Restricted Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"Foreign Subsidiary" means a Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States or a State thereof
or the District of Columbia and
with respect to which more than 80% of any of its sales, earnings or assets
(determined on a consolidated basis in accordance with GAAP) are located in,
generated from or derived from operations located in territories outside of the
United States of America and jurisdictions outside the United States of America.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Issue Date, including those set
forth in (i) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements
<PAGE> 19
12
EXHIBIT 4.1
in staff accounting bulletins and similar written statements from the accounting
staff of the SEC.
"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 or other obligation of such Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, 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 a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person
for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is responsible or
liable, including, in each case, any premium
<PAGE> 20
13
EXHIBIT 4.1
on such indebtedness to the extent such premium has become due and payable;
(ii) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale/Leaseback Transactions entered into by such
Person;
(iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the 30th Business Day following
payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to
the redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person, the liquidation preference with
respect to, any Preferred Stock (but excluding, in each case, any accrued
dividends);
(vi) all obligations of the type referred to in clauses (i)
through (v) of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i)
through (vi) of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
<PAGE> 21
14
EXHIBIT 4.1
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Indenture" means this Indenture as amended or supplemented from
time to time.
"Interest Rate Agreement" means in respect of a Person any
interest rate swap agreement, interest rate cap agreement or other financial
agreement or arrangement designed to protect such Person against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business that
are recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and Section
4.04, (i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of the Company at the time that such Subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issue Date" means the date on which the Securities are
originally issued.
<PAGE> 22
15
EXHIBIT 4.1
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash
payments received therefrom (including any cash payments received by way of
deferred payment of principal pursuant to a note or installment receivable or
otherwise and proceeds from the sale or other disposition of any securities
received as consideration, but only as and when received, but excluding any
other consideration received in the form of assumption by the acquiring Person
of Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form), in each case net of (i) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
or other security agreement of any kind with respect to such assets, or which
must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries as a result of such Asset
Disposition and (iv) the deduction of appropriate amounts provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Officer" means the Chairman of the Board, the President, any
Vice President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two
Officers.
<PAGE> 23
16
EXHIBIT 4.1
"Opinion of Counsel" means a written opinion from legal counsel
who is acceptable to the Trustee. The counsel may be an employee of or counsel
to the Company or the Trustee.
"Permitted Holders" means (i) J. H. Whitney & Co. and any Person
who on the Issue Date is an Affiliate of J. H. Whitney & Co. and (ii) any Person
who, on the Issue Date, is a member of the senior management and a beneficial
shareholder of the Company.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) the Company, a Restricted Subsidiary or a Person
that will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted Subsidiary is a
Related Business; (ii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) Permitted Joint Ventures not
in excess of $7.5 million at any time outstanding; and (ix) any Person to the
extent such Investment represents the non-cash portion of the consideration
received for an Asset Disposition as permitted pursuant to Section 4.06.
"Permitted Joint Ventures" means joint ventures conducting a
Related Business primarily outside of the United States.
<PAGE> 24
17
EXHIBIT 4.1
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any Person,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends or distributions, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over shares of Capital Stock of any other class of
such Person.
"Principal" of a Security means the principal of the Security
plus the premium, if any, payable on the Security which is due or overdue or is
to become due at the relevant time.
"Public Equity Offering" means an underwritten primary public
offering of common stock of the Company pursuant to an effective registration
statement under the Securities Act of 1933.
"Public Market" means any time after (x) a Public Equity Offering
has been consummated and (y) at least 15% of the total issued and outstanding
common stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with this Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount
<PAGE> 25
18
EXHIBIT 4.1
(or if Incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding or
committed (plus fees and expenses, including any premium and defeasance costs)
under the Indebtedness being Refinanced; provided further, however, that
Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that
Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means any trustee, agent or representative
(if any) for an issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means (i) the
declaration or payment of any dividends or any other distributions of any sort
in respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving such Person) or similar payment to the direct
or indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation)), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of
<PAGE> 26
19
EXHIBIT 4.1
acquisition) or (iv) the making of any Investment in any Person (other than a
Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of
the Company that is not an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person.
"SEC" means the Securities and Exchange
Commission.
"Secured Indebtedness" means any Indebtedness of
the Company secured by a Lien.
"Senior Indebtedness" means (i) Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter Incurred, and (ii) accrued
and unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent post-filing interest is allowed in such proceeding) in respect of (A)
Indebtedness of the Company for money borrowed and (B) Indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
the Company is responsible or liable (in the case of each of (A) and (B),
whether outstanding on the Issue Date or thereafter Incurred) unless, in the
case of any particular Indebtedness, the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are subordinate in right of payment to the Securities; provided,
however, that Senior Indebtedness shall not include (1) any obligation of the
Company to any Subsidiary, (2) any liability for Federal, state, local or other
taxes owed or owing by the Company, (3) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
guarantees thereof or instruments evidencing such liabilities), (4) any
Indebtedness of the Company (and any accrued and unpaid interest in respect
thereof) which is subordinate or junior in any respect to any other Indebtedness
or other obligation of the Company or (5) that portion of any Indebtedness which
at the time of Incurrence is Incurred in violation of this Indenture.
"Senior Subordinated Indebtedness" means the Securities and
any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari
<PAGE> 27
20
EXHIBIT 4.1
passu with the Securities in right of payment and is not subordinated by its
terms in right of payment to any Indebtedness or other obligation of the Company
which is not Senior Indebtedness.
"Series A Preferred Stock" means the Series A Cumulative
Preferred Stock, par value $.01 per share, of the Company.
"Series B Preferred Stock" means the Series B Cumulative
Preferred Stock, par value $.01 per share, of the Company.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "Significant Subsidiary" of the Company within the meaning of Rule
1-02 under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) 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 (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the
following:
(i) any investment in direct obligations of the United States
of America or any agency thereof or obligations guaranteed by the United States
of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of
deposit and money market deposits maturing
<PAGE> 28
21
EXHIBIT 4.1
within 180 days of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States of America, any
state thereof or any foreign country recognized by the United States, and which
bank or trust company has capital, surplus and undivided profits aggregating in
excess of $50,000,000 (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above,
(iv) investments in commercial paper, maturing not more than
90 days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Group, and
(v) investments in securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of this Indenture, except as
provided in Section 9.03.
"Trustee" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President
or any other officer or assistant officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
<PAGE> 29
22
EXHIBIT 4.1
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; provided, however, that
either (A) the Subsidiary to be so designated has total assets of $1,000 or less
or (B) if such Subsidiary has assets greater than $1,000, such designation would
be permitted under Section 4.04. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under Section 4.03(a) and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the resolution of the Board of Directors giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock
or other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof.
"WEP" means Whitney Equity Partners, L.P. and its
successors.
<PAGE> 30
23
"Wholly Owned Subsidiary" means a Restricted Subsidiary all
the Capital Stock of which (other than directors' qualifying shares and similar
ownership required or made necessary to conduct business by the laws or
regulations of the jurisdiction under which it is incorporated) is owned by the
Company or one or more Wholly Owned Subsidiaries.
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Affiliate Transaction" ................ 4.07
"Bankruptcy Law" ....................... 6.01
"Blockage Notice" ...................... 10.03
"covenant defeasance option" ........... 8.01(b)
"Custodian" ............................ 6.01
"Event of Default" ..................... 6.01
"legal defeasance option" .............. 8.01(b)
"Legal Holiday" ........................ 11.08
"Offer" ................................ 4.06(b)
"Offer Amount" ......................... 4.06(c)(2)
"Offer Period" ......................... 4.06(c)(2)
"pay the Securities" ................... 10.03
"Paying Agent" ......................... 2.03
"Payment Blockage Period" .............. 10.03
"Purchase Date" ........................ 4.06(c)(1)
"Registrar"............................. 2.03
"Successor Company" .................... 5.01
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture
Act. This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC;
"indenture securities" means the Securities;
"indenture security holder" means a
Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee"
means the Trustee; and
<PAGE> 31
24
EXHIBIT 4.1
"obligor" on the indenture securities means the
Company and any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule have
the meanings assigned to them by such definitions.
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) "including" means including without limitation;
(5) words in the singular include the plural and words in the
plural include the singular;
(6) unsecured Indebtedness shall not be deemed to be
subordinate or junior to Secured Indebtedness merely by virtue of its
nature as unsecured Indebtedness;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof
that would be shown on a balance sheet of the issuer dated such date
prepared in accordance with GAAP;
(8) the principal amount of any Preferred Stock shall be (i)
the maximum liquidation value of such Preferred Stock or (ii) the
maximum mandatory redemption or mandatory repurchase price with
respect to such Preferred Stock, whichever is greater; and
(9) all references to the date the Securities were originally
issued shall refer to the date the Initial Securities were originally
issued.
<PAGE> 32
25
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating. Provisions relating to the
Initial Securities, the Private Exchange Securities and the Exchange Securities
are set forth in the Rule 144A/Regulation S Appendix attached hereto (the
"Appendix") which is hereby incorporated in and expressly made part of this
Indenture. The Initial Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit 1 to the Appendix
which is hereby incorporated in and expressly made a part of this Indenture. The
Exchange Securities, the Private Exchange Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A,
which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Company). Each Security shall be dated the date of its authentication.
The terms of the Securities set forth in the Appendix and Exhibit A are part of
the terms of this Indenture.
SECTION 2.02. Execution and Authentication. Two Officers shall
sign the Securities for the Company by manual or facsimile signature. The
Company's seal shall be impressed, affixed, imprinted or reproduced on the Secu-
rities and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
At any time and from time to time after the execution of
this Indenture, the Trustee or an authenticating agent shall upon
receipt of a written order of the Company signed by two Officers or by an
Officer and either an Assistant Treasurer or an Assistant Secretary of the
Company authenticate and deliver Securities for original
<PAGE> 33
26
EXHIBIT 4.1
issue in the aggregate principal amount specified in such order, provided that
the Trustee shall be entitled to receive an Officer's Certificate and an Opinion
of Counsel of the Company that it may reasonably request in connection with
such authentication and delivery of Securities. Such order shall specify the
amount of the Securities to be authenticated and the date on which the original
issue of Securities is to be authenticated and in the case of an issuance of
Securities pursuant to Section 2.13 after the date of execution of this
Indenture, shall certify that such issuance is in compliance with Section 4.03.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Securities. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Securities
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 any Registrar, Paying Agent or agent
for service of notices and demands.
SECTION 2.03. Registrar and Paying Agent. The Company
shall maintain an office or agency where Securities may be presented for
registration of transfer or for exchange (the "Registrar") and an office or
agency where Securities may be presented for payment (the "Paying Agent"). The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may have one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and the
term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co-registrar not a party to this Indenture,
which shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent and any change in the
address of such agent. If the Company fails to appoint and maintain a Registrar
or Paying Agent, the Trustee shall act as such and shall be entitled to
appropriate compensation therefor pursuant to Section 7.07. The Company or any
of its domestically incorporated Wholly Owned Subsidiaries may act as Paying
Agent, Registrar, co-registrar or transfer agent.
<PAGE> 34
27
EXHIBIT 4.1
The Company initially appoints the Trustee as Registrar and
Paying Agent in connection with the Securities.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to
each due date of the principal and interest on any Security, the Company shall
deposit with the Paying Agent a sum sufficient to pay such principal and
interest when so becoming due. The Company shall require each Paying Agent
(other than the Trustee) to agree in writing that the Paying Agent shall hold in
trust for the benefit of Securityholders or the Trustee all money held by the
Paying Agent for the payment of principal of or interest on the Securities and
shall notify the Trustee of any default by the Company in making any such
payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate
the money held by it as Paying Agent and hold it as a separate trust fund for
the benefit of the Securityholders. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee shall serve as Paying Agent for
the Securities. The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and to account for any funds disbursed by the
Paying Agent. Upon complying with this Section, the Paying Agent shall have no
further liability for the money delivered to the Trustee.
SECTION 2.05. Securityholder 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 Securityholders. If the Trustee is
not the Registrar, the Company shall furnish to the Trustee, in writing at least
five 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 Securityholders
and the Company shall otherwise comply with TIA Section 312(a).
SECTION 2.06. Transfer and Exchange. The Securities shall be
issued in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if the requirements of Section
8-401(a)(1) of the Uniform Commercial Code are met. When Securities are
presented to the Registrar or a co-registrar with a request to exchange them for
an equal principal amount of Securities of other denominations, the Registrar
shall make the exchange as requested if the same requirements are met. To permit
registration of transfers and exchanges, the Company
<PAGE> 35
28
EXHIBIT 4.1
shall execute and the Trustee shall authenticate Securities at the Registrar's
or co-registrar's request. The Company may require payment of a sum sufficient
to pay all taxes, assessments or other governmental charges in connection with
any transfer or exchange pursuant to this Section. The Company shall not be
required to make and the Registrar need not register transfers or exchanges of
Securities selected for redemption (except, in the case of Securities to be
redeemed in part, the portion thereof not to be redeemed) or any Securities for
a period of 15 days before a selection of Securities to be redeemed or 15 days
before an interest payment date.
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
SECTION 2.07. Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. If required by the Trustee or
the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the Registrar and any co-registrar from any loss which any of them
may suffer if a Security is replaced. The Company and the Trustee may charge the
Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the
Company.
<PAGE> 36
29
EXHIBIT 4.1
SECTION 2.08. Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. Except as set forth in Section 11.06, a Security
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal and interest payable on that date with respect to the
Securities (or portions thereof) to be redeemed or maturing, as the case may be,
and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities and as shall be reasonably acceptable to
the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Securities and deliver them in exchange
for temporary Securities. Holders of temporary Securities shall be entitled to
all of the benefits of this Indenture.
SECTION 2.10 Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancellation and deliver a certificate of such destruction to the Company unless
the Company directs the Trustee to deliver canceled Securities to the Company.
The Company may not issue new Securities to replace Securities
<PAGE> 37
30
EXHIBIT 4.1
it has redeemed, paid or delivered to the Trustee for cancellation.
SECTION 2.11. Defaulted Interest. If the Company defaults in a
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner, in each case at the rate provided in the Securities. The Company may pay
the defaulted interest to the persons who are Securityholders on a subsequent
special record date which date shall be at least five Business Days prior to the
payment date. The Company shall fix or cause to be fixed any such special record
date and payment date to the reasonable satisfaction of the Trustee. At least 15
days before the special record date, the Company (or, upon the written request
of the Company, the Trustee, in the name of and at the expense of the Company)
shall promptly mail to each Securityholder a notice that states the special
record date, the payment date and the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
The Company shall promptly notify the Trustee of any change in the "CUSIP"
numbers.
SECTION 2.13. Issuance of Additional Securities. The Company may,
subject to Section 4.03, issue additional Securities under this Indenture which
will have identifical terms as the Securities issued on the Issue Date other
than with respect to the Issue Date, issue price and first payment of interest.
The Securities issued on the Issue Date and any additional Securities
subsequently issued shall be treated as a single class for all purposes under
this Indenture.
<PAGE> 38
31
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.
The Company shall give each notice to the Trustee provided for in
this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein.
SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and that the Trustee in its
sole discretion shall deem to be fair and appropriate and in accordance with
methods generally used at the time of selection by fiduciaries in similar
circumstances. The Trustee shall make the selection from outstanding Securities
not previously called for redemption. The Trustee may select for redemption
portions of the principal of Securities that have denominations larger than
$1,000. Securities and portions of them the Trustee selects shall be in amounts
of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities called
for redemption. The Trustee shall notify the Company promptly of the Securities
or portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more
than 60 days before a date for redemption of Securities, the Company shall mail
a notice of redemption by first-class mail to each Holder of Securities to be
redeemed at such Holder's registered address.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
<PAGE> 39
32
EXHIBIT 4.1
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to
be redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment
pursuant to the terms of this Indenture, interest on Securities (or
portion thereof) called for redemption ceases to accrue on and after the
redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed; and
(8) 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
Securities.
At the Company's request signed by an Officer of the Company, the
Trustee shall give the notice of redemption in the Company's name and at the
Company's expense. In such event, the Company shall provide the Trustee with the
information required by this Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the related interest payment date). Failure to give
notice or any defect in the notice to any Holder shall not affect the validity
of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to the redemption
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the
<PAGE> 40
33
EXHIBIT 4.1
Paying Agent, shall segregate and hold in trust) money sufficient to pay the
redemption price of and accrued interest on all Securities to be redeemed on
that date other than Securities or portions of Securities called for redemption
which have been delivered by the Company to the Trustee for cancellation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities. The Company shall promptly pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders pursuant
to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC Reports. Notwithstanding that the Company may not
be subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC and provide the Trustee and
Securityholders with such annual reports and such information, documents and
other reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and reports to be so filed and provided at the times specified for the
filing of such information, documents and reports under such Sections. The
Company also shall comply with the other provisions of TIA Section 314(a).
<PAGE> 41
34
EXHIBIT 4.1
SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not,
and shall not permit any Restricted Subsidiary to, Incur, directly or
indirectly, any Indebtedness; provided, however, that the Company may Incur
Indebtedness if, on the date of such Incurrence and after giving effect thereto,
the Consolidated Coverage Ratio exceeds 2.00 to 1 if such Indebtedness is
Incurred prior to January 1, 2000, 2.25 to 1 if such Indebtedness is Incurred
on or after January 1, 2000 and prior to July 1, 2001 or 2.50 to 1 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement;
provided, however, that, after giving effect to any such Incurrence, the
aggregate principal amount of such Indebtedness then outstanding does not
exceed the greater of (i) $45.0 million less the sum of all principal
payments with respect to such Indebtedness pursuant to Section
4.06(a)(ii)(A) and (ii) the sum of (x) 50% of the book value of the
inventory of the Company and its Restricted Subsidiaries (other than any
Foreign Subsidiary that has Indebtedness then outstanding Incurred
pursuant to clause (3) below) and (y) 85% of the book value of the
accounts receivable of the Company and its Restricted Subsidiaries (other
than any Foreign Subsidiary that has Indebtedness then outstanding
Incurred pursuant to clause (3) below);
(2) Indebtedness owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that (i) any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or a Wholly Owned
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Indebtedness by the obligor thereon and (ii) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all obligations with respect to
the Securities;
(3) Indebtedness of Foreign Subsidiaries in an aggregate principal
amount that, when taken together with the principal amount of all other
Indebtedness Incurred pursuant to this clause (3) (and any Indebtedness
Incurred by Foreign Subsidiaries prior to the Issue Date solely to finance
its working capital) and then outstanding does not exceed the sum of (i)
60% of the book value of the inventory of Foreign
<PAGE> 42
35
EXHIBIT 4.1
Subsidiaries that have Indebtedness Incurred pursuant to this clause (3)
then outstanding and (ii) 85% of the book value of the accounts receivable
of Foreign Subsidiaries that have Indebtedness Incurred pursuant to this
clause (3) then outstanding;
(4) the Securities and the Exchange Securities;
(5) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2), (3) or (4) of this Section
4.03(b));
(6) Indebtedness of a Subsidiary Incurred and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company
(other than Indebtedness Incurred in connection with, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Company); provided,
however, that on the date of such acquisition and after giving effect
thereto, the Company would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to Section 4.03(a);
(7) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to Section 4.03(a) or pursuant to clause (4), (5), or (6) of this
Section 4.03(b) or this clause 7; provided, however, that to the extent
such Refinancing Indebtedness directly or indirectly Refinances
Indebtedness of a Subsidiary Incurred pursuant to Section 4.03(b)(6), such
Refinancing Indebtedness shall be Incurred only by such Subsidiary;
(8) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the Company
pursuant to this Indenture;
(9) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition;
<PAGE> 43
36
EXHIBIT 4.1
provided, however, that the maximum assumable liability in respect of all
such Indebtedness shall at no time exceed the gross proceeds actually
received by the Company and its Restricted Subsidiaries in connection with
such disposition;
(10) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided, however,
that such Indebtedness is extinguished within two Business Days of
incurrence;
(11) Incurrence by the Company or any of its Restricted 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, plant or equipment used in the
business of the Company or any such Restricted Subsidiaries in an
aggregate principal amount not to exceed the greater of (a) $20 million or
(b) 5% of the Consolidated Net Worth of the Company at any one time
outstanding;
(12) Indebtedness of the Company consisting of Guarantees of
Indebtedness of a Foreign Subsidiary Incurred pursuant to Section
4.03(b)(3);
(13) Indebtedness in respect of performance bonds and surety or
appeal bonds entered into by the Company and its Restricted Subsidiaries
in the ordinary course of their business and letters of credit entered
into in the ordinary course of business by the Company and its Restricted
Subsidiaries to secure such performance bonds or surety or appeal bonds to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the 30th
Business Day following payment on such letter of credit; and
(14) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (1) through (13)
of this Section 4.03(b) or Section 4.03(a)) does not exceed $10 million.
<PAGE> 44
37
EXHIBIT 4.1
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to Section 4.03(b) if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Securities to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with this Section 4.03,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described herein, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described herein.
(e) Notwithstanding Section 4.03(a) or 4.03(b), the Company shall
not Incur (i) any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness, unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness or (ii) any Secured Indebtedness
that is not Senior Indebtedness unless contemporaneously therewith effective
provision is made to secure the Securities equally and ratably with such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
SECTION 4.04. Limitation on Restricted Payments. (a) The Company
shall not, and shall not permit any Restricted Subsidiary, directly or
indirectly, to make a Restricted Payment if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness under Section 4.03; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the
Securities are originally
<PAGE> 45
38
EXHIBIT 4.1
issued to the end of the most recent fiscal quarter ending at least 45
days prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company or
any of its Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced on
the Company's balance sheet upon the conversion or exchange (other than by
a Subsidiary of the Company) subsequent to the Issue Date of any
Indebtedness of the Company convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company (less the amount of any
cash, or the fair value of any other property, distributed by the Company
upon such conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets, in each case
to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of
an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company
or any Restricted Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) any Restricted Payments made out of the proceeds of the
substantially concurrent sale of, or
<PAGE> 46
39
EXHIBIT 4.1
made by exchange for, Capital Stock of the Company (other than Disqualified
Stock and other than Capital Stock issued or sold to a Subsidiary of the Company
or an employee stock ownership plan or to a trust established by the Company or
any of its Subsidiaries for the benefit of their employees); provided, however,
that (A) such Restricted Payment shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall
be excluded from the calculation of amounts under clause (3)(B) of Section
4.04(a);
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to
Section 4.03; provided, however, that such purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value shall be excluded in the
calculation of the amount of Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied with
Section 4.04(a); provided, however, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or result
therefrom); provided further, however, that such dividend shall be included in
the calculation of the amount of Restricted Payments;
(iv) the repurchase or other acquisition of shares of, or options to
purchase shares of, common stock of the Company or any of its Subsidiaries from
employees, former employees, directors or former directors of the Company or any
of its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments thereto)
approved by the Board of Directors under which such individuals purchase or sell
or are granted the option to purchase or sell, shares of such common stock;
provided, however, that the aggregate amount of such repurchases and other
acquisitions shall not exceed $1 million in any calendar year; provided further,
however, that such repurchases and other acquisitions shall be excluded in the
calculation of the amount of Restricted Payments;
<PAGE> 47
40
EXHIBIT 4.1
(v) the repurchase of shares of Series A Preferred Stock (and the
payment of accrued dividends thereon); provided, however, that any such
repurchase shall be excluded in the calculation of the amount of Restricted
Payments; or
(vi) repurchase of shares of Series B Preferred Stock (and the
payment of accumulated dividends thereon) if on the date of any such repurchase
and after giving effect thereto, the Consolidated Coverage Ratio exceeds 2.00 to
1; provided, however, that any such repurchase shall be included in the
calculation of the amount of Restricted Payments.
SECTION 4.05. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Company shall not, and shall not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the Company, (b) make any loans or advances to the Company
or (c) transfer any of its property or assets to the Company, except:
(i) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by
such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
evidencing Indebtedness Incurred without violation of this Indenture or
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement referred to in clause (i) or (ii) of
this covenant or this clause (iii); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any such
agreement, refinancing agreement or amendment are no less favorable to the
Securityholders than encumbrances and
<PAGE> 48
41
EXHIBIT 4.1
restrictions with respect to such Restricted Subsidiary contained in such
predecessor agreements;
(iv) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of the lease or the property leased
thereunder;
(v) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the property
subject to such security agreements or mortgages; and
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition.
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock.
(a) The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless (i) the Company
or such Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (including as to the value
of all non-cash consideration), as determined in good faith by the Board of
Directors, of the shares and assets subject to such Asset Disposition and at
least 75% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or cash equivalents and (ii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent the Company elects (or is required by the terms of any
Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness or
Indebtedness (other than any Disqualified Stock) of a Wholly Owned Subsidiary
(in each case other than Indebtedness owed to the Company or an Affiliate of the
Company) within one year from the later of the date of such Asset Disposition or
the receipt of such Net Available Cash; (B) second, to the extent of the balance
of such Net Available Cash after application in accordance with clause (A), to
the extent the Company elects, to acquire Additional Assets within one year from
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (C) third, to the extent of the balance of such Net Available
Cash after application in accordance with clauses
<PAGE> 49
42
EXHIBIT 4.1
(A) and (B), to make an Offer (as defined in Section 4.06 (b)) to
the holders of the Securities (and to holders of other Senior Subordinated
Indebtedness designated by the Company) to purchase Securities (and such other
Senior Subordinated Indebtedness) pursuant to and subject to the conditions
Section 4.06(b); and (D) fourth, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A), (B) and (C), to
(x) the acquisition by the Company or any Wholly Owned Subsidiary of Additional
Assets or (y) the prepayment, repayment or purchase of Indebtedness (other than
any Disqualified Stock) of the Company (other than Indebtedness owed to an
Affiliate of the Company) or Indebtedness of any Subsidiary (other than
Indebtedness owed to the Company or an Affiliate of the Company), in each case
within one year from the later of the receipt of such Net Available Cash and the
date the offer described in Section 4.06(b) is consummated; provided, however,
that in connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A), (C) or (D) above, the Company or such Restricted
Subsidiary shall permanently retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this Section 4.06(a), the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this Section 4.06(a) except to the extent that the aggregate Net Available
Cash from all Asset Dispositions which are not applied in accordance with this
Section 4.06(a) exceeds $5 million. Pending application of Net Available Cash
pursuant to this Section 4.06(a), such Net Available Cash shall be invested in
Permitted Investments.
For the purposes of this Section 4.06(a), the following are
deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of the
Company or any Restricted Subsidiary and the release of the Company or such
Restricted Subsidiary from all liability on such Indebtedness in connection with
such Asset Disposition and (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the
purchase of Securities (and other Senior Subordinated Indebtedness) pursuant to
Section 4.06 (a)(ii)(C), the Company shall be required to purchase Securities
tendered pursuant to an offer by the Company for the Securities (and other
Senior Subordinated Indebtedness)
<PAGE> 50
43
EXHIBIT 4.1
(the "Offer") at a purchase price of 100% of their principal amount (without
premium) plus accrued but unpaid interest (or, in respect of such other Senior
Subordinated Indebtedness, such lesser price, if any, as may be provided for by
the terms of such Senior Subordinated Indebtedness) in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
Section 4.06(c). If the aggregate purchase price of Securities (and any other
Senior Subordinated Indebtedness) tendered pursuant to the Offer is less than
the Net Available Cash allotted to the purchase thereof, the Company shall be
required to apply the remaining Net Available Cash in accordance with Section
4.06(a)(ii)(D) above. The Company shall not be required to make an Offer to
purchase Securities (and other Senior Subordinated Indebtedness) pursuant to
this Section 4.06 if the Net Available Cash available therefor is less than $5
million (which lesser amount shall be carried forward for purposes of
determining whether such an Offer is required with respect to the Net Available
Cash from any subsequent Asset Disposition).
(c) (1) Promptly, and in any event within 10 days after the
Company becomes obligated to make an Offer, the Company shall be obligated to
deliver to the Trustee and send, by first-class mail to each Holder, a written
notice stating that the Holder may elect to have his Securities purchased by the
Company either in whole or in part (subject to prorating as hereinafter
described in the event the Offer is oversubscribed) in integral multiples of
$1,000 of principal amount, at the applicable purchase price. The notice shall
specify a purchase date not less than 30 days nor more than 60 days after the
date of such notice (the "Purchase Date") and shall contain such information
concerning the business of the Company which the Company in good faith believes
will enable such Holders to make an informed decision (which at a minimum will
include (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form
8-K of the Company filed subsequent to such Quarterly Report, other than Current
Reports describing Asset Dispositions otherwise described in the offering
materials (or corresponding successor reports), (ii) a description of material
developments in the Company's business subsequent to the date of the latest of
such Reports, and (iii) if material, appropriate pro forma financial
information) and all instructions and materials necessary to tender Securities
pursuant to the Offer, together with the information contained in clause (3).
<PAGE> 51
44
EXHIBIT 4.1
(2) Not later than the date upon which written notice of an
Offer is delivered to the Trustee as provided below, the Company shall deliver
to the Trustee an Officers' Certificate as to (i) the amount of the Offer (the
"Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.06(a). On such date, the
Company shall also irrevocably deposit with the Trustee or with a paying agent
(or, if the Company is acting as its own paying agent, segregate and hold in
trust) in Temporary Cash Investments, maturing on the last day prior to the
Purchase Date or on the Purchase Date if funds are immediately available by open
of business, an amount equal to the Offer Amount to be held for payment in
accordance with the provisions of this Section. Upon the expiration of the
period for which the Offer remains open (the "Offer Period"), the Company shall
deliver to the Trustee for cancellation the Securities or portions thereof which
have been properly tendered to and are to be accepted by the Company. The
Trustee shall, on the Purchase Date, mail or deliver, or cause to be delivered,
payment to each tendering Holder in the amount of the purchase price. In the
event that the aggregate purchase price of the Securities delivered, or caused
to be delivered, by the Company to the Trustee is less than the Offer Amount
applicable to the Securities, the Trustee shall deliver the excess to the
Company immediately after the expiration of the Offer Period for application in
accordance with this Section.
(3) Holders electing to have a Security purchased shall be
required to surrender the Security, with an appropriate form duly completed, to
the Company at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders shall be entitled to withdraw their election
if the Trustee or the Company receives not later than one Business Day prior to
the Purchase Date, a telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Security which was delivered for
purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased. If at the expiration of the Offer
Period the aggregate principal amount of Securities (and any other Senior
Subordinated Indebtedness included in the Offer) surrendered by holders thereof
exceeds the Offer Amount, the Company shall select the Securities and the other
Senior Subordinated Indebtedness to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only Securities
and the other Senior Subordinated Indebtedness in denominations of
<PAGE> 52
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EXHIBIT 4.1
$1,000, or integral multiples thereof, shall be purchased). Holders whose
Securities are purchased only in part shall be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee
which are to be accepted for purchase, the Company shall also deliver an
Officers' Certificate stating that such Securities are to be accepted by the
Company pursuant to and in accordance with the terms of this Section. A
Security shall be deemed to have been accepted for purchase at the time the
Trustee, directly or through an agent, mails or delivers payment therefor to the
surrendering Holder.
(d) The Company shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
SECTION 4.07. Limitation on Affiliate Transactions. (a) The
Company shall not, and shall not permit any Restricted Subsidiary to, enter into
or permit to exist any transaction (including the purchase, sale, lease or
exchange of any property, employee compensation arrangements or the rendering of
any service) with any Affiliate of the Company (an "Affiliate Transaction")
unless the terms thereof (1) are no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an Affiliate,
(2) if such Affiliate Transaction involves an amount in excess of $2 million,
(i) are set forth in writing and (ii) have been approved by a majority of the
members of the Board of Directors having no personal stake in such Affiliate
Transaction and (3) if such Affiliate Transaction involves an amount in excess
of $10 million, have been determined by nationally recognized investment banking
firm to be fair, from a financial standpoint, to the Company and its Restricted
Subsidiaries.
(b) The provisions of Section 4.07(a) shall not prohibit (i)
any Restricted Payment permitted to be paid pursuant to Section 4.04, (ii) any
issuance of securities,
<PAGE> 53
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EXHIBIT 4.1
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (iii) the grant of stock
options or similar rights to employees and directors of the Company pursuant to
plans approved by the Board of Directors, (iv) loans or advances to employees in
the ordinary course of business in accordance with the past practices of the
Company or its Restricted Subsidiaries, but in any event not to exceed $1
million in the aggregate outstanding at any one time, (v) the payment of
reasonable fees to directors of the Company and its Restricted Subsidiaries who
are not employees of the Company or its Restricted Subsidiaries, (vi) any
Affiliate Transaction between the Company and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries, (vii) the payment by the Company (A) of
customary annual management fees and related expenses to WEP and (B) of fees
paid to WEP, J. H. Whitney & Co., or an affiliate of J. H. Whitney & Co.
pursuant to any financing, underwriting or placement agreement, or in respect of
other investment banking activities, in each case as determined by the Board of
Directors in good faith and (viii) the issuance or sale of any Capital Stock
(other than Disqualified Stock) of the Company.
SECTION 4.08. Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries. The Company shall not sell or otherwise
dispose of any Capital Stock of a Restricted Subsidiary, and shall not permit
any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise
dispose of any of its Capital Stock except (i) to the Company or a Wholly Owned
Subsidiary, (ii) if, immediately after giving effect to such issuance, sale or
other disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary or (iii) if, immediately after
giving effect to such issuance, sale or other disposition, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect thereto would have been permitted
to be made under the covenant described Section 4.04 if made on the date of such
issuance, sale or other disposition.
SECTION 4.09. Change of Control. (a) Upon the occurrence of a
Change of Control, each Holder shall have the right to require that the Company
repurchase such Holder's Securities at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (the "Change of Control Payment") (subject to the right of
holders of record
<PAGE> 54
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EXHIBIT 4.1
on the relevant record date to receive interest on the relevant interest payment
date), in accordance with the terms contemplated in Section 4.09(b). In the
event that at the time of such Change of Control the terms of the Credit
Agreement restrict or prohibit the repurchase of Securities pursuant to this
Section, then prior to the mailing of the notice to Holders provided for in
Section 4.09(b) below but in any event within 30 days following any Change of
Control, the Company may, at its option, seek to obtain the requisite consent
under the Credit Agreement to permit the repurchase of the Securities as
provided for in Section 4.09(b).
(b) Within 30 days following any Change of Control, the
Company shall mail a notice to each Holder with a copy to the Trustee (the
"Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder
has the right to require the Company to purchase such Holder's
Securities at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of Holders of record on the relevant
record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change
of Control (including information with respect to pro forma historical
income, cash flow and capitalization, each after giving effect to such
Change of Control);
(3) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent
with this Section, that a Holder must follow in order to have its
Securities purchased.
(c) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form duly completed, to
the Company at the address specified in the notice at least three Business Days
prior to the purchase date. Holders will be entitled to withdraw their election
if the Trustee or the Company receives not later than one Business Day prior to
the purchase date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security which was
delivered for purchase by the Holder and
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EXHIBIT 4.1
a statement that such Holder is withdrawing his election to have such Security
purchased.
(d) On a date that is at least 30 but no more than 60 days
from the date on which the Company mails notice of the Change of Control (the
"Change of Control Payment Date"), the Company will, to the extent lawful, (1)
accept for payment all Securities 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 Securities or portions
thereof so tendered and (3) deliver or cause to be delivered to the Trustee the
Securities so accepted together with an Officers' Certificate stating the
aggregate principal amount of Securities or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each Holder of Securities so
tendered the Change of Control Payment for such Securities, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Security equal in principal amount to any unpurchased portion
of the Securities surrendered, if any; provided that each such new Security will
be in a principal amount of $1,000 or an integral multiple thereof. Prior to
complying with the provisions of this Section 4.14, but in any event within 90
days following a Change of Control, the Company will either repay all
outstanding Senior Indebtedness or obtain the requisite consents, if any, under
all agreements governing outstanding Senior Indebtedness to permit the
repurchase of Securities required by this covenant. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
(e) Notwithstanding the foregoing provisions of this Section,
the Company will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in Section
applicable to a Change of Control Offer made by the Company and purchases all
Securities validly tendered and not withdrawn under such Change of Control
Offer.
(f) The Company shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of
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EXHIBIT 4.1
this Section, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section by virtue thereof.
SECTION 4.10. Compliance Certificate. The Company shall
deliver to the Trustee within 120 days after the end of each fiscal year of the
Company an Officers' Certificate stating that in the course of the performance
by the signers of their duties as Officers of the Company they would normally
have knowledge of any Default and whether or not the signers know of any
Default that occurred during such period. If they do, the certificate shall
describe the Default, its status and what action the Company is taking or
proposes to take with respect thereto. The Company also shall comply with TIA
Subsection 314(a)(4).
SECTION 4.11. Further Instruments and Acts. Upon request of
the Trustee, the Company will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE 5
Successor Company
SECTION 5.01. When Company May Merge or Transfer Assets. (a)
The Company shall not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a Person organized and existing under the
laws of the United States of America, any State thereof or the District
of Columbia and the Successor Company (if not the Company) shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having
been Incurred by the Successor Company or such
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EXHIBIT 4.1
Subsidiary at the time of such transaction), no Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a);
(iv) the Company 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 this Indenture; and
(v) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that the Holders will not recognize income,
gain or loss for Federal income tax purposes as a result of such
transaction 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 transaction had not occurred.
The Successor Company shall be the successor to the Company
and shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture, but the predecessor Company in the
case of a conveyance, transfer or lease shall not be released from the
obligation to pay the principal of and interest on the Securities.
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of
Default" occurs if:
(1) the Company defaults in any payment of interest on any
Security when the same becomes due and payable, whether or not such
payment shall be prohibited by Article 10, and such default continues
for a period of 30 days;
(2) the Company (i) defaults in the payment of the principal
of any Security when the same becomes due and payable at its Stated
Maturity, upon redemption, upon required repurchase, upon declaration
or otherwise, whether or not such payment
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EXHIBIT 4.1
shall be prohibited by Article 10 or (ii) fails to redeem or purchase
Securities when required pursuant to this Indenture or the Securities,
whether or not such redemption or purchase shall be prohibited by Article
10;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.09, 4.10 or 4.11 (other than a failure to purchase
Securities when required under Section 4.06 or 4.09) and such failure
continues for 30 days after the notice specified below;
(5) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in clause (1),
(2), (3) or (4) above) and such failure continues for 60 days after the
notice specified below;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $7.5 million, or
its foreign currency equivalent at the time;
(7) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in
an involuntary case;
(C) consents to the appointment of a Custodian of it or for
any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
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EXHIBIT 4.1
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 days; or
(9) any judgment or decree for the payment of money in excess of
$7.5 million or its foreign currency equivalent at the time is entered
against the Company or a Significant Subsidiary, remains outstanding for
a period of 60 days following the entry of such judgment or decree and is
not discharged, waived or the execution thereof stayed within 10 days
after the notice specified below.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clauses (4), (5), or (9) is not an Event of Default
until the Trustee or the holders of at least 25% in principal amount of the
outstanding Securities notify the Company of the Default and the Company does
not cure such Default within the time specified after receipt of such notice.
Such notice must specify the Default, demand that it be remedied and state that
such notice is a "Notice of Default."
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (6) and any event which with the giving of
notice or the lapse of time would become an Event of Default
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EXHIBIT 4.1
under clause (4), (5) or (9), its status and what action the Company is taking
or proposes to take with respect thereto.
The Trustee shall not be charged with knowledge of any Event of
Default unless written notice thereof shall have been given to the Trustee by
the Company, the Paying Agent or any Securityholder.
SECTION 6.02. Acceleration. If an Event of Default (other than an
Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in principal amount of the outstanding Securities by
notice to the Company and the Trustee, may declare the principal of and accrued
but unpaid interest on all the Securities to be due and payable. Upon such a
declaration, such principal and interest shall be due and payable immediately.
If an Event of Default specified in Section 6.01(7) or (8) with respect to the
Company occurs, the principal of and interest on all the Securities shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Securityholders. The Holders of a majority
in principal amount of the Securities by 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 have been cured or
waived except nonpayment of principal or interest that has become due solely
because of acceleration. No such rescission shall affect any subsequent Default
or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
principal amount of the Securities then outstanding by notice to the Trustee may
waive an
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EXHIBIT 4.1
existing Default and its consequences except (i) a Default in the payment of the
principal of or interest on a Security (ii) a Default arising from the failure
to redeem or purchase any Security when required pursuant to this Indenture or
(iii) a Default in respect of a provision that under Section 9.02 cannot be
amended without the consent of each Securityholder affected. When a Default is
waived, it is deemed cured, but no such waiver shall extend to any subsequent or
other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.06. Limitation on Suits. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no
Securityholder may pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security
or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities
do not give the Trustee a direction
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EXHIBIT 4.1
inconsistent with the request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Securities held by such Holder, on
or after the respective due dates expressed in the Securities, 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(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make 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 it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.07.
SECTION 6.10. Priorities. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
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EXHIBIT 4.1
SECOND: to holders of Senior Indebtedness of the Company to the
extent required by Article 10;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment
to Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not 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 had been enacted.
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EXHIBIT 4.1
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
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EXHIBIT 4.1
(e) The Trustee, in its capacity as Trustee, Registrar or Paying
Agent, shall not be liable for interest on any money received by it except as
the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on 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 and/or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it here-
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EXHIBIT 4.1
under in good faith and in accordance with the advice or opinion of such
counsel.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 90 days after it occurs. Except in
the case of a Default in payment of principal of or interest on any Security
(including payments pursuant to the mandatory redemption provisions of such
Security, if any), the Trustee may withhold the notice if and so long as a
committee of its Trust Officers in good faith determines that withholding the
notice is in the interests of Securityholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as
practicable after each January 1 beginning with the January 1 following the date
of this Indenture, and in any event prior to March 31 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of January 1 that
complies with TIA Section 313(a). The Trustee also shall comply with TIA Section
313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC, each stock exchange (if any) on which the
Securities are listed and delivered to the Company. The Company agrees to notify
promptly the Trustee whenever the Securities become listed on any stock exchange
and of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to
the Trustee from time to time rea-
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EXHIBIT 4.1
sonable compensation for its services. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses and advances incurred or made by it, including costs of collection, in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Trustee's agents, counsel, accountants and experts. The Company shall indemnify
the Trustee in any capacity in which it is acting hereunder against any and all
loss, liability or expense (including attorneys' fees) incurred by it in
connection with the administration of this trust and the performance of its
duties hereunder. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Company
shall not relieve the Company of its obligations hereunder. The Company shall
defend the claim and the Trustee may have separate counsel and the Company shall
pay the fees and expenses of such counsel. The Company need not reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Trustee through the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.01(7) or (8) with respect to
the Company, the expenses are intended to constitute expenses of administration
under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in principal amount
of the Securities may remove the Trustee by so notifying the Trustee and may
appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
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EXHIBIT 4.1
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders
of a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall
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EXHIBIT 4.1
succeed to the trusts created by this Indenture any of the Securities shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor trustee, and deliver
such Securities so authenticated; and in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor to the Trustee; and in all such cases such certificates shall
have the full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
all times satisfy the requirements of TIA Section 310(a)(1), (2) and (3). The
Trustee shall have a combined capital and surplus of at least $50 million as set
forth in its most recent published annual report of condition. The Trustee
shall comply with TIA Section 310(b); provided, however, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or indentures
under which other securities or certificates of interest or participation in
other securities of the Company are out standing if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met. Nothing herein shall be
deemed to prevent the Trustee from filing with the SEC the application referred
to in the penultimate paragraph of TIA Section 310(b).
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with 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.
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a)
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.07) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 3 hereof,
and the Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Securities, including interest
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EXHIBIT 4.1
thereon to maturity or such redemption date (other than Securities replaced
pursuant to Section 2.07), together with irrevocable instructions from the
Company directing the Trustee to apply such funds to the payment thereof at
maturity or redemption, as the case may be, and if in either case the Company
pays all other sums payable hereunder by the Company, then this Indenture shall,
subject to Sections 8.01(c), cease to be of further effect. The Trustee shall
acknowledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time
may terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10 and 4.11 and the operation of Sections
6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections
6.01(7) and (8), with respect only to Significant Subsidiaries) and the
limitations contained in Sections 5.01(a)(iii) and (iv) ("covenant defeasance
option"). The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of the
Securities may not be accelerated because of an Event of Default specified in
Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of
Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) or
because of the failure of the Company to comply with Section 5.01(a)(iii) or
(iv).
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in
this Article 8 shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
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EXHIBIT 4.1
SECTION 8.02. Conditions to Defeasance. The Company may exercise
its legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and
interest on the Securities to maturity or redemption, as the case may be,
and irrevocably instructs the Trustee to apply such money or the proceeds
of such U.S. Government Obligations to the payment of such principal and
interest;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Sections 6.01(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article 10;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(6) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) 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 Securityholders will not recognize income, gain or loss
for Federal income tax purposes as a result of such defeasance and will be
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EXHIBIT 4.1
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders 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; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall hold
in trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal of and interest on the Securities. The Trustee shall be
under no obligation to invest such money or U.S. Government Obligations except
as it may agree in writing with the Company. Money and securities so held in
trust are not subject to Article 10.
SECTION 8.04. Repayment to Company. Subject to Sections 7.07, 8.01
and 8.02, Trustee and the Paying Agent shall promptly turn over to the Company
upon request any excess money or securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal or interest that remains unclaimed for two years,
and, thereafter, Securityholders entitled to the money must look to the Company
for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company
shall pay and shall indemnify the
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EXHIBIT 4.1
Trustee in any capacity in which it is acting hereunder against any tax, fee or
other charge imposed on or assessed against deposited U.S. Government
Obligations or the principal and interest received on such U.S. Government
Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that, if the
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE 9
Amendments, Supplements and Waivers
SECTION 9.01. Without Consent of Holders. The Company and the
Trustee may amend or supplement this Indenture or the Securities without notice
to or consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article 10 that would limit or terminate
the benefits available to any holder
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EXHIBIT 4.1
of Senior Indebtedness (or Representatives therefor) under Article 10;
(5) to add guarantees with respect to the Securities, or to secure
the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the
TIA; or
(8) to make any change that does not adversely affect the rights of
any Securityholder;
provided, however, that the Company has delivered to the Trustee an
Opinion of Counsel stating that such amendment or supplement complies with
the provisions of this Section 9.01.
An amendment or supplement under this Section may not make any
change that adversely affects the rights under Article 10 of any holder of
Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
After an amendment or supplement under this Section becomes
effective, the Company shall mail to Securityholders a notice briefly describing
such amendment or supplement. The failure to give such notice to all
Securityholders, or any defect therein, shall not impair or affect the validity
of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount of the Securities then outstanding (including consents obtained in
connection with a tender offer or exchange for the Securities). However, without
the consent of each Securityholder affected thereby, an amendment, supplement or
waiver may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
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EXHIBIT 4.1
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security
or change the time at which any Security may be redeemed in accordance
with Article 3;
(5) make any Security payable in money other than that stated in the
Security;
(6) make any change in Article 10 that adversely affects the rights
of any Securityholder under Article 10; or
(7) make any change in Section 6.04 or 6.07 or the second sentence
of this Section.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that
adversely affects the rights under Article 10 of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any group or representative thereof authorized to give a consent) consent to
such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment
to this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any such
Holder or subse-
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EXHIBIT 4.1
quent Holder may revoke the consent or waiver as to such Holder's Security or
portion of the Security if the Trustee receives the notice of revocation before
the date the amendment or waiver becomes effective. After an amendment or waiver
becomes effective, it shall bind every Securityholder. An amendment or waiver
becomes effective upon the execution of such amendment or waiver by the Trustee.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid or
effective for more than 120 days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an
amendment, supplement or waiver changes the terms of a Security, the Trustee may
require the Holder of the Security to deliver it to the Trustee. The Trustee may
place an appropriate notation on the Security regarding the changed terms and
return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Security shall issue and the Trustee
shall authenticate a new Security that reflects the changed terms. Failure to
make the appropriate notation or to issue a new Security shall not affect the
validity of such amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign
any amendment, supplement or waiver authorized pursuant to this Article 9 if the
amendment does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may but need not sign it. In
signing such amendment, supplement or waiver the Trustee shall be entitled to
receive indemnity reasonably satisfactory to it and to receive, and (subject to
Section 7.01) shall be fully protected in relying upon, an Officers' Certificate
and an Opinion of Counsel stating that such amendment is authorized or permitted
by this Indenture.
SECTION 9.07. Payment for Consent. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration,
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EXHIBIT 4.1
whether by way of interest, fee or otherwise, to any Holder for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Securities unless such consideration is offered to be
paid to all Holders that so consent, waive or agree to amend in the time frame
set forth in solicitation documents relating to such consent, waiver or
agreement.
ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate. The Company agrees, and
each Securityholder by accepting a Security agrees, that the Indebtedness
evidenced by the Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article 10, to the prior payment of all
Senior Indebtedness and that the subordination is for the benefit of and
enforceable by the holders of such Senior Indebtedness. The Securities shall in
all respects rank pari passu with all other Senior Subordinated Indebtedness of
the Company and only Indebtedness of the Company which is Senior Indebtedness
shall rank senior to the Securities in accordance with the provisions set forth
herein. All provisions of this Article 10 shall be subject to Section 10.12.
SECTION 10.02. Liquidation, Dissolution, Bank- ruptcy. Upon any
payment or distribution of the assets of the Company to creditors upon a total
or partial liquidation or a total or partial dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property:
(1) holders of Senior Indebtedness shall be entitled to receive
payment in full of such Senior Indebtedness before Securityholders shall
be entitled to receive any payment of principal of or interest on the
Securities; and
(2) until such Senior Indebtedness is paid in full, any payment or
distribution to which Securityholders would be entitled but for this
Article 10 shall be made to holders of such Senior Indebtedness as their
interests may appear.
SECTION 10.03. Default on Senior Indebtedness. The Company may not
pay the principal of or interest on the
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EXHIBIT 4.1
Securities or make any deposit pursuant to Section 8.01 and may not repurchase,
redeem or otherwise retire any Securities (collectively, "pay the Securities")
if (i) any Designated Senior Indebtedness is not paid when due or (ii) any other
default on Designated Senior Indebtedness occurs and the maturity of such
Designated Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, (x) the default has been cured or waived and any such
acceleration has been rescinded or (y) such Designated Senior Indebtedness has
been paid in full; provided, however, that the Company may pay the Securities
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of such Designated Senior
Indebtedness. During the continuance of any default (other than a default
described in clause (i) or (ii) of the preceding sentence) with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Securities for a period (a "Payment
Blockage Period") commencing upon the receipt by the Company and the Trustee of
written notice (a "Blockage Notice") of such default from the Representative of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Company from the Person or Persons who gave such Blockage Notice, (ii) because
the default giving rise to such Blockage Notice is no longer continuing or (iii)
because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first sentence of this Section),
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders shall have accelerated the maturity of such Designated Senior
Indebtedness, the Company may resume payments on the Securities after
termination of such Payment Blockage Period. Not more than one Blockage Notice
may be given in any consecutive 360-day period, irrespective of the number of
defaults with respect to Designated Senior Indebtedness during such period. For
purposes of this Section, no default or event of default which existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period shall be, or be made, the basis of the commencement of a subsequent
Payment Blockage Period by the Representative of such Designated Senior
Indebtedness,
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EXHIBIT 4.1
whether or not within a period of 360 consecutive days, unless such default or
event of default shall have been cured or waived for a period of not less than
90 consecutive days.
SECTION 10.04. Acceleration of Payment of Securities. If payment of
the Securities is accelerated because of an Event of Default, the Company or the
Trustee at the direction and expense of the Company shall promptly notify the
holders of the Designated Senior Indebtedness (or their Representatives) of the
acceleration.
SECTION 10.05. When Distribution Must Be Paid Over. If a
distribution is made to Securityholders that because of this Article 10 should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of Senior Indebtedness and pay it over to
them as their interests may appear.
SECTION 10.06. Subrogation. After all Senior Indebtedness is paid in
full and until the Securities are paid in full, Securityholders shall be
subrogated to the rights of holders of such Senior Indebtedness to receive
distributions applicable to such Senior Indebtedness. A distribution made under
this Article 10 to holders of such Senior Indebtedness which otherwise would
have been made to Securityholders is not, as between the Company and
Securityholders, a payment by the Company on such Senior Indebtedness.
SECTION 10.07. Relative Rights. This Article 10 defines the
relative rights of Securityholders and holders of Senior Indebtedness. Nothing
in this Indenture shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders of
Senior Indebtedness to receive distributions otherwise payable to
Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Company. No
right of any holder of Senior Indebtedness to enforce the subordination of the
Indebtedness evidenced by the Securities shall be impaired by any act or failure
to
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EXHIBIT 4.1
act by the Company or by its failure to comply with this Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, the Trustee receives at its
Corporate Trust Office notice satisfactory to it that payments may not be made
under this Article 10. The Company, the Registrar or co-registrar, the Paying
Agent, a Representative or a holder of Senior Indebtedness may give the notice;
provided, however, that, if an issue of Senior Indebtedness has a
Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article 10 with respect to any Senior Indebtedness which may at any time be held
by it, to the same extent as any other holder of such Senior Indebtedness; and
nothing in Article 7 shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article 10 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.07.
SECTION 10.10. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative (if
any).
SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit
Right To Accelerate. The failure to make a payment pursuant to the Securities by
reason of any provision in this Article 10 shall not be construed as preventing
the occurrence of a Default. Nothing in this Article 10 shall have any effect on
the right of the Securityholders or the Trustee to accelerate the maturity of
the Securities.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding
anything contained herein to the contrary, payments from money or the proceeds
of U.S. Government Obligations held in trust under Article 8 by the Trustee for
the payment of principal of and interest on the Securities
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EXHIBIT 4.1
shall not be subordinated to the prior payment of any Senior Indebtedness or
subject to the restrictions set forth in this Article 10, and none of the
Securityholders shall be obligated to pay over any such amount to the Company or
any holder of Senior Indebtedness or any other creditor of the Company.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent
or other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of such Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 10. In the event that the Trustee determines, in good
faith, that evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 10, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of such
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and other facts
pertinent to the rights of such Person under this Article 10, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article 10.
SECTION 10.14. Trustee To Effectuate Subordination. Each
Securityholder by accepting a Security authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness as provided in this Article 10 and appoints the Trustee as
attorney-in-fact for any and all such purposes.
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior
Indebtedness. With respect to the holders of the
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EXHIBIT 4.1
Senior Indebtedness, the Trustee undertakes to perform only such obligations on
the part of the Trustee as are specifically set forth in this Article 10, and no
implied covenants or obligations with respect to holders of Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall
not be liable to any such holders if it shall mistakenly pay over or distribute
to Securityholders or the Company or any other Person, money or assets to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
10 or otherwise.
SECTION 10.16. Reliance by Holders of Senior Indebtedness on
Subordination Provisions. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness, whether such Senior Indebtedness was created or acquired before or
after the issuance of the Securities, to acquire and continue to hold, or to
continue to hold, such Senior Indebtedness and such holder of such Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing to hold, such
Senior Indebtedness.
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls. If any provision
of this Indenture limits, qualifies or conflicts with another provision which
is required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.02. Notices. Any notice or communication shall
be in writing and delivered in person, or mailed by first-class mail addressed
as follows:
if to the Company:
7800 North 113th Street
P.O. Box 421
Milwaukee, Wisconsin 53201
Attention of: Chief Financial Officer
<PAGE> 83
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EXHIBIT 4.1
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Division
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Notices and communications to the Trustee shall not be deemed
to have been given until actually received by the Trustee at its address as
provided herein. Any notice or communication mailed to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to take
or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
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EXHIBIT 4.1
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 11.06. When Securities Disregarded. In
determining whether the Holders of the required principal amount of Securities
have concurred in any direction, waiver or consent, Securities owned by the
Company or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company shall be disregarded
and deemed not to be outstanding, except that, for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities which the Trustee knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
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EXHIBIT 4.1
SECTION 11.08. Legal Holidays. A "Legal Holiday" is a
Saturday, a Sunday or a day on which banking institutions are not required to be
open in the State of New York. If a payment date is a Legal Holiday, payment
shall be made on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period. If a regular record date is a
Legal Holiday, the record date shall not be affected.
SECTION 11.09. Governing Law. This Indenture and the
Securities shall be governed by, and construed in accordance with, the laws of
the State of New York but without giving effect to applicable principles of
conflicts of law to the extent that the application of the laws of another
jurisdiction would be required thereby.
SECTION 11.10. No Recourse Against Others. A director,
officer, employee or stockholder, as such, of the Company shall not have any
liability for any obligations of the Company under the Securities or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
shall waive and release all such liability. The waiver and release shall be
part of the consideration for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Company in
this Indenture and the Securities shall bind its successors. All agreements of
the Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple 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. One signed copy is enough to
prove this Indenture.
SECTION 11.13. Table of Contents; Headings. The table of
contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
<PAGE> 86
EXHIBIT 4.1
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed as of the date first written above.
AQUA-CHEM, INC.,
by /s/ JA Miller
---------------------------
Name: Jeffrey A. Miller
Title: Chairman of the
Board, President
and Chief Executive
Officer
UNITED STATES TRUST COMPANY OF
NEW YORK,
by /s/ John Guiliano
---------------------------
Name: JOHN GUILIANO
Title: VICE PRESIDENT
<PAGE> 87
EXHIBIT 4.1
RULE 144A/REGULATION S APPENDIX
PROVISIONS RELATING TO INITIAL SECURITIES,
PRIVATE EXCHANGE SECURITIES
AND EXCHANGE SECURITIES
1. Definitions
1.1 Definitions
For the purposes of this Appendix the following terms shall have the
meanings indicated below:
"Additional Series" means the 11 1/4% Senior Subordinated
Notes Due 2008 issued under this Indenture pursuant to Secton 2.13.
"Depository" means The Depository Trust Company, its nominees
and their respective successors.
"Exchange Securities" means the 11 1/4% Senior Subordinated
Notes Due 2008 to be issued pursuant to this Indenture in connection with a
Registered Exchange Offer pursuant to the Registration Rights Agreement.
"Initial Purchasers" means (i) with respect to the Initial
Series, Credit Suisse First Boston Corporation and Bear, Stearns & Co. Inc. and
(ii) with respect to each Additional Series, the Persons purchasing such
Additional Series under the related Purchase Agreement.
"Initial Securities" means (i) the Initial Series and (ii)
each Additional Series.
"Initial Series" means the 11 1/4% Senior Subordinated Notes
Due 2008 issued under this Indenture on or about the date hereof.
"Private Exchange" means the offer by the Company, pursuant to
the Registration Rights Agreement, to the Initial Purchasers to issue and
deliver to each Initial Purchaser, in exchange for the Initial Securities held
by the Initial Purchaser as part of its initial distribution, a like aggregate
principal amount of Private Exchange Securities.
"Purchase Agreement" means (i) with respect to the Initial
Series, the Purchase Agreement dated June 18, 1998, between the Company and the
Initial Purchasers and (ii) with respect to each Additional Series, the
Purchase Agreement
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EXHIBIT 4.1
between the Company and the Persons purchasing such Additional Series.
"QIB" means a "qualified institutional buyer" as
defined in Rule 144A.
"Registered Exchange Offer" means the offer by the Company,
pursuant to the Registration Rights Agreement, to certain Holders of Initial
Securities, to issue and deliver to such Holders, in exchange for the Initial
Securities, a like aggregate principal amount of Exchange Securities registered
under the Securities Act.
"Registration Rights Agreement" means (i) with respect to the
Initial Series, the Registration Rights Agreement dated June 18, 1998, among
the Company and the Initial Purchasers and (ii) with respect to each Additional
Series, the registration rights agreement among the Company and the Persons
purchasing such Additional Series under the related Purchase Agreement.
"Securities" means the Initial Securities, the
Exchange Securities and the Private Exchange Securities,
treated as a single class.
"Securities Act" means the Securities Act of 1933.
"Securities Custodian" means the custodian with respect to a
Global Security (as appointed by the Depository), or any successor person
thereto and shall initially be the Trustee.
"Shelf Registration Statement" means the registration
statement issued by the Company, in connection with the offer and sale of
Initial Securities or Private Exchange Securities, pursuant to the Registration
Rights Agreement.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.3(d)hereto.
1.2 Other Definitions
Defined in
Term Section:
---- --------
"Agent Members"................................................2.1(b)
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EXHIBIT 4.1
"Global Security"..............................................2.1(a)
"Regulation S".................................................2.1(a)
"Rule 144A"....................................................2.1(a)
2. The Securities.
2.1 Form and Dating.
The Initial Securities are being offered and sold by the
Company pursuant to the Purchase Agreement.
(a) Global Securities. Initial Securities offered and sold to
a QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") or in
reliance on Regulation S under the Securities Act ("Regulation S"), in each case
as provided in the Purchase Agreement, shall be issued initially in the form of
one or more permanent global Securities in definitive, fully registered form
without interest coupons with the global securities legend and restricted
securities legend set forth in Exhibit 1 hereto (each, a "Global Security"),
which shall be deposited on behalf of the purchasers of the Initial Securities
represented thereby with the Trustee, at its New York office, as custodian for
the Depository (or with such other custodian as the Depository may direct), and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depository or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply
only to a Global Security deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance
with this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depository for such
Global Security or Global Securities or the nominee of such Depository and (b)
shall be delivered by the Trustee to such Depository or pursuant to such
Depository's instructions or held by the Trustee as custodian for the
Depository.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by
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EXHIBIT 4.1
the Depository or by the Trustee as the custodian of the Depository or under
such Global Security, and the Depository may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices of such
Depository governing the exercise of the rights of a holder of a beneficial
interest in any Global Security.
(c) Certificated Securities. Except as provided in this
Section 2.1 or Section 2.3, 2.4 or 2.5, owners of beneficial interests in Global
Securities will not be entitled to receive physical delivery of certificated
Securities.
2.2 Authentication. The Trustee shall authenticate and deliver: (1)
Initial Securities for original issue in an aggregate principal amount specified
in the written order of the Company issued pursuant to Section 2.02 in this
Indenture and (2) Exchange Securities or Private Exchange Securities for issue
only in a Registered Exchange Offer or a Private Exchange, respectively,
pursuant to the Registration Rights Agreement, for a like principal amount of
Initial Securities, in each case, upon written order of the Company signed by
two Officers or by an Officer and either an Assistant Treasurer or an Assistant
Secretary of the Company. Such order shall specify the amount of the Securities
to be authenticated and the date on which the original issue of Securities is to
be authenticated and whether the Securities are to be Initial Securities,
Exchange Securities or Private Exchange Securities. The aggregate principal
amount of Securities outstanding at any time may not exceed $125,000,000 except
as provided in Section 2.07 and Section 2.13 in this Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Global
Securities. (i) The transfer and exchange of Global Securities or beneficial
interests therein shall be effected through the Depository, in accordance with
this Indenture (including applicable restrictions on transfer set forth herein,
if any) and the procedures of the Depository therefor. A transferor of a
beneficial interest in a Global Security shall deliver to the Registrar a
written order given in accordance with the Depositary's procedures containing
information regarding the
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EXHIBIT 4.1
participant account of the Depositary to credited with a beneficial interest in
the Global Security. The Registrar shall, in accordance with such instructions
instruct the Depositary to credit to the account of the Person specified in such
instructions a beneficial interest in the Global Security and to debit the
account of the Person making the transfer the beneficial interest in the Global
Security being transferred.
(ii) Notwithstanding any other provisions of this Appendix
(other than the provisions set forth in Section 2.4), a Global Security
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.
(iii) In the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to Section 2.4 or
Section 2.09 of this Indenture, prior to the consummation of a
Registered Exchange Offer or the effectiveness of a Shelf Registration
Statement with respect to such Securities, such Securities may be
exchanged only in accordance with such procedures as are substantially
consistent with the provisions of this Section 2.3 (including the
certification requirements set forth on the reverse of the Initial
Securities intended to ensure that such transfers comply with Rule 144A
or Regulation S, as the case may be) and such other procedures as may
from time to time be adopted by the Company.
(b) Legend.
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Security certificate evidencing the Global
Securities (and all Securities issued in exchange therefor or in
substitution thereof) shall bear a legend in substantially the
following form:
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER
OF THIS SECURITY
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EXHIBIT 4.1
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION
5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED ONLY (I) INSIDE THE U.S. TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), (II) OUTSIDE THE U.S. IN A TRANSACTION IN
ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE),
(IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, OR (V) TO THE COMPANY, IN EACH OF CASES (I)
THROUGH (V) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL,
AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act, in the
case of any Transfer Restricted Security that is represented by a
Global Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a certificated Security
that does not bear the legend set forth above and rescind any
restriction on the transfer of such Transfer Restricted Security, if
the Holder certifies in writing to the Registrar that its request for
such exchange was made in reliance on Rule 144 (such certification to
be in the form set forth on the reverse of the Security).
(iii) After a transfer of any Initial Securities or Private
Exchange Securities during the period of the effectiveness of a Shelf
Registration Statement with respect to such Initial Securities or
Private Exchange Securities, as the case may be, all requirements
pertaining to legends on such Initial Security or such Private Exchange
Security will cease to apply, the requirements requiring any such
Initial Security or such Private Exchange Security issued to certain
Holders be issued in global form will cease to apply, and a
certificated Initial Security or Private Exchange
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EXHIBIT 4.1
Security without legends will be available to the transferee of the
Holder of such Initial Securities or Private Exchange Securities upon
exchange of such transferring Holder's certificated Initial Security or
Private Exchange Security or directions to transfer such Holder's
interest in the Global Security, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Securities pursuant to which Holders of such
Initial Securities are offered Exchange Securities in exchange for
their Initial Securities, all requirements pertaining to such Initial
Securities that Initial Securities issued to certain Holders be issued
in global form will cease to apply and certificated Initial Securities
with the restricted securities legend set forth in Exhibit 1 hereto
will be available to Holders of such Initial Securities that do not
exchange their Initial Securities, and Exchange Securities in
certificated or global form will be available to Holders that exchange
such Initial Securities in such Registered Exchange Offer.
(v) Upon the consummation of a Private Exchange with respect
to the Initial Securities pursuant to which Holders of such Initial
Securities are offered Private Exchange Securities in exchange for
their Initial Securities, all requirements pertaining to such Initial
Securities that Initial Securities issued to certain Holders be issued
in global form will still apply, and Private Exchange Securities in
global form with the Restricted Securities Legend set forth in Exhibit
1 hereto will be available to Holders that exchange such Initial
Securities in such Private Exchange.
(c) Cancellation or Adjustment of Global Security. At such
time as all beneficial interests in a Global Security have either been exchanged
for certificated Securities, redeemed, repurchased or canceled, such Global
Security shall be returned to the Depository for cancellation or retained and
canceled by the Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Security is exchanged for certificated
Securities, redeemed, repurchased or canceled, the principal amount of
Securities represented by such Global Security shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Securities Custodian for such Global Security) with respect
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EXHIBIT 4.1
to such Global Security, by the Trustee or the Securities Custodian, to reflect
such reduction.
(d) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate certificated
Securities and Global Securities at the Registrar's or co-registrar's
request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith (other than any
such transfer taxes, assessments or similar governmental charge payable
upon exchange or transfer pursuant to Sections 3.06, 4.09 and 9.05 of
the Indenture).
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) any certificated Security
selected for redemption in whole or in part pursuant to Article 3 of
this Indenture, except the unredeemed portion of any certificated
Security being redeemed in part, or (b) any Security for a period
beginning 15 Business Days before the mailing of a notice of an offer
to repurchase or redeem Securities or 15 Business Days before an
interest payment date.
(iv) Prior to the due presentation for registration of
transfer of any Security, the Company, the Trustee, the Paying Agent,
the Registrar or any co-registrar may deem and treat the person in
whose name a Security is registered as the absolute owner of such
Security for the purpose of receiving payment of principal of and
interest on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and none of the Company, the
Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture shall evidence the same debt
and shall be entitled to the same benefits under this Indenture as the
Securities surrendered upon such transfer or exchange.
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EXHIBIT 4.1
(e) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to
any beneficial owner of a Global Security, a member of, or a
participant in the Depository or other Person with respect to the
accuracy of the records of the Depository or its nominee or of any
participant or member thereof, with respect to any ownership interest
in the Securities or with respect to the delivery to any participant,
member, beneficial owner or other Person (other than the Depository) of
any notice (including any notice of redemption) or the payment of any
amount, under or with respect to such Securities. All notices and
communications to be given to the Holders and all payments to be made
to Holders under the Securities shall be given or made only to or upon
the order of the registered Holders (which shall be the Depository or
its nominee in the case of a Global Security). The rights of beneficial
owners in any Global Security shall be exercised only through the
Depository subject to the applicable rules and procedures of the
Depository. The Trustee may rely and shall be fully protected in
relying upon information furnished by the Depository with respect to
its members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to
any transfer of any interest in any Security (including any transfers
between or among Depository participants, members or beneficial owners
in any Global Security) other than to require delivery of such
certificates and other documentation or evidence as are expressly
required by, and to do so if and when expressly required by, the terms
of this Indenture, and to examine the same to determine substantial
compliance as to form with the express requirements hereof.
2.4 Certificated Securities.
(a) A Global Security deposited with the Depository or with
the Trustee as custodian for the Depository pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depository notifies the Company
that
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EXHIBIT 4.1
it is unwilling or unable to continue as Depository for such Global
Security or if at any time such Depository ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary is not appointed by
the Company within 90 days of such notice, or (ii) an Event of Default has
occurred and is continuing or (iii) the Company, in its sole discretion,
notifies the Trustee in writing that it elects to cause the issuance of
certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section shall be surrendered by the Depository
to the Trustee located in the Borough of Manhattan, The City of New York, to be
so transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Security, an equal aggregate principal amount of certificated
Initial Securities of authorized denominations. Any portion of a Global Security
transferred pursuant to this Section shall be executed, authenticated and
delivered only in denominations of $1,000 and any integral multiple thereof and
registered in such names as the Depository shall direct. Any certificated
Initial Security delivered in exchange for an interest in the Global Security
shall, except as otherwise provided by Section 2.3(d), bear the restricted
securities legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the
registered Holder of a Global Security may grant proxies and otherwise authorize
any Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
(d) In the event of the occurrence of either of the events
specified in Section 2.4(a), the Company will promptly make available to the
Trustee a reasonable supply of certificated Securities in definitive, fully
registered form without interest coupons.
2.5 Additional Series and Registered Offer.
(a) If any Additional Series is issued pursuant to a registration
statement under the Securities Act, the Initial Securities relating to such
Additional Series shall, at the option of the Company, be issued initially in
(i) the form of one or more global Securities in definitive, fully registered
form without interest coupons or (ii) certificated form. All requirements
pertaining to legends on
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EXHIBIT 4.1
such Initial Security shall not apply and the requirements requiring any such
Initial Security issued to certain Holders be issued and held in global form
shall not apply.
<PAGE> 98
EXHIBIT 4.1
EXHIBIT 1
to
RULE 144A/REGULATION S APPENDIX
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF
THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5
OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
(I) INSIDE THE U.S. TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT), (II) OUTSIDE THE U.S. IN A TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER
THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (IV) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (V) TO THE
COMPANY, IN EACH OF CASES (I) THROUGH (V) IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED
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EXHIBIT 4.1
STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE.
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EXHIBIT 4.1
No. CUSIP No.
$-
11 1/4% Senior Subordinated Note Due 2008
Aqua-Chem, Inc., a Delaware corporation, promises to pay to
, or registered assigns, the principal sum of Dollars on
July 1, 2008.
Interest Payment Dates: January 1 and July 1.
Record Dates: December 15 and June 15.
Additional provisions of this Security are set forth on the
other side of this Security.
Dated:
AQUA-CHEM, INC.,
by
-----------------------
Name:
Title:
-----------------------
Name:
Title:
[Seal]
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee, certifies
that this is one of the
Securities referred
to in the Indenture.
by
-----------------------------
Authorized Signatory
<PAGE> 101
4
EXHIBIT 4.1
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
11 1/4% Senior Subordinated Note Due 2008
1. Interest
Aqua-Chem, Inc., a Delaware corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay interest on the principal amount
of this Security at the rate per annum shown above; provided, however, that if a
Registration Default (as defined in the Registration Rights Agreement) occurs,
additional interest will accrue on this Security at a rate of 0.50% per annum
from and including the date on which any such Registration Default shall occur
to but excluding the date on which all Registration Defaults have been cured.
The Company will pay interest semiannually on January 1 and July 1 of each year.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from .
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except
defaulted interest) to the Persons who are registered holders of Securities at
the close of business on the December 15 or June 15 next preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a Paying
Agent to collect principal payments. The Company will pay principal and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of the Securities
represented by a Global Security (including principal, premium and interest)
will be made by wire transfer of immediately available funds to the accounts
specified by The Depository Trust Company. The Company will make all payments in
respect of a certificated Security (including principal, premium and interest)
by mailing a check to the registered
<PAGE> 102
5
EXHIBIT 4.1
address of each Holder thereof; provided, however, that payments on a
certificated Security will be made by wire transfer to a U.S. dollar account
maintained by the payee with a bank in the United States if such Holder elects
payment by wire transfer by giving written notice to the Trustee or the Paying
Agent to such effect designating such account no later than 30 days immediately
preceding the relevant due date for payment (or such other date as the Trustee
may accept in its discretion).
3. Paying Agent and Registrar
Initially, United States Trust Company of New York, a New York
banking corporation ("Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as
of June 23, 1998 ("Indenture"), between the Company and the Trustee. The terms
of the Securities include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act").
Terms defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured obligations of the
Company. The Company may, subject to Section 4.03 of the Indenture, issue
additional Securities under the Indenture. The Indenture contains certain
covenants which, among other things, will limit (i) the incurrence of
additional indebtedness by the Company and certain of its subsidiaries, (ii)
the payment of dividends and other restricted payments by the Company and
certain of its subsidiaries, (iii) the creation of restrictions on distributions
from certain subsidiaries of the Company, (iv) asset sales, (v) transactions
with affiliates, sales and issuances of capital stock of certain subsidiaries
of the Company and (vi) certain consolidations and mergers. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
<PAGE> 103
6
EXHIBIT 4.1
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to July 1, 2003. On and after that date, the Company may redeem
the Securities, in whole or in part, at any time or from time to time, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the related
interest payment date):
if redeemed during the 12-month period beginning
July 1,
<TABLE>
<CAPTION>
Period Percentage
<S> <C>
2003......................................................... 105.625%
2004......................................................... 104.219
2005......................................................... 102.813
2006......................................................... 101.406
2007 and thereafter.......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to July 1, 2001,
the Company may redeem in the aggregate up to 20% of the aggregate principal
amount of all Securities issued for cash under the Indenture (including any
additional Securities issued after the Issue Date pursuant to Section 2.13 of
the Indenture) with the proceeds of one or more Public Equity Offerings
following which there is a Public Market, at a redemption price (expressed as a
percentage of principal amount) of 111.25% plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date);
provided, however, that at least $100.0 million aggregate principal amount of
the Securities remains outstanding after each such redemption.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued interest on all Securities
(or portions thereof) to
<PAGE> 104
7
EXHIBIT 4.1
be redeemed on the redemption date is deposited with the Paying Agent on or
before the redemption date and certain other conditions are satisfied, on and
after such date interest ceases to accrue on such Securities (or such portions
thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions, to cause the Company to repurchase all or
any part of the Securities of such Holder at a repurchase price equal to 101% of
the principal amount of the Securities to be repurchased plus accrued interest
to the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest due on the related interest payment
date) as provided in, and subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness, as defined
in the Indenture. To the extent provided in the Indenture, Senior Indebtedness
must be paid before the Securities may be paid. The Company agrees, and each
Securityholder by accepting a Security agrees, to the subordination provisions
contained in the Indenture and authorizes the Trustee to give it effect and
appoints the Trustee as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner
of it for all purposes.
<PAGE> 105
8
EXHIBIT 4.1
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company irrevocably deposits with the Trustee money or U.S. Government
Obligations for the payment of principal and interest on the Securities to
redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
or to add guarantees with respect to the Securities or to secure the Securities,
or to add additional covenants or surrender rights and powers conferred on the
Company, or to comply with any request of the SEC in connection with qualifying
the Indenture under the Act, or to make certain changes in the subordination
provisions, or to make any change that does not adversely affect the rights of
any Securityholder.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph 5
or 6 of the Securities, upon acceleration or otherwise, or failure by the
Company to redeem or purchase
<PAGE> 106
9
EXHIBIT 4.1
Securities when required; (iii) failure by the Company to comply with other
agreements in the Indenture or the Securities, in certain cases subject to
notice and lapse of time; (iv) certain accelerations (including failure to pay
within any grace period after final maturity) of other Indebtedness of the
Company if the amount accelerated (or so unpaid) exceeds $7.5 million, or its
foreign currency equivalent at the time; (v) certain events of bankruptcy or
insolvency with respect to the Company and the Significant Subsidiaries; and
(vi) certain judgments or decrees for the payment of money in excess of $7.5
million, or its foreign currency equivalent at the time. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities to be due and
payable immediately. Certain events of bankruptcy or insolvency are Events of
Default which will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder
<PAGE> 107
10
EXHIBIT 4.1
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
19. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
20. Governing Law.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture which has in it
the text of this Security in larger type. Requests may be made to:
Aqua-Chem, Inc.
7800 North 113th Street
P.O. Box 421
Milwaukee, Wisconsin 53201
Attention of: Chief Financial Officer
<PAGE> 108
EXHIBIT 4.1 11
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
________________________________________________________________________________
Date: _______________________ Your Signature:___________________________________
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original
issuance of such Securities and the last date, if any, on which such
Securities were owned by the Company or any Affiliate of the Company, the
undersigned confirms that such Securities are being transferred in accordance
with its terms:
CHECK ONE BOX BELOW
(1) [] to the Company; or
(2) [] pursuant to an effective registration statement under the
Securities Act of 1933; or
(3) [] inside the United States to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act
of 1933) that purchases for its own account or for the
account of a
<PAGE> 109
EXHIBIT 4.1 12
qualified institutional buyer to whom notice is given that
such transfer is being made in reliance on Rule 144A, in
each case pursuant to and in compliance with Rule 144A
under the Securities Act of 1933; or
(4) [] outside the United States in an offshore transaction
within the meaning of Regulation S under the Securities Act
in compliance with Rule 904 under the Securities Act of
1933; or
(5) [] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any person
other than the registered holder thereof; provided, however, that if box (4)
or (5) is checked, the Trustee may require, prior to registering any such
transfer of the Securities, such legal opinions, certifications and other
information as the Company has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, such
as the exemption provided by Rule 144 under such Act.
--------------------------
Signature
Signature Guarantee:
- --------------------- --------------------------
Signature must be guaranteed Signature
<PAGE> 110
EXHIBIT 4.1 13
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated: ________________________ __________________________________________
NOTICE: To be executed by
an executive officer
<PAGE> 111
EXHIBIT 4.1 14
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been
made:
<TABLE>
<S> <C> <C> <C> <C>
Date of Amount of decrease Amount of increase Principal amount of Signature of
Exchange in Principal in Principal this Global authorized officer
Amount of this Amount of this Security following of Trustee or
Global Security Global Security such decrease or Securities
increase Custodian
</TABLE>
<PAGE> 112
EXHIBIT 4.1 15
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.09 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.06 or 4.09 of the Indenture, state the amount in
principal amount: $
Date:_____________________________ Your Signature:____________________________
(Sign exactly as your name
appears on the other side of
this Security.)
Signature Guarantee: _____________________________________________________
(Signature must be guaranteed)
<PAGE> 113
EXHIBIT 4.1
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE
SECURITY]
[*/]
[**/]
No. Cusip No. -
$ -
11 1/4% Senior Subordinated Note Due 2008
Aqua-Chem, Inc., a Delaware corporation, promises to pay
to , or registered assigns, the principal sum of
Dollars on July 1, 2008.
Interest Payment Dates: January 1 and July 1.
Record Dates: December 15 and June 15.
Additional provisions of this Security are set forth on the
other side of this Security.
Dated:
- ---------------
*/ [If the Security is to be issued in global form add the Global Securities
Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1
captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] - SCHEDULE OF INCREASES OR
DECREASES IN GLOBAL SECURITY".]
**/ [If the Security is a Private Exchange Security issued in a Private Exchange
to an Initial Purchaser holding an unsold portion of its initial allotment, add
the Restricted Securities Legend from Exhibit 1 to Appendix A and replace the
Assignment Form included in this Exhibit A with the Assignment Form included in
such Exhibit 1.]
<PAGE> 114
EXHIBIT 4.1 2
AQUA-CHEM, INC.,
by
-----------------------
President
-----------------------
Secretary
[Seal]
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee, certifies
that this is one of the
Securities referred
to in the Indenture.
by
-----------------------------
Authorized Signatory
<PAGE> 115
EXHIBIT 4.1 3
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY
OR PRIVATE EXCHANGE SECURITY]
11 1/4% Senior Subordinated Note Due 2008
1. Interest
Aqua-Chem, Inc., a Delaware corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay interest on the principal amount
of this Security at the rate per annum shown above [; provided, however, that if
a Registration Default (as defined in the Registration Rights Agreement) occurs,
interest will accrue on this Security at a rate of 0.50% per annum from and
including the date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured] ***/. The
Company will pay interest semiannually on January 1 and July 1 of each year.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from . Interest will
be computed on the basis of a 360-day year of twelve 30-day months. The
Company shall pay interest on overdue principal at the rate borne by the
Securities plus 1% per annum, and it shall pay interest on overdue installments
of interest at the same rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except
defaulted interest) to the Persons who are registered holders of Securities at
the close of business on the December 15 or June 15 next preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date.
- ---------------
***/ Insert if at the time of issuance of the Exchange Security or Private
Exchange Security (as the case may be) neither the Registered Exchange Offer has
been consummated nor a Shelf Registration Statement has been declared effective
in accordance with the Registration Rights Agreement. Holders must surrender
Securities to a Paying
<PAGE> 116
EXHIBIT 4.1 4
Agent to collect principal payments. The Company will pay principal and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of Securities
(including principal, premium and interest) will be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof or,
if no U.S. dollar account maintained by the payee with a bank in the United
States is designated by any holder to the Trustee or the Paying Agent at least
30 days prior to the relevant due date for payment (or such other date as the
Trustee may accept in its discretion), by mailing a check to the registered
address of such holder.
3. Paying Agent and Registrar
Initially, United States Trust Company of New York, a New York
banking corporation ("Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as
of June 23, 1998 ("Indenture"), between the Company and the Trustee. The terms
of the Securities include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act").
Terms defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured obligations of the
Company. The Company may, subject to Section 4.03 of the Indenture, issue
additional Securities under the Indenture. The Indenture contains certain
covenants which, among other things, will limit (i) the incurrence of additional
indebtedness by the Company and certain of its subsidiaries, (ii) the payment
of dividends and other restricted payments by the Company and certain of its
subsidiaries, (iii) the creation of restrictions on distributions from certain
subsidiaries of the Company, (iv) asset sales, (v) transactions with
affiliates, sales and issuances of capital stock of certain subsidiaries of the
<PAGE> 117
EXHIBIT 4.1 5
Company and (vi) certain consolidations and mergers. All of these limitations
and prohibitions, however, are subject to a number of important qualifications.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may
not be redeemed prior to July 1, 2003. On and after that date, the Company may
redeem the Securities, in whole or in part, at any time or from time to time at
the following redemption prices (expressed in percentages of principal amount),
plus accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the related
interest payment date):
if redeemed during the 12-month period beginning
July 1,
Period Percentage
2003........................................................ 105.625%
2004........................................................ 104.219
2005........................................................ 102.813
2006........................................................ 101.406
2007 and thereafter......................................... 100.000%
In addition, at any time and from time to time prior to
July 1, 2001, the Company may redeem in the aggregate up to 20% of the
aggregate principal amount of all Securities issued for cash under the Indenture
(including any additional Securities issued after the Issue Date pursuant to
Section 2.13 of the Indenture) with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount) of 111.25% accrued interest to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date);
provided, however, that at least $100.0 million aggregate principal amount of
the Securities remains outstanding after each such redemption.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered
<PAGE> 118
EXHIBIT 4.1 6
address. Securities in denominations larger than $1,000 may be redeemed in part
but only in whole multiples of $1,000. If money sufficient to pay the redemption
price of and accrued interest on all Securities (or portions thereof) to be
redeemed on the redemption date is deposited with the Paying Agent on or before
the redemption date and certain other conditions are satisfied, on and after
such date interest ceases to accrue on such Securities (or such portions
thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right, subject to certain conditions, to cause the Company to repurchase all
or any part of the Securities of such Holder at a repurchase price equal to 101%
of the principal amount of the Securities to be repurchased plus accrued
interest to the date of repurchase (subject to the right of holders of record on
the relevant record date to receive interest due on the related interest payment
date) as provided in, and subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness, as
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company agrees,
and each Securityholder by accepting a Security agrees, to the subordination
provisions contained in the Indenture and authorizes the Trustee to give it
effect and appoints the Trustee as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
<PAGE> 119
EXHIBIT 4.1 7
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may
terminate some or all of its obligations under the Securities and the Indenture
if the Company irrevocably deposits with the Trustee money or U.S. Government
Obligations for the payment of principal and interest on the Securities to
redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
or to add guarantees with respect to the Securities or to secure the Securities,
or to add additional covenants or surrender rights and powers conferred on the
Company, or to comply with any request of the SEC in connection with qualifying
the Indenture under the Act, or to make certain changes in the subordination
provisions, or to make any change that does not adversely affect the rights of
any Securityholder.
<PAGE> 120
EXHIBIT 4.1 8
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph 5
or 6 of the Securities, upon acceleration or otherwise, or failure by the
Company to redeem or purchase Securities when required; (iii) failure by the
Company to comply with other agreements in the Indenture or the Securities, in
certain cases subject to notice and lapse of time; (iv) certain accelerations
(including failure to pay within any grace period after final maturity) of other
Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds
$7.5 million, or its foreign currency equivalent at the time; (v) certain events
of bankruptcy or insolvency with respect to the Company and the Significant
Subsidiaries; and (vi) certain judgments or decrees for the payment of money in
excess of $7.5 million, or its foreign currency equivalent at the time. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the Securities may declare all the Securities
to be due and payable immediately. Certain events of bankruptcy or insolvency
are Events of Default which will result in the Securities being due and payable
immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
Default (except a Default in payment of principal or interest) if it determines
that withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were
not Trustee.
<PAGE> 121
EXHIBIT 4.1 9
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP
numbers to be printed on the Securities and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Security, by acceptance hereof, acknowledges
and agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
<PAGE> 122
EXHIBIT 4.1 10
21. Governing Law.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Securityholder upon written
request and without charge to the Securityholder a copy of the Indenture which
has in it the text of this Security in larger type. Requests may be made to:
Aqua-Chem, Inc.
7800 North 113th Street
P.O. Box 421
Milwaukee, Wisconsin 53201
Attention of: Chief Financial Officer
<PAGE> 123
11
EXHIBIT 4.1
________________________________________________________________________________
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
________________________________________________________________________________
Date: ________________ Your Signature: _____________________
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
<PAGE> 124
12
EXHIBIT 4.1
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.09 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.06 or 4.09 of the Indenture,
state the amount: $
Date:____________________________ Your Signature: _____________________________
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:___________________________________________________________
(Signature must be guaranteed by a member
firm of the New York Stock Exchange or a
commercial bank or trust company)
<PAGE> 1
EXHIBIT 10.13
AMENDMENT TO THE INTERIM MANAGEMENT AGREEMENT
BETWEEN AQUA-CHEM, INC. AND J. MILLER MANAGEMENT, INC.
DATED 8 JULY 1996
WHEREAS, the parties entered into the above-referenced Agreement; and
WHEREAS, the parties are desirous of extending the Agreement so that
Jeffrey A. Miller will continue to act as Chief Executive Officer of Aqua-Chem,
Inc., as an independent contractor through J. Miller Management, Inc.;
In consideration of the mutual promises hereinafter set forth, the
parties agree to amend the original agreement of the designated paragraphs
seriatim.
2. Term. The term of this Agreement shall extend from January 1, 1997
through December 31, 1997, unless terminated earlier in accordance with the
terms of the original Agreement.
3. Compensation. The Company agrees to continue to compensate JMM
$10,000 per week, payable monthly, according to the terms of paragraph 3.
Paragraph 3 is further amended to incorporate the following:
3.1. Incentive Compensation. JMM shall be paid Incentive Compensation
according to the schedule set forth on the attached Exhibit A.
3.2. Sale Bonus. If Aqua-Chem is sold and closed before December 31,
1998, JMM shall receive a Sale Bonus pursuant to the schedule set forth
on the attached Exhibit B.
4. Expenses. Expense reimbursement to JMM shall continue under the
current arrangement for the duration of the term of this Agreement.
Except as modified herein, all other terms of the Interim Management
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the Company, JMM and Miller, have executed this Agreement on
this ______ day of January, 1997.
AQUA-CHEM, INC. J. MILLER MANAGEMENT, INC.
By: /s/ Patrick Babin By: /s/ JA Miller
------------------------------ ---------------------------
Name Patrick Babin Jeffrey A. Miller
President
Its: Director
-------------------------------
Title JEFFREY A. MILLER
By: /s/ JA Miller
--------------------------------
Jeffrey A. Miller, Individually
<PAGE> 2
EXHIBIT 10.13
Exhibit A to the January ____, 1997
Amendment to
the JMM Interim Management Agreement
Re: INCENTIVE COMPENSATION
JMM shall be paid Incentive Compensation (hereafter "IC") in accordance with
Aqua-Chem' s RONA (return on net assets)-based IC program for senior executives,
calculated under the following formula:
IC = Base compensation x 100% participation rate x % payout
where
Base compensation = $356,213
Participation rate, % = 100%
Payout, % = % payout rate as that defined in the Aqua-Chem
IC Plan of 11/96
The IC shall be due and payable immediately upon the close of Aqua-Chem's fiscal
year-end 1997, but no later than January 20, 1998.
INITIAL:
AQUA-CHEM, INC.
By: /s/ PB
-------
J. MILLER MANAGEMENT, INC.
By: /s/ JAM
-------
<PAGE> 3
EXHIBIT 10.13
INCENTIVE COMPENSATION
PURSUANT TO PARAGRAPH 3.1
<TABLE>
<CAPTION>
EXAMPLES
<S> <C>
===========================================================================================
If EBIT Is: Then Incentive Compensation Is:
===========================================================================================
Less than $6.7 million $ 00
-------------------------------------------------------------------------------------------
Equal to $6.7 million $356,000 x 100% x 50% = $178,000
-------------------------------------------------------------------------------------------
Equal to $11 million $356,000 x 100% x 100% = $356,000
-------------------------------------------------------------------------------------------
Equal to $14 million $356,000 x 100% x 125% = $445,000
-------------------------------------------------------------------------------------------
Equal to $17 million $356,000 x 100% x 150% = $534,000
-------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
EXHIBIT 10.13
Exhibit B to the January ____, 1997 Amendment to
the JMM Interim Management Agreement
Re: SALE BONUS
JMM shall be paid a Sale Bonus if Aqua-Chem is sold, calculated according to the
formula reflected in the attached schedule and based on the definitions below:
Definitions
"Net Consideration" shall mean the net present value of all consideration
received by (i) the Company (in the case of an asset transaction) net of
corporate-level income tax, or (ii) the shareholders of the Company, in the case
of the Sale of the stock of the Company or a merger, in either case net of all
expenses of the transaction.
"Sale" shall mean (i) a sale, at any time and from time to time, of
substantially all of the assets of the Company to a third party not related to
the Company, (ii) a sale to a management buy-out, (iii) a sale at any time
during the Employment Term of substantially all classes of outstanding stock of
the Company to a third party not related to the Company, or (iv) a merger or
consolidation in which upon consummation (x) the Company is not the surviving
corporation or (y) the current shareholders of the Company do not own a
controlling interest in the surviving company. Any Sale shall occur, if at all,
at the sole discretion of the shareholders of the Company.
The Sale Bonus shall be due and payable to JMM immediately after closing of the
Sale of Aqua-Chem
INITIAL:
AQUA-CHEM, INC.
By: /s/ PB
---------
J. MILLER MANAGEMENT, INC.
By: /s/ JAM
----------
<PAGE> 5
EXHIBIT 10.13
SALE BONUS
PURSUANT TO PARAGRAPH 3.2
<TABLE>
<CAPTION>
EXAMPLES
<S> <C>
=============================================================================================
If the Net Consideration Is: The Sale Bonus Is:
=============================================================================================
Less than $40 million $356,000
---------------------------------------------------------------------------------------------
Equal to or greater than $40 million, but $356,000 plus 1% of Net Consideration over $40
less than or equal to $45 million million.
---------------------------------------------------------------------------------------------
Greater than $45 million, but $356,000 plus 1% of Net Consideration over $40
less than or equal to $50 million million but not $45 million, and 2% of Net
Consideration over $45 million.
---------------------------------------------------------------------------------------------
Greater than $50 million, $356,000 plus 1% of Net Consideration over $40
but less than or equal to $55 million million but not over $45 million, and 2% of Net
Consideration over $45 million but not over
$50 million, and 3% of Net Consideration over
$50 million,
---------------------------------------------------------------------------------------------
Greater than $55 million, $356,000 plus 1% of Net Consideration over
but less than or equal to $60 million million but not over $45 million, and 2% of Net
Consideration over $45 million but not over $50
million, and 3% of Net Consideration over $50
million but not over $55 million, and 4% of Net
Consideration over $55 million but not over $60
million, and 5% of Net Consideration over $60
million.
==============================================================================================
EXAMPLES
=============================================================================================
If the Net Consideration Is: The Sale Bonus Is:
=============================================================================================
Equal to $40 million $356,000
Equal to $45 million $356,000 + $ 50,000 = $ 406,000
Equal to $50 million $356,000 + $150,000 = $ 506,000
Equal to $55 million $356,000 + $300,000 = $ 656,000
Equal to $60 million $356,000 + $500,000 = $ 856,000
Equal to $65 million $356,000 + $750,000 = $1,106,000
=============================================================================================
</TABLE>
<PAGE> 6
EXHIBIT 10.13
J. Miller Management, Inc. Letterhead
January 15, 1997
PRIVATE & CONFIDENTIAL
Mr. James A. Feddersen
Whyte Hirschboeck Dudek S.C.
Suite 2100
111 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(414) 223-5030 phone
(413) 223-5000 fax
Re: Addendum to the Extension of Jeff Miller's Contract with
Aqua-Chem, Inc. for 1997
Dear Jim:
Enclosed please find a signed copy of the Extension of Jeff Miller's Contract
with Aqua-Chem for 1997, which Patrick Babin and I signed on Sunday evening,
January 12, after my discussion with the Compensation Committee (Patrick Babin,
Bill Killian, and Bill Stallworth). Directors Guthrie & Switzer joined us during
the discussion. (To what extent Guthrie or Switzer participated in the
discussions I am not aware, as I was asked to leave the room for part of the
meeting.)
In addition to the Extension, I agree to the added condition by the Committee
that I be willing to extend this Agreement for an additional two years after the
closing date in the event of a sale of the Company to a third party. Patrick
indicted to me on the phone today that he would be satisfied with having you or
my attorney documents this further agreement. If you would add an addendum
covering this to the Extension, I would appreciate it. As I told Patrick, I am
willing to agree to the 2-year extension commitment on the basis that all other
terms of the Interim Management Agreement otherwise remain in "full force and
effect". However, there is one other stipulation that I would make, that the
base compensation and fees in the agreement increase by a minimum of 5%
annually, should this 2-year extension become necessary.
Secondly, Patrick would like to document the fact that the Sale Bonus, as
amended in paragraph 3.2, should be ascribed to two parts as follows:
Part I. Change of Control One year's base compensation
Part II. Sale Bonus An amount as calculated according to the
formula in Exhibit B (less the $356,000 base
compensation, which is paid under Part 1).
After you have had a chance to draft the addendum, I would appreciate it if you
would fax it to my personal attorney, Randy Wright in Birmingham, MI at
810/645-1233 for his review.
Sincerely,
J. MILLER MANAGEMENT, INC.
/s/ Jeff
Jeff Miller
President
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of the 13th day of August, 1998, by and
between Aqua-Chem, Inc., a Delaware corporation (the "Company"), and Daniel B.
Teich (the "Executive").
WITNESSETH:
WHEREAS, the Executive desires to be employed by the Company as
Division President, National Dynamics; and
WHEREAS, the Company desires to employ Executive in the capacity of Division
President, National Dynamics.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. DEFINITIONS.
Whenever used in this Agreement, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized:
(a) "Agreement" means this Employment Agreement.
(b) "Base Salary" means the salary of record paid to the Executive
as annual salary as set forth on Schedule A, excluding amounts
received under incentive or other bonus plans, whether or not
deferred.
(c) "Beneficiary" means the persons or entities designated or
deemed designated by the Executive pursuant to Section 11
herein.
(d) "Board" means the Board of Directors of the Company.
(e) "Cause" means any of the following as determined by the
Committee in the exercise of good faith and reasonable
judgment (i) the willful and continued refusal by the
Executive to perform his duties hereunder, other than by
reasons of health, after a written demand for such performance
is delivered to the Executive by the Company that identifies
the manner in which the Executive has refused to perform his
duties, (ii) the commission of an act by the Executive
constituting a felony under state or federal law, (iii) the
habitual abuse by the Executive of any substance (such as
narcotics or alcohol) which materially affects his ability to
perform his duties, or (iv) the Executive's engaging in an act
of fraud, dishonesty or gross misconduct in connection with
the business of the Company, or (v) conduct by the Executive
constituting a material breach of this Agreement.
<PAGE> 2
EXHIBIT 10.23
(f) As used herein a "Change In Control" shall be deemed to occur
if any of the following events occur:
(i) SALE. Those persons who are the holders of the shares
of Common Stock of the Company on August 5, 1998
and/or their affiliates, as a group, (the "Present
Common Stock Owners") at any time and for any reason
(a) cease to have the right to elect a majority of
the directors of the Company or to direct or cause
the direction of the management and policies of the
Company or (b) cease to own beneficially and of
record more than fifty percent (50%) of the
outstanding shares of Common Stock of the company on
a fully diluted basis; or
(ii) MERGER OR CONSOLIDATION. The Company merges or
consolidates with any other corporation or entity,
which results in the Present Common Stock owners (a)
ceasing to have the right to elect a majority of the
directors of the Company (or its successor) or to
direct or cause the direction of the management and
policies of the Company (or its successor) or (b)
ceasing to own beneficially and of record more than
fifty percent (50%) of the Common Stock of the
company (or its successor) on a fully diluted basis;
or
(iii) LIQUIDATION OR DISSOLUTION. The Company sells,
assigns or otherwise disposes all or substantially
all of the Company's assets in one or more
transactions or series of related transactions within
any period of 24 consecutive months other than to an
entity that the Present Common Stock Owners (a) have
the right to elect a majority of the directors or
direct or cause the direction of the management and
policies of and (b) own beneficially and of record
more than fifty percent (50%) of the outstanding
Common Stock (or comparable equity interest) of on a
fully diluted basis.
(g) "Committee" means the Compensation Committee of the Board.
(h) "Company" means Aqua-Chem, Inc., a Delaware corporation.
(i) "Effective Date" means the date this Agreement is executed on
behalf of the Company.
(j) "Effective Date of Termination" means the date on which a
termination of the Executive's employment occurs for any
reason whatsoever.
(k) "Executive" means Daniel B. Teich.
(l) "Good Reason" means, without the Executive's consent, the
occurrence of any one or more of the following:
<PAGE> 3
EXHIBIT 10.23
(i) the reassignment of the Executive to duties
materially inconsistent with the Executive's present
authorities, duties, responsibilities, and status
(including offices, titles and reporting
requirements) as an officer of the Company, or a
material reduction or material alteration in the
nature or status of the Executive's authorities,
duties or responsibilities, other than an act that is
remedied by the Company promptly after receipt of
written notice thereof given by the Executive, and
other than a promotion of the Executive to a position
accepted by the Executive which includes duties,
responsibilities, and status associated with the
position; or
(ii) a reduction by the Company of the Executive's Base
Salary or bonus opportunity as in effect on the
Effective Date (other than a reduction as part of an
overall reduction in compensation affecting all
senior management of the Company) or the exclusion of
the Executive by the Company from such incentive
compensation programs as the Company may, from time
to time, make available to the senior management of
the Company.
(m) "Permanent Disability" shall have the meaning set forth in the
Company's long-term disability program as in effect from time
to time.
(n) "Third Party" means any person(s) and/or business
organization(s) of any type other than the present
shareholders of the Company and their affiliates.
2. EMPLOYMENT TERM.
The employment term shall commence as of the Effective Date and shall
continue thereafter until the earlier of (i) 45 days after Executive's receipt
of written notice from the Company terminating employment pursuant to Section
6(b) of this Agreement; (ii) immediately upon Executive's receipt of written
notice terminating employment pursuant to Section 6(a) of this Agreement; (iii)
such date as the Company shall elect up to a maximum of 45 days after its
receipt of written notice from the Executive terminating employment pursuant to
Section 6(b) or 6(c) of this Agreement; or (iv) the Executive's death or
Permanent Disability.
3. DUTIES.
During the employment term, the Executive shall serve as Division
President, National Dynamics with such duties and responsibilities as may
reasonably be assigned or delegated to him from time to time according to
customary Company procedures. During his employment term, the Executive shall
devote his full time to the faithful and diligent performance of his duties for
the Company. Notwithstanding anything herein to the contrary, nothing shall
preclude the Executive from engaging in charitable and community affairs and
managing his personal investments so long as such activities do not interfere
with his carrying out his duties and responsibilities under this Agreement.
<PAGE> 4
EXHIBIT 10.23
4. COMPENSATION.
(a) BASE SALARY. During the employment term, the Executive shall
be paid by the Company a Base Salary payable (after deduction
of applicable taxes) in accordance with the payroll practices
of the Company. Initially, the Base Salary shall be as set
forth on Schedule A attached hereto. It is agreed between the
parties that the Company shall review the Base Salary annually
and in light of such review may, in the sole discretion of the
Committee, adjust such Base Salary taking into account any
change in the Executive's then responsibilities, increases in
the cost of living, performance of the Executive, and other
pertinent factors.
(b) INCENTIVE COMPENSATION. The Executive shall, during the
employment term, be eligible to participate in such incentive
compensation programs as the Company may, from time to time,
make available to its senior executives.
5. OTHER EMPLOYEE BENEFITS.
(a) BENEFIT PLANS. During the employment term, the Executive shall
be entitled to participate in all employee benefit programs as
the Company, from time to time, makes available to the
Company's senior executives, including, without limitation,
medical, disability and life insurance, and retirement plans.
401K Employer match contributions are immediately 100% vested.
The Executive shall be provided with the use of a leased car
at the Company's expense and shall be entitled to such other
prerequisites set forth on Schedule A.
(b) VACATION. The Executive shall be entitled to reasonable paid
annual vacation periods in accordance with the Company's
policies as in effect from time to time, but in no event shall
such vacation period be less than that set forth on Schedule A
attached hereto.
(c) REGULAR REIMBURSED BUSINESS EXPENSES. The Company shall
reimburse the Executive for all travel and other expenses
reasonably incurred by the Executive in the performance of his
duties during the employment term, in accordance with the
Company's policies in effect from time to time.
6. TERMINATION OF EMPLOYMENT.
(a) TERMINATION BY THE COMPANY FOR CAUSE. In the event
the Executive's employment is terminated by the
Company for Cause, the Executive shall be entitled to
his then current Base Salary through the Effective
Date of Termination.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE
EXECUTIVE WITH GOOD REASON. In the event the
Executive's employment is
<PAGE> 5
EXHIBIT 10.23
terminated by the Company without Cause or by the Executive
with Good Reason, then upon complying with the provisions of
Section 6(f) of this Agreement, but only upon such compliance,
the Executive shall be entitled to the following:
(i) SEVERANCE PAY. For a period of twelve (12) months
following the Effective Date of Termination, the
Executive shall continue to be paid his then current
Base Salary in accordance with the Company's normal
payroll practices and subject to withholding as
required by law; provided, however, that if at the
end of such twelve (12) month period the Executive,
despite continuing good faith and reasonable effects,
has been unable to obtain employment (including
self-employment), the Executive's Base Salary will be
continued until he obtains employment (including
self-employment) for up to an additional six (6)
months.
(ii) INCENTIVE COMPENSATION. In addition to the amount
specified in Section 6(b)(i), the Executive shall
also be paid an amount (subject to withholding as
required by law) equal to the target annual bonus
payable under the Company's annual bonus program for
management if the Effective Date of Termination is
within two years of the effective date of the
Agreement, or equal to the average annual bonus paid
to the Executive for the two years ended prior to the
Effective Date of Termination, if such date is more
than two years after the effective date of the
Agreement. This will be payable at the Company's
option in equal installments (in accordance with the
Company's normal payroll periods) over the eighteen
month period following the Effective Date of
Termination or in a lump sum promptly following the
Effective Date of Termination. With regard to the
Phantom Stock Plan, participants are eligible to
receive payment under the Plan unless termination was
for "Cause" (Cause includes such acts as violation of
confidentiality or noncompete agreements; acts of
fraud, dishonesty, or gross misconduct, and such
other acts which are deemed by the Board to
constitute a material breach of employment terms). In
the event of termination of employment (other than
for "Cause"), such Participant shall be entitled to
payout of the prorated Maturity Value of each Award
granted to such Participant, determined by
multiplying the Maturity Value of the Award by a
fraction, the numerator of which is the number of
months in the fiscal year ending on the Maturity Date
of such Award in which the Participant was employed
by Aqua-Chem (including the month of separation) and
the denominator is twelve.
<PAGE> 6
EXHIBIT 10.23
(iii) HEALTH AND DENTAL INSURANCE. If the Executive
exercises his COBRA rights with respect to medical
and dental insurance, the Executive shall be entitled
to receive such coverage for the 12 month period
following the Effective Date of Termination (or up to
18 months if the Executive has been unable to obtain
employment or become self-employed) at a cost equal
to the amount paid by then current employees of the
Company for such coverage;
(iv) OUTPLACEMENT SERVICES. The Executive shall be
furnished with outplacement services for a period of
up to 12 months paid for by the Company with such
firm as the Company then utilizes for such purposes;
and
(v) COMPANY AUTOMOBILE. The Executive shall be permitted
to use his leased Company automobile for 45 days
following the Effective Date of Termination and
during such period, shall have the right to purchase
such car from the leasing company at the price
specified in the lease.
In the event the Executive does not comply with the provisions
of Section 6(f) of this Agreement, the Executive shall be
entitled to his then current Base Salary through the Effective
Date of Termination.
(c) VOLUNTARY TERMINATION BY THE EXECUTIVE. In the event of a
termination of the Executive's employment by the Executive on
his own initiative other than for Good Reason, the Executive
shall be entitled to his then current Base Salary through the
Effective Date of Termination.
(d) DEATH OR PERMANENT DISABILITY OF THE EXECUTIVE. The employment
term shall terminate without notice and automatically upon the
death or Permanent Disability of Executive. Upon the
termination of the Executive's employment by reason of death
or Permanent Disability, the Executive or, in the event of his
death, the Executive's Beneficiary shall be entitled to
receive the Executive's then current Base Salary through the
Effective Date of Termination and incentive compensation
determined in accordance with Section 6(b)(ii) of this
Agreement.
(e) BENEFITS. Except as and to the extent specifically provided to
the contrary in this Section 6 or in Schedule A attached
hereto, the Executive's compensation and eligibility to
participate in programs or receive benefits provided by the
Company (other than those which have vested by virtue of
Executive's prior employment) shall terminate on the Effective
Date of Termination.
<PAGE> 7
EXHIBIT 10.23
(f) RELEASE. As condition precedents to receiving the severance
benefits described in Section 6(b) of this Agreement: (i) the
Executive shall, within 30 days after the Effective Date of
Termination, execute a Release in the form attached hereto as
Exhibit A; and (ii) the Executive shall not have revoked the
Release within the seven day revocation period provided by the
Older Workers Benefit Protection Act.
7. RESTRICTIONS.
(a) The Executive acknowledges and agrees that the Company's
business is by its nature international, the Company's
business and customer contacts have been established and
maintained at great expense, the Executive, by virtue of his
position with the Company, has and will continue to be privy
to the Company's most confidential business plans and
strategies which, without the restrictions hereinafter set
forth, would enable the Executive to compete unfairly with the
Company and, accordingly, such restrictions are reasonable and
necessary to protect the legitimate interests of the Company.
As a result, and in order to induce the Company to enter into
this Agreement and to provide the benefits described in this
Agreement, the Executive agrees to the restrictions set forth
in Section 7 and simultaneous with the execution of this
Agreement is entering into the Employee Confidentiality and
Proprietary Information Agreement attached hereto as Exhibit
B.
(b) The Executive hereby covenants and agrees that at no time
during the employment term and for a period of twelve (12)
months following the Effective Date of Termination will the
Executive directly or indirectly in any capacity whatsoever
(whether as an employee, officer, director, consultant,
partner, member, joint venturer, agent, representative or
otherwise) provide service, advice or assistance of any nature
to or acquire an ownership interest in (or acquire the right
to acquire an ownership interest in) a Competing Business (as
hereinafter defined). A "Competing Business" shall mean and be
limited to any business, regardless of the form of
organization, which (i) is engaged in the design, manufacture
and/or sale of products which are similar in design or
function to and otherwise compete with the products which were
under design or manufactured by the National Dynamics Division
of the Company or included in the Company's National Dynamics
Division product lines during the twelve month period
preceding the Effective Date of Termination. Notwithstanding
the preceding, the Executive shall not be prohibited from (i)
acquiring less than five percent (5%) of the stock of any
publicly traded company which may be engaged in a Competing
Business, or (ii) being employed by or otherwise providing
services to a company which, among its various businesses, is
engaged in a Competing
<PAGE> 8
EXHIBIT 10.23
Business provided that the Executive is not directly
or indirectly involved in any capacity whatsoever in
such Competing Business.
(c) The Executive hereby covenants and agrees that, at
all times during the employment term and for a period
of twelve (12) months following the Effective Date of
Termination, the Executive shall not directly or
indirectly, on behalf of himself or any other person,
entity, or business, employ or engage the services of
or seek to employ or engage the services of any
person employed by the National Dynamics Division of
the Company or any agent who represents the National
Dynamics Division of the Company during the period of
six months prior to the Effective Date of
Termination, or otherwise encourage or entice any
such person to terminate or diminish their
relationship with the National Dynamics Division of
the Company.
(d) The Executive hereby acknowledges and agrees (i) the
Executive's education and experience are such that
the foregoing restrictions will not unduly interfere
with his ability to earn a livelihood, (ii) the
Company would suffer irreparable harm in the event of
a violation of such restrictions, (iii) accordingly,
in addition to any other remedies available to it,
the Company shall be entitled to injunctive relief
without the posting of bond or other collateral and
the Executive shall not oppose the granting of such
relief, and, (iv) the Company is agreeing to employ
the Executive in reliance on the foregoing
restrictions and agreements. The Company shall be
entitled to all costs, including reasonable
attorneys' fees, in enforcing such restrictions or
pursuing damages for breach.
8. CHANGE IN CONTROL.
In the event of a Change In Control, the Executive shall be eligible,
as hereinafter set forth, to receive from the Company (or its successor pursuant
to such Change In Control) a "Change In Control Bonus" in an amount equal to (i)
$225,000, minus (ii) all amounts to be paid to the Executive in purchase or
cancellation of the stock or options described in the attached Equity
Compensation Package. An amount equal to one-half of the Change In Control Bonus
shall be paid to the Executive on the date of the Change In Control if, but only
if, the Executive is either (i) then employed by the Company, or its successor
or (ii) his employment was terminated within the 90 days preceding the date of
the Change In Control at the election of the Company for reasons other than
"Cause" or by the Executive for "Good Reason." The remaining one-half of the
Change In Control Bonus shall be paid to the Executive 180 days after the date
of the Change In Control if, but only if, the Executive is either (i) then
employed by the Company or its successor or (ii) his employment was terminated
within the 180 day period following the date of the Change In Control at the
election of the Company (or its successor pursuant to such Change In Control)
for reasons other than "Cause" or by the Executive for "Good Reason."
<PAGE> 9
EXHIBIT 10.23
9. ASSIGNABILITY; BINDING NATURE.
This Agreement shall inure to the benefit of the Company and the
Executive and their respective successors, heirs (in the case of the Executive)
and permitted assigns. Except as specifically provided to the contrary in this
Agreement, no rights or obligations of the Company or Executive under the
Agreement may be assigned or transferred. Notwithstanding the preceding, the
rights and obligations of the Company may be assigned or transferred pursuant to
a Change In Control provided that such assignee or transferee assumes the
liabilities, obligations and duties of the Company, as contained in this
Agreement, either contractually or as a matter of law.
10. BENEFICIARIES.
The Executive may designate one or more persons or entities as the
primary and/or contingent Beneficiaries of any payments owing to the Executive
under this Agreement. Such designation must be in the form of a signed writing
reasonably acceptable to the Company. The Executive may make or change such
designation by a similar written instrument signed by the Executive and
delivered to the Company at any time.
11. ENTIRE AGREEMENT.
This Agreement together with all Schedules and Exhibits attached hereto
contains the entire agreement between the Company and the Executive and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between them with respect thereto.
12. AMENDMENT OR WAIVER.
This Agreement cannot be changed, modified or amended without the prior
written consent of both the Executive and the Company. No waiver by either the
Company or the Executive at any time of any breach by the other party of any
condition or provision of this Agreement shall be deemed a waiver of a similar
or dissimilar condition or provision at the same or at any prior or subsequent
time. Any waiver must be in writing and signed by the Executive and an
authorized officer of the Company, as the case may be.
13. SEVERABILITY.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
<PAGE> 10
EXHIBIT 10.23
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
15. GOVERNING LAW.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of Wisconsin without reference to
principles of conflicts of laws.
16. NOTICES.
Any notice given to either party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the party concerned, if to the Company, at its principal office, and, if to the
Executive, at the address of the Executive shown on the Company's records, or at
such other address as such party may give notice of.
17. HEADINGS; CONSTRUCTION.
The headings of the paragraphs contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of
the date first written above.
/s/ Daniel B. Teich
---------------------------------------------
Daniel B. Teich, Individually
AQUA-CHEM, INC.
By: /s/ JA Miller
---------------------------------------------
Jeffrey A. Miller,
Chairman and Chief Executive Officer
<PAGE> 11
EXHIBIT 10.23
SCHEDULE A
Effective For Calendar Year 1998
EXECUTIVE: Daniel B. Teich
------------------------------------------
TITLE: Division President
------------------------------------------
GRADE: 32
------------------------------------------
DIVISION: National Dynamics
------------------------------------------
BASE SALARY: $225,000
------------------------------------------
EFFECTIVE DATE: ------------------------------------------
INCENTIVE COMPENSATION:
Management Incentive Plan Target: 35% of Base Salary
Phantom Stock Plan Target: 30% of Base Salary
Equity Compensation As per attached
OTHER EMPLOYEE BENEFITS:
General:
- Participation in all employee benefit
programs as the Company, from time-to-time, makes available to
the Company's senior executives.
Life Insurance:
- Universal Life Policy: $1,000,000 - Owned by the Executive,
paid by the Company (subject to insurability and based on
standard rates)
- $200,000 Accidental Death and Dismemberment (subject to
insurability and based on standard rates)
Vacation:
- Four (4) weeks / annually
Company Automobile:
- Lease vehicle
- Selection based on CEO approval
Other:
- Company subsidized membership at a country club of choice.
- $5,000 annual maximum
- Includes cost of annual membership fees (qtrly
minimums excluded)
- Financial planning / tax preparation: $3,000 annual max
- Home PC / Fax will be provided by the Company
- Professional Associations
/s/ JA Miller
- ---------------------------------- ------------------------------------
Date: 8/13/98
---------------
<PAGE> 12
EXHIBIT 10.23
EXHIBIT A
GENERAL RELEASE
________________________, (the "Employee"), for good and valuable consideration,
the receipt of which is hereby acknowledged, does hereby release and forever
discharge Aqua-Chem, Inc. ("Aqua-Chem") and all of its past, present and future
officers, directors, agents, employees, attorneys, shareholders, employee
benefit plans, divisions, parent corporations, subsidiary corporations,
affiliated corporations, successors and assigns (collectively the "Released
Parties") from any and all actions, causes of action, claims, suits, debts,
covenants, contracts, demands or liabilities of any kind or character
whatsoever, whether known or unknown, which the Employee has had or now has
against the Released Parties (or any of them) related to anything occurring
prior to or on the present date; provided, that Employee shall not be deemed to
have released any rights, benefits, or claims Employee may have under the
Aqua-Chem 1998 Stock Option Plan or Employee's Non-Statutory Stock Option
Agreement, dated first day of employment.
Without limiting the generality of the foregoing, this release applies to any
claims, causes of action, demands or liabilities the Employee may have had or
now has:
1. Under or pursuant to the Age Discrimination in Employment Act, as
amended.
2. Under or pursuant to Title VII of the Civil Rights Act of 1964, as
amended; the Civil Rights Act of 1991; the Wisconsin Fair Employment Act; the
Employee Retirement Income Security Act, as amended, or any other federal, state
or local statute or regulation relating to employment.
3. For libel, slander, defamation, damage to reputation, intentional or
negligent infliction of emotional distress, tortuous interference with the
employment or business relationship or other tortuous conduct or for wrongful
discharge or breach of contract whether express or implied.
4. Regarding any right which the Employee might have to current or future
employment with Aqua-Chem, its divisions or affiliated companies, and the
Employee affirms that he will not seek employment in the future with Aqua-Chem,
its divisions or affiliated companies.
The Employee acknowledges that he has been advised in writing (1) to consult
with an attorney prior to executing this General Release, and (2) that he had at
least twenty-one (21) days to consider this General Release prior to executing
it.
For a period of seven (7) days following the execution of this General Release,
the Employee shall have the right to revoke this General Release, and this
General Release shall not become effective or enforceable until seven (7) days
following such execution.
IN WITNESS WHEREOF, the undersigned has executed this General Release this______
day of____________________ , 19__.
____________________________________
<PAGE> 1
EXHIBIT 10.24
AQUA-CHEM, INC.
1998 STOCK OPTION PLAN
----------------------
<PAGE> 2
EXHIBIT 10.24
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1....................................................................................1
ESTABLISHMENT AND PURPOSES...........................................................1
1.1 Establishment and Effective Date.......................................1
1.2 Purposes...............................................................1
ARTICLE 2....................................................................................1
AWARDS...............................................................................1
2.1 Form of Awards.........................................................1
2.2 Maximum Shares Available; Maximum Annual Awards........................2
2.3 Return of Prior Awards.................................................2
ARTICLE 3....................................................................................2
ADMINISTRATION.......................................................................2
3.1 Board; Committee.......................................................2
3.2 Powers of the Board and the Committee..................................2
3.3 Delegation.............................................................2
3.4 Interpretations........................................................3
3.5 Liability; Indemnification.............................................3
ARTICLE 4....................................................................................3
ELIGIBILITY..........................................................................3
ARTICLE 5....................................................................................3
STOCK OPTIONS........................................................................3
5.1 Grant of Options.......................................................3
5.2 Designation as Non-Qualified Stock Option..............................4
5.3 Purchase Price.........................................................4
5.4 Exercise and Payment...................................................4
5.5 Vesting................................................................5
5.6 Rights as a Stockholder................................................5
ARTICLE 6....................................................................................5
RIGHT OF FIRST REFUSAL AND CALL OPTION; LEGENDS;
NONTRANSFERABILITY OF OPTIONS........................................................5
6.1 Right of First Refusal and Call Option.................................5
6.2 Legends................................................................6
6.3 Nontransferability of Options..........................................6
</TABLE>
i
<PAGE> 3
EXHIBIT 10.24
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 7....................................................................................7
EFFECT OF TERMINATION OF EMPLOYMENT,
DISABILITY, RETIREMENT, OR DEATH.....................................................7
7.1 General Rule...........................................................7
7.2 Disability or Retirement...............................................7
7.3 Death..................................................................7
7.4 Termination of Unvested Options........................................8
ARTICLE 8....................................................................................8
ADJUSTMENT UPON CHANGES IN CAPITALIZATION............................................8
ARTICLE 9....................................................................................8
TERM; AMENDMENT AND TERMINATION......................................................8
ARTICLE 10...................................................................................9
WRITTEN AGREEMENT....................................................................9
ARTICLE 11...................................................................................9
MISCELLANEOUS PROVISIONS.............................................................9
11.1 Tax Withholding........................................................9
11.2 Securities Laws........................................................9
11.3 Compliance with Section 16(b).........................................10
11.4 Successors............................................................10
11.5 General Creditor Status...............................................10
11.6 No Right to Employment................................................10
11.7 Notices...............................................................11
11.8 Severability..........................................................11
11.9 Governing Law.........................................................11
</TABLE>
ii
<PAGE> 4
EXHIBIT 10.24
AQUA-CHEM, INC.
1998 STOCK OPTION PLAN
ARTICLE 1
ESTABLISHMENT AND PURPOSES
1.1 ESTABLISHMENT AND EFFECTIVE DATE. Aqua-Chem, Inc., a Delaware
corporation ("Corporation"), hereby establishes a stock option plan to be known
as the "Aqua-Chem 1998 Stock Option Plan" ("Plan"). The Plan shall become
effective as of August 1, 1998, subject to the approval of the stockholders of
the Corporation (which is to be obtained within twelve (12) months from the
effective date of the Plan). Upon approval of the Plan by the Board of Directors
of the Corporation ("Board"), awards may be made directly by the Board or under
its supervision, through the agency of its Compensation Committee ("Committee"),
as provided herein. (References herein to the Board shall be deemed references
to the Committee the extent of any delegation by the Board to the Committee.) In
the event that timely stockholder approval is not obtained, any awards made
hereunder shall be canceled and all rights of employees with respect to such
awards shall thereupon automatically cease.
1.2 PURPOSES. The purposes of the Plan are: (i) to encourage and enable
key advisors, consultants and employees of the Corporation, its subsidiaries and
its affiliates ("Employees") to acquire a proprietary interest in the growth and
performance of the Corporation, (ii) to generate an increased incentive for key
Employees to contribute to the Corporation's future success and prosperity (as
well as the success and prosperity of its subsidiaries and affiliates), thus
enhancing the value of the Corporation for the benefit of its stockholders, and
(iii) to enhance the ability of the Corporation, its subsidiaries and its
affiliates to attract and retain key Employees who are essential to the
progress, growth and profitability of the Corporation, its subsidiaries and its
affiliates, in each case through the ownership of the Corporation's $.01 par
value common stock ("Common Stock"), and certain other rights relating to the
Common Stock.
ARTICLE 2
AWARDS
2.1 FORM OF AWARDS. Awards under the Plan may be granted only as
non-statutory stock options ("Non-statutory Stock Options") and not as options
known as "Incentive Stock Options" meeting the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended ("Code"). References in the Plan
to "Options" shall include only Non-statutory Stock Options and shall not
include Incentive Stock Options.
<PAGE> 5
EXHIBIT 10.24
2.2 MAXIMUM SHARES AVAILABLE; MAXIMUM ANNUAL AWARDS. The maximum
aggregate number of shares of Common Stock available for award under the Plan is
61,919, subject to adjustment upon changes in capitalization pursuant to Article
8 hereof. Shares of Common Stock issued under the Plan (pursuant to the granting
of Options) may be either authorized but unissued shares or issued shares
reacquired by the Corporation. In the event that, prior to the end of the period
during which Options may be granted under the Plan, any Option under the Plan
expires unexercised or is terminated, surrendered or canceled without being
exercised in whole or in part for any reason, then such unexercised shares shall
be available for subsequent awards under the Plan, subject to such terms and
conditions as the Board may determine.
2.3 RETURN OF PRIOR AWARDS. As a condition to any subsequent award to an
Employee who is an optionee under the Plan ("Optionee"), the Board shall have
the right, in its sole discretion, to require Optionees to return to the
Corporation awards previously granted under the Plan. Subject to the provisions
of the Plan, such new award shall be upon such terms and conditions as are
specified by the Board at the time the new award is granted.
ARTICLE 3
ADMINISTRATION
3.1 BOARD; COMMITTEE. Awards of Options shall be determined, and the
Plan shall be administered under the supervision of the Board, which may
exercise its powers directly or, to the extent herein provided, through the
Committee. The Committee may be appointed from time to time by the Board, and
shall consist solely of two or more persons, each of whom shall qualify as (i) a
"Non-Employee Director", as that term is defined in subparagraph (b)(3)(i) of
Rule 16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934,
as amended ("1934 Act"), and (ii) an "outside director", within the meaning of
Section 162(m) of the Code. (References to specific provisions of law shall be
deemed to include references to amendments or supplements thereto or subsequent
provisions of law of similar import. To the extent the Committee is appointed by
the Board, all references herein to the Board shall also be deemed to be
references to the Committee, unless the context clearly indicates otherwise.)
3.2 POWERS OF THE BOARD AND THE COMMITTEE. Subject to the express
provisions of the Plan, the Board shall have the power and authority: (i) to
grant Options and to determine the term of each Option, the number of shares of
Common Stock to be covered by each Option, the time or times at which each
Option shall become exercisable and the duration of the exercise period
applicable to each Option; (ii) to determine the Employees to whom, and the time
or times at which, Options shall be granted or made and; (iii) to take all other
actions contemplated to be taken by the Board under the Plan, including, but not
limited to, authorizing any written agreement relating to any award made
hereunder, as well as any amendment thereto.
3.3 DELEGATION. The Board and the Committee each may delegate to one or
more of its respective members or to any other person or persons such
ministerial duties hereunder as it may deem advisable; provided, however, that
neither the Board nor the Committee may delegate any of
2
<PAGE> 6
EXHIBIT 10.24
its responsibilities hereunder to any person who is not both a "Non-Employee
Director", as that term is defined in subparagraph (b)(3)(i) of Rule 16b-3, and
an "outside director", within the meaning of Section 162(m) of the Code. The
Board may also employ attorneys, consultants, accountants or other professional
advisors and shall be entitled reasonably to rely upon the advice, opinions or
valuations of any such advisors.
3.4 INTERPRETATIONS. The Board shall have discretionary authority to
interpret the terms of the Plan, to adopt and revise rules, regulations and
policies to administer the Plan and to make any other factual determinations
which they believe to be necessary or advisable for the administration of the
Plan. All actions taken and interpretations and determinations made by the Board
in good faith shall be final and binding upon the Corporation, all Employees and
all other interested persons.
3.5 LIABILITY; INDEMNIFICATION. No member of the Board or the Committee,
nor any person to whom ministerial duties have been delegated, shall be
personally liable for any action, interpretation or determination made with
respect to the Plan or awards made thereunder, and each member of the Board and
Committee shall be fully indemnified, held harmless and protected by the
Corporation with respect to any liability he or she may incur with respect to
any such action, interpretation or determination, to the extent permitted by
applicable law and, in addition, to the extent provided in the Corporation's
articles of incorporation and by-laws, as amended from time to time, or under
any agreement between any such member and the Corporation.
ARTICLE 4
ELIGIBILITY
Awards may be made to all Employees, subject to such requirements as may
be prescribed by the Board. In determining the Employees to whom awards shall be
granted and the number of shares of Common Stock to be covered by each award,
the Board shall take into account the nature of the services rendered by such
Employees, their present and potential contributions to the success of the
Corporation, its subsidiaries and its affiliates and such other factors as the
Board in its sole discretion shall deem relevant.
ARTICLE 5
STOCK OPTIONS
5.1 GRANT OF OPTIONS. Options may be granted under the Plan for the
purchase of shares of Common Stock. Options shall be granted in such form and
upon such terms and conditions, including the satisfaction of corporate or
individual performance objectives and other vesting standards as the Board shall
from time to time determine.
3
<PAGE> 7
EXHIBIT 10.24
5.2 DESIGNATION AS NON-QUALIFIED STOCK OPTION. In connection with any
grant of Options, the Board in the written agreement required pursuant to
Article 10 hereof shall designate all Options granted as Non-statutory Stock
Options and not as Incentive Stock Options.
5.3 PURCHASE PRICE. Subject to adjustment upon changes in capitalization
as provided in Article 8, the purchase price per share of Common Stock under
each Option shall be not less than $ 3.75 nor more than the Market Price (as
defined in Section 5.4 below) as determined by the Board in its discretion for
each Award.
5.4 EXERCISE AND PAYMENT. Options granted hereunder may be exercised in
whole or in part. Shares of Common Stock purchased upon the exercise of Options
shall be paid for at the time of purchase. Such payment may be made as follows
(or by any combination of the following): (i) in United States currency by
delivery of a certified check, bank draft or postal or express money order
payable to the order of the Corporation, (ii) by surrender of a number of Mature
Shares (as defined below) of Common Stock held by the Optionee exercising the
Option equal to the quotient obtained by dividing (A) the aggregate purchase
price payable with respect to the Options then being exercised by (B) the Market
Price (as hereinafter defined) on the date of exercise or (iii) if the
Corporation has established a program for the cashless exercise of Options
through a broker or other similar arrangements or programs, then in accordance
with the terms and conditions of such programs and arrangements. Any shares so
delivered shall be valued at their Market Price on the date of exercise. Upon
receipt of a notice of exercise and payment in accordance with procedures set
forth above, the Corporation or its agent shall deliver to the Optionee
exercising the Option(s) (or his or her designee) a certificate for such Shares.
In the event that payment for exercised Options is made through the surrender of
Mature Shares of Common Stock, the Board in accordance with procedures
established by it, and the terms of the Plan, may grant Non-statutory Stock
Options ("Restoration Options") to the person exercising the Option(s) for the
purchase of a number of shares equal to the number of shares of Common Stock
delivered to the Corporation in connection with the payment of the exercise
price of the Option(s) and the payment of or surrender of shares for any
employment or income withholding taxes due upon such exercise. The purchase
price per share under each Restoration Option shall be the Market Price of the
Common Stock on the date the Restoration Option is granted. "Mature Shares"
shall mean shares of Common Stock owned by the Optionee for a period of at least
six consecutive months prior to the exercise of the Option(s) in question.
"Market Price" shall mean the per share value of the Common Stock and shall be
determined as follows: (i) if the Common Stock is not listed on a national stock
exchange, quoted on NASDAQ or reported on by the National Quotation Bureau,
Inc., the Market Price on any day shall be the fair market value of one share of
Common Stock on such day as determined by the Board, which shall take into
account any valuation of the Common Stock by an independent valuation firm made
within 90 days of such determination; (ii) if the Common Stock is listed on a
national securities exchange or quoted through the NASDAQ National Market
System, the Market Price on any day shall be, in the sole discretion of the
Board, either (x) the average of the high and low reported consolidated trading
sales prices, or if no such sale is made on such day, the average of the closing
bid and asked prices reported on the consolidated trading listing for such day
or (y) the closing price reported on the consolidated trading listing for such
day; (iii) if the Common Stock is quoted on the NASDAQ interdealer quotation
system, the Market Price on any day shall be the
4
<PAGE> 8
EXHIBIT 10.24
average of the representative bid and asked prices at the close of business for
such day; (iv) if the Common Stock is not listed on a national stock exchange or
quoted on NASDAQ, the Market Price on any day shall be the average of the high
bid and low asked prices reported by the National Quotation Bureau, Inc. for
such day, or (v) if none of the foregoing are applicable, then the Company shall
promptly appoint as an appraiser an individual who shall be a member of a
nationally recognized investment banking firm who shall be instructed to, within
30 days of appointment, to determine the Market Price per share of Common Stock
which shall be deemed to be equal to the fair market value per share of Common
Stock as of such date.
5.5 VESTING. Vesting refers to an Option's becoming exercisable for the
first time. Subject to the provisions of Article Seven, Options shall vest as
follows:
(a) Any Option shall vest on the seventh anniversary of the date of
the grant of such Option.
(b) Notwithstanding subsection (a) of this Section 5.5, the vesting
of the Options granted to any Optionee shall be accelerated in accordance with
the vesting provisions contained in the written agreement, referred to in
Article 10, entered into between the Corporation and the Optionee at the time
the Option is granted.
5.6 RIGHTS AS A STOCKHOLDER. Subject to Section 1.1, an Optionee shall
have no rights as a stockholder with respect to any shares issuable or
transferable upon exercise thereof until the Option has been validly exercised
and payment received by the Company in accordance with Section 5.4 of the Plan.
Except as otherwise expressly provided in the Plan or by the Board, no
adjustment shall be made for cash dividends or other rights for which the record
date is prior to such date.
ARTICLE 6
RIGHT OF FIRST REFUSAL AND CALL OPTION; LEGENDS;
NONTRANSFERABILITY OF OPTIONS
6.1 RIGHT OF FIRST REFUSAL AND CALL OPTION. The Corporation shall have a
right of first refusal with respect to any sale, transfer, gift, assignment,
pledge, encumbrance or other disposition by an Optionee of shares of Common
Stock issued to him or her upon the exercise of an Option ("Exercise Stock"). In
the event that an Optionee receives a bona fide offer to purchase, or desires to
sell, transfer, assign, pledge, encumber or otherwise dispose of, his or her
Exercise Stock, then such Optionee shall deliver a notice to the Corporation
stating the terms of such proposed sale, transfer, gift, assignment, pledge,
encumbrance or disposition, which notice must include the number of shares
subject to such action, the price per share, if any, and the name and address of
the transferee ("Optionee Notice"). The Corporation shall have fourteen (14)
days from its receipt of the Optionee Notice ("Purchase Period") to purchase up
to the number of shares stated therein at a price per share equal to (a) in the
case of a proposed pledge, encumbrance, gift or similar disposition, the Market
Price (as determined under Section 5.3 hereof) as of the date of the Optionee
5
<PAGE> 9
EXHIBIT 10.24
Notice, or (b) in the case of a proposed sale, the lesser of Market Price on the
date of the Optionee Notice or the proposed purchase price as set forth in the
Optionee Notice. For a period of thirty (30) days after the expiration of the
Purchase Period, the Optionee may dispose of any and all shares not purchased by
the Corporation but only upon the terms and to the person set forth in the
Optionee Notice. In the event that any person who at any time was an Optionee
ceases for any reason to be an Employee then, from and after the date of such
Optionee's ceasing to be an Employee, the Corporation, by written notice to such
Optionee or any person who acquired Exercise Stock from such Optionee, shall
have the right (the "Call Option") to purchase and require the holder to sell
any Exercise Stock held by such Optionee or a transferee of such Optionee at the
Market Price as of the date of the Corporation's written notice. The right of
first refusal and Call Option set forth in this Section 6.1 shall terminate upon
the consummation of an initial public offering of the Common Stock.
6.2 LEGENDS. All certificates evidencing shares of Common Stock acquired
pursuant to the exercise of an Option granted hereunder shall bear (a) a
securities legend as follows:
The shares of Aqua-Chem, Inc. (The "Company") evidenced by this
certificate have not been registered under any securities laws and
may only be sold, transferred or otherwise disposed of in compliance
with applicable securities laws. In particular, the shares evidenced
by this certificate have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and may not be sold,
transferred or otherwise disposed of unless (1) an effective
registration statement under the Securities Act shall then be in
effect with respect to such shares, or (2) the Company shall have
received an opinion of counsel reasonably acceptable to the Company
that any proposed sale, transfer or other disposition of such shares
is exempt from registration under the Securities Act.
and (b) a legend regarding the "right of first refusal and call option" as
follows:
The shares of Aqua-Chem, Inc. evidenced by this certificate are
subject to a right of first refusal pursuant to the terms of the
Aqua-Chem, Inc. 1998 Stock Option Plan and cannot be transferred on
the books of the Company except in compliance therewith. The shares
of Aqua-Chem, Inc. evidenced by this certificate are also subject to
a call option (which grants the Company the right to repurchase the
shares under certain circumstances) pursuant to the terms of the
Aqua-Chem, Inc. 1998 Stock Option Plan. A copy of the Aqua-Chem,
Inc. 1998 Stock Option Plan is available for inspection at the
offices of the Company.
6.3 NONTRANSFERABILITY OF OPTIONS. No Option may be transferred,
assigned, pledged or hypothecated (whether by operation of law or otherwise),
except as provided by will or the applicable laws of descent and distribution,
and no Option shall be subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other disposition of an
Option not specifically permitted herein shall be null and void and without
effect. An Option may be exercised only by the Optionee who received such Option
during his or her lifetime, or
6
<PAGE> 10
EXHIBIT 10.24
following his or her death pursuant to Section 7.3 hereof. Notwithstanding
anything to the contrary in the preceding paragraph, the Board may, in its sole
discretion, cause the written agreement relating to any Non-statutory Stock
Options granted hereunder to provide that the recipient of such Non-statutory
Stock Options may transfer any of such Non-statutory Stock Options other than by
will or the laws of descent and distribution in any manner authorized under
applicable law; provided, however, that in no event may the Board permit any
transfers which would cause the Plan to fail to satisfy the applicable
requirements of Rule 16b-3 under the 1934 Act or which would cause any recipient
of awards hereunder to fail to be entitled to the benefits Rule 16b-3 or other
exemptive rules under Section 16 of the 1934 Act or be subject to liability
thereunder.
ARTICLE 7
EFFECT OF TERMINATION OF EMPLOYMENT,
DISABILITY, RETIREMENT, OR DEATH
7.1 GENERAL RULE. In the event that an Optionee ceases to be an Employee
for any reason other than Disability or Retirement (as hereinafter defined) or
death, any Options which were held by such Employee ("Terminated Employee") on
the date on which he or she ceased to be an Employee (the "Termination Date")
and which were otherwise exercisable on such date shall terminate unless
exercised within the period of 60 days following the Termination Date, but in no
event after the expiration of the exercise period of such Options. An Option may
be forfeited upon a Terminated Employee's Termination Date if the Terminated
Employee was terminated for "cause". For purposes of this Section 7.1, the term
"cause" shall mean any one (or more) of the following: (i) the Terminated
Employee's commission of any fraud, misappropriation or misconduct which causes
demonstrable injury to the Corporation or a subsidiary or affiliate; or (ii) an
act of dishonesty by the Terminated Employee resulting or intended to result,
directly or indirectly, in gain or personal enrichment at the expense of the
Corporation or a subsidiary or affiliate; or (iii) as defined in any agreement
between the Terminated Employee in question and the Corporation. It shall be
within the sole discretion of either the Board to determine whether a Terminated
Employee's termination was for one of the foregoing reasons, and its decision
shall be final and conclusive.
7.2 DISABILITY OR RETIREMENT. In the event of a termination of
employment of a Terminated Employee due to the Disability (as defined below) or
Retirement (as defined below) of such Employee, any Options which were held by
such Terminated Employee on the Termination Date and which were otherwise
exercisable on such date shall expire unless exercised within the period of 365
days following such date, but in no event after the expiration date of the
exercise period of such Options. "Disability" shall have the meaning set forth
in Section 22(e)(3) of the Code. "Retirement" shall mean a termination of the
performance of services to the Corporation or a subsidiary or affiliate with the
written consent of the Board, which may be granted or withheld in its sole
discretion. The decision of the Board whether Retirement has occurred shall be
final and conclusive.
7.3 DEATH. In the event of the death of an Optionee, any Options which
were held by such Terminated Employee at the date of death and which were
otherwise exercisable on such date
7
<PAGE> 11
EXHIBIT 10.24
shall be exercisable by the beneficiary designated by the Optionee for such
purpose ("Beneficiary"). An Optionee may from time to time revoke or change his
Beneficiary without the consent of any prior Beneficiary by filing a new
designation with the Committee. The last such designation received by the
Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Optionee's death, and in no event shall any designation
be effective as of a date prior to such receipt. If no such Beneficiary
designation is in effect at the time of the Optionee's death, or if no
designated Beneficiary survives, the Optionee or if such designation conflicts
with law, the Optionee's estate acting through his legal representative, shall
be entitled to exercise the Option, to the extent it is exercisable for a period
of two (2) years from the date of death, but in no event later than the
expiration date of the exercise period of such Options, at which time such
Options shall expire. If the Committee is in doubt as to the right of any person
to exercise the Option, the Corporation may refuse to recognize such exercise,
without liability for any interest or dividends on the Optioned Shares, until
the Committee determines the person entitled to exercise the Option, or the
Corporation may apply to any court of appropriate jurisdiction and such
application shall be a complete discharge of the liability of the Corporation
therefor.
7.4 TERMINATION OF UNVESTED OPTIONS. All Options which were not
exercisable by a Terminated Employee as of the Termination Date of such
Terminated Employee shall terminate as of such date. Options shall not be
affected by any change of employment by an Optionee so long as such Optionee
continues to be employed by either the Corporation or its subsidiary or
affiliate.
ARTICLE 8
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Notwithstanding any other provision of the Plan, the Board may: (i) at
any time, make or provide for such adjustments to the Plan or to the number and
class of shares of Common Stock available thereunder or to the minimum purchase
price per share of Common Stock or (ii) at the time of grant of any Options,
provide for such adjustments to such Options, as the Board shall deem
appropriate, but only to prevent dilution or enlargement of rights, including,
without limitation, adjustments in the event of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations or exchanges of shares,
separations, spin-offs, reorganizations, liquidations and the like.
ARTICLE 9
TERM; AMENDMENT AND TERMINATION
No Option shall be granted under the Plan after the earlier of (i) ten
(10) years from the effective date of the Plan, or (ii) the termination of the
Plan pursuant to this Article 10. However, unless otherwise expressly provided
in the Plan or in an applicable written agreement required pursuant to Article
10, any Option theretofore granted may extend beyond such date, and any
authority of the Board to amend, alter, suspend, discontinue or terminate any
such Option, or to waive
8
<PAGE> 12
EXHIBIT 10.24
any conditions or rights under any such Option and the authority of the Board to
amend the Plan, shall extend beyond such date. The Board may suspend, terminate,
modify or amend the Plan, provided that any amendment that would: (i) materially
increase the aggregate number of shares which may be issued under the Plan, (ii)
materially increase the benefits accruing to Optionees, or (iii) materially
modify the requirements as to eligibility for participation in the Plan, shall
be subject to the approval of the Corporation's stockholders, except that any
such increase or modification that may result from adjustments authorized by
Article 8 hereof shall not require such stockholder approval. If the Plan is
terminated, the terms of the Plan shall, notwithstanding such termination,
continue to apply to awards granted prior to such termination. No suspension,
termination, modification or amendment of the Plan may, without the consent of
the Optionee to whom an award shall theretofore have been granted, adversely
affect the rights of such Optionee under such award.
ARTICLE 10
WRITTEN AGREEMENT
Each award of Options shall be evidenced by a written agreement
containing such restrictions, terms and conditions, if any, as the Board may
require. In the event of any conflict between a written agreement and the Plan,
the terms of the Plan shall govern.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 TAX WITHHOLDING. The Corporation shall have the right to require
Optionees or their beneficiaries or legal representatives to remit to the
Corporation an amount sufficient to satisfy Federal, state and local employment
and income tax withholding requirements, or to deduct from all payments under
the Plan amounts sufficient to satisfy all such requirements. Whenever payments
under the Plan are to be made to an Optionee in cash, such payments shall be net
of any amounts sufficient to satisfy all Federal, state and local employment and
income tax withholding requirements. The Board may, in its sole discretion,
permit an Optionee to satisfy his or her withholding obligations either by (i)
surrendering of Common Stock owned by the Optionee or (ii) having the
Corporation withhold from shares of Common Stock, or other compensation,
otherwise deliverable or payable to the Optionee. Shares of Common Stock
surrendered or withheld shall be valued at their Market Price as of the date on
which income is required to be recognized for Federal income tax purposes.
11.2 SECURITIES LAWS. Each Option granted under the Plan shall be
subject to the requirement that, if at any time the Board shall determine, in
its sole discretion, that the listing, registration or qualification of the
shares of Common Stock issuable or transferable upon exercise thereof upon any
securities exchange or under any state or Federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Option or the issue,
transfer, or purchase of the shares of Common Stock thereunder, such Option may
not be exercised in whole or in part unless such listing, registration,
9
<PAGE> 13
EXHIBIT 10.24
qualification, consent, or approval shall have been effected or obtained free of
any conditions not acceptable to the Board. The Board may, in connection with
the granting of any Option, require the Optionee to whom the Option is to be
granted to enter into an agreement with the Corporation stating that as a
condition precedent to each exercise of the Option, in whole or in part, such
Optionee shall, if then required by the Corporation, represent to the
Corporation in writing that such exercise is for investment only and not with a
view to distribution, and also setting forth such other terms and conditions as
the Board may prescribe.
11.3 COMPLIANCE WITH SECTION 16(B). In the case of Optionees who are or
may be subject to Section 16 of the 1934 Act, it is the intent of the
Corporation that the Plan and any award granted hereunder satisfy and be
interpreted in a manner that satisfies the applicable requirements of Rule 16b-3
so that such Optionees will be entitled to the benefits of Rule 16b-3 or other
exemptive rules under Section 16 of the 1934 Act and will not be subjected to
liability thereunder. If any provision of the Plan or any award would otherwise
conflict with the intent expressed herein, that provision, to the extent
possible, shall be interpreted and deemed amended so as to avoid such conflict.
To the extent of any remaining irreconcilable conflict with such intent, such
provision shall be deemed void as applicable to Employees who are or may be
subject to Section 16 of the 1934 Act.
11.4 SUCCESSORS. The obligations of the Corporation under the Plan shall
be binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the Corporation, or upon any
successor corporation or organization succeeding to all or substantially all of
the assets and business of the Corporation. In the event of any of the
foregoing, the Board may, in its discretion prior to the consummation of the
transaction and subject to Article 9 hereof purchase, exchange, adjust or modify
any outstanding Options, in such manner as the Board deems appropriate and in
accordance with applicable law and in the event the Board does not do so all
outstanding options shall become fully vested and exercisable.
11.5 GENERAL CREDITOR STATUS. Optionees shall have no right, title, or
interest whatsoever in or to any investments which the Corporation may make to
aid it in meeting its obligations under the Plan. Nothing contained in the Plan,
and no action taken pursuant to its provisions, shall create or be construed to
create a trust of any kind, or a fiduciary relationship between the Corporation
and any Optionee or legal representative of such Optionee. To the extent that
any person acquires a right to receive payments from the Corporation under the
Plan, such right shall be no greater than the right of an unsecured general
creditor of the Corporation. All payments to be made hereunder shall be paid
from the general funds of the Corporation and no special or separate fund shall
be established and no segregation of assets shall be made to assure payment of
such amounts except as expressly set forth in the Plan.
11.6 NO RIGHT TO EMPLOYMENT. Nothing in the Plan or in any written
agreement entered into pursuant to Article 10 hereof, nor the grant of any
award, shall confer upon any Employee any right to continue in the employ of the
Corporation or a subsidiary or affiliate or to be entitled to any remuneration
or benefits not set forth in the Plan or such written agreement or interfere
with or limit the right of the Corporation or a subsidiary or affiliate to
modify the terms of or terminate such Employee's employment at any time.
10
<PAGE> 14
EXHIBIT 10.24
11.7 NOTICES. Notices required or permitted to be given under the Plan
shall be sufficiently given if in writing and personally delivered to an
Employee or sent by regular mail addressed: (a) to an Employee at the Employee's
address as set forth in the books and records of the Corporation or its
subsidiaries or affiliates, or (b) to the Corporation or the Board at the
principal office of the Corporation clearly marked "Attention: Board of
Directors - Compensation Committee."
11.8 SEVERABILITY. In the event that any provision of the Plan shall be
held illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
11.9 GOVERNING LAW. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Wisconsin.
11
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of Registration
Statement File No. 333-60759.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
October 20, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Aqua-Chem, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data of Aqua-Chem" and
"Independent Auditors" in the prospectus.
/s/ KPMG Peat Marwick LLP
Milwaukee, Wisconsin
October 20, 1998
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
AQUA-CHEM, INC.
OFFER FOR ALL OUTSTANDING
11 1/4% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
11 1/4% SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
PURSUANT TO THE PROSPECTUS DATED , 1998
AQUA-CHEM, INC. WILL ACCEPT ALL EXISTING NOTES (AS HEREINAFTER DEFINED) TENDERED
AND NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON
, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY
BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. NEW YORK CITY TIME ON THE EXPIRATION
DATE.
THE EXCHANGE AGENT IS:
UNITED STATES TRUST COMPANY OF NEW YORK ("USTC")
<TABLE>
<CAPTION>
By Mail: Facsimile Transmission Number: By Hand up to 4:30 p.m.:
-------- ------------------------------ ------------------------
<S> <C> <C>
United States Trust (212) 780-0592 United States Trust
Company of New York (For Eligible Company of New York
P.O. Box 844 Institutions Only) 111 Broadway
Cooper Station Lower Level
New York, New York 10276-0844 Confirm by Telephone: New York, New York 10006
Attn: Corporate Trust Attn: Corporate Trust
Services (800) 548-6565 Services
(Registered or Certified
Mail Recommended)
</TABLE>
<TABLE>
<CAPTION>
By Overnight Courier and
by Hand after 4:30 p.m. on
the Expiration Date Only:
--------------------------
<S> <C> <C>
United States Trust
Company of New York
770 Broadway
13th Floor
New York, New York 10003
Attn: Corporate Trust
Services
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN
THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET
FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER
OF TRANSMITTAL IS COMPLETED.
<PAGE> 2
The undersigned acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus") of Aqua-Chem, Inc., a Delaware
corporation ("Aqua-Chem" or the "Company"), and this Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer") to exchange an aggregate of up to $125,000,000 principal
amount of its 11 1/4% Senior Subordinated Notes due 2008 which have been
registered under the Securities Act of 1933, as amended ("Exchange Notes") for a
like principal amount of its issued and outstanding 11 1/4% Senior Subordinated
Notes due 2008 (the "Existing Notes"). Recipients of a Prospectus should read
the requirements described in such Prospectus with respect to eligibility to
participate in the Exchange Offer. Capitalized terms used but not defined herein
have the meanings ascribed to them in the Prospectus.
The Letter of Transmittal is to be completed by a holder of Existing Notes
in order to tender Existing Notes. Certificates representing Existing Notes must
be forwarded with this Letter of Transmittal, unless (i) tender of Existing
Notes is made by book-entry transfer pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer -- How to Tender" and
"-- Exchanging Book-Entry Notes" or (ii) according to the guaranteed delivery
procedures set forth under the caption "The Exchange Offer -- How to Tender" in
the Prospectus; in either case, instructions may be transmitted through the
Automated Tender Offer Program ("ATOP") of the Depository Trust Company ("DTC"
or the "Book-Entry Transfer Facility").
Holders of Existing Notes that are tendering by book-entry transfer to the
Exchange Agent's account at DTC can execute the tender through ATOP for which
the transaction will be eligible. DTC participants that are accepting the
Exchange Offer must transmit their acceptances to DTC which will verify the
acceptance and execute a book-entry delivery to the Exchange Agent's account at
DTC. DTC will then send an Agent's Message to the Exchange Agent for its
acceptance. Delivery of the Agent's Message by DTC will satisfy the terms of the
Exchange Offer as to execution and delivery of a Letter of Transmittal by the
participant identified in the Agent's Message. DTC participants may also tender
their Existing Notes by submitting a Notice of Guaranteed Delivery through ATOP.
Any beneficial owner whose Existing Notes are registered the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such holder of Existing Notes promptly and instruct
such holder of Existing Notes to tender on behalf of the beneficial owner. If
such beneficial owner wishes to tender on his own behalf, such beneficial owner
must, prior to completing and executing this Letter of Transmittal and
delivering his Existing Notes, either make appropriate arrangements to transfer
record ownership of the Existing Notes in such beneficial owner's name or obtain
a properly completed bond power from the record holder of Existing Notes. The
transfer of record ownership may take considerable time.
In order to properly complete this Letter of Transmittal, a holder of
Existing Notes must (i) complete the box entitled "Description of Existing
Notes"; (ii) if appropriate, check and complete the boxes relating to book-entry
transfer, guaranteed delivery, Special Issuance Instructions and Special
Delivery Instructions; (iii) sign the Letter of Transmittal by completing the
box entitled "Sign Here"; and (iv) complete the Substitute Form W-9. Each holder
of Existing Notes should carefully read the detailed instructions below prior to
completing the Letter of Transmittal.
Holders of Existing Notes who desire to tender the Existing Notes for
exchange and (i) whose Existing Notes are not immediately available; (ii) who
cannot deliver their Existing Notes and all other documents required hereby to
the Exchange Agent on or prior to the Expiration Date; or (iii) who are unable
to complete the procedure for book-entry transfer on a timely basis, must tender
the Existing Notes pursuant to the guaranteed delivery procedures set forth
below. See Instruction 2.
Holders of Existing Notes who wish to tender their Existing Notes for
exchange must, at a minimum, complete columns (1) through (3) in the box below
entitled "Description of Existing Notes" and sign the box below entitled "Sign
Here." If only these columns are completed, such holder of Existing Notes will
have tendered for exchange all Existing Notes listed in column (3) below. If the
holder of the Existing Notes wishes to tender for exchange less than all of such
Existing Notes, column (4) must be completed in full. In such case, such holder
of Existing Notes should refer to Instruction 5.
2
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF EXISTING NOTES
---------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
---------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
CERTIFICATE AGGREGATE PRINCIPAL TENDERED FOR
NAME(S) AND ADDRESS(ES) OF REGISTERED NOTE HOLDER(S), NUMBER(S)(1) AMOUNT REPRESENTED EXCHANGE (ONLY IF
EXACTLY AS NAME(S) APPEAR(S) (ATTACH SIGNED BY DIFFERENT FROM COL.
ON NOTE CERTIFICATE(S) LIST, IF NECESSARY) SUCH CERTIFICATE(S) (3))(2)
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF EXISTING NOTES:
---------------------------------------------------------------------------------------------------------------------
(1) Column (2) need not be completed by holders of Existing Notes tendering Existing Notes for exchange by
book-entry transfer. Please check the appropriate box below and provide the requested information.
(2) The minimum permitted tender is $1,000 in principal amount of Existing Notes. All other tenders must be in
integral multiples of $1,000 of principal amount. Column (4) need not be completed by holders of Existing Notes
who wish to tender for exchange the principal amount of Existing Notes listed in Column (3). Completion of
Column (4) will indicate that the holder of Existing Notes wishes to tender for exchange only the principal
amount of Existing Notes indicated in Column (4).
---------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
TENDER OF EXISTING NOTES
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE DELIVERED HEREWITH.
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH USTC AND
COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE GUARANTOR INSTITUTIONS (AS
HEREINAFTER DEFINED) ONLY).
Name of Tendering Institution:
----------------------------------------------
Account Number:
-------------------------------------------------------------
Transaction Code Number:
------------------------------
By crediting the Existing Notes to the Exchange Agent's account at USTC in
accordance with USTC's procedures with respect to the Exchange Offer,
including transmitting a computer-generated message (an "Agent's Message")
to the Exchange Agent in which the holder of the Existing Notes acknowledges
and agrees to be bound by the terms of this Letter of Transmittal and
confirms on behalf of itself and the beneficial owners of such Existing
Notes all provisions of this Letter of Transmittal applicable to it and such
beneficial owners as fully as if it had completed the information required
herein and executed and transmitted this Letter of Transmittal to the
Exchange Agent.
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE GUARANTOR INSTITUTIONS (AS HEREINAFTER DEFINED) ONLY):
Name of Registered Holder of Existing Note(s):
------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-------------------------
Window Ticket Number (if available):
----------------------------------------
Name of Institution Which Guaranteed Delivery:
------------------------------
Account Number (if delivered by book-entry transfer):
-----------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-----------------------------------------------------------------------
Address:
--------------------------------------------------------------------
[ ] CHECK HERE IF THE BENEFICIAL OWNER OF THE EXISTING NOTES IS A PARTICIPATING
BROKER-DEALER AND SUCH PARTICIPATING BROKER-DEALER ACQUIRED THE EXISTING
NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER
TRADING ACTIVITIES.
4
<PAGE> 5
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Pursuant to the offer by Aqua-Chem, Inc. (the "Company") upon the terms and
conditions set forth in the Prospectus dated , 1998 (the "Prospectus")
of the Company and this Letter of Transmittal (the "Letter of Transmittal"),
that together constitute the Company's offer (the "Exchange Offer") to exchange
an aggregate of up to $125,000,000 principal amount of its 11 1/4% Senior
Subordinated Notes due 2008 which have been registered under the Securities Act
of 1933, as amended ("Exchange Notes") for a like principal amount of its issued
and outstanding 11 1/4% Senior Subordinated Notes due 2008 (the "Existing
Notes"), the undersigned hereby tenders to the Company for exchange the Existing
Notes identified above (hereinafter the "Tendered Existing Notes").
Subject to, and effective upon, the acceptance for exchange of the Tendered
Existing Notes, the undersigned hereby exchanges, assigns, and transfers to, or
upon the order of, the Company, all right, title, and interest in, to, and under
the Tendered Existing Notes.
Unless otherwise indicated under "Special Issuance Instructions," above,
please issue the Exchange Notes exchanged for Tendered Existing Notes in the
name(s) of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions," above, please send or cause to be sent the certificates
for the Exchange Notes (and accompanying documents, as appropriate) to the
undersigned at the address shown below.
The undersigned understands that tenders of Existing Notes 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 Company 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
Rights." All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any 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 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 Existing Notes, 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 Existing Notes to the
Company or cause ownership of the Tendered Existing Notes to be transferred to,
or upon the order of, the Company, on the books of the registrar for the
Existing Notes and deliver all accompanying evidences of transfer and
authenticity to, or upon the order of, the Company upon receipt by the Exchange
Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon acceptance by the Company of the Tendered Existing
Notes pursuant to the Exchange Offer, and (ii) receive all benefits and
otherwise exercise all rights of beneficial ownership of the Tendered Existing
Notes, all in accordance with the terms of the Exchange Offer.
The undersigned hereby represents and warrants that (i) the undersigned is
the registered owner of all the Tendered Existing Notes; (ii) it has received
from each beneficial owner of the Tendered Existing Notes ("Beneficial Owner") a
duly completed and executed form of "Instruction to Registered 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; and (iii) the undersigned has full
power and authority to tender, exchange, assign, and transfer the Tendered
Existing Notes and the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges, encumbrances, and adverse
claims when the Tendered Existing Notes are acquired by the Company as
contemplated herein. The undersigned and each Beneficial Owner will, upon
request, execute and deliver any additional documents reasonably requested by
the Company or the Exchange Agent as necessary or desirable to complete and give
effect to the transactions contemplated hereby.
5
<PAGE> 6
The undersigned hereby represents and warrants that the information set
forth above under "DESCRIPTION OF EXISTING NOTES" is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Notes 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 any
Beneficial Owner(s) are not participating, do not intend to participate, and
have no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes; (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 Company;
and (iv) the undersigned and any Beneficial Owner(s) acknowledge and agree that
any person participating in the Exchange Offer with the intention or for the
purpose of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale of the Exchange Notes 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, by
accepting the Exchange Offer, the undersigned hereby (a) represents and warrants
that, if the undersigned or any Beneficial Owner of the Existing Notes is a
Participating Broker-Dealer, such Participating Broker-Dealer acquired the
Existing Notes 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 any person to distribute the Exchange Notes to be received in
the Exchange Offer; and (b) acknowledges that, by receiving Exchange Notes for
its own account in exchange for Existing Notes, where such Existing Notes 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
Exchange Notes.
6
<PAGE> 7
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF EXISTING NOTES
REGARDLESS OF WHETHER EXISTING NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
X
-------------------------------------------------------------------------------
X
-------------------------------------------------------------------------------
Date:
--------------------------------------------
Must be signed by the registered holder(s) of Existing Notes exactly as
name(s) appear(s) on certificate(s) representing Existing Notes or on a security
position listing or by person(s) authorized to become registered holder(s) by
certificates and documents transmitted with this Letter of Transmittal. 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 set forth his or her full title below (see Instruction 6).
Name(s)
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity (full title)
-----------------------------------------------------------
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip/Postal Code)
Area Code and Telephone No. ( )
--------- -----------------------------------------
Tax Identification or Social Security Number
------------------------------------
Please complete Substitute Form W-9
MEDALLION SIGNATURE GUARANTEE
(SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 1)
Authorized Signature
------------------------------------------------------------
Dated
-------------------------------------------
Name and Title
------------------------------------------------------------------
(Please Print)
Name of Firm
--------------------------------------------------------------------
(PLACE SEAL HERE)
7
<PAGE> 8
Unless otherwise indicated below under "Special Issuance Instructions" or
"Special Delivery Instructions," the undersigned hereby request(s) that any
Notes representing principal amounts not tendered or not accepted for purchase
be issued in the name(s) of, and delivered to, the undersigned (and in the case
of Notes tendered by book-entry transfer, by credit to the account of DTC).
In the event that the "Special Issuance Instructions" or "Special Delivery
Instructions" box is completed, the undersigned hereby request(s) that any Notes
representing principal amounts not tendered or not accepted for purchase be
issued in the name(s) of, and be delivered to, the person(s) at the address(es)
therein indicated.
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1 AND 8)
To be completed ONLY (i) if (a) Exchange Notes issued in exchange for Existing
Notes or (b) certificates for Existing Notes in a principal amount not exchanged
for Exchange Notes are to be issued in the name of someone other than the
undersigned, or (ii) if Existing Notes tendered by book-entry transfer which are
not exchanged are to be returned by credit to an account maintained at the
Book-Entry Transfer Facility.
Issue: [ ]
Name:
- -------------------------------------------------------
(Please Print)
Address:
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
(Include Zip/Postal Code)
- -------------------------------------------------------
(Taxpayer Identification or Social Security Number)
[ ] Credit Existing Notes not exchanged and delivered by book-entry transfer to
the account set forth below:
- -------------------------------------------------------
(Book-Entry Transfer Facility Account Number)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1 AND 8)
To be completed ONLY if certificates for Existing Notes in a principal amount
not exchanged for Exchange Notes are to be mailed or delivered to someone other
than the undersigned, or to the undersigned at an address other than the address
shown below the undersigned's signature.
Mail or deliver to:
Name:
- -------------------------------------------------------
(Please Print)
Address:
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
(Include Zip/Postal Code)
- -------------------------------------------------------
(Taxpayer Identification or Social Security Number)
8
<PAGE> 9
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURE. Except as otherwise provided below, all
signatures on the Letter of Transmittal must be guaranteed by, if the holder is
resident in the United States, an eligible institution that is a member of one
of the following recognized signature Guarantee Programs:
(a) The Securities Transfer Agents Medallion Program (STAMP);
(b) The New York Stock Exchange Medallion Signature Program (MSP); or
(c) the Stock Exchange Medallion Program (SEMP).
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the registered holder(s) of the Existing
Notes tendered herewith and such registered holder(s) have not completed the box
entitled "Special Issuance Instruction" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (ii) if such Existing Notes are
tendered for the account of an Eligible Guarantor Institution. IN ALL OTHER
CASES, ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND EXISTING NOTES; GUARANTEED
DELIVERY PROCEDURE. This Letter of Transmittal is to be completed by holders of
Existing Notes (i) if certificates are to be forwarded herewith or (ii) if
tenders are to be made pursuant to the procedures for tender by book-entry
transfer or guaranteed delivery set forth in the section of the Prospectus
entitled "The Exchange Offer -- How to Tender." Certificates for all physically
tendered Existing Notes or any confirmation of a book-entry transfer under DTC's
ATOP (a "Book-Entry Confirmation"), as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile hereof, and any other
documents required by this Letter of Transmittal must be received by the
Exchange Agent at its address set forth on the cover of this Letter of
Transmittal prior to 5:00 p.m., New York City time, on the Expiration Date.
Holders of Existing Notes who elect to tender Existing Notes and (i) whose
Existing Notes are not immediately available, (ii) who cannot deliver the
Existing Notes or other required documents to the Exchange Agent prior to 5:00
p.m., New York City time on the Expiration Date or (iii) who are unable to
complete the procedure for book-entry transfer on a timely basis, may have such
tender effected if: (a) such tender is made by or through an Eligible Guarantor
Institution; (b) prior to 5:00 p.m., New York City time, on the Expiration Date,
the Exchange Agent has received from such holder or Eligible Guarantor
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, or an Agent's Message with
respect to guaranteed delivery that is accepted by the Company, either by hand
delivery, mail, telegram or facsimile transmission setting forth the name and
address of the holder of such Existing Notes, the certificate number(s) of such
Existing Notes and the principal amount at maturity of Existing Notes tendered
for exchange, stating that tender is being made thereby and guaranteeing that,
within three (3) New York Stock Exchange ("NYSE") trading days after the date of
delivery of the Notice of Guaranteed Delivery, the certificates representing
such Existing Notes (or a Book-Entry Confirmation), in proper form for transfer,
and any other documents required by this Letter of Transmittal, will be
deposited by such Eligible Guarantor Institution with the Exchange Agent; and
(c) certificates for all tendered Existing Notes, or a Book-Entry Confirmation,
together with a copy of the previously executed Letter of Transmittal (or
facsimile thereof) and any other documents required by this Letter of
Transmittal are received by the Exchange Agent within three (3) NYSE trading
days after the Expiration Date.
THE METHOD OF DELIVERY OF EXISTING NOTES, THIS LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER
OF EXISTING NOTES. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF
DELIVERY IS BY MAIL, PROPERLY INSURED
9
<PAGE> 10
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. SUFFICIENT TIME
SHOULD BE ALLOWED FOR SUCH DOCUMENTS TO REACH THE EXCHANGE AGENT. NEITHER THE
LETTER OF TRANSMITTAL NOR ANY EXISTING NOTES SHOULD BE SENT TO THE COMPANY.
No alternative, conditional or contingent tenders will be accepted. By
execution of this Letter of Transmittal (or facsimile hereof, if applicable),
all tendering holders of Existing Notes waive any right to receive notice of the
acceptance of their Existing Notes for exchange.
3. INADEQUATE SPACE. If the space provided in the box entitled "DESCRIPTION
OF EXISTING NOTES" above is inadequate, the certificate numbers and principal
amounts at maturity of the Existing Notes being tendered should be listed on a
separate signed schedule affixed hereto.
4. WITHDRAWALS. A tender of Existing Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date by delivery of
written notice of withdrawal to the Exchange Agent at the address set forth on
the cover of this Letter of Transmittal. To be effective, a notice of withdrawal
of Existing Notes must (i) specify the name of the person who tendered the
Existing Notes to be withdrawn (the "Depositor"); (ii) identify the Existing
Notes to be withdrawn (including the certificate number or numbers and aggregate
principal amount at maturity of such Existing Notes); (iii) be signed by the
holder of Existing Notes in the same manner as the original signature on the
Letter of Transmittal by which such Existing Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the applicable transfer agent register the transfer of such
Existing Notes into the name of the person withdrawing the tender; and (iv)
specify the name in which any such Existing Notes are to be registered, if
different from that of the Depositor. Withdrawals of tenders of Existing Notes
may not be rescinded, and any Existing Notes withdrawn will thereafter be deemed
not validly tendered for purposes of the Exchange Offer and no Exchange Notes
will be issued with respect thereto unless the Existing Notes so withdrawn are
validly retendered. Properly withdrawn Existing Notes may be retendered by
following one of the procedures described in the section of the Prospectus
entitled "The Exchange Offer -- How to Tender" at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
5. PARTIAL TENDERS. (Not applicable to holders of Existing Notes who tender
Existing Notes by book-entry transfer.) Tenders of Existing Notes will be
accepted only in integral multiples of US $1,000 principal amount at maturity,
and only if the remaining untendered portion of such Existing Notes held by the
tendering holder is in a principal amount of $250,000, or any integral multiple
of $1,000 in excess of such amount. If a tender for exchange is to be made with
respect to less than the entire principal amount at maturity of any Existing
Notes, fill in the principal amount at maturity of Existing Notes that are
tendered for exchange in Column (4) of the box entitled "DESCRIPTION OF EXISTING
NOTES," as more fully described in the footnotes thereto. In case of a partial
tender for exchange, a new certificate, in fully registered form, for the
remainder of the principal amount at maturity of the Existing Notes, will be
sent to the holders of Existing Notes unless otherwise indicated in the
appropriate box on this Letter of Transmittal as promptly as practicable after
the expiration or termination of the Exchange Offer.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, POWERS OF ATTORNEY AND
ENDORSEMENTS.
(a) The signature(s) of the holder of Existing Note(s) on this Letter
of Transmittal must correspond with the name(s) as written on the face of
the Existing Notes without alteration, enlargement or any change
whatsoever.
(b) If tendered Existing Notes are owned by record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
(c) If any tendered Existing Notes are registered in different names,
on several certificates, it will be necessary to complete, sign and submit
as many separate copies of this Letter of Transmittal and any necessary or
required documents as there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the holder of the
Existing Notes listed and transmitted hereby, no endorsements of Existing
Notes or separate powers of attorney are required. If, however, Existing
Notes not tendered or not accepted, are to be issued or returned in the
name of a
10
<PAGE> 11
person other than the holder of such Existing Notes, then the Existing
Notes transmitted hereby must be endorsed or accompanied by appropriate
powers of attorney in a form satisfactory to the Company, in either case
signed exactly as the name(s) of the holder of Existing Notes appear(s) on
the Existing Notes. Signatures on such Existing Notes or powers of attorney
must be guaranteed by an Eligible Guarantor Institution (unless signed by
an Eligible Guarantor institution).
(e) If this Letter of Transmittal or an Existing Note or power of
attorney 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 proper evidence satisfactory to the Company of their authority
so to act must be submitted.
(f) If this Letter of Transmittal is signed by a person other than the
registered holder of Existing Notes listed, the Existing Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name(s) of the registered holder of Existing Notes
appear(s) on the certificates. Signatures on such Existing Notes or powers
of attorney must be guaranteed by an Eligible Guarantor Institution (unless
signed by an Eligible Guarantor Institution).
7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company
will pay all transfer taxes, if any, applicable to the transfer and exchange of
Existing Notes pursuant to the Exchange Offer. If, however, issuance of Exchange
Notes is to be made to, or Existing Notes not tendered for exchange are to be
issued or returned in the name of, any person other than the holder of Existing
Notes, the amount of any transfer taxes payable on account of the transfer to
such person will be imposed on and payable by the holder of Existing Notes
tendering Existing Notes for exchange prior to the issuance of the Exchange
Notes. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Exchange Notes are to
be issued, or if any Existing Notes not tendered for exchange are to be issued
or sent, to someone other than the holder of Existing Notes or to an address
other than that shown above, the appropriate boxes on this Letter of Transmittal
should be completed. Holders of Existing Notes tendering Existing Notes by
book-entry transfer may request that Existing Notes not accepted be credited to
such account maintained at DTC as such holder of Existing Notes may designate.
9. IRREGULARITIES. All questions as to the form of documents and the
validity, eligibility (including time or receipt), acceptance and withdrawal of
Existing Notes will be determined by the Company, in its sole discretion, whose
determination shall be final and binding. The Company reserves the absolute
right to reject any or all tenders for exchange of any particular Existing Notes
that are not in proper form, or the acceptance of which would, in the opinion of
the Company or its counsel, be unlawful. The Company reserves the absolute right
to waive any defect, irregularity or condition of tender for exchange with
regard to any particular Existing Notes. The Company's interpretation of the
terms of, and conditions to, the Exchange Offer (including the instructions
herein) will be final and binding. Unless waived, any defect or irregularities
in connection with the Exchange Offer must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notice of any defects or irregularities
in Existing Notes tendered for exchange, nor shall any of them incur any
liability for failure to give such notice. A tender of Existing Notes will not
be deemed to have been made until all defects and irregularities with respect to
such tender have been cured or waived. Any Existing Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will 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 Company reserves the absolute right to waive
certain of the specified conditions as described under "The Exchange Offer --
Conditions" in the Prospectus in the case of any Existing Notes tendered (except
as otherwise provided in the Prospectus).
11. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. If a holder of Existing
Notes desires to tender an Existing Note pursuant to the Exchange Offer, but the
Existing Note has been mutilated, lost, stolen or
11
<PAGE> 12
destroyed, such holder of Existing Notes should write to or telephone the
Trustee, at the address listed below, concerning the procedures for obtaining
replacement certificates for such Existing Notes, arranging for indemnification
or any other matter that requires handling by the Trustee:
United States Trust Company of New York
770 Broadway
New York, NY 10003
Corporate Trust Department
Telephone: (800) 548-6565
Facsimile: (212) 780-0592
12. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for information
or for additional copies of the Prospectus and this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover of this Letter of Transmittal.
13. SUBSTITUTE FORM W-9. Each tendering holder (or other payee) is required
to provide the Exchange Agent with a correct taxpayer identification number
("'TIN"), generally the holder's Social Security of federal employer
identification number, and with certain other information, on Substitute Form
W-9, which is provided under "Important Tax Information" below, and to certify
that the holder (or other payee) is not subject to backup withholding. Failure
to provide the information on the Substitute Form W-9 may subject the tendering
holder (or other payee) to a $50 penalty imposed by the Internal Revenue Service
and 31% federal income tax withholding on any payments made pursuant to the
Exchange Offer. The box in Part 3 of the Substitute Form W-9 may be checked if
the tendering holder (or other payee) has not been issued a TIN and has applied
for a TIN or intends to apply for a TIN in the near future. If the box in Part 3
is checked and the Exchange Agent is not provided with a TIN by the time of
payment, the Exchange Agent will withhold 31% on any payments made pursuant to
the Exchange Offer.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF
APPLICABLE) TOGETHER WITH EXISTING NOTE CERTIFICATES, OR CONFIRMATION OF
BOOK-ENTRY TRANSFER OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED
DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
12
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
PAYER'S NAME: AQUA-CHEM, INC.
- -----------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN IN THE BOX
AT THE RIGHT AND CERTIFY BY SIGNING AND Social Security Number
DATING BELOW.
OR
Employer Identification
Number
-----------------------------------------------------------------------------
FORMW-9
DEPARTMENT OF THE TREASURY PART 2--CERTIFICATION--Under Penalties of Perjury, I certify that:
INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR (1) The number shown on this form is my correct taxpayer identification
TAXPAYER IDENTIFICATION number (or I am waiting for a number to be issued to me), and
NUMBER (TIN)
(2) I am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup withholding as a result
of a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
CERTIFICATE INSTRUCTIONS--You must cross out item (2) in Part 2 above if you
have been notified by the IRS that you are subject to backup withholding
because of under- reporting interest and dividends on your tax return.
However, if after being notified by the IRS that you were subject to backup
withholding you receive another notification from the IRS stating that you
are no longer subject to backup withholding, do not cross out item (2).
SIGNATURE DATE __________________
---------------------------------------------------------------------------------
PART 3--AWAITING TIN [ ]
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 3 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver such an application in the near future. I
understand that if I do not provide a taxpayer identification number within
sixty (60) days, 31% of all reportable payments made to me thereafter will be
withheld until I provide such a number.
Signature Date ____________________
- --------------------------------------------------------------------------------
13
<PAGE> 14
IMPORTANT TAX INFORMATION
Under current United States federal income tax law, a holder of Existing
Notes whose tendered Existing Notes are accepted for exchange is required to
provide the Company (as payor), through the Exchange Agent, with such holder's
correct TIN on Substitute Form W-9 or otherwise establish a basis for exemption
from backup withholding. If such holder of Existing Notes is an individual, the
TIN is such holder's social security number. If the Exchange Agent is not
provided with the correct taxpayer identification number, the holder of Existing
Notes may be subject to a penalty imposed by the Internal Revenue Service. In
addition, delivery of such holder's Exchange Notes may be subject to backup
withholding.
Certain holders of Existing Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. Exempt holders of Existing Notes should
indicate their exempt status on Substitute Form W-9. A foreign individual may
qualify as an exempt recipient by submitting to the Exchange Agent a properly
completed Internal Revenue Service Form W-8 (which the Exchange Agent will
provide upon request) signed under penalty of perjury, attesting to the holder's
exempt status. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of Existing Notes or other payee. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
SUBSTITUTE FORM W-9; TAXPAYER IDENTIFICATION NUMBER
To prevent backup withholding on payments that are made with respect to
Existing Notes exchanged in the Exchange Offer, each holder of Existing Notes is
required to provide the Exchange Agent with either (i) the holder's correct TIN
by completing the form above, certifying that the TIN provided on Substitute
Form W-9 is correct (or that such holder of Existing Notes is awaiting a TIN)
and that (A) the holder of Existing Notes has not been notified by the Internal
Revenue Service that he or she is subject to backup withholding as a result of a
failure to report all interest or dividends or (B) the Internal Revenue Service
has notified the holder of Existing Notes that he or she is no longer subject to
backup withholding; or (ii) an adequate basis for exemption (for example, in the
case of a Canadian resident holder, by submitting a completed Form W-8).
The holder of Existing Notes is required to give the Exchange Agent the TIN
(e.g., social security number or employer identification number) of the record
owner of the Existing Notes. If the Existing Notes are held in more than one
name or are not held in the name of the actual owner, consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional guidance regarding which number to report.
14
<PAGE> 1
EXHIBIT 99.2
INSTRUCTIONS TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER
FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
AQUA-CHEM, INC.
11 1/4% SENIOR SUBORDINATED NOTES DUE 2008
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 Aqua-Chem, 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 11 1/4% Senior Subordinated Notes Due 2008 (the
"Notes") held by you for the account of the undersigned.
The aggregate face amount of the Notes held by you for the account of the
undersigned is
(fill in amount): $____________________
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] TO TENDER the following Notes held by you for the account of the
undersigned (insert principal amount of Notes to be tendered, if any):
$____________________
[ ] NOT TO TENDER any Notes held by you for the account of the undersigned.
If the undersigned instructs you to tender the Notes 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 Exchange Notes 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 Exchange Notes, (iv)
the undersigned acknowledges that any person participating in the Exchange Offer
for the purpose of distributing the Exchange Notes 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
Exchange Notes 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 -- Certain Effects of the Exchange Offer," 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 Notes.
<PAGE> 2
- --------------------------------------------------------------------------------
SIGN HERE
[S] [C]
Name(s) of beneficial owner(s): -----------------------------------------------
-----------------------------------------------
Signature(s): X
-----------------------------------------------
X
-----------------------------------------------
Name (please print): -----------------------------------------------
Address: -----------------------------------------------
-----------------------------------------------
Telephone number: -----------------------------------------------
Taxpayer Identification or
Social Security Number: -----------------------------------------------
Date: -----------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE> 1
EXHIBIT 99.3
NOTICE OF GUARANTEED DELIVERY
11 1/4% SENIOR SUBORDINATED NOTES DUE 2008
OF
AQUA-CHEM, INC.
PURSUANT TO THE PROSPECTUS DATED , 1998
This form must be used by a holder of 11 1/4% Senior Subordinated Notes Due
2008 (the "Notes") of Aqua-Chem, Inc., a Delaware corporation (the "Company"),
who wishes to tender Notes to the Exchange Agent pursuant to the guaranteed
delivery procedures described under the caption "The Exchange Offer -- How to
Tender" in the Company's Prospectus dated , 1998 (the "Prospectus")
and in Instruction 2 to the related Letter of Transmittal. Any holder who wishes
to tender Notes 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")
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By Mail: Facsimile Transmission Number: By Hand up to 4:30 p.m.:
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United States Trust Company (212) 780-0592 United States Trust Company
of New York (For Eligible Institutions of New York
P.O. Box 844 Only) 111 Broadway
Cooper Station Lower Level
New York, New York Confirm by Telephone: New York, New York 10006
10276-0844 Attn: Corporate Trust
Attn: Corporate Trust (800)548-6565 Services
Services
(Registered or Certified Mail
Recommended)
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By Overnight Courier and
by Hand after 4:30 p.m. on
the Expiration Date Only:
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United States Trust Company
of
New York
770 Broadway
13th Floor
New York, New York 10003
Attn: Corporate Trust
Services
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DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
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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.
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
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 2 of the Letter of Transmittal.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
The undersigned hereby tenders the Notes listed below:
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CERTIFICATE NUMBER(S) (IF KNOWN) OF
NOTES OR AGGREGATE PRINCIPAL ACCOUNT NUMBER AT THE AGGREGATE PRINCIPAL
AMOUNT REPRESENTED BOOK-ENTRY FACILITY AMOUNT TENDERED
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PLEASE SIGN AND COMPLETE
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Signature(s) of Registered Holder(s) or
Authorized Signatory:
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Name(s) of Registered Holder(s):
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Principal Amount of Notes Tendered and as to
which Consents are given:
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Certificate No(s). of Notes
(if available):
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Date:
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Address:
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Area Code and Telephone No.:
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If Notes will be delivered by book-entry
transfer to DTC, check the box: [ ]
DTC Account
No.:
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This Notice of Guaranteed Delivery must be signed by the holder(s)
exactly as their name(s) appear on certificates for the Notes or on a security
position listing as the owner of Notes, 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):
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Capacity:
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Address(es):
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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 Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility described in the
Prospectus under the caption "The Exchange Offer -- How to Tender" and in the
Letter of Transmittal) and any other required documents, all by 5:00 p.m., New
York City time, on the third New York Stock Exchange trading day following the
Expiration Date.
PLEASE PRINT NAMES(S) AND ADDRESS(S)
Name of firm:
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Authorized Signature:
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Title:
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Address:
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(Zip Code)
Area Code and Telephone Number:
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Dated: , 1998
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DO NOT SEND NOTES WITH THIS FORM. ACTUAL SURRENDER OF NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
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<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
holder 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 Notes referred
to herein, the signature must correspond with the name(s) written on the face of
the Notes 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 as the owner
of the Notes, the signature must correspond with the name shown on the security
position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate Notes powers, signed as the name of the registered holder(s) appears
on the Notes 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.
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