<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1995
REGISTRATION NO. 033-59003
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
THE INTERLAKE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
----------------
DELAWARE 36-3428543
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
----------------
550 WARRENVILLE ROAD
LISLE, ILLINOIS 60532-4387
(708) 852-8800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
STEPHEN R. SMITH, ESQ.
THE INTERLAKE CORPORATION
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
550 WARRENVILLE ROAD
LISLE, ILLINOIS 60532-4387
(708) 852-8800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
ROBERT A. YOLLES, ESQ. WINTHROP B. CONRAD, JR., ESQ.
JONES, DAY, REAVIS & POGUE DAVIS POLK & WARDWELL
77 WEST WACKER DRIVE 450 LEXINGTON AVENUE
CHICAGO, ILLINOIS 60601-1692 NEW YORK, NEW YORK 10017
(312) 782-3939 (212) 450-4000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement has become effective.
----------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INTERLAKE CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NO. FORM S-2 ITEM NUMBER AND HEADING CAPTION OR LOCATION IN PROSPECTUS
---- -------------------------------- ---------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Page
of Prospectus........................... Inside Front Cover Page of Prospectus; Out-
side Back Cover Page of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Inside Front Cover Page of Prospectus; Pro-
spectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... Not Applicable
6. Dilution................................. Not Applicable
7. Selling Security Holders................. Not Applicable
8. Plan of Distribution..................... Outside Front Cover Page of Prospectus; Un-
derwriting
9. Description of Securities to be
Registered.............................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of Senior
Notes
10. Interests of Named Experts and Counsel... Not Applicable
11. Information with Respect to the
Registrant.............................. Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Results of Op-
erations and Financial Condition; Busi-
ness; Index to Consolidated Financial
Statements
12. Incorporation of Certain Information by
Reference............................... Incorporation of Certain Information by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 23, 1995
PROSPECTUS
, 1995
$100,000,000
[LOGO OF INTERLAKE]
% SENIOR NOTES DUE 2001
The % Senior Notes due 2001 (the "Senior Notes") are being offered (the
"Offering") by The Interlake Corporation (the "Company"). The Senior Notes will
mature on November , 2001. Interest on the Senior Notes will be payable
semiannually on May and November of each year, commencing November ,
1995.
Except as set forth below, the Senior Notes are not redeemable prior to
November , 1998. Thereafter, the Senior Notes are redeemable at the option of
the Company, in whole or in part, at the redemption prices set forth herein,
plus accrued and unpaid interest to the date of redemption. At any time, and
from time to time, prior to November , 1998, the Company may redeem up to 35%
of the original principal amount of the Senior Notes with the proceeds of
Equity Sales (as defined herein) at a redemption price of % of the principal
amount, plus accrued and unpaid interest to the date of redemption. Upon a
Change of Control (as defined herein), the Company will be obligated, subject
to certain conditions, to offer to repurchase all outstanding Senior Notes at a
purchase price of 101% of the principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. See "Risk Factors--Change of Control" and
"Description of Senior Notes."
Concurrently with the consummation of the Offering, the Company is repaying a
portion of the indebtedness outstanding under its existing senior secured bank
credit facilities (the "Credit Agreement") and entering into an amendment to
the Credit Agreement (as amended, the "Amended Credit Agreement"). See
"Description of Certain Other Indebtedness--Amended Credit Agreement." The
consummation of the Offering and the effectiveness of the Amended Credit
Agreement are contingent upon each other.
The Senior Notes will be general unsecured obligations of the Company, senior
in right of payment to all existing and future subordinated indebtedness and
pari passu in right of payment with all other Senior Indebtedness (as defined
herein) of the Company. However, substantially all existing Senior Indebtedness
is (and obligations under the Amended Credit Agreement will be) secured by a
pledge of substantially all of the assets of the Company and its subsidiaries.
After giving effect to the Offering and the application of the net proceeds
thereof, as of April 2, 1995, Senior Indebtedness (excluding the Senior Notes)
would have aggregated approximately $131.6 million, substantially all of which
is secured indebtedness. As a result of the Company's holding company
structure, the Senior Notes will be effectively subordinated to all liabilities
of the Company's subsidiaries, including liabilities to general creditors.
After giving effect to the Offering and the application of the net proceeds
thereof, as of April 2, 1995, the aggregate of all liabilities of the Company's
subsidiaries (excluding amounts included above in Senior Indebtedness) would
have aggregated approximately $221.7 million.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS IN CONNECTION WITH AN INVESTMENT IN THE
SENIOR NOTES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Senior Note................. % % %
Total........................... $ $ $
----------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $ .
The Senior Notes are offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the Senior Notes will be made in New
York, New York, on or about , 1995.
DONALDSON, LUFKIN & JENRETTE CS FIRST BOSTON
SECURITIES CORPORATION
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-2 (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus omits certain of the information
contained in the Registration Statement and the exhibits and schedules thereto,
to which reference is made hereby. Statements contained herein concerning any
document filed as an exhibit are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement. Each such statement is qualified in its entirety by
such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company can be inspected and copied at the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at 500 West Madison Street, Chicago, Illinois
60661 and 7 World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Company's Common Stock is listed on the New York Stock Exchange (Symbol: IK)
and the Chicago Stock Exchange. Reports, proxy statements and other information
filed by the Company with the Commission may be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005, and the
Chicago Stock Exchange, 440 South LaSalle Street, Chicago, Illinois 60605.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Prospectus incorporates by reference the Annual Report on Form 10-K for
the fiscal year ended December 25, 1994 and the Quarterly Report on Form 10-Q
for the fiscal quarter ended April 2, 1995, filed by the Company with the
Commission. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus and the Registration Statement of which it is a part to the extent
that a statement contained herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus or the Registration
Statement.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents that have been
incorporated in this Prospectus by reference, other than exhibits to such
documents that have not been specifically incorporated by reference herein or
therein. Requests should be directed to Corporate Secretary, The Interlake
Corporation, 550 Warrenville Road, Lisle, Illinois 60532-4387, telephone number
(708) 852-8800.
----------------
The principal executive offices of the Company are located at 550 Warrenville
Road, Lisle, Illinois 60532-4387. The telephone number of the Company at such
address is (708) 852-8800.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements and notes thereto appearing elsewhere in this Prospectus. All
references in this Prospectus to the "Company" include its consolidated
subsidiaries unless the context otherwise indicates.
THE COMPANY
General. The Company is a multinational corporation engaged in the design,
manufacture and sale or distribution of value-added metal and related products
for the automotive, materials handling, packaging and aerospace industries. The
Company's operations are divided into two segments: Engineered Materials and
Handling/Packaging Systems. The Company's operations include:
Engineered Materials
. Hoeganaes Corporation ("Hoeganaes" or "Special Materials"), which
produces ferrous metal powder used to manufacture precision parts; and
. Chem-tronics, Inc. ("Chem-tronics" or "Aerospace Components"), which
manufactures precision jet engine components and repairs jet engine fan
blades.
Handling/Packaging Systems
. Handling, which designs, manufactures and sells storage rack, shelving
and related equipment; and
. Packaging, which designs and sells machinery for applying strapping and
stitching wire, and supplies strapping and stitching wire for use in
these machines.
The Company has leading market shares in all of its businesses and believes
they enjoy a reputation for high quality products and superior customer
service. The Company has implemented programs to reduce costs, improve
productivity, improve customer service and support, and seek growth
opportunities through geographic expansions and new product development. The
Company expects that its leading market positions, together with its business
initiatives, will enable it to continue to take advantage of U.S. economic
trends and the economic improvements in other markets throughout the world.
Although the Company's businesses are cyclical in nature, the Company's
operating results have historically lagged behind improvements in the general
economy, and its earnings downturns have also come later than those of the
general economy. This is largely due to many of Handling's customers waiting to
implement long-term capital projects until a recovery is well-established. The
Company expects this lagging relationship to continue.
The Company expects its operating results to benefit from the recovery of the
European economies, which accounted for approximately 28% of the Company's
revenues in 1994. In addition, the Company anticipates that future results will
be enhanced by certain positive trends in its businesses, including the
increased use of powder metallurgy in the manufacture of automobile parts and
Handling's continuing penetration of growing Pacific Rim markets.
Hoeganaes is the North American market and technology leader in the
production of ferrous (iron-based) metal powders. Ferrous metal powder is used
by customers primarily to manufacture precision parts for automobiles, light
trucks, farm and garden equipment, heavy construction equipment, hand tools and
appliances. Precision parts produced using powdered metal technology have
certain cost and design
3
<PAGE>
advantages over parts produced using conventional techniques such as forging,
casting, stamping or machining, as they may be manufactured with less wasted
raw material, lower labor costs and little or no additional machining. The
automotive industry is the largest market for ferrous metal powder, accounting
for approximately 65% of Hoeganaes' sales in 1994. Average usage of ferrous
metal powder per vehicle has increased from 18 pounds in 1986 to 30 pounds in
1994. In 1994, Hoeganaes had revenues of $153.9 million.
Chem-tronics is a leading producer of lightweight, fabricated products for
commercial and military aerospace applications, and also provides jet engine
fan blade repair services. Chem-tronics offers its customers a vertically
integrated facility, thereby eliminating the need for numerous subcontractors
for a single component. Chem-tronics' principal products are sold to engine
manufacturers under arrangements which generally establish Chem-tronics as the
sole source of supply. Approximately 67% of Chem-tronics' revenues in 1994 were
comprised of sales to commercial and space program customers. In 1994, Chem-
tronics had revenues of $62.5 million.
Handling designs, manufactures and sells storage rack, shelving, angle,
conveyors and related equipment for use in warehouse distribution centers,
factories and other storage and material handling applications. Handling also
supplies equipment for retail display and office interiors. The Company
believes Handling is the world's largest manufacturer of storage rack.
Handling's rack systems are used in warehouse and distribution applications
ranging from simple pallet storage to sophisticated warehouse systems and
warehouse-type retail store environments. In 1994, Handling had revenues of
$406.0 million.
The Company's Packaging business is one of the leading North American and
European suppliers of steel and plastic strap and the machinery and tools to
apply this strap. Packaging also manufactures and distributes wire and
stitching equipment. In 1994, Packaging had revenues of $130.2 million.
Financial Results. The Company's net sales increased 10.5% to $752.6 million
in 1994 from $681.3 million in 1993 and increased 22.2% to $206.9 million in
the first quarter of 1995 from $169.3 million in the first quarter of 1994.
Operating profit before goodwill write-down, restructuring charges,
depreciation and amortization ("EBITDA") increased 18.5% to $81.5 million in
1994 from $68.8 million in 1993 and increased 33.3% to $24.0 million in the
first quarter of 1995 from $18.0 million in the first quarter of 1994. EBITDA
excludes a $34.2 million goodwill write-down in 1994 and restructuring charges
of $5.6 million in 1993. The Company reported a net loss of $40.8 million for
1994 and a net loss of $26.0 million in 1993. Net income in the first quarter
of 1995 was $0.4 million compared to a net loss of $2.6 million in the first
quarter of 1994.
The Offering. The Company is undertaking the Offering and entering into the
Amended Credit Agreement to extend the maturities of a substantial portion of
its long-term debt and to enhance the Company's financial flexibility by
increasing its liquidity and modifying certain covenants applicable under the
Credit Agreement. The Company will use the net proceeds of the Offering to
repay approximately $72.7 million of term loans and approximately $23.3 million
of revolving loans (the "Loan Repayments") under the Credit Agreement. As a
result of the Offering and the revised amortization schedule under the Amended
Credit Agreement, $195.3 million of indebtedness which would have matured in
1995 through 1998 under the Credit Agreement, including $171.4 million which
would have matured in 1996 and 1997, will be extended to 1999 through 2001. The
Amended Credit Agreement is subject to the negotiation, execution and delivery
of definitive documentation. Accordingly, certain of the actual terms,
conditions and covenants may differ from those described herein. See
"Description of Certain Other Indebtedness--Amended Credit Agreement." The
consummation of the Offering and the effectiveness of the Amended Credit
Agreement are contingent upon each other.
Prior Transactions. The Company's high debt level and interest costs are a
result of a restructuring program implemented in 1989 pursuant to which the
Company incurred obligations of $551.1 million, and paid a special cash
dividend aggregating $458.8 million on the Company's common stock (the "1989
Restructuring Program"). In 1992, the Company completed a financing plan
pursuant to which the Company
4
<PAGE>
raised additional equity capital and refinanced or revised the terms of certain
of its outstanding indebtedness (the "1992 Financing"). In connection with the
1992 Financing, the Company issued common stock and preferred stock providing
aggregate net proceeds of $80.9 million and issued $220 million of its Senior
Subordinated Debentures due 2002 (the "Subordinated Debentures"). The net
proceeds of the 1992 Financing were used to redeem the Company's $200 million
increasing rate notes, to repay a portion of indebtedness under the Credit
Agreement and for general corporate purposes.
THE OFFERING
Securities Offered.......... $100,000,000 principal amount of % Senior Notes
due 2001.
Maturity Date............... November , 2001.
Interest Payment Dates...... May and November of each year, commencing
November , 1995.
Mandatory Redemption........ None.
Optional Redemption......... Except as set forth below, the Senior Notes will
not be redeemable by the Company prior to Novem-
ber , 1998. Thereafter, the Senior Notes will
be redeemable at the option of the Company, in
whole or in part, at the redemption prices set
forth herein, plus accrued and unpaid interest to
the date of redemption. At any time, and from
time to time, prior to November , 1998, the
Company may redeem up to 35% of the original
principal amount of the Senior Notes with the
proceeds of Equity Sales at a redemption price of
% of the principal amount, plus accrued and
unpaid interest to the date of redemption.
Change of Control........... Upon a Change of Control, the Company will be re-
quired to make an offer to repurchase all out-
standing Senior Notes at a purchase price of 101%
of the principal amount thereof, plus accrued and
unpaid interest to the date of repurchase. Due to
the highly leveraged structure of the Company,
the Company may not have sufficient funds or fi-
nancing to repurchase the Senior Notes and sat-
isfy other obligations (including secured obliga-
tions under the Amended Credit Agreement) which
may come due upon the occurrence of a Change of
Control. See "Risk Factors--Change of Control"
and "Description of Senior Notes."
Ranking..................... The Senior Notes will be general unsecured obli-
gations of the Company and will rank senior in
right of payment to all existing and future sub-
ordinated indebtedness of the Company (including
the Subordinated Debentures) and pari passu in
right of payment with all other Senior Indebted-
ness, including indebtedness under the Amended
Credit Agreement. However, substantially all ex-
isting Senior Indebtedness is (and obligations
under the Amended Credit Agreement will be) se-
cured by a pledge of substantially all of the as-
sets of the Company and its subsidiaries. In ad-
dition, as a result of the Company's holding com-
pany structure, the Senior Notes will be effec-
tively subordinated to all liabilities of the
Company's subsidiaries, including liabilities to
general creditors.
5
<PAGE>
After giving effect to the Offering and the ap-
plication of the net proceeds thereof, as of
April 2, 1995, Senior Indebtedness (excluding the
Senior Notes) would have aggregated approximately
$131.6 million (including $108.6 million under
the Amended Credit Agreement), substantially all
of which is secured indebtedness, and the aggre-
gate of all liabilities of the Company's subsidi-
aries (excluding amounts included above in Senior
Indebtedness) would have aggregated approximately
$221.7 million. The maximum aggregate principal
amount of borrowings which may be outstanding un-
der the Amended Credit Agreement is $175.4 mil-
lion. In addition, the Company may incur addi-
tional Senior Indebtedness, including, under cer-
tain circumstances, Senior Indebtedness that is
secured.
Certain Covenants........... The Indenture pursuant to which the Senior Notes
will be issued (the "Indenture") will restrict,
among other things, (i) the incurrence of addi-
tional indebtedness by the Company and its sub-
sidiaries, (ii) the payment of dividends or other
distributions, (iii) the redemption of capital
stock or subordinated indebtedness, (iv) certain
transactions with affiliates, (v) the incurrence
of liens, (vi) the use of proceeds from the dis-
posal of assets and (vii) mergers, consolidations
or the sale of all or substantially all of the
assets of the Company.
Use of Proceeds............. The net proceeds of the Offering, estimated to be
$96.0 million, will be used to make the Loan Re-
payments. See "Use of Proceeds."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data of the
Company for each of the fiscal years ended December 30, 1990, December 29,
1991, December 27, 1992, December 26, 1993 and December 25, 1994 and for the
three months ended March 27, 1994 and April 2, 1995 and summary consolidated
pro forma data for the year ended December 25, 1994 and the three months ended
April 2, 1995 (giving effect to the Offering and the making of the Loan
Repayments as if such transactions had occurred at the beginning of the year
ended December 25, 1994 and, except as otherwise indicated, the three months
ended April 2, 1995, respectively). The following financial data should be read
in conjunction with "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the Company's Consolidated Financial Statements and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED (UNAUDITED)(8)
----------------------------------------------------------------- ----------------------
MARCH 27, APRIL 2,
1990 1991 1992 1993 1994 1994 1995
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Net sales from
continuing operations.. $ 786,279 $ 714,742 $ 708,199 $ 681,330 $ 752,592 $ 169,336 $206,898
Restructuring charges
and goodwill write-down
(1).................... 13,482 3,344 2,523 5,611 34,174 -- --
Operating profit........ 58,651 61,539 50,383 38,186 24,225 12,033 18,707
Net interest expense.... 62,037 56,146 51,425 49,051 50,240 12,541 13,479
Provision for income
taxes.................. 8,536 10,530 9,040 6,542 10,888 1,988 3,489
Income (loss) from
continuing operations
before minority
interest, extraordinary
loss and accounting
changes................ (8,644) (10,103)(6) (10,566) (22,766)(6) (36,422) (1,500) 1,810
Net income (loss) (1)... $ (21,751)(5) $ (13,744) $ (27,698)(7) $ (25,962) $ (40,751) $ (2,589)(9) $ 394
========= ========= ========= ========= ========= ========= ========
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash
equivalents............ $ 18,473 $ 10,541 $ 38,640 $ 31,934 $ 39,708 $ 17,606 $ 22,473
Working capital......... 70,020 61,347 92,789 73,869 67,619 73,275 71,826
Total assets............ 518,997 478,067 511,292 464,160 444,953 454,037 435,604
Total debt.............. 494,615 471,441 450,801 443,135 442,451 442,150 447,594
Convertible Exchangeable
Preferred Stock--
Redeemable............. -- -- 39,155 39,155 39,155 39,155 39,155
Total shareholders'
equity (deficit)....... (226,808) (239,465) (232,718) (259,767) (296,435) (261,624)(9) (292,378)
OTHER DATA:
Capital expenditures.... $ 14,249 $ 13,472 $ 24,588 $ 14,540 $ 15,485 $ 3,675 $ 3,051
========= ========= ========= ========= ========= ========= ========
EBIT--Operating profit
before restructuring
charges and goodwill
write-down (2)......... $ 72,133 $ 64,883 $ 52,906 $ 43,797 $ 58,399 $ 12,033 $ 18,707
Depreciation and
amortization........... 27,146 25,324 27,535 25,040 23,102 5,987 5,322
--------- --------- --------- --------- --------- --------- --------
EBITDA (2).............. $ 99,279 $ 90,207 $ 80,441 $ 68,837 $ 81,501 $ 18,020 $ 24,029
========= ========= ========= ========= ========= ========= ========
Ratio of earnings from
continuing operations
to fixed charges (3)... -- -- -- -- -- -- 1.21
Ratio of EBITDA to net
interest expense....... 1.60 1.61 1.56 1.40 1.62 1.44 1.78
Ratio of total debt to
EBITDA................. 4.98 5.23 5.60 6.44 5.43 6.42(10) 5.11(10)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
DECEMBER 25, 1994 APRIL 2, 1995
----------------- ------------------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C>
UNAUDITED PRO FORMA DATA (4):
Net interest expense...................... $53,939 $13,904
Net loss.................................. (44,450) (31)
Ratio of earnings from continuing
operations to fixed charges (3).......... -- 1.17
Ratio of EBITDA to net interest expense... 1.51 1.73
Ratio of total debt to EBITDA............. 5.48 5.16 (10)
</TABLE>
--------
(1) Reflects restructuring charges in 1990, 1991, 1992 and 1993 and a charge
for goodwill write-down in 1994.
(2) The Company has included information concerning EBIT and EBITDA because it
believes that EBIT and EBITDA are used by certain investors as one measure
of an issuer's historical ability to fund operations and meet its financial
obligations and because EBIT and EBITDA are relevant to compliance with the
covenants in the Credit Agreement and the Amended Credit Agreement. See
"Description of Certain Other Indebtedness--Amended Credit Agreement." EBIT
and EBITDA should not be considered by an investor as alternatives to, or
more meaningful than, net income (loss) as indicators of the Company's
results of operations or cash flows or as a measure of liquidity.
(3) For purposes of determining the ratio of earnings from continuing
operations to fixed charges, "earnings" includes pretax income from
continuing operations adjusted for the minority interest in the pretax
income of majority-owned subsidiaries and fixed charges. "Fixed charges"
consists of interest on all indebtedness (which includes the interest
component of capitalized leases) and amortization of deferred financing
costs. Earnings were inadequate to cover fixed charges by deficiencies of
$6.9 million, $5.0 million, $7.2 million, $21.6 million and $32.3 million
in the fiscal years ended December 30, 1990, December 29, 1991, December
27, 1992, December 26, 1993 and December 25, 1994, respectively, and by a
deficiency of $1.0 million for the three months ended March 27, 1994. On a
pro forma basis, earnings were inadequate to cover fixed charges by a
deficiency of $36.0 million in the fiscal year ended December 25, 1994.
(4) Pro forma data includes the effects of (a) amortization of fees and
expenses related to the Senior Notes and the Amended Credit Agreement, (b)
elimination of the amortization of fees and expenses attributable to the
loans under the Credit Agreement to be written off upon consummation of
the Offering and (c) an increase in interest expense attributable to the
Senior Notes.
(5) Includes results of discontinued operations consisting of losses of $8.9
million.
(6) Includes the effect of special non-operating charges of $6.0 million and
$4.8 million in 1991 and 1993, respectively, relating to certain
environmental matters.
(7) Includes an extraordinary loss of $7.6 million on early extinguishment of
debt, net of applicable income taxes, and charges related to changes in
methods for accounting for income taxes and postretirement benefits
totalling $6.1 million.
(8) The first quarter of 1995 was a 14-week period, whereas the first quarter
of 1994 was a 13-week period. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Results of Operations for
the First Quarter of 1994 and 1995."
(9) Reflects a charge recorded in the fourth quarter of 1994, retroactive to
the beginning of fiscal 1994, related to a change in method of accounting
for postretirement benefits of $0.2 million.
(10) The ratio of total debt to EBITDA for these periods has been calculated
using total debt at the end of the period divided by EBITDA for the four
fiscal quarters ended at the end of such period. EBITDA for the four
fiscal quarters ended March 27, 1994 and April 2, 1995 was $68.9 million
and $87.5 million, respectively.
8
<PAGE>
SUMMARY CAPITALIZATION
The following table sets forth the summary consolidated capitalization of the
Company at April 2, 1995 and as adjusted to give effect to the Offering and the
Loan Repayments at such date. See "Capitalization."
<TABLE>
<CAPTION>
APRIL 2, 1995
(UNAUDITED)
----------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (including
current maturities):
Credit Agreement loans (1).. $ 204,580 $ 108,580
Senior Notes................ -- 100,000
Subordinated Debentures..... 220,000 220,000
Other....................... 23,014 23,014
--------- ---------
Total long-term debt (2).. 447,594 451,594
Convertible Exchangeable
Preferred Stock--Redeemable.. 39,155 39,155
Shareholders' equity
(deficit).................... (292,378) (296,414)(3)
--------- ---------
Total capitalization.... $ 194,371 $ 194,335
========= =========
</TABLE>
--------
(1) Reflect amounts outstanding under the Credit Agreement (actual) and the
Amended Credit Agreement (as adjusted).
(2) Includes current maturities of $30.5 million (actual) and $3.3 million (as
adjusted).
(3) Reflects charges of $4.0 million relating to unamortized bank fees
pertaining to the Loan Repayments. These amounts will be charged against
results of operations during the fiscal quarter in which the Loan
Repayments are made.
LIQUIDITY
The following table sets forth at April 2, 1995 the Company's consolidated
cash position and amounts available to the Company under the Credit Agreement
and as adjusted to give effect to the Offering, the Amended Credit Agreement
and the Loan Repayments.
<TABLE>
<CAPTION>
APRIL 2, 1995
(UNAUDITED)
--------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.................................. $ 22,473 $ 22,473
======== ========
Total available commitment (1)............................. $239,164 $175,400
Total utilization (2)...................................... 224,685 128,685
-------- --------
Amounts available (1)...................................... $ 14,479 $ 46,715
======== ========
</TABLE>
--------
(1) Amounts shown reflect the amounts effectively available at April 2, 1995
under the terms of the Credit Agreement (actual) and the Amended Credit
Agreement (as adjusted) and include $5.8 million (actual and as adjusted)
available only to pay certain potential environmental liabilities.
(2) Amounts include outstanding letters of credit of $20.1 million.
9
<PAGE>
SCHEDULED AMORTIZATION
In connection with the Offering and the Loan Repayments, the Company will
repay a portion of the amounts outstanding under the Credit Agreement and enter
into the Amended Credit Agreement. The Loan Repayments and the Amended Credit
Agreement will extend the maturities of a substantial portion of the Company's
long-term debt and enhance the Company's financial flexibility by increasing
its liquidity and modifying certain covenants applicable under the Credit
Agreement. See "Description of Certain Other Indebtedness--Amended Credit
Agreement." After giving effect to the Offering, the application of the net
proceeds thereof to make the Loan Repayments, and the revised amortization
schedule under the Amended Credit Agreement, scheduled maturities of
outstanding indebtedness (including obligations under the Amended Credit
Agreement) are expected to be as follows:
<TABLE>
<CAPTION>
SCHEDULED AMORTIZATION(2)
(UNAUDITED)
----------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
FISCAL YEAR ENDED
<S> <C> <C>
1995(1).................................... $ 24,633 $ 8,539
1996....................................... 89,188 4,277
1997....................................... 90,773 3,948
1998....................................... 11,544 4,044
1999....................................... 4,096 103,426(3)
2000....................................... 200 200
2001....................................... 50,300 150,300(4)
2002....................................... 171,300 171,300(5)
</TABLE>
--------
(1) Includes $5.8 million paid during the first quarter of 1995 under the terms
of the Credit Agreement (actual and as adjusted) and excludes the Loan
Repayments (as adjusted).
(2) Calculated based on borrowings and currency exchange rates at April 2,
1995.
(3) Includes $99.3 million maturing under the Amended Credit Agreement.
(4) Includes the $100.0 million of Senior Notes and $50.0 million due under the
Subordinated Debentures.
(5) Includes $170.0 million of the Subordinated Debentures.
10
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the specific risk factors set
forth below, as well as the other information set forth or incorporated by
reference in this Prospectus, prior to purchasing the Senior Notes offered
hereby.
HIGH LEVERAGE
The Company is highly leveraged. At April 2, 1995, the Company had
approximately $447.6 million of indebtedness and shareholders' deficit of
$292.4 million. Following consummation of the Offering and giving effect to the
Loan Repayments, the Company will remain highly leveraged. Accordingly, (i) the
Company will have significant interest expense and principal repayment
obligations; (ii) the ability of the Company to satisfy its obligations
(including its debt service requirements relating to the Senior Notes and the
other indebtedness which will remain outstanding following consummation of the
Offering) through 1998 and its ability to refinance its indebtedness maturing
in 1999 through 2002 will depend on achieving satisfactory operating results,
which will be subject to prevailing economic conditions and financial, business
and other factors, many of which are beyond the control of the Company; (iii)
the outstanding indebtedness and the deficit in shareholders' equity will limit
the Company's ability to effect future financings, to make capital expenditures
or acquisitions and to take advantage of other significant business
opportunities that may arise, and may otherwise restrict corporate activities;
(iv) a portion of the Company's indebtedness will be subject to fluctuations in
interest rates; and (v) the credit ratings, if any, on the Company's
outstanding long-term debt are expected to remain below investment grade.
High debt levels and interest costs incurred by the Company have had, and
will continue to have, a substantial adverse effect on the Company's cash flows
and results of operations. The Company reported a net loss of $40.8 million for
the year ended December 25, 1994 (including a $34.2 million charge for goodwill
write-down) and net income of $0.4 million for the three months ended April 2,
1995. The ratio of earnings to fixed charges for the three months ended April
2, 1995 was 1.21. Earnings for the years ended December 25, 1994 and December
26, 1993 were inadequate to cover fixed charges by deficiencies of $32.3
million and $21.6 million, respectively. Giving effect to the Offering and the
Loan Repayments, on a pro forma basis, for the three months ended April 2,
1995, the ratio of earnings to fixed charges would have been 1.17 and, for the
year ended December 25, 1994, earnings would have been inadequate to cover
fixed charges by $36.0 million.
INABILITY TO REFINANCE OR REPAY INDEBTEDNESS AT MATURITY
Following the Offering, the Company will have substantial indebtedness
maturing in 1999 through 2002, including $99.3 million under the Amended Credit
Agreement which will mature in 1999, $100.0 million under the Senior Notes
which will mature in 2001, $50.0 million of Subordinated Debentures which will
be payable in 2001 and $170.0 million of Subordinated Debentures which will
mature in 2002. See "Prospectus Summary--Scheduled Amortization." After
consummation of the Offering and the effectiveness of the Amended Credit
Agreement, the Company believes that it will be able to meet its debt service
requirements from operating cash flow through 1998. However, there can be no
assurance that the Company will be able to do so. In addition, if the Company
is unable to comply with the financial and operating covenants under the
Amended Credit Agreement or otherwise defaults under the Amended Credit
Agreement, it may need to refinance amounts borrowed thereunder prior to 1999.
See "--Financial and Operating Restrictions; Financial Performance
Requirements," "--Environmental Matters" and "Description of Certain Other
Indebtedness--Amended Credit Agreement." The Company does not expect to be able
to repay the indebtedness maturing in 1999 through 2002 from operating cash
flows. Accordingly, the Company will need to refinance the indebtedness
represented by the Amended Credit Agreement, the Senior Notes and the
Subordinated Debentures. The Company may determine that it is necessary to
include an equity offering as a component of any proposed refinancing. The
Company's ability to refinance this indebtedness, including its ability to
issue equity, will be dependent on its future operating results and cash flow
from operations, which
11
<PAGE>
are in turn dependent upon a number of factors, including prevailing economic
conditions and financial, business and other factors, many of which are beyond
the control of the Company. There can be no assurance that the Company will be
able to refinance its indebtedness under the Amended Credit Agreement, the
Senior Notes or the Subordinated Debentures at maturity. In addition, the
Company's ability to meet its debt service requirements through 1998 and its
ability to refinance this indebtedness could be adversely affected by the
outcome of certain determinations relating to potential environmental and
federal income tax liabilities. See "--Environmental Matters" and "--Federal
Income Taxes." For a discussion of the possible consequences of an event of
default under the Amended Credit Agreement, see "--Effective Subordination as a
Result of Unsecured Status of Senior Notes."
IMPACT OF ECONOMIC CONDITIONS ON COMPANY'S PERFORMANCE
The Company's operating results are, and will continue to be, highly
dependent on the economic environments in which it operates. In recent periods,
the U.S. economy has improved from earlier recessionary conditions; however,
the economic climate in Europe deteriorated significantly during 1993 and
recovered only partially in 1994. The Company's net sales in Europe represented
28% and 31% of consolidated net sales in 1994 and 1993, respectively. The
Company's net sales outside of the U.S. represented approximately 42% of
consolidated net sales in 1994. See Note 6 of Notes to Consolidated Financial
Statements. There can be no assurance that the improvements in the economies in
which the Company operates will continue or that any improvement will be of a
magnitude sufficient to enable the Company to generate operating results and
cash flow in sufficient amounts to meet its debt service requirements or to
comply with the restrictive covenants under the Amended Credit Agreement.
FINANCIAL AND OPERATING RESTRICTIONS; FINANCIAL PERFORMANCE REQUIREMENTS
The Amended Credit Agreement will contain numerous financial and operating
covenants restricting the manner in which the business of the Company may be
operated. The Company will be required under the Amended Credit Agreement to
comply with specified financial performance and operating requirements or
restrictions, including those relating to operating cash flow, net worth and
capital expenditures. A description of the requirements or restrictions is set
forth under the heading "Description of Certain Other Indebtedness--Amended
Credit Agreement--Certain Covenants." The Company's results and cash flow from
operations must improve over 1994 levels to meet these performance
requirements. In addition, the Amended Credit Agreement, among other things,
will require that all net cash proceeds from dispositions of assets of the
Company out of the ordinary course of business and other cash infusions
(including certain financing transactions) and the Company's excess cash flow
annually on a consolidated basis (as defined in the Amended Credit Agreement)
be applied to prepay debt outstanding under the Amended Credit Agreement.
If the Company were unable to comply with any of the covenants under the
Amended Credit Agreement, the Company could seek to renegotiate the Amended
Credit Agreement or to refinance the loans outstanding under the Amended Credit
Agreement. If the Company were unable to renegotiate the Amended Credit
Agreement in a satisfactory manner or to refinance the loans, the Company could
be in default under the Amended Credit Agreement. See "--Effective
Subordination as a Result of Unsecured Status of Senior Notes" and "Description
of Certain Other Indebtedness--Amended Credit Agreement."
In addition, the Indenture will contain certain restrictive covenants
limiting, among other things, the issuance of additional indebtedness and
preferred stock by the Company and its subsidiaries, the payment by the Company
of dividends or other distributions, the redemption of capital stock of the
Company, transactions with affiliates, the use of proceeds from the disposal of
assets, the incurrence of liens, and the merger, consolidation or sale of all
or substantially all of the assets of the Company. See "Description of Senior
Notes." The Indenture governing the Subordinated Debentures (the "Subordinated
Debenture Indenture") also contains restrictive covenants which are
substantially similar to those contained in the Indenture. See "Description of
Certain Other Indebtedness--Subordinated Debentures."
12
<PAGE>
The ability of the Company to comply with such provisions in the Indenture,
the Amended Credit Agreement and the Subordinated Debenture Indenture will
depend on its future performance, which will be subject to prevailing economic
conditions and financial, business and other factors, many of which are beyond
the Company's control. Although the Company expects that it will be able to
comply with such provisions, there can be no assurance that it will be able to
do so.
POTENTIAL ADVERSE EFFECTS OF FLUCTUATIONS IN FOREIGN CURRENCY
The Company's net sales outside the U.S. represented approximately 42% of
consolidated net sales in 1994. Substantially all of the Company's consolidated
indebtedness and related interest expense has been incurred in U.S. dollars.
The Company relies on transfers of funds from its foreign subsidiaries to
provide a portion of the funds necessary to meet the Company's debt service
obligations arising principally in the U.S. As a result, the Company is
sensitive to foreign currency fluctuations. Fluctuations in currency exchange
rates between the U.S. dollar and other currencies could have a material
adverse effect on the Company's financial position, results of operations and
cash flows. For example, if the dollar strengthens in relation to currencies in
which the Company's sales are made, the Company's revenues would decline and
cause a reduction in cash flows. Any significant strengthening of the dollar
could affect the Company's ability to meet its debt service obligations through
operating cash flows or to refinance its outstanding indebtedness. The Company
is not hedged against these currency fluctuation risks.
EFFECTIVE SUBORDINATION AS A RESULT OF HOLDING COMPANY STRUCTURE
The Company is a holding company which conducts all of its operations through
its subsidiaries. The Company is the sole obligor on the Senior Notes. The
Senior Notes are not guaranteed by any subsidiary of the Company.
All of the Company's operating income is generated by its subsidiaries. The
Company relies on dividends and other advances and transfers of funds from its
subsidiaries to provide the funds necessary to meet the Company's debt service
obligations, including payment of principal and interest on the indebtedness
under the Amended Credit Agreement, the Senior Notes and the Subordinated
Debentures. The ability of the Company's subsidiaries to pay such dividends and
make such advances and transfers is subject to applicable state and non-U.S.
laws. Claims of creditors of the Company's subsidiaries, including general
creditors, will generally have priority as to the assets of such subsidiaries
over the claims of the Company and the holders of indebtedness of the Company,
including holders of the Senior Notes. At April 2, 1995, the liabilities of the
Company's subsidiaries aggregated approximately $307.7 million, including $86.0
million of indebtedness for borrowed money, substantially all of which is, to
some extent, secured indebtedness. After giving effect to the Offering and the
Loan Repayments, at April 2, 1995, the liabilities of the Company's
subsidiaries would have aggregated approximately $293.0 million, including
$71.3 million of indebtedness for borrowed money. The Indenture, the Amended
Credit Agreement and the Subordinated Debenture Indenture permit the Company's
subsidiaries to incur additional indebtedness in certain circumstances.
Certain subsidiaries of the Company are borrowers under the Amended Credit
Agreement and, as such, have pledged substantially all of their assets as
security for their obligations under the Amended Credit Agreement. See "--
Effective Subordination as a Result of Unsecured Status of Senior Notes."
EFFECTIVE SUBORDINATION AS A RESULT OF UNSECURED STATUS OF SENIOR NOTES
The Senior Notes will be general, unsecured obligations of the Company and
will rank pari passu in right of payment to all other Senior Indebtedness,
including the principal of and interest on and all other amounts due on or
payable by the Company in connection with the Amended Credit Agreement (whether
as primary obligor or as a guarantor of the obligations of the Subsidiary
Borrowers and the ESOP Borrower (as defined) under the Amended Credit
Agreement) and any indebtedness designated by the Company as Senior
Indebtedness at the time of its incurrence. The Amended Credit Agreement and
the Indenture limit, but do not prohibit, the incurrence of additional
indebtedness which constitutes Senior Indebtedness.
13
<PAGE>
A default under the Amended Credit Agreement could cause indebtedness
thereunder to be declared due and payable prior to maturity. Because of cross-
acceleration provisions in the Indenture, a default under the Amended Credit
Agreement or the Subordinated Debenture Indenture followed, in each case, by an
acceleration of the indebtedness outstanding under such document, would
constitute a default under the Indenture which in turn could lead to an
acceleration of the Senior Notes. If the Company is unable to repay any such
indebtedness when due, the holders of such indebtedness could proceed against
the collateral, if any, securing such indebtedness. In the case of the Amended
Credit Agreement, the collateral consists of substantially all of the assets of
the Company and certain of its subsidiaries. If the indebtedness under the
Amended Credit Agreement were to be accelerated, the proceeds of any sale of
the collateral securing such indebtedness would be applied to payment of
indebtedness owed under the Amended Credit Agreement prior to being applied to
payment of the Company's general unsecured indebtedness (including the Senior
Notes). In such an event, it is possible any amounts available to repay the
other general unsecured indebtedness of the Company (including the Senior
Notes) would be insignificant.
In addition, by reason of the unsecured status of the Senior Notes, in the
event of the insolvency, bankruptcy, liquidation, reorganization, dissolution
or other winding-up of the Company, the lenders under the Amended Credit
Agreement (the "Banks") will be entitled to be paid out of the proceeds of a
sale of the Company's assets and the assets of certain of the Company's
subsidiaries before payments to the holders of the Senior Notes and other
general unsecured creditors. As a result, the remaining assets of the Company
may be insufficient to pay the amounts due on the Senior Notes in the event of
the Company's insolvency, bankruptcy or similar event. As of April 2, 1995,
Senior Indebtedness aggregated approximately $227.6 million, including $204.6
million of secured obligations under the Credit Agreement. After giving effect
to the Offering and the Loan Repayments, as of April 2, 1995, secured debt
would have aggregated approximately $131.6 million (including $108.6 million
under the Amended Credit Agreement). The maximum aggregate principal amount of
borrowings which may be outstanding under the Amended Credit Agreement is
$175.4 million. In addition, the Company may incur additional Senior
Indebtedness, including under certain circumstances, Senior Indebtedness that
is secured. See "Description of Senior Notes--Certain Covenants--Limitation on
Liens" and "Description of Certain Other Indebtedness--Amended Credit
Agreement."
FRAUDULENT CONVEYANCE AND OTHER CONCERNS
Proceeds from the Offering will be used to refinance a portion of the
indebtedness under the Credit Agreement. The indebtedness under the Credit
Agreement was initially incurred in connection with the 1989 Restructuring
Program. If in a lawsuit on behalf of an unpaid creditor of the Company or a
representative of the creditors, a court were to find under applicable
provisions of federal bankruptcy law and state fraudulent conveyance statutes
that, pursuant to the incurrence of the indebtedness under the Credit Agreement
in connection with the 1989 Restructuring Program, the Company (i) intended to
hinder, delay or defraud any present or future creditor or (ii) received less
than reasonably equivalent value in exchange for the debt incurred or the
distribution made and (a) was insolvent, (b) was rendered insolvent by reason
of the transaction, (c) was engaged or about to engage in a business or
transaction for which its remaining assets constituted unreasonably small
capital or (d) intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they matured, such court could void certain of
the indebtedness incurred under the Credit Agreement as a fraudulent transfer,
conveyance or obligation. In addition, in such circumstances, the court also
might, under fraudulent conveyance laws or other legal principles, permit the
Senior Notes and prior payments thereon to be voided and permit such prior
payments to be recovered from the holders of the Senior Notes, based on the use
of the proceeds of the Offering to repay indebtedness under the Credit
Agreement. Alternatively, in such event, claims of the holders of the Senior
Notes could be subordinated to claims of other creditors of the Company.
CHANGE OF CONTROL
In the event of a Change of Control (as defined in the Indenture, see
"Description of Senior Notes--Certain Definitions"), the Company is required
promptly to make an offer to purchase all Senior Notes then outstanding at a
purchase price equal to 101% of the principal amount, plus accrued and unpaid
interest, if
14
<PAGE>
any, as provided in the Indenture. Prior to the mailing of a notice to each
holder of the Senior Notes of such an offer, the Company will be required in
good faith (i) to seek to obtain any required consent under the Amended Credit
Agreement so as to permit such purchase of the Senior Notes, or (ii) to attempt
to repay all or a portion of the indebtedness under the Amended Credit
Agreement to the extent necessary (including, if necessary, payment in full of
such indebtedness and payment of any prepayment premiums, fees, expenses or
penalties) to permit purchase of the Senior Notes without such consent. If such
indebtedness is not then prepayable to such extent, the Company will be
required to make an offer to those Banks under the Amended Credit Agreement
from which consent is required and cannot be obtained to repay such
indebtedness in full for an amount equal to the outstanding principal balance
thereof and accrued interest to the date of repayment (and fees, expenses,
penalties and premiums, if any) and to repay any Banks that accept such offer.
Due to the highly leveraged structure of the Company, the Company may be
unable to repurchase the Senior Notes upon the occurrence of a Change of
Control. In addition, any such Change of Control would constitute an event of
default under the Amended Credit Agreement with the result that the Banks could
declare the loans under the Amended Credit Agreement to be immediately due and
payable. Further, a Change of Control could trigger obligations by the Company
to prepay or redeem the Subordinated Debentures and its Convertible Preferred
Stock. In such events, the holders of all such obligations could seek to pursue
various contractual and legal remedies against the Company. If the Company were
unable to pay all amounts that would become due in respect of all such
obligations in such circumstance, it could result in the bankruptcy,
liquidation, reorganization, dissolution or other winding-up of the Company.
The assets of the Company may be insufficient to pay the amounts due under the
Amended Credit Agreement and the Senior Notes in such event. See "--Effective
Subordination as a Result of Unsecured Status of the Senior Notes,"
"Description of Senior Notes--Change of Control," and "--Certain Definitions--
Change of Control." For a discussion of the Company's ability to incur
additional indebtedness under the Indenture and the Amended Credit Agreement,
see "Description of Senior Notes--Certain Covenants--Limitation on Consolidated
Indebtedness."
ENVIRONMENTAL MATTERS
The Company has incurred and will continue to incur expenses for
environmental matters, including those arising from sites related to former
operations of predecessors of the Company. Included among these sites is a
Superfund site in Duluth, Minnesota, for which the Company has been identified
as a potentially responsible party. In 1991, based on a review of its
environmental matters involving nonoperating locations, the Company took a
special charge of $6.0 million, of which $4.5 million was attributable to its
estimate of potential costs related to the Duluth site. In 1993, the Company
took additional special charges totalling $4.8 million to cover estimated
liabilities for environmental matters at nonoperating sites, including a $3.9
million charge with respect to the Duluth site. The Duluth charge in 1993
reflected an increase in the Company's existing reserve to account for the
Company's estimate of its share of the likely costs to complete remediation of
certain contaminated soils at the site to standards consistent with the site's
present industrial use, based on certain risk assessments and other
assumptions, and to further investigate certain underwater sediments at the
site for which the Company has been identified as the potentially responsible
party. However, the Duluth charge did not attempt to account for potential
costs of remediation of the contaminated soils based on alternative risk
assessments or other assumptions, or to standards consistent with unrestricted
use. Based on its most recent discussions with the Minnesota Pollution Control
Agency (the "MPCA") staff, the Company believes that the required remediation
of contaminated soils at the Duluth site will be consistent with its long-time
industrial use. The costs of the alternatives for clean-up to industrial use
standards believed to be most appropriate by the Company range from $3 million
to $4 million. However, the Company has reviewed other remedial plans prepared
on behalf of the Company for the contaminated soils which also contemplate the
continued industrial use of the property but which could cost as much as $20
million. This higher amount is based upon certain risk assessments and other
assumptions which the Company believes to be overly conservative. If
remediation to an unrestricted use standard were required, the cost likely
would be much higher than the amount accrued by the Company through April 2,
1995. The cost of the remedial alternative designed to meet unrestricted use
standards most recently prepared for the Company was
15
<PAGE>
calculated to be approximately $38 million. The Company is currently in
negotiations with the MPCA to arrive at an agreed-upon work plan for the
remediation of the contaminated soils, but there can be no assurance that an
agreement will be reached. Furthermore, absent further investigation and
indication by government agencies, it is not known whether any remediation of
the underwater sediments will be required or, if so, to what level. Therefore,
the Duluth charges to date have not accounted for the costs of remediation of
the underwater sediments. There can be no assurance that the Company will have
available resources sufficient to pay any costs of remediation beyond those
accrued for, including any costs relating to remediation of the underwater
sediments.
It will be an event of default under the Amended Credit Agreement if the
Company makes cash payments with respect to the Duluth site, on a cumulative
basis, beginning in fiscal year 1995, in amounts aggregating more than $5.0
million in fiscal year 1995, $10.0 million through fiscal year 1996, $15.0
million through fiscal year 1997 and $20.0 million thereafter. See "--Effective
Subordination as a Result of Unsecured Status of Senior Notes."
The Company is a defendant in two actions in federal district court seeking
recoveries of amounts expended or anticipated by third parties in connection
with the clean-up of alleged environmental contamination. The Company does not
believe that either of these actions is likely to have a material adverse
effect on its business, future results of operations, liquidity or consolidated
financial condition. However, there can be no assurance that these matters will
be resolved in accordance with the Company's expectations. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Nonoperating Items" and Note 16 of Notes to Consolidated Financial Statements.
As of April 2, 1995, the Company had accruals aggregating $5.9 million for
environmental liabilities. While the Company believes that the Amended Credit
Agreement will provide adequate liquidity to fund the amounts accrued, there
can be no assurance that adequate liquidity would be available to the Company
to fund any additional charges for environmental matters. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Nonoperating Items" and Note 15 of Notes to Consolidated Financial Statements.
FEDERAL INCOME TAXES
The Company's federal income tax returns for the years 1988 through 1990 are
in the process of examination. Resolution of tax years 1982 through 1984 is
pending at the U.S. Tax Court following receipt in 1994 by the Company of a
statutory notice of deficiency for these years of $17.0 million plus interest
and penalties (which interest and penalties could substantially exceed the
amount of the alleged deficiency). Resolution of tax years 1985 through 1987,
which involve some of the issues raised regarding tax years 1982 through 1984
and other issues, is pending at the Appeals Division of the Internal Revenue
Service. The Company believes that its positions with respect to contested
matters for all outstanding periods are strong and that adequate provision in
the financial statements has been made for the possible assessments of
additional taxes and interest. The Company believes that the Amended Credit
Agreement will provide adequate liquidity to fund the expected assessments
arising from the examinations of tax years 1982 through 1990. However, there
can be no assurance that federal income tax issues for the years 1982 through
1990 will be resolved in accordance with the Company's expectations.
LACK OF PUBLIC MARKET
The Senior Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to list the Senior
Notes on any securities exchange. The Underwriters have advised the Company
that they currently intend to make a market in the Senior Notes, but they are
not obligated to do so and may discontinue such market making at any time.
Accordingly, no assurance can be given that an active public market will
develop for the Senior Notes or as to the liquidity of any trading market which
develops for the Senior Notes. If a trading market does not develop or is not
maintained, holders of Senior Notes may experience difficulty in reselling the
Senior Notes or may be unable to sell them at all. If a market for the Senior
Notes develops, the Senior Notes may trade at a discount from their original
issue price.
16
<PAGE>
The liquidity of and the market price for the Senior Notes can be expected to
vary with changes in market and economic conditions, the financial condition
and prospects of the Company, and other factors that generally influence the
market prices of securities, including in particular, fluctuations in the
market for high yield securities. Such fluctuations in the high yield market
may significantly affect liquidity and market prices for the Senior Notes,
independent of the financial performance of and prospects for the Company.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Senior Notes in the
Offering are expected to be approximately $96.0 million, after deducting
estimated expenses and underwriting discounts. The Company intends to use the
net proceeds of the Offering to repay approximately $96.0 million of
indebtedness under the Credit Agreement, including $72.7 million of term loans
maturing on various dates from 1995 through 1998 and $23.3 million of revolving
loans maturing in 1997, each bearing interest, at April 2, 1995, at rates
ranging from 9.00% to 9.4375%.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company, as of April 2, 1995, and as adjusted to give effect to the Offering
and the Loan Repayments on such date. See "Use of Proceeds" and the Company's
Consolidated Financial Statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
APRIL 2, 1995
(UNAUDITED)
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Long-term debt (including current maturities):
Credit Agreement loans (1)......................... $ 204,580 $ 108,580
Senior Notes....................................... -- 100,000
Subordinated Debentures............................ 220,000 220,000
All other.......................................... 23,014 23,014
--------- ---------
Total long-term debt (2)......................... 447,594 451,594
Preferred Stock, 2,000,000 shares authorized:
Convertible Exchangeable Preferred Stock--
Redeemable, par value $1 per share, 40,000 shares
issued and outstanding............................ 39,155 39,155
Shareholders' equity (deficit):
Common Stock, par value $1 per share, 100,000,000
shares authorized; 23,228,695 shares issued and
outstanding....................................... 23,229 23,229
Non-Voting Common Stock, par value $1 per share,
15,000,000 shares authorized; none issued and
outstanding....................................... -- --
Additional paid-in capital......................... 13,504 13,504
Cost of Common Stock held in treasury (412,500
shares)........................................... (9,625) (9,625)
Retained earnings (accumulated deficit)............ (293,571) (297,607)(3)
Unearned compensation.............................. (10,752) (10,752)
Accumulated foreign currency translation
adjustments....................................... (15,163) (15,163)
--------- ---------
Total shareholders' equity (deficit)........... (292,378) (296,414)
--------- ---------
Total capitalization........................... $ 194,371 $ 194,335
========= =========
</TABLE>
--------
(1) Reflects amounts outstanding under the Credit Agreement (actual) and the
Amended Credit Agreement (as adjusted).
(2) Includes current maturities of $30.5 million (actual) and $3.3 million (as
adjusted).
(3) Reflects charges of $4.0 million relating to unamortized bank fees
pertaining to the Loan Repayments. These amounts will be charged against
results of operations during the fiscal quarter in which the Loan
Repayments are made.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data of the Company for each of the fiscal years ended December 30, 1990,
December 29, 1991, December 27, 1992, December 26, 1993 and December 25, 1994
and for the three months ended March 27, 1994 and April 2, 1995 and selected
pro forma data for the year ended December 25, 1994 and the three months ended
April 2, 1995 (giving effect to the Offering and the making of the Loan
Repayments as if such transactions had occurred at the beginning of the year
ended December 25, 1994 and, except as otherwise indicated, the three months
ended April 2, 1995, respectively). The selected historical consolidated
financial data for each of the five fiscal years are derived from the Company's
Consolidated Financial Statements which have been audited by Price Waterhouse
LLP. The information for the three months ended March 27, 1994 and April 2,
1995 has not been audited, but, in the opinion of management, includes all
adjustments necessary for a fair presentation of the information shown. Results
of operations for the three months ended April 2, 1995 are not necessarily
indicative of results of operations for the entire 1995 fiscal year. The
following financial data should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the Company's Consolidated Financial Statements and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED (UNAUDITED)(7)
------------------------------------------------------------- ----------------------
MARCH 27, APRIL 2,
1990 1991 1992 1993 1994 1994 1995
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Net sales from continuing
operations.............. $ 786,279 $ 714,742 $ 708,199 $ 681,330 $752,592 $169,336 $206,898
Cost of products sold.... 578,173 521,803 527,857 520,508 576,929 129,863 155,979
Selling and
administrative expense.. 135,973 128,056 127,436 117,025 117,264 27,440 32,212
Restructuring charges and
goodwill write-down (1). 13,482 3,344 2,523 5,611 34,174 -- --
--------- --------- --------- --------- -------- -------- --------
Operating profit......... 58,651 61,539 50,383 38,186 24,225 12,033 18,707
Interest expense......... 65,671 58,654 54,284 50,906 51,609 12,818 13,950
Interest and dividend
income.................. (4,534)(5) (2,728)(5) (2,859) (1,855) (1,369) (277) (471)
Nonoperating (income)
expense................. (2,378) 5,186 (6) 484 5,359 (6) (481) (996) (71)
--------- --------- --------- --------- -------- -------- --------
Income (loss) from
continuing operations
before taxes on income,
minority interest,
extraordinary loss and
accounting changes...... (108) 427 (1,526) (16,224) (25,534) 488 5,299
Provision for income
taxes................... 8,536 10,530 9,040 6,542 10,888 1,988 3,489
--------- --------- --------- --------- -------- -------- --------
Income (loss) from
continuing operations
before minority
interest, extraordinary
loss and accounting
changes................. (8,644) (10,103) (10,566) (22,766) (36,422) (1,500) 1,810
Minority interest in net
income of subsidiaries.. 4,199 3,641 3,424 3,196 4,135 895 1,416
--------- --------- --------- --------- -------- -------- --------
Income (loss) from
continuing operations
before extraordinary
loss and accounting
changes................. (12,843) (13,744) (13,990) (25,962) (40,557) (2,395) 394
Extraordinary loss on
early extinguishment of
debt (net of applicable
income taxes)........... -- -- (7,567) -- -- -- --
Cumulative effect of
changes in accounting
principles.............. -- -- (6,141) -- (194) (194)(8) --
--------- --------- --------- --------- -------- -------- --------
Income (loss) from
continuing operations... (12,843) (13,744) (27,698) (25,962) (40,751) (2,589) 394
Income (loss) from
discontinued
operations............... (8,908) -- -- -- -- -- --
--------- --------- --------- --------- -------- -------- --------
Net income (loss)....... $ (21,751) $ (13,744) $ (27,698) $ (25,962) $(40,751) $ (2,589) $ 394
========= ========= ========= ========= ======== ======== ========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED (UNAUDITED)(7)
----------------------------------------------------- -----------------------
MARCH 27, APRIL 2,
1990 1991 1992 1993 1994 1994 1995
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash
equivalents............ $ 18,473 $ 10,541 $ 38,640 $ 31,934 $ 39,708 $ 17,606 $ 22,473
Working capital......... 70,020 61,347 92,789 73,869 67,619 73,275 71,826
Total assets............ 518,997 478,067 511,292 464,160 444,953 454,037 435,604
Total debt.............. 494,615 471,441 450,801 443,135 442,451 442,150 447,594
Convertible Exchangeable
Preferred Stock--
Redeemable............. -- -- 39,155 39,155 39,155 39,155 39,155
Total shareholders'
equity (deficit)....... (226,808) (239,465) (232,718) (259,767) (296,435) (261,624)(8) (292,378)
OTHER DATA:
Capital expenditures.... $ 14,249 $ 13,472 $ 24,588 $ 14,540 $ 15,485 $ 3,675 $ 3,051
========= ========= ========= ========= ========= ========= =========
EBIT--Operating profit
before restructuring
charges and goodwill
write-down (2)......... $ 72,133 $ 64,883 $ 52,906 $ 43,797 $ 58,399 $ 12,033 $ 18,707
Depreciation and
amortization........... 27,146 25,324 27,535 25,040 23,102 5,987 5,322
--------- --------- --------- --------- --------- --------- ---------
EBITDA (2).............. $ 99,279 $ 90,207 $ 80,441 $ 68,837 $ 81,501 $ 18,020 $ 24,029
========= ========= ========= ========= ========= ========= =========
Ratio of earnings from
continuing operations
to fixed charges (3)... -- -- -- -- -- -- 1.21
Ratio of EBITDA to net
interest expense....... 1.60 1.61 1.56 1.40 1.62 1.44 1.78
Ratio of total debt to
EBITDA................. 4.98 5.23 5.60 6.44 5.43 6.42 (9) 5.11 (9)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
DECEMBER 25, 1994 APRIL 2, 1995
----------------- ------------------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C>
UNAUDITED PRO FORMA DATA (4):
Net interest expense...................... $53,939 $13,904
Net loss.................................. (44,450) (31)
Ratio of earnings from continuing
operations to fixed charges (3).......... -- 1.17
Ratio of EBITDA to net interest expense... 1.51 1.73
Ratio of total debt to EBITDA............. 5.48 5.16(9)
</TABLE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Reflects restructuring charges in 1990, 1991, 1992 and 1993 and a charge
for goodwill write-down in 1994.
(2) The Company has included information concerning EBIT and EBITDA because it
believes that EBIT and EBITDA are used by certain investors as one measure
of an issuer's historical ability to fund operations and meet its financial
obligations and because EBIT and EBITDA are relevant to compliance with the
covenants in the Credit Agreement and the Amended Credit Agreement. See
"Description of Certain Other Indebtedness--Amended Credit Agreement." EBIT
and EBITDA should not be considered by an investor as alternatives to, or
more meaningful than, net income (loss) as indicators of the Company's
results of operations or cash flows or as a measure of liquidity.
(3) For purposes of determining the ratio of earnings from continuing
operations to fixed charges, "earnings" includes pretax income from
continuing operations adjusted for the minority interest in the pretax
income of majority-owned subsidiaries and fixed charges. "Fixed charges"
consists of interest on all indebtedness (which includes the interest
component of capitalized leases) and amortization of deferred financing
costs. Earnings were inadequate to cover fixed charges by deficiencies of
$6.9 million, $5.0 million, $7.2 million, $21.6 million and $32.3 million
in the fiscal years ended December 30, 1990, December 29, 1991, December
27, 1992, December 26, 1993 and December 25, 1994, respectively, and
19
<PAGE>
by a deficiency of $1.0 million for the three months ended March 27, 1994.
On a pro forma basis, earnings were inadequate to cover fixed charges by a
deficiency of $36.0 million in the fiscal year ended December 25, 1994.
(4) Pro forma data includes the effects of (a) amortization of fees and
expenses related to the Senior Notes and the Amended Credit Agreement, (b)
elimination of the amortization of fees and expenses attributable to the
loans under the Credit Agreement to be written off upon consummation of the
Offering and (c) an increase in interest expense attributable to the Senior
Notes.
(5) Includes $0.9 million and $0.2 million of dividend income for the fiscal
years ended December 30, 1990 and December 29, 1991, respectively.
(6) Includes the effect of special non-operating charges of $6.0 million and
$4.8 million in 1991 and 1993, respectively, relating to certain
environmental matters.
(7) The first quarter of 1995 was a 14-week period, whereas the first quarter
of 1994 was a 13-week period. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Results of Operations for
the First Quarter of 1994 and 1995."
(8) Reflects a charge recorded in the fourth quarter of 1994, retroactive to
the beginning of fiscal 1994, related to a change in method of accounting
for postretirement benefits.
(9) The ratio of total debt to EBITDA for these periods has been calculated
using total debt at the end of the period divided by EBITDA for the four
fiscal quarters ended at the end of such period. EBITDA for the four fiscal
quarters ended March 27, 1994 and April 2, 1995 was $68.9 million and $87.5
million, respectively.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF 1994 AND 1995
Net sales increased 22% to $206.9 million in the first quarter of 1995 from
$169.3 million in the first quarter of 1994, with improvements in both the
Engineered Materials and Handling/Packaging Systems segments. The weakening of
the U.S. dollar against most foreign currencies added $4.8 million to net sales
compared with 1994. Higher sales volumes boosted operating profit by 55% to
$18.7 million, compared with $12.0 million in the first quarter of 1994. Net
income for the quarter was $0.4 million compared with a net loss of $2.6
million for the 1994 quarter. The first quarter of 1995 was a 14-week period,
whereas the first quarter of 1994 was a 13-week period, which partially
accounts for the higher sales, operating profit and interest costs.
FIRST QUARTER NET SALES AND OPERATING PROFIT BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
NET SALES OPERATING PROFIT
---------------------------- ----------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
(UNAUDITED) (UNAUDITED)
---------------------------- ----------------------------
MARCH 27, 1994 APRIL 2, 1995 MARCH 27, 1994 APRIL 2, 1995
(IN MILLIONS)
<S> <C> <C> <C> <C>
Engineered Materials
Hoeganaes............. $ 35.7 $ 48.1
Chem-tronics.......... 12.5 16.7
------ ------
48.2 64.8 $ 7.8 $10.8
Handling/Packaging
Systems
Handling.............. 91.6 105.9
Packaging............. 29.5 36.2
------ ------
121.1 142.1 5.5 8.2
------ ------
Corporate Items......... (1.3) (0.3)
----- -----
Total Net Sales......... $169.3 $206.9
====== ======
Total Operating Profit.. $12.0 $18.7
===== =====
</TABLE>
Net sales of $64.8 million in the first quarter of 1995 in the Engineered
Materials segment, which includes Hoeganaes (metal powders for manufacturing
precision parts) and Chem-tronics (precision machined structures, complex
fabrications and jet engine component repairs), were up 34% from $48.2 million
in the first quarter of 1994. The increase was primarily due to increased
tonnage of metal powders, along with higher selling prices at Hoeganaes and
higher fabrication sales at Chem-tronics. For the first quarter of 1995,
Hoeganaes' metal powder sales increased 34% compared with the first quarter of
1994, setting a quarterly record in terms of both tonnage and revenues, due to
continued strong demand from the automotive industry. This increase reflects,
in part, the continued increase in automotive usage of powder metal components.
Chem-tronics' first quarter net sales increased 34% compared with the 1994
period due to higher commercial fabrication shipments.
Operating profit for the Engineered Materials segment increased 38% in the
first quarter of 1995. Operating profit at Hoeganaes increased 49% for the
quarter, reflecting increased tonnage, higher selling prices and improved
manufacturing performance. Operating profit for the quarter at Chem-tronics was
down 37%. Excluding a one-time gain in the first quarter of 1994 from the
settlement of a real estate matter, Chem-tronics' operating profit increased
54% in the 1995 period due to the higher volume of fabrication shipments and
improved margins in the aviation repair business resulting from cost controls,
increased productivity and a more favorable sales mix.
21
<PAGE>
Order backlog in the Engineered Materials segment was $172.6 million at the
end of the first quarter of 1995, up from $80.6 million at the end of the first
quarter of 1994. Hoeganaes' backlog, which is generally short-term, reached a
record level, up 141% from the end of the first quarter of 1994, reflecting the
continued strong demand from the automotive industry. Chem-tronics' backlog
increased 101%, mainly due to new multi-year fabrication orders received during
the latter part of 1994 and early 1995 for commercial, military and space
applications. All orders for Engineered Materials at April 2, 1995 were
believed to be firm, but approximately 32% of these orders are subject to
renegotiation. Approximately 55% of these orders are expected to be delivered
during 1995.
Net sales in the Handling/Packaging Systems segment increased 17% to $142.1
million in the first quarter of 1995 from $121.1 million in the first quarter
of 1994, with improvements at both Handling and Packaging. In the first quarter
of 1995, Handling's net sales increased 10% (at the same exchange rates) from
sales in the comparable 1994 period, due to higher sales in all locations.
North American net sales increased 6%, European net sales rose 12% and net
sales in the Asia Pacific region were up 20% from the year earlier period.
Packaging's first quarter 1995 net sales increased 22% (at the same exchange
rates) compared with the first quarter of 1994, with all operations reporting
improved net sales.
Operating profit for the Handling/Packaging Systems segment increased 50% in
the first quarter of 1995 from the comparable 1994 period. Handling's operating
profit in the first quarter of 1995 increased 26% (at the same exchange rates)
compared with the first quarter of 1994. Operating profit in North America in
the first quarter of 1995 increased 34% over the first quarter of 1994, as
higher volume and improved rack selling prices were partially offset by higher
steel costs. Handling's European operating profit declined 2% in the first
quarter of 1995, despite higher sales in the U.K. and continental Europe due to
lower margins and higher pension expense. Asia Pacific results improved over
1994 due to volume increases. Operating profit at Packaging increased 40% in
the first quarter of 1995, due primarily to higher volume and increased selling
prices for steel strap and machines in Canada and the U.K. LIFO inventory
liquidation benefits of $0.8 million in the first quarter of 1995 compared with
benefits of $0.5 million in the 1994 period.
Order backlog in the Handling/Packaging Systems segment was $93.8 million at
the end of the first quarter of 1995, up from $76.7 million (at the same
exchange rates) at the end of the first quarter of 1994, due mainly to
significantly higher backlog at the North American Handling operation. All
orders at April 2, 1995 were believed to be firm and are expected to be
delivered during 1995.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED 1992, 1993 AND 1994
Net sales were $752.6 million, $681.3 million and $708.2 million,
respectively, in 1994, 1993 and 1992. Net sales in the Engineered Materials
segment were up $23.9 million in 1994 as shipments of metal powders reached
record levels on the continued strength of North American auto and light truck
production and the increased penetration by powder metallurgy in automotive
applications. Handling/Packaging Systems' sales were up $47.4 million,
primarily as a result of a robust market for material handling equipment in the
U.S. and Asia Pacific markets, coupled with higher sales of strapping products
in the U.S. and Canada. In 1993, in the Engineered Materials segment, improved
North American auto and light truck production led to a $9.0 million increase
in sales of metal powders by Hoeganaes which was offset by a $6.5 million
decline in Chem-tronics' sales. Handling/Packaging Systems' sales declined in
1993 as increased U.S. sales of material handling equipment were more than
offset by recessionary conditions in Continental Europe and the effects of a
stronger U.S. dollar.
Operating income was $24.2 million, $38.2 million and $50.4 million,
respectively, in 1994, 1993 and 1992. In 1994, operating income declined $14.0
million from 1993, reflecting a $34.2 million charge to write down goodwill
attributable to Chem-tronics' and Packaging's businesses. Excluding the
goodwill charge in 1994 and the restructuring charges in 1993 and 1992,
operating income was $58.4 million, $43.8 million and $52.9 million in 1994,
1993 and 1992, respectively. Based on a revised accounting policy for assessing
the valuation of long-lived assets and updated long-term projections for these
businesses as discussed in "--Long-Lived Assets" and in Note 2 of Notes to
Consolidated Financial Statements, the Company determined that
22
<PAGE>
the goodwill related to Chem-tronics and Packaging was impaired. Record metal
powder volume at Hoeganaes, record Handling volumes in the U.S. and Asia
Pacific, and improved sales of packaging products primarily in the U.S. and
Canada had a favorable effect on 1994 operating results. Restructuring charges
of $5.6 million and $2.5 million reduced operating income in 1993 and 1992,
respectively, as discussed in "--Restructuring Charges" and Note 3 of Notes to
Consolidated Financial Statements. In 1993, operating income was $12.2 million
lower than in 1992 reflecting the recessionary impact on volume and pricing in
the Handling/Packaging Systems segment in Continental Europe, a restructuring
charge of $5.6 million, lower shipments and weak conditions in the commercial
aerospace industry and higher scrap steel costs in Hoeganaes. These declines
were partially offset by higher domestic Handling profits.
From 1992 to 1994, Hoeganaes' shipments of metal powders increased 24% due to
growth in North American auto and light truck production and increased usage of
metal powders in automotive parts. At Chem-tronics, reduced U.S. defense
spending resulted in a decline in military sales of $3.8 million between 1992
and 1994. This decline in military fabrication sales was more than offset by a
$6.0 million increase in sales for commercial fabrication. In 1994, repair
sales were down $7.3 million from 1992 reflecting continued weak demand from
the airline industry. In Handling/Packaging Systems, despite a decline in sales
in 1993 in most markets, 1994 sales exceeded those of 1992 in all markets other
than Continental Europe as demand for capital goods in most major economies
improved.
Cost of sales as a percentage of sales was 77%, 76% and 75%, respectively, in
1994, 1993 and 1992. The increase primarily reflects rising raw material costs
which were not fully recovered through price increases and cost reductions.
Although sales increased 10%, selling and administrative expenses in 1994 were
held to 1993 levels. As a percentage of sales, selling and administrative
expenses were 16% in 1994, 17% in 1993 and 18% in 1992.
The following business segment commentary reflects the 1994 goodwill write-
down and the 1993 and 1992 restructuring charges for each segment. However, the
discussion of individual business unit results is presented before these
charges and allocation of general corporate expenses. See Note 6 of Notes to
Consolidated Financial Statements for further information on business segments.
NET SALES AND OPERATING PROFIT BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
NET SALES OPERATING PROFIT
-------------------- --------------------
1992 1993 1994 1992 1993 1994
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Engineered Materials
Hoeganaes......................... $122.5 $131.5 $153.9
Chem-tronics...................... 67.5 61.0 62.5
------ ------ ------
190.0 192.5 216.4 $29.6 $26.3 $ 32.3
Goodwill Write-Down............... -- -- (13.2)
Restructuring Charges............. -- (1.8) --
------ ------ ------ ----- ----- ------
190.0 192.5 216.4 29.6 24.5 19.1
Handling/Packaging Systems
Handling.......................... 395.3 366.7 406.0
Packaging......................... 122.9 122.1 130.2
------ ------ ------
518.2 488.8 536.2 24.0 19.1 28.1
Goodwill Write-Down............... -- -- (21.0)
Restructuring Charges............. (2.5) (3.8) --
------ ------ ------ ----- ----- ------
518.2 488.8 536.2 21.5 15.3 7.1
------ ------ ------
Corporate Items..................... (0.7) (1.6) (2.0)
----- ----- ------
Total Net Sales..................... $708.2 $681.3 $752.6
====== ====== ======
Total Operating Profit.............. $50.4 $38.2 $ 24.2
===== ===== ======
</TABLE>
23
<PAGE>
Engineered Materials. Sales increased 12% in 1994 in the Engineered Materials
segment reflecting record shipments of metal powders, which were up 17% from
1993, as a result of continued growth in North American auto and light truck
production, increased penetration by powder metallurgy in automotive
applications and higher selling prices. Chem-tronics' sales were up slightly as
higher commercial fabrication shipments were substantially offset by lower
repair and defense business.
Chem-tronics' defense-related business represented approximately 33%, 39% and
36% of its sales in 1994, 1993 and 1992, respectively. Defense-related sales as
a percent of the Company's consolidated sales were approximately 3% in each of
the last three years. In anticipation of a long-term slowdown in military
procurement, Chem-tronics has developed and executed a strategy of increasing
its fabrication business' penetration of the commercial and space sectors.
Although Chem-tronics has experienced a 71% increase in sales to the commercial
sector from 1990 to 1994, margins in this area are generally lower than margins
on military business, particularly in light of weak conditions in commercial
aviation which have led to competitive pricing pressure. Weak demand in the
airline industry also had a negative impact on repair volumes with sales
declining 24% in 1994 after an 11% drop in 1993.
Operating profit for the segment fell 22% in 1994 as a result of the write-
down of goodwill as discussed in "--Long-Lived Assets" and in Note 2 of Notes
to Consolidated Financial Statements. Excluding the effect of the goodwill
charge and the $1.8 million restructuring charge in 1993, operating profit
increased 23% over 1993. Hoeganaes' operating profit was up 20% primarily
reflecting the record volume. Scrap steel costs increased 18% from 1993, about
half of which was recovered with higher selling prices. Operating profit was up
27% at Chem-tronics due to a one-time gain from settlement of a real estate
matter (see "--Nonoperating Items") and slightly improved margins in the
aviation repair business.
In 1993, segment sales increased 1% over 1992. Metal powder shipments were up
8% in 1993 on higher North American automobile and light truck production.
Chem-tronics' sales declined 10% in 1993 due to the slowdown in military
procurement and the weak conditions in the airline industry.
Operating profit for the segment fell 17% in 1993. Excluding the $1.8 million
of restructuring charges, segment operating profit fell 11% in 1993. Hoeganaes'
operating profit fell 3% despite the higher metal powder volume as higher scrap
steel costs and other manufacturing costs more than offset the benefits of
higher volume. Scrap steel costs increased 20% in 1993, only a small portion of
which was recovered with higher selling prices. Chem-tronics' operating profit
was 37% lower in 1993 than in 1992. In addition to the volume shortfall noted
above, depressed conditions in the commercial aerospace and airline industries
led to excess capacity resulting in increased price competition. Results in
1993 were also unfavorably affected by high initial costs related to the early
production stages of new non-defense business.
The Engineered Materials segment's order backlog at year-end 1994 was $148.4
million, double the year-end 1993 balance of $73.6 million. Hoeganaes' backlog,
which is generally short-term in nature, was up 51% to a near record level.
Chem-tronics' backlog increased 127% from unusually low levels in 1993 due
mainly to new, multi-year fabrication orders received for commercial, military
and space applications.
Handling/Packaging Systems. Total segment sales in 1994 were up 10% above
1993. Handling sales increased 11% from the prior year. Demand for material
handling products in the U.S. continued to be strong, resulting in record
volumes, increased pricing and a 14% increase in sales. Strong Australian and
Pacific Rim demand, together with sales of the newly acquired Hong Kong
distributor, led to a 52% increase in Asia Pacific sales to record levels.
European Handling sales were up slightly as improvements in the U.K. were
offset by the effects of a slow economy in Continental Europe. Packaging sales
were up 7% with higher sales in all locations, especially in Canada where, on a
local currency basis, sales were up 13% on strong domestic and export demand.
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Segment operating profit fell 54% to $7.1 million due to the $21.0 million
write-down of the goodwill related to the Packaging unit as discussed in "--
Long-Lived Assets" and in Note 2 of Notes to Consolidated Financial Statements.
Excluding the effects of the goodwill write-down and the $3.8 million
restructuring charge in 1993, operating profit was up 47%. U.S. Handling
profits were up 43% reflecting the record volumes and better pricing which were
partially offset by an 11% increase in steel costs. The improved volume at
Handling Asia Pacific returned that unit to profitability and was a significant
contributor to the increase in segment income.
Operating profit for the European Handling business was up 18% as higher
volume in the U.K. and cost savings throughout Europe were partially offset by
lower volume and pricing in Continental Europe and higher steel costs in the
U.K. Despite a decline in operating profit in the newspaper-related business,
Packaging operating profit was up 25%, due primarily to higher strapping volume
and selling price and LIFO inventory liquidation benefits in Canada and the
U.K.
In 1993, Handling/Packaging Systems' sales were down 6% from 1992. Domestic
Handling sales were up 17% as the market for material handling equipment in the
U.S. showed substantial improvement during the year. However, this increase was
more than offset by a decline in Continental Europe and the unfavorable effects
of the stronger dollar. Recessionary conditions in Continental Europe,
especially Germany, resulted in lower volume and pricing levels, leading to a
sales decline of 21% for the European Handling unit overall. Packaging sales
fell by 1% during the year.
Segment operating profit in 1993 was 29% below 1992. Handling profit fell
20%, as improved domestic volume and cost reduction efforts throughout the
group were not enough to offset the recessionary impact of lower volume and
pricing on the European operations and the effect of a stronger dollar.
Packaging operating profit was 10% lower than the prior year as improved
strapping and machine volume in North America was more than offset by lower
stitching product volume and the effect of a stronger dollar.
Handling/Packaging Systems ended 1994 with an order backlog of $93.1 million,
up from $74.0 million at the end of 1993 (at the same exchange rates), due
mainly to improved order rates at all Handling operations. Order intake at U.S.
Handling reached a record level in 1994.
RESTRUCTURING CHARGES
In 1993, the Company provided $5.6 million for restructuring costs related
to: the exit from certain lines of businesses that were part of Handling North
America; reorganization and downsizing of portions of the European Handling
operation; and, in Chem-tronics' business, the abandonment of certain product
lines which resulted in idled equipment and the provision for severance costs
related to a downsizing of the Aviation Repair workforce. The $5.6 million
consisted of $1.7 million in severance costs, $1.5 million of idled equipment
written down to fair market value, $1.4 million of inventory related to the
exited businesses and $1.0 million of other costs. Quantification of the
effects of the restructuring on future operating results is not practical
because some of the actions were taken to avoid future costs while other
actions were strategic in nature and implemented to limit exposure to changing
market dynamics. These restructuring activities are substantially complete and
the remaining reserves are immaterial.
In 1992, the Company recorded $2.5 million of additional costs related to
unfavorable adjustments on assets held for sale as part of an asset sale
program adopted as part of the 1989 Restructuring Program which modified its
strategic operating plan. The modified strategic operating plan identified
certain businesses and corporate assets to be disposed of and implemented
significant corporate cost reductions. Most of the designated businesses were
sold or shut down in 1990. The 1992 adjustment reflected the decline in value
of two parcels of real estate held for sale, both of which were former Handling
operations sites.
LONG-LIVED ASSETS
Prior to the fourth quarter of 1994, impairment with respect to the Company's
assets was determined by comparing the sum of the undiscounted projected future
cash flows attributable to each business to the carrying value of the assets of
that business. In the fourth quarter of 1994, the Company concluded that, in
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the light of its highly leveraged capital structure, a preferable accounting
policy for analyzing the valuation of long-lived assets would be to reflect its
cost of capital in computing the present value of the expected cash flows of
its businesses. In addition, the long-term cash flow projections were updated
to reflect current information. Applying this new policy to all of its long-
lived assets, the Company determined that, with respect to Packaging's
newspaper-related businesses and Chem-tronics, in light of the significant
deterioration in business climates in the newspaper and aerospace industries
over recent years, the values of the discounted cash flows were insufficient to
recover the carrying value of the long-lived assets. Therefore, the goodwill
component of those assets was deemed to be impaired. As a result, a charge of
$34.2 million was taken for the write-down of goodwill established in
connection with the acquisitions of Packaging's newspaper-related businesses
and Chem-tronics. As of December 25, 1994, the remaining net investment in
these businesses was approximately equal to the value of the discounted
projected cash flows attributable to them, and consisted primarily of tangible
assets. The Company intends to continue to annually assess the carrying value
of its long-lived assets using the analysis described above. See Note 2 of
Notes to Consolidated Financial Statements.
INTEREST EXPENSE
The Company has a highly leveraged capital structure with substantial net
interest expense of $50.2 million, $49.1 million and $51.4 million in 1994,
1993 and 1992, respectively. In 1994, the increase in net interest expense was
caused primarily by higher rates on amounts outstanding under the Credit
Agreement. The decline in 1993 was largely the result of lower average
outstanding borrowings. The Company has long-term interest rate agreements as
required under the Credit Agreement, which effectively provided fixed rates of
interest on 57% of the obligations thereunder at the end of 1994, all of which
bore interest at floating rates.
NONOPERATING ITEMS
The Company has certain income and expenses which are not related to its
ongoing operations. In 1994, these items included a $1.1 million one-time gain
for settlement of a real estate matter with a local transportation authority at
Chem-tronics. In 1993, a charge of $4.8 million was recorded for anticipated
costs for environmental matters as discussed below and in Note 15 of Notes to
Consolidated Financial Statements. Ongoing postretirement expenses attributable
to disposed or discontinued operations are also shown as nonoperating items.
The Company has been identified as a potentially responsible party in
connection with the investigation and remediation of a site in Duluth,
Minnesota. Based on the Company's current estimates of its potential
liabilities related to the site, the Company believes that this matter is
unlikely to have a material adverse effect on the Company's liquidity, results
of operations or consolidated financial condition. However, the Company's
current estimate of its potential environmental liabilities at this site is
subject to considerable uncertainty related to both the clean-up of certain
contaminated soils at the site, as well as the possible remediation of certain
underwater sediments. See "Risk Factors--Environmental Matters" and Note 15 of
Notes to Consolidated Financial Statements.
The Company is a defendant in an action in federal district court in Toledo,
Ohio, in which the City of Toledo alleges various claims in connection with the
alleged contamination of a 1.7 acre parcel of land (the "right-of-way") owned
by the City of Toledo and an adjacent piece of land which formerly was the site
of a coke plant and related by-products facilities. The City of Toledo is
seeking an order compelling the defendants to perform a remedy of the right-of-
way which it asserts would cost approximately $4.0 million. The Company
believes the right-of-way could be remedied for much less, although remediation
of the entire site, if it were required, could cost more. The Company also
believes it is entitled to indemnification by one of the other defendants in
the matter, Beazer Materials and Services Inc., under the terms of a 1978 sale
agreement. The Company has brought an indemnification cross-claim against
Beazer which may be decided on motions for summary judgment in 1995. See Note
16 of Notes to Consolidated Financial Statements.
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Hoeganaes is a defendant in a recently-filed action in federal district court
in Trenton, New Jersey, brought by a subsidiary of Waste Management
International Plc. The plaintiff is seeking to recover from Hoeganaes and
numerous other defendants amounts expended or to be expended in the remediation
of a broadly-defined Superfund site which encompasses a landfill formerly
operated by the plaintiff and may also include the groundwater under Hoeganaes'
Riverton, New Jersey facility. Based on its preliminary investigation, the
Company does not believe that this matter will have a material adverse effect
on its liquidity, results of operations or consolidated financial condition.
In May 1994, the Company instituted an action seeking a declaratory judgment
against and recoveries from insurers in connection with environmental claims
under policies covering nearly 30 years. The parties are in discovery and trial
is tentatively set for October 1996.
PROVISION FOR INCOME TAXES
In 1993 and 1992, high levels of interest expense resulted in losses for U.S.
federal tax purposes. Because most of the interest expense is borne in the
United States at the parent company level, the Company had taxable income in
foreign and state jurisdictions despite the high levels of consolidated
interest expense. Foreign taxes paid did not result in a benefit in the U.S.
and, as a result, the Company had tax expense in 1994, 1993 and 1992,
notwithstanding consolidated pretax losses in each of those years.
In 1994, a small amount of domestic taxable income was generated as the
write-down of goodwill in 1994 did not increase the deduction allowable for tax
purposes. This taxable income was offset with the carryforward of prior year
losses. The Company also provided additional amounts related to open federal
tax returns for the years 1982 through 1990. In addition, in 1994 the Company
had a small amount of income subject to Alternative Minimum Tax (AMT) in the
U.S. because of certain restrictions on the amount of net operating loss that
can be carried forward for purposes of calculating that tax.
At the end of 1994, the Company's U.S. federal income tax returns for the
years 1988 through 1990 were in the process of examination. Resolution of tax
years 1982 through 1984 is pending at the U.S. Tax Court following receipt in
1994 by the Company of a statutory notice of deficiency for these years of
$17.0 million plus interest and penalties. Resolution of tax years 1985 through
1987 is pending at the Appeals Division of the Internal Revenue Service. The
Company believes that its positions with respect to the contested matters for
these years are strong, and that adequate provision has been made for the
possible assessments of additional taxes and interest. However, there can be no
assurance that federal income tax issues for the years 1982 through 1990 will
be resolved in accordance with the Company's expectations or, alternatively,
that these issues could be settled for either more or less than what has been
provided by the Company.
In 1992, the Company adopted a new method of accounting for income taxes. See
"--Cumulative Effect of Accounting Changes" and Note 4 of Notes to Consolidated
Financial Statements.
EXTRAORDINARY LOSS
In 1992, as part of the 1992 Financing, the Company redeemed its increasing
rate notes and negotiated the Credit Agreement. These actions necessitated the
write-off of related deferred debt issuance costs amounting to $7.6 million
without any net tax benefit in 1992.
CUMULATIVE EFFECT OF ACCOUNTING CHANGES
In 1992, the Company adopted the Financial Accounting Standards Board's
Statements of Financial Accounting Standards ("FAS") No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and No. 109
"Accounting for Income Taxes." The Company's foreign operations adopted FAS No.
106 in 1994. The cumulative effects of these adoptions were recognized in 1992
and 1994, respectively, as of the beginning of the year. The adoption of FAS
No. 106 resulted in a charge of $9.3 million (net of
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taxes) in 1992 and $0.2 million in 1994, while the adoption of FAS No. 109
resulted in a credit of $3.1 million. See Note 4 of Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow. Cash used by operating activities was $19.1 million in the first
quarter of 1995 compared to $10.1 million in the first quarter of 1994, as
working capital required the use of $24.8 million in 1995 compared to $12.0
million in 1994. Working capital needs were significantly higher in the first
quarter of 1995 due to the timing of interest payments and a lower level of
payables.
Cash provided by operating activities was $21.9 million and $8.0 million in
the fiscal years 1994 and 1993, respectively, while operating activities used
cash of $7.2 million in fiscal year 1992. Cash provided by operating activities
was up in 1994 from 1993 primarily as a result of higher operating earnings
before the $34.2 million goodwill charge which did not affect cash. Working
capital needs were $6.5 million in 1994 compared to an inflow of $5.8 million
in 1993 which resulted from the decline in net sales in 1993. In 1994, other
operating adjustments reflect the movement of certain expected tax liabilities
from current to long-term. Excluding debt issuance costs related to the 1992
Financing, cash inflows provided by operating activities were $4.8 million in
1992.
Cash used by investing activities was $3.0 million in the first quarter of
1995 compared to $3.5 million in the first quarter of 1994, primarily due to
lower capital expenditures, which were $3.1 million during the first quarter of
1995 compared to $3.7 million during the prior year period. The Company
anticipates that 1995 capital spending will be approximately $20.0 million.
Capital expenditures were $15.5 million, $14.5 million and $24.6 million in
fiscal years 1994, 1993 and 1992, respectively, including capital expenditures
for expansion projects totalling $4.1 million, $6.1 million and $8.8 million,
respectively, in 1994, 1993 and 1992. Expansion spending in 1994 and 1993
included the addition of two annealing furnaces to expand capacity at the
Hoeganaes operation and, in 1993, a new production line for polyester strapping
at Packaging. Expansion spending in 1992 included the implementation of
advanced manufacturing techniques to further enhance the quality of Hoeganaes'
atomized metal powders and the establishment of Chem-tronics' new Tulsa
facility for repair of jet engine fan blades. Management believes that capital
expenditures have been adequate to properly maintain the Company's businesses
and provide for anticipated growth opportunities.
Cash provided by financing activities was $5.6 million in the first quarter
of 1995, mainly due to borrowings under the Credit Agreement. Cash provided by
financing activities was $0.7 million in fiscal year 1994 and $67.5 million in
1992. The 1992 cash provided by financing activities resulted from
implementation of the 1992 Financing. The cash used by financing activities of
$1.3 million in 1993 resulted primarily from scheduled amortization of long-
term debt.
Capital Resources. The Company's total debt at the end of the first quarter
of 1995 was $447.6 million, up $5.1 million from December 25, 1994. The year-
end 1994 total debt was down $0.7 million from year-end 1993. Cash and cash
equivalents totaled $22.5 million at the end of the first quarter of 1995,
compared with $39.7 million at the end of 1994, reflecting increased working
capital requirements. The total cash and cash equivalents at the end of 1994
was up $7.8 million from year-end 1993. Without giving effect to the Offering
and the Amended Credit Agreement, during 1995 the Company will have long-term
debt amortization requirements of $24.6 million, including $5.8 million of
amortization payments under the Credit Agreement made in the first quarter of
1995. Based on current levels of performance, and the availability of
additional revolver borrowings under the Credit Agreement, the Company believes
that it will have adequate liquidity to meet its debt amortization and
operating requirements in 1995. Under the Credit Agreement, the Company will be
able to borrow under its revolving facility up to an additional $34.0 million
over the amount of revolving indebtedness outstanding at April 2, 1995.
However, outstanding revolver borrowings at the end of each of the Company's
three remaining 1995 fiscal quarters will be limited to between $7.0 million
and $19.0 million above the amount of revolving indebtedness at April 2, 1995.
In addition, the Company will have up to $5.8 million of deferred term loan
availability during the year for amounts that may be incurred in connection
with certain environmental matters.
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In the first quarter of 1995, the Company completed an amendment of certain
covenants under the Credit Agreement. Although there can be no assurances,
based on current levels of performance, the Company believes it will be able to
comply with all Credit Agreement covenants in 1995. In 1996, the Company has
long-term debt amortization requirements of $88.8 million under the Credit
Agreement and, potentially, significant payments related to tax matters (see
"--Provision for Income Taxes") which it does not expect to be able to meet
from operating cash flow.
Giving effect to the Offering, the Loan Repayments and the Amended Credit
Agreement, as of April 2, 1995, the Company would have had available credit
facilities under the Amended Credit Agreement of $175.4 million, of which $46.7
million would have been unutilized, including $5.8 million available only to
pay certain potential environmental liabilities. In addition, the Company would
have had approximately $22.5 million of cash available for general corporate
purposes. As a result of the Offering and the revised amortization schedule
under the Amended Credit Agreement, $195.3 million of indebtedness which would
have matured in 1995 through 1998 under the Credit Agreement, including $171.4
million which would have matured in 1996 and 1997, will be extended to 1999
through 2001. Assuming the consummation of the Offering and the effectiveness
of the Amended Credit Agreement, the Company believes it will have sufficient
liquidity through 1996 and expects that it will be able to meet all financial
covenants under the Amended Credit Agreement. The consummation of the Offering
and the effectiveness of the Amended Credit Agreement are contingent upon each
other.
FOREIGN OPERATIONS
The Company does business in a number of foreign countries, mainly through
its Handling/Packaging Systems segment. The results of these operations are
initially measured in local currencies, principally in British pounds, German
marks, Canadian dollars and Australian dollars, and then translated into U.S.
dollars at applicable exchange rates. The reported results of these operations
are sensitive to changes in applicable foreign exchange rates which could have
a material effect on the Company's results of operations. In the first quarter
of 1995 and in fiscal 1994, the dollar was somewhat weaker against most
currencies, which had a favorable impact on sales of $4.8 million and $5.2
million, respectively, but an insignificant impact on operating income in both
periods. In 1993, the dollar was generally stronger against most European
currencies than in 1992, resulting in a negative impact on sales of $35.7
million and on operating income of $2.4 million. Fluctuations in foreign
currency exchange rates in 1992 had very little effect on sales and operating
profit. See "Risk Factors--Potential Adverse Effects of Fluctuations in Foreign
Currency." For additional information about the Company's operations by
geographic area, see Note 6 of Notes to Consolidated Financial Statements.
EFFECTS OF INFLATION
The impact of inflation on the Company in recent years has not been material,
and it is not expected to have a significant effect in the foreseeable future.
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BUSINESS
GENERAL
The Company is a multinational corporation engaged in the design, manufacture
and sale or distribution of value-added metal and related products in the
automotive, materials handling, packaging and aerospace industries. The
Company's operations are divided into two segments: Engineered Materials and
Handling/Packaging Systems. The Company's operations include:
Engineered Materials
. Hoeganaes, which produces ferrous metal powder used to manufacture
precision parts; and
. Chem-tronics, which manufactures precision jet engine components and
repairs jet engine fan blades.
Handling/Packaging Systems
. Handling, which designs, manufactures and sells storage rack, shelving
and related equipment; and
. Packaging, which designs and sells machinery for applying strapping and
stitching wire, and supplies strapping and stitching wire for use in
these machines.
The Company has leading market shares in all of its businesses and believes
they enjoy a reputation for high quality products and superior customer
service. The Company has implemented programs to reduce costs, improve
productivity, improve customer service and support, and seek growth
opportunities through geographic expansions and new product development. The
Company expects that its leading market positions, together with its business
initiatives, will enable it to continue to take advantage of U.S. economic
trends and the economic improvements in other markets throughout the world.
Although the Company's businesses are cyclical in nature, the Company's
operating results have historically lagged behind improvements in the general
economy, and its earnings downturns have also come later than those of the
general economy. This is largely due to many of Handling's customers waiting to
implement long-term capital projects until a recovery is well established. The
Company expects this lagging relationship to continue.
The Company expects its operating results to benefit from the recovery of the
European economies, which accounted for approximately 28% of the Company's
revenues in 1994. In addition, the Company anticipates that future results will
be enhanced by certain positive trends in its businesses, including the
increased use of powder metallurgy in the manufacture of automobile parts and
Handling's continuing penetration of growing Pacific Rim markets.
HOEGANAES
General. Hoeganaes is the North American market and technology leader in the
production of ferrous (iron-based) metal powders. Ferrous metal powder is used
by customers primarily to manufacture precision parts for automobiles, light
trucks, farm and garden equipment, heavy construction equipment, hand tools and
appliances. Precision parts produced using powdered metal technology have
certain cost and design advantages over parts produced using conventional
techniques such as forging, casting, stamping or machining, as they may be
manufactured with less wasted raw material, lower labor costs and little or no
additional machining.
The automotive industry is the largest market for Hoeganaes' products.
Average usage of ferrous metal powder per vehicle has increased from 18 pounds
in 1986 to 30 pounds in 1994 due to new applications (for example, anti-lock
brakes, connecting rods and bearing end caps) as well as increased demand for
vehicles in the light truck category (including sport utility vehicles), which
use greater amounts of ferrous metal powder per vehicle.
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Hoeganaes shipped record tonnage in 1994, as sales increased 17% to $153.9
million from $131.5 million in 1993, due mainly to continued strong demand from
the automotive industry.
Strategy. Hoeganaes' status as the North American market leader is based on
its broad product range and new product development coupled with cost-efficient
manufacturing processes producing a high quality metal powder. Hoeganaes'
strategy is to commercially develop new powder metal products, manufacturing
processes and applications, thereby promoting the increased use of powder
metallurgy generally and establishing Hoeganaes as the sole source for its
proprietary products. This strategy is based on the Company's ongoing research
and development efforts, in which Hoeganaes representatives work closely with
customers to advance the performance characteristics achievable through powder
metallurgy.
Markets. The North American market for ferrous metal powders can be divided
into two segments: structural parts (metal powder to be compressed into solid
parts) and non-structured applications (powders principally used in welding,
chemicals and photocopying).
Uses for structural parts comprise an estimated 80% of the North American
market for ferrous metal powders. Approximately 65% of Hoeganaes' sales are for
automotive applications, which include components for transmissions, engines
and suspension systems. For automobile applications, Hoeganaes generally
supplies metal powder to component manufacturers as opposed to directly
supplying vehicle manufacturers.
The non-structural market for ferrous metal powders generally consists of
applications in welding, chemicals, friction applications such as brake pads
and linings, and for use as a carrier agent for photocopier toner. Ferrous
metal powders are also used by pharmaceutical companies as catalysts in blood
thinning agents and for use in nutritional iron supplements.
Customers. Although approximately 65% of Hoeganaes' product shipments are
ultimately used in automobiles and other light vehicles, Hoeganaes' customers
generally are not the auto manufacturers, but rather intermediary parts
fabricators. In recent years, there has been increasing consolidation among the
powder metal parts manufacturers; however, no single customer accounted for
more than 2% of the Company's net sales in 1994. Sales are made by Hoeganaes'
direct sales force.
Products. The Company believes that Hoeganaes currently has the broadest
product line of all ferrous metal powder producers. It is also a leader in the
research and development of advanced proprietary powders and processes.
Hoeganaes' patented ANCORBOND(R) and ANCORDENSE(TM) blend technologies, for
example, allow the formulation of press-ready mixes that result in more
consistent metallurgical properties in finished parts with increased part
strength and density while also increasing press productivity for parts
fabricators.
To achieve specific performance objectives, powder metal parts producers
require steel powder mixed with various alloying constituents such as copper,
nickel or graphite plus other additives. In addition to producing conventional
mixes, Hoeganaes offers customers the unique advantages of ANCORBOND premixes
produced with a proprietary mixing process. With ANCORBOND premixes, additives
are bonded directly to the steel particles, resulting in more consistent
metallurgical properties and improved manufacturing productivity.
Based on its ANCORBOND premix technology, in 1994 Hoeganaes introduced the
new, patented ANCORDENSE process that maintains its technological leadership
and will lead to new parts applications. The ANCORDENSE process uses heat
throughout the part-forming operation. The combination of special, bonded
premixed powders and warm compaction enables fabricators to produce parts with
properties that previously could be obtained only through more expensive
processes. Several pilot parts programs using the ANCORDENSE process are
currently under way.
Production. Hoeganaes has two basic production processes. The first process
is atomizing, which converts selected scrap steel into powders through the use
of an electric furnace steel making and water atomization system. Hoeganaes has
the two largest atomizing plants in North America. The second process is direct
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reduction which converts high purity iron ore into a unique, highly porous
metal powder. Hoeganaes has the only direct reduction process facility in North
America. Hoeganaes also formulates these powders into press-ready mixes for its
customers. In 1994, Hoeganaes added annealing capacity at both of its atomizing
plants.
Minority Interest. The Company owns 80% of the capital stock of Hoeganaes.
The remaining 20% is owned by Hoganas AB, a Swedish corporation. Agreements
between the owners of Hoeganaes define the structure of the Hoeganaes board of
directors, grant to each party a right of first refusal with respect to a
proposed sale of Hoeganaes stock and provide for technology exchanges and tax
sharing arrangements.
CHEM-TRONICS
General. Chem-tronics is a leading producer of lightweight, fabricated
products for commercial and military aerospace applications, and also provides
jet engine fan blade repair services. Chem-tronics offers its customers a
vertically integrated facility, thereby eliminating the need for numerous
subcontractors for a single component. Chem-tronics' principal products are
sold directly to engine manufacturers under arrangements which generally
establish Chem-tronics as the sole source of supply.
Chem-tronics' sales increased 2.5% in 1994 to $62.5 million from $61.0
million in 1993, primarily on the strength of increased fabrication sales for
commercial and space programs.
Strategy. Responding to the decline of the defense industry, Chem-tronics'
strategy during the 1990's has been to diversify and realign its fabrication
business by reducing the dependence on a declining military business through
expansion of the commercial and space segments. Commercial and space programs
have substantially offset declining military business and represented 67% of
Chem-tronics' sales in 1994, up from 22% in 1986. At the end of the first
quarter of 1995, Chem-tronics had a backlog of over $100 million of fabrication
orders, including significant multi-year agreements with General Electric,
Pratt & Whitney, Rolls-Royce and Allison.
Products and Customers. Chem-tronics' fabricated products include rings,
cases and modules for large commercial aircraft jet engines, ducts for military
jet engines, exhaust nozzles and structures for jet engines and space launch
vehicles, and other complex fabrications for a variety of aerospace
applications. The primary fabrication customers are the original equipment
manufacturers ("OEMs") of jet aircraft and engines. The Company believes that
its sales have benefitted, and will continue to benefit, from the trend toward
outsourcing by OEMs.
Production Processes. The primary processes used in the fabrication
businesses are chemical milling, welding, forming, machining, non-destructive
testing and inspection. Chem-tronics uses a patented Unistructure(R)
technology, a chemical milling process which produces integral rib and skin
structures that are both stiff and lightweight. Unistructure components have
significant cost and performance advantages over other fabrication methods.
Repair. In addition to its fabrication business, Chem-tronics provides
comprehensive repair services for jet engine fan and compressor blades, discs
and combustion liners. Repair services are sold directly and through sales
agents. Repair customers include all major jet engine manufacturers, major
domestic and international airlines and engine overhaul centers.
HANDLING
General. Handling designs, manufactures and sells storage rack, shelving,
conveyors and related equipment for use in warehouses, distribution centers,
retail stores and for other storage applications. Handling also supplies
equipment for retail display and office interiors.
The Company believes Handling is the world's largest manufacturer of storage
rack, with the largest market share in the U.S., the U.K., Belgium and
Australia and the second largest market share in Germany. Its customers are
primarily engaged in the retailing and wholesaling of food and consumer
durables and
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non-durables and industrial products. Handling's rack systems are used in
warehouse and distribution applications ranging from simple pallet storage to
sophisticated warehouse systems and warehouse-type retail store environments.
Handling's direct sales and distribution networks allow it to satisfy the
needs of large customers and projects, as well as smaller, geographically
distant customers. Handling's design capabilities and large manufacturing
capacity enable it to undertake large scale projects for many of the largest
retailers in the United States. In addition, its large size allows it to
realize significant economies of scale in product development, design and
manufacturing.
Driven by stronger demand in North America, the U.K. and Australia, and
expansion into the Asia Pacific market, Handling's 1994 sales increased 11% to
$406.0 million from $366.7 million in 1993.
Strategy. Handling's strategy is to enhance its position of market leadership
by continuously improving product quality, manufacturing efficiency and
customer service and support, while exploiting opportunities for geographic and
new product growth. In 1994, the acquisition of a Hong Kong company expanded
sales coverage in the rapidly growing Northeast Asia marketplace, and a sales
office was established in the Czech Republic to continue development of the
emerging eastern European market. Planned product introductions in 1995 include
a direct-drive lineshaft conveyor, new pick-to-light interface and software
products for order fulfillment applications, and a redesigned industrial
shelving range. The new pick-to-light product is intended to further Handling's
position in the growing area of paperless warehousing and distribution
applications.
Products. Handling's primary product is storage rack which is used for
storing unit loads in distribution centers, warehouse facilities, retail stores
and factory shipping and receiving departments. Storage rack can be assembled
in a variety of configurations depending on individual customer needs. Handling
offers a broad range of products, including products that allow for FIFO and
LIFO storage and retrieval, for the storage of bulky, awkwardly shaped items
(lumber, carpet rolls, furniture, etc.) and for the storage and retrieval of
very heavy items.
Handling also sells conveyors and conveyor systems which range from simple
gravity conveyors to complex belt and chain powered conveyors. In Europe and
Australia, Handling manufactures and sells angle and shelving and office
storage equipment and, in Europe, partitioning for offices.
Product Development, Design and Manufacturing. In addition to competing on
the basis of cost and quality, Handling utilizes proprietary software, computer
aided design applications and its in-house structural engineering staff to
design the optimal solution for each customer's storage requirements.
Furthermore, extensive technical training for its sales staff and for third-
party distributors allows for a better assessment of customer needs. Handling's
design software is also used to generate detailed bills of material which
automatically specify the size, type and quantity of all components to be used
in the project, streamlining the selling, design and manufacturing processes.
Handling's facilities generally purchase steel coils and then form, finish
and paint the steel for various storage applications. Steel comprises
approximately 60% to 70% of production cost. Handling believes it is a low cost
producer and continuing emphasis is placed on overhead and manufacturing cost
control and the efficient utilization of raw materials.
Sales and Distribution. The Company believes that Handling's domestic and
international direct sales force and extensive distributor network give it a
significant competitive advantage. Domestically, Handling is represented by a
network of over 180 distributors and a direct sales force. In the U.K.,
Handling utilizes an independent distributor network, wholly-owned distribution
centers and a direct sales force, while in Germany, Handling conducts its sales
efforts exclusively through a direct sales force and wholly-owned distribution
centers. Handling believes that its direct sales force allows it to satisfy the
complex needs of large customers and applications, while its extensive
distributor network allows it to reach smaller, geographically
33
<PAGE>
distant customers. Handling has pursued geographic expansion by purchasing a
distributor in Hong Kong to improve sales coverage in the rapidly growing
Northeast Asia marketplace and establishing a sales office in the Czech
Republic. In Europe and Asia Pacific, Handling operates under the Dexion name,
which is well recognized in those markets and provides Handling with certain
marketing advantages.
PACKAGING
General. The Company's Packaging business is one of the leading North
American and European suppliers of steel and plastic strap and the machinery
and tools to apply this strap. Packaging also manufactures and distributes wire
and stitching equipment. Packaging's sales increased 7% to $130.2 million in
1994 compared with $122.1 million in 1993.
Strategy. Packaging serves industries which are highly cyclical, and thus
over recent years has concentrated on continually lowering fixed costs and
improving production efficiencies to enable it to maintain profitability even
during economic downturns. Its growth strategy is based on successfully
anticipating and meeting the changing needs of its customers through product
development.
In the near-term, a key growth area for plastic strapping is the conversion
of the fiber and lumber industries from steel to plastic strap. Packaging's
research and development efforts have been focused on developing the high-
strength polyester strap these applications require. In 1994, a large acrylic
fibers plant in Alabama was successfully converted to polyester strap, and
other customers are targeted for conversion. Also in 1994, the American
Association of Railroads certified plastic strap for use by North American
lumber mills for rail shipments.
New products for 1995 include lower-cost plastic strapping machines and new
inserter and overwrapper machines for the newspaper industry, new general
purpose strapping machines, and a booklet maker for the graphic arts industry.
Packaging also expects growth in 1995 from expanded export sales of both steel
and plastic strap in continental Europe from sales offices established in
France and Germany.
Products and Customers. Packaging develops and markets solutions for
companies of all sizes utilizing a "total systems sales" approach--providing
the customer with engineering support, equipment and tools, strap, parts and
service. The Company believes this approach gives it a competitive advantage.
Plastic strap customers can choose from an equally broad line of machines,
tools and polypropylene and polyester strap of various widths and strengths.
Packaging specializes in newspaper strapping systems, with a complete line of
strapping machines, overwrapping and underwrapping systems, turners and
conveyors. Other large plastic strap customers include the textile, corrugated,
graphics, can, bottle and distribution industries.
Steel strap customers use zinc-coated and painted strap in the most demanding
strapping applications, where tensile strength and resistance to breakage is
essential, and apply it with Packaging's extensive line of manual, electric and
pneumatic hand tools and automated strapping machinery. Packaging's largest
steel strap customers are the lumber, steel, brick and concrete block
industries.
The largest customers of wire stitching products come from the graphic arts
industry, where Packaging supplies patented stitching products for binding
printed materials. Fruit and produce growers, corrugated box manufacturers and
numerous other businesses use Packaging's stitching machines to assemble
shipping containers.
Production. For steel strapping, Packaging purchases raw materials in the
form of steel coils which are then slit into bands. The bands are further slit
into straps of various widths. The strap is then either zinc coated or painted
in order to prevent rusting. Rust resistant strap is important for the lumber
and brick industries where product is exposed to the elements.
34
<PAGE>
For non-metallic strapping, Packaging purchases raw materials in the form of
pelletized or flake polyester and polypropylene which is often blended with
recycled materials. Non-metallic strapping is manufactured through a continuous
extrusion process. This material is then shaped and chilled, then reheated and
stretched to the appropriate width and thickness and, finally, annealed,
relaxed and either slit or embossed, cooled to minimize shrinkage and wound
into coils.
Market Share. The Company believes that the Canadian steel strapping unit
generally has the largest market share in Canada. The Company also believes
that the U.K. steel strapping unit has the second largest market share in its
market and the U.K. non-metallic strapping and non-metallic machines units have
leading market shares in certain areas. In the U.S., Packaging sells only
plastic strapping and stitching products and is a leading supplier of these
products.
Sales, Distribution and Servicing. Packaging's direct sales force services
clients in the U.S., the U.K. and Canada. In the U.S., Packaging also utilizes
a network of over 350 distributors to service smaller customers. Within each
sales force, product specialists are trained to service the needs of specific
industries such as publishing or lumber. Due to the fact that most of
Packaging's customers utilize its products for high volume applications,
Packaging has an extensive field service organization to allow it to respond
rapidly to customer service needs. The Company believes that its
sales/distributor network and its field service capabilities give it
significant advantages over smaller competitors.
CUSTOMERS; ORDER BACKLOGS
Engineered Materials. Engineered Materials' products are sold to a number of
customers, none of which individually purchased a significant portion of the
segment's output in 1994. At April 2, 1995 and March 27, 1994, the backlog of
orders for Engineered Materials was $172.6 million and $80.6 million,
respectively. Hoeganaes' backlog, which is generally short-term in nature, was
up 141% to a record level. Chem-tronics' backlog increased 101% mainly due to
new multi-year fabrication orders received for commercial, military and space
applications during the latter part of 1994 and early 1995. All orders for
Engineered Materials at April 2, 1995 were believed to be firm, but
approximately 32% of these orders are subject to renegotiation. Approximately
55% of these orders are expected to be delivered during 1995.
Handling/Packaging Systems. Handling/Packaging Systems' products are sold to
a substantial number of industrial customers, none of which individually
purchased a significant portion of the segment's output in 1994. The backlog of
orders for this segment at April 2, 1995 was $93.8 million compared with $76.7
million at March 27, 1994 (in each case applying foreign exchange rates at
April 2, 1995), due mainly to significantly higher backlog at the North
American Handling operation. All orders at April 2, 1995 were believed to be
firm and are expected to be delivered during 1995.
COMPETITION
Competition is vigorous in both of the Company's business segments. Factors
normally affecting competitive conditions are product quality, technological
development, price and service. The Company competes with a variety of other
entities in each of its businesses.
RESEARCH AND DEVELOPMENT
Research activities are directed towards developing primary products and
processes. Expenditures on research activities by business segment were as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
--------------
1992 1993 1994
(IN MILLIONS)
<S> <C> <C> <C>
Engineered Materials...................................... $2.2 $2.1 $2.1
Handling/Packaging Systems................................ 0.6 1.1 1.3
---- ---- ----
Total................................................... $2.8 $3.2 $3.4
==== ==== ====
</TABLE>
The Company believes that these amounts are adequate to maintain its
competitive position in the businesses in which it operates.
35
<PAGE>
PATENTS
The Company holds domestic and foreign patents covering certain products and
processes in both business segments. While these patents are considered
important to the ability of the segments to compete, unpatented manufacturing
expertise is considered equally important. Future profitability of these
segments is therefore not considered dependent upon any one patent or group of
related patents.
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive and changing federal,
state, local and foreign environmental laws and regulations, including those
relating to the use, handling, storage, discharge and disposal of hazardous
substances, and as a result the Company is from time to time involved in
administrative and judicial proceedings and inquiries relating to environmental
matters. In addition, the Company's future capital and operating expenditures
will continue to be influenced by environmental laws and regulations; however,
the Company does not believe these expenditures are likely to have a material
adverse effect on its operating results or its ability to compete with other
companies. In 1994, capital expenditures for environmental compliance were $0.6
million and the Company estimates that environmental capital spending in 1995
will be $1.4 million. In 1993, the Company incurred special nonoperating
charges of $4.8 million to provide for estimated environmental liabilities in
connection with certain sites not relating to its ongoing operations. See "Risk
Factors--Environmental Matters," "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Nonoperating Items" and Note 15
of Notes to Consolidated Financial Statements.
RAW MATERIALS
The Company's principal raw materials are steel and steel scrap which are
purchased in the open market where no shortages are anticipated. The Company
also purchases large extruded metal shapes and milled products that are
available from a limited number of suppliers and high purity iron ore imported
from a limited foreign source. The Company believes these sources are adequate
to provide for the current and future needs of each of the Company's segments
and believes that, if necessary, adequate substitute supplies and suppliers
could be obtained without any material adverse effect on the Company's
operations or operating results. The Company's conclusions as to availability
and impact are based upon the Company's general knowledge of the markets for
its raw materials, and its use of alternative sources from time to time.
EMPLOYEES
At April 2, 1995, the Company employed a total of 4,450 persons, consisting
of 1,968 salaried and 2,482 hourly employees. Of the hourly employees, 56% are
represented by unions, with no single union representing a significant number
of the hourly employees. A labor contract covering approximately 3% of hourly
employees will expire on May 31, 1995, and a labor contract covering
approximately 7% of hourly employees will expire on November 1, 1995. The
Company is currently negotiating with respect to each of these contracts. While
the Company believes that it will not experience difficulties in negotiating
the renewal of these contracts, there can be no assurance that difficulties
will not arise or that work stoppages will not occur.
LEGAL PROCEEDINGS
The nature of the Company's business is such that it is regularly involved in
legal proceedings incidental to its business. Neither the Company nor any of
its subsidiaries is a party to any legal proceedings which are material within
the meaning of regulations of the Commission presently in effect. See Notes 15
and 16 of Notes to Consolidated Financial Statements for information regarding
certain legal proceedings.
36
<PAGE>
PROPERTIES
The following are the principal properties of the Company, listed by business
unit:
<TABLE>
<CAPTION>
USABLE SPACE
BUSINESS UNIT FUNCTION OWNED/LEASED (SQUARE FEET)
<S> <C> <C> <C>
HOEGANAES
Riverton, NJ Manufacture iron and steel metal powder Owned 496,000
Gallatin, TN Manufacture steel metal powder Owned 168,000
Milton, PA Bonding and blending metal powder, warehouse Owned 102,000
CHEM-TRONICS
El Cajon, CA Manufacture aerospace components and repair Owned 230,000*
of jet engine fan blades Building owned 39,000
on leased land
Tulsa, OK Repair of jet engine fan blades Leased 42,000
HANDLING
Handling North
America
Pontiac, IL Manufacture storage rack and slotted angle Owned 400,000*
Sumter, SC Manufacture storage rack Owned 250,000*
Lodi, CA Manufacture storage rack Owned 125,000*
Shepherdsville,
KY Manufacture conveyors Owned 106,000*
Handling Europe
Hemel
Hempstead, U.K. Manufacture storage rack, slotted angle, Building owned 353,000
shelving and partitioning on leased land
Laubach, Ger-
many Manufacture storage rack, slotted angle, Owned 335,000
shelving, partitioning and conveyors
Gainsborough,
U.K. Manufacture conveyors Building owned 103,000
on leased land
Nivelles, Bel-
gium Manufacture storage rack and slotted angle Owned 101,000
Halle, Germany Manufacture steelwork and conveyors Owned 90,000
Kilnhurst, U.K. Manufacture storage rack Owned 89,000*
Handling Asia
Pacific
Blacktown, Aus-
tralia Manufacture storage rack, slotted angle, Owned 135,000*
shelving and conveyors
Wacol, Austra-
lia Manufacture shelving and wire products Owned 30,000*
PACKAGING
Scarborough,
Canada Manufacture steel strap, edgeboard, Owned 135,000*
collated nails and strapping equipment
Kilnhurst, U.K. Manufacture steel strap, seals, tools and Owned 97,000
machines
Racine, WI Manufacture stitching machines Leased 70,000
Fountain Inn,
SC Manufacture non-metallic strap Owned 61,000*
Hodgkins, IL Machine preparation, warehouse Leased 32,000
Maidenhead,
U.K. Machine preparation, warehouse Owned 22,000
Strood, U.K. Manufacturer over/under-wrappers Leased 6,000
and conveyors
</TABLE>
The properties marked with an asterisk (*) are subject to mortgages pursuant
to the Credit Agreement and will be subject to mortgages pursuant to the
Amended Credit Agreement. In addition to the facilities described above, the
Company owns two other warehouses and leases various warehouses and sales and
administrative facilities. The Company believes that its manufacturing
facilities are properly maintained and that productive capacity is adequate to
meet the requirements of the Company.
37
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and certain executive officers of the Company. For purposes of this
section, the term "Company" includes Interlake, Inc. and other predecessors of
The Interlake Corporation.
<TABLE>
<CAPTION>
NAME POSITION AND OFFICE WITH THE COMPANY AGE
<S> <C> <C>
W. Robert Reum.......... Director, Chairman of the Board,
President and Chief Executive Officer 52
Craig A. Grant.......... Vice President--Human Resources 48
Stephen Gregory......... Vice President--Finance, Treasurer and Chief Financial Officer 46
John P. Miller.......... Controller 37
Stephen R. Smith........ Vice President, Secretary and General Counsel 38
Robert J. Fulton........ President, Hoeganaes 52
John J. Greisch......... President, Material Handling Group 39
James Legler............ President, Chem-tronics 47
Robert A. Pedersen...... President, Interlake Packaging Corporation 50
John A. Canning, Jr..... Director 50
James C. Cotting........ Director 61
John E. Jones........... Director 60
Frederick C. Langenberg. Director 67
Quentin C. McKenna...... Director 68
William G. Mitchell..... Director 64
Erwin E. Schulze........ Director 70
</TABLE>
W. Robert Reum has served as Chairman of the Board of the Company since April
1991 and as President and Chief Executive Officer since January 1991. He also
served as President and Chief Operating Officer from August 1989 to December
1990. He has been a Director of the Company since 1987 and is a member of the
Executive Committee. He is also a director of Amsted Industries Incorporated
and Duplex Products, Inc.
Craig A. Grant has served as Vice President--Human Resources of the Company
since May 1991. He served as a human resources executive of The Ceco
Corporation, a manufacturer of building products and provider of concrete
forming services for the construction industry, for more than five years prior
to joining the Company, of which two were as Vice President--Human Resources.
Stephen Gregory has served as Vice President--Finance, Treasurer and Chief
Financial Officer of the Company since December 1994. From August 1994 to
December 1994, he served as Vice President of the Company. For more than five
years prior thereto, he served as President of the Material Handling Division
of The Interlake Companies, Inc., a subsidiary of the Company.
John P. Miller has served as Controller of the Company since April 1993. He
served as Vice President--Finance of the Material Handling Division of The
Interlake Companies, Inc. from October 1989 to April 1993.
Stephen R. Smith has served as Vice President and General Counsel of the
Company since January 1992, and as Secretary of the Company since January 1993.
Prior thereto, he was Vice President--Law of the Company from September 1991 to
December 1991 and was a partner in the law firm of Hopkins & Sutter, Chicago,
Illinois, from prior to 1990 to September 1991.
Robert J. Fulton has served as President of Hoeganaes since July 1994. He
served as Chief Executive Officer of Micafil, Inc., a manufacturer of
components for fractional electric motors, and as consultant to Sterling
Stainless Tube-IIT Automotive, a manufacturer of stainless tubing, from 1992 to
1994. From 1990 to 1992, he served as Executive Vice President and Chief
Operating Officer of Doehler Jarvis, a manufacturer of aluminum castings.
38
<PAGE>
John J. Greisch has served as President, Material Handling Group since
December 1994. From February 1993 to December 1994, he served as Vice
President--Finance, Treasurer and Chief Financial Officer of the Company, and
from January to February 1993 he served as a Vice President of the Company. He
served as Managing Director of Dexion Group plc, a subsidiary of the Company,
from May 1991 to December 1992. He served as Managing Director of Dexion
Limited from February 1990 to November 1992.
James Legler has served as President of Chem-tronics since prior to 1990.
Robert A. Pedersen has served as President of Interlake Packaging
Corporation, one of the Company's Packaging subsidiaries, since prior to 1990.
John A. Canning, Jr. has been a Director of the Company since 1993 and is a
member of the Compensation and Finance Committees. Since 1993 he has served as
the President of Madison Dearborn Partners, Inc., which is the manager of
Madison Dearborn Capital Partners, L.P., a private equity investment fund. From
prior to 1990 to January 1993, he was President of First Chicago Venture
Capital and Executive Vice President of The First National Bank of Chicago. He
also is a director of Bayou Steel Corporation, The Milnot Company, Tyco Toys,
Inc., Chicago Capital Fund, Northwestern Memorial Corporation and Northwestern
Memorial Management Corporation, and is a member of the board of trustees of
Northwestern University and a member of the board of visitors of Duke
University School of Law.
James C. Cotting has been a Director of the Company since 1989 and is a
member of the Compensation, Executive and Finance Committees. He has been
Chairman and a director of Navistar International Corporation, a manufacturer
of medium and heavy duty trucks, since prior to 1990. From 1987 until he
retired in March 1995, he was Chief Executive Officer of Navistar International
Corporation. He is a director of USG Corporation, Asarco Incorporated and MIM
Holdings Limited and a member of the Board of Governors of the Chicago Stock
Exchange. He is also a member of the Conference Board, a director of the
National Association of Manufacturers, a director of Junior Achievement of
Chicago and a trustee of the Adler Planetarium.
John E. Jones has been a Director of the Company since 1988 and is a member
of the Audit Review, Executive, Finance and Nominating Committees. He is
Chairman of the Board, President, Chief Executive Officer and a director of CBI
Industries, Inc., a manufacturer of industrial gases, provider of construction
services and investor in oil transport and storage businesses. He has been an
executive officer and a director of CBI since prior to 1990. He also is a
director of Allied Products Corporation, Amsted Industries Incorporated, NICOR
Inc. and Valmont Industries, Inc.
Frederick C. Langenberg has been a Director of the Company since 1979 and is
a member of the Audit Review, Executive, Finance and Nominating Committees. He
was Chairman of the Board of the Company from 1983 until his retirement in 1991
and Chief Executive Officer of the Company from 1982 to 1991. He is also a
director of Carpenter Technology Corporation, Peoples Energy Corporation and
Dietrich Industries and a trustee of Piedmont College.
Quentin C. McKenna has been a Director of the Company since 1986 and is a
member of the Audit Review and Nominating Committees. He has been Chairman of
the Board and a director of Kennametal, Inc., a manufacturer of metal cutting
tools, machining systems and materials for applications requiring wear
resistance, since prior to 1990. In 1991, he retired as Chief Executive Officer
of Kennametal, Inc. He is also a past director of PNC Financial Corp. and its
affiliate, Pittsburgh National Bank, and a past director of the Federal Reserve
Bank of Cleveland.
William G. Mitchell has been a Director of the Company since 1984 and is a
member of the Audit Review, Compensation and Executive Committees. He retired
as Vice Chairman and director of Centel Corporation, a communications and
electric services company, in 1987. He was an executive officer and director of
Centel for more than five years prior thereto. He is also a director of The
Northern Trust Company, The Sherwin-Williams Company and Peoples Energy
Corporation.
39
<PAGE>
Erwin E. Schulze has been a Director of the Company since 1981 and is a
member of the Compensation, Executive and Finance Committees. He is Chairman of
the Board of Governors of the Chicago Stock Exchange. He retired as Chairman of
the Board, President and Chief Executive Officer and a director of The Ceco
Corporation, a manufacturer of building products and provider of concrete
forming services for the construction industry, in 1990. He had been an
executive officer and director of Ceco for more than five years prior thereto.
He is also a director of AAR Corporation.
DESCRIPTION OF SENIOR NOTES
The Senior Notes will be issued pursuant to an indenture (the "Indenture"),
dated as of , 1995, between the Company and Bank One, Columbus, N.A.,
as Trustee (the "Trustee"). The following summaries of certain provisions of
the Senior Notes and the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Senior Notes and the Indenture, including the definitions
therein of certain terms (certain of which are summarized under "--Certain
Definitions"). Wherever particular provisions or defined terms of the Indenture
are referred to, such provisions or defined terms are incorporated herein by
reference as part of the statements made herein. A form of the Indenture,
including a form of the Senior Notes, is filed as an exhibit to the
Registration Statement, of which this Prospectus is a part.
GENERAL
The Senior Notes will be limited to $100,000,000 in principal amount which
will mature on
November , 2001. Interest on the Senior Notes will accrue from the date of
original issuance at the annual rate shown on the front cover of this
Prospectus and will be payable semiannually on May and November of each
year, commencing November , 1995, to holders of record on the immediately
preceding April and October . Interest on the Senior Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
The Senior Notes will be general unsecured obligations of the Company and
will rank senior in right of payment to all existing and future subordinated
indebtedness of the Company (including the Subordinated Debentures) and Pari
Passu in right of payment with all other Senior Indebtedness, including
indebtedness under the Amended Credit Agreement. However, substantially all
existing Senior Indebtedness is (and obligations under the Amended Credit
Agreement will be) secured by a pledge of substantially all of the assets of
the Company and/or its subsidiaries. In addition, as a result of the Company's
holding company structure, the Senior Notes will be effectively subordinated to
all liabilities of the Company's subsidiaries, including liabilities to general
creditors. After giving effect to the Offering and the Loan Repayments, as of
April 2, 1995, Senior Indebtedness (excluding the Senior Notes) would have
aggregated approximately $131.6 million, substantially all of which is secured
indebtedness, and the aggregate of all liabilities of the Company's
subsidiaries (excluding amounts included above in Senior Indebtedness) would
have aggregated approximately $221.7 million.
OPTIONAL REDEMPTION
Except as described in the following paragraph, the Senior Notes will not be
redeemable prior to November , 1998. On and after November , 1998 the
Senior Notes are redeemable in whole at any time and in part from time to time
at the option of the Company upon not less than five or more than 30 days'
notice in case of redemption in whole or upon not less than 30 or more than 60
days' notice in the case of redemption in part mailed to each Holder of Senior
Notes to be redeemed at his address appearing in the Security Register, at the
following Redemption Prices (expressed as percentages of principal amount) plus
accrued interest to the Redemption Date (subject to the right of Holders of
record on the relevant Regular
40
<PAGE>
Record Date to receive interest due on an Interest Payment Date that is on or
prior to the Redemption Date) if redeemed during the 12-month period beginning
November of the years indicated.
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
<S> <C>
1998......................................................... %
1999.........................................................
2000......................................................... 100
</TABLE>
At any time, and from time to time, prior to November , 1998 up to 35% of
the original aggregate principal amount of the Senior Notes may be redeemed at
the option of the Company at a redemption price of % of the principal amount
thereof, plus accrued and unpaid interest to the date of redemption, out of the
proceeds of one or more Equity Sales by the Company upon not less than 30 or
more than 60 days' notice by mail.
CHANGE OF CONTROL
In the event of a Change of Control, the Company shall promptly make an Offer
to Purchase on the Purchase Date (as defined in the Indenture) all Senior Notes
then Outstanding at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the Purchase Date, as
provided in the Indenture. The Company is required to mail a Notice of Change
of Control to the Trustee and to mail a Notice of an Offer to Purchase to each
Holder of record not less than 15 days prior to the Purchase Date. In the event
of an Offer to Purchase, the Company will comply with any applicable rules
under the Exchange Act, including Section 14(e) thereof and Rule 14e-1
thereunder, to the extent applicable. Prior to the mailing of a Notice, the
Company will in good faith (i) seek to obtain any required consent under any
Senior Credit Facility (as defined below under clause (b)(i) of "--Certain
Covenants--Limitation on Consolidated Indebtedness") so as to permit such
purchase of the Senior Notes or (ii) attempt to repay all or a portion of the
Indebtedness under any Senior Credit Facility to the extent necessary
(including, if necessary, payment in full of such Indebtedness and payment of
any prepayment premiums, fees, expenses or penalties) to permit such purchase
of the Senior Notes without such consent. If such Indebtedness is not then
prepayable to such extent, the Company will be required to make an offer to
those lenders under any Senior Credit Facility from which consent is required
and cannot be obtained to repay such Indebtedness in full for an amount equal
to the outstanding principal balance thereof and accrued interest to the date
of repayment (and any fees, expenses, penalties and premiums) and will repay
any Banks that accept such offer.
As described below under "--Certain Definitions--Change of Control," one of
the events which would constitute a Change of Control is "any sale, lease,
exchange or other transfer . . . of all, or substantially all, of the assets of
the Company." There is no established quantitative definition of "substantially
all" of the assets of a corporation under applicable law. Accordingly, if the
Company engaged in a transaction in which it disposed of less than all of its
assets, a question of interpretation could arise as to whether such disposition
was of "substantially all" of the assets and whether the Company was required
to make an Offer to Purchase.
Due to the highly leveraged structure of the Company, it is unlikely that the
Company would be able to repurchase the Senior Notes upon the occurrence of a
Change of Control. In addition, any such Change of Control would constitute an
event of default under the Amended Credit Agreement with the result that the
Banks could declare the loans under the Amended Credit Agreement (all of which
are Pari Passu in right of payment to the Senior Notes and which are secured by
a pledge of substantially all of the assets of the Company and/or its
subsidiaries) to be immediately due and payable. Further, a Change of Control
could trigger obligations by the Company to prepay or redeem the Subordinated
Debentures or the Convertible Preferred Stock. In such events, the holders of
all such obligations could seek to pursue various contractual and legal
remedies against the Company. If the Company were unable to pay all amounts
that would become
41
<PAGE>
due in respect of all such obligations in such circumstance, it could result in
the bankruptcy, liquidation, reorganization, dissolution or other winding-up of
the Company. The assets of the Company may be insufficient to pay the amounts
due on the Senior Notes in such event.
CERTAIN COVENANTS
Limitation on Consolidated Indebtedness. (a) So long as any of the Senior
Notes are Outstanding, (1) the Company may not Incur and may not permit any
Subsidiary to Incur any Indebtedness, including Acquisition Debt, and (2) may
not permit any Subsidiary to issue any Preferred Stock, unless the Company's
Consolidated Cash Flow Ratio for the four full consecutive fiscal quarters
ending with the most recently completed fiscal quarter of the Company preceding
the Incurrence of such Indebtedness or Acquisition Debt or the issuance of such
Preferred Stock, calculated on a pro forma basis as if such Indebtedness or
Acquisition Debt had been Incurred or such Preferred Stock had been issued at
the beginning of such four full fiscal quarters, would be greater than 2.0 to
1.
(b) Notwithstanding the foregoing paragraph, the Company or a Subsidiary may
Incur the following Indebtedness, and a Subsidiary may issue the following
Preferred Stock:
(i) Indebtedness of the Company or any Subsidiary under or with respect
to the Amended Credit Agreement or any similar senior credit facility or
agreement, or both (each, a "Senior Credit Facility") in an aggregate
principal amount outstanding at any one time not to exceed $200.0 million
of Indebtedness, including any Indebtedness outstanding under any
amendment, extension, restructuring, refunding or refinancing of amounts
due, commitments or maturities under any Senior Credit Facility;
(ii) Indebtedness evidenced by the Senior Notes;
(iii) Indebtedness owed to the Company or a Controlled Subsidiary of the
Company and Preferred Stock issued to and held by the Company or a
Controlled Subsidiary of the Company, in each case only so long as owed to
or held by the Company or a Controlled Subsidiary of the Company and, in
the case of a Controlled Subsidiary, so long as the Company owns, directly
or indirectly, a percentage of the Capital Stock, Voting Stock and other
ownership interest of the Controlled Subsidiary which is equal to or
greater than the percentage of such Capital Stock, Voting Stock or other
ownership interest, respectively, owned by the Company, directly or
indirectly, on the date of the Indenture;
(iv) Indebtedness or Preferred Stock of any Subsidiary outstanding on the
date of execution and delivery of the Indenture, less any amounts actually
repaid in accordance with the scheduled amortization provisions under any
such Indebtedness;
(v) Indebtedness or Preferred Stock which is exchanged for, or the
proceeds of which are used to refinance or redeem, any Outstanding
Indebtedness or Preferred Stock of the Company or any of its Subsidiaries,
including any extension, renewal or refinancing of any such Indebtedness or
Preferred Stock, in an aggregate principal amount (or, if such new
Indebtedness is issued at a price less than the principal amount thereof,
with an original issue price) or liquidation preference not to exceed the
principal amount of Indebtedness or liquidation preference of Preferred
Stock so exchanged or refinanced (plus accrued interest and accrued
dividends, as the case may be, fees and expenses related to such exchange
or refinancing and any premium payable pursuant to optional redemption
provisions of such Outstanding Indebtedness or Preferred Stock to be
exchanged or refinanced); provided that any Indebtedness exchanged for, or
the proceeds of which are used to refinance, the Senior Notes or other
Indebtedness of the Company which is Pari Passu or subordinated to the
Senior Notes is only permitted (1) if, in case the Senior Notes are
refinanced or exchanged in part, such Indebtedness expressly remains Pari
Passu with or subordinate in right of payment to, as the case may be, the
Senior Notes, (2) if, in case the Indebtedness to be exchanged or
refinanced is subordinated to the Senior Notes, such Indebtedness is
subordinate to the Senior Notes at least to the extent and in the manner
that the
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Indebtedness to be exchanged or refinanced is subordinate to the Senior
Notes and (3) if, in case the Senior Notes are exchanged or refinanced in
part or the Indebtedness to be exchanged or refinanced is subordinated to
the Senior Notes, no payments by way of sinking fund, mandatory redemption
or otherwise (including defeasance) may be made by the Company (including,
without limitation, at the option of the holder thereof other than an
option given to a holder pursuant to a "change of control" covenant which
is no more favorable to the holders of such Indebtedness than the
provisions described above under "--Change of Control" and such
Indebtedness provides that the Company will not repurchase such
Indebtedness pursuant to such provisions prior to the Company's repurchase
of the Senior Notes required to be repurchased by the Company pursuant to
the provisions described above under "--Change of Control") at any time
prior to the Stated Maturity of the Senior Notes; and, provided further
that in no event may Indebtedness of the Company (other than Senior
Indebtedness) be refinanced by means of Indebtedness of any Subsidiary of
the Company pursuant to the provisions described in this clause (v) nor may
the Company issue, pursuant to the provisions described in this clause (v),
Preferred Stock which constitutes Redeemable Stock other than Redeemable
Stock that is exchanged for, or the proceeds of which are used to refinance
or redeem, any Outstanding Indebtedness of the Company or any of its
Subsidiaries and that has no maturity (whether by way of sinking fund,
mandatory redemption or otherwise) prior to the Stated Maturity of the
Senior Notes or, if such Indebtedness to be so exchanged, refinanced or
redeemed has a maturity prior to the Stated Maturity of the Senior Notes,
the maturity or maturities are no earlier than the maturity or respective
maturities of such Indebtedness to be so exchanged, refinanced or redeemed
and the Redeemable Stock complies with the other provisions described in
this clause (v) with respect to liquidation preference and subordination;
(vi) Indebtedness secured by a Lien on real property or improvements
thereon; provided that any Net Available Proceeds received by the Company
or any Subsidiary as a result of the Incurrence of such Indebtedness are
applied in the amount and otherwise in accordance with the provisions
described below under "Limitation on Certain Asset Dispositions;"
(vii) Indebtedness secured by a Lien on real property, which Indebtedness
(a) constitutes all or a part of the purchase price of such property or (b)
is Incurred prior to, at the time of or within 270 days after the
acquisition of such property for the purpose of financing all or any part
of the purchase price thereof and which otherwise is in accordance with the
provisions described below under "Limitations on Liens;"
(viii) Indebtedness in an aggregate principal amount not to exceed $70.0
million at any one time outstanding (exclusive of other permitted
Indebtedness);
(ix) Indebtedness under Currency Agreements entered into in the ordinary
course of business and Indebtedness under Currency Agreements and Interest
Rate Agreements relating to existing and future Indebtedness otherwise
permitted under the Indenture; and
(x) Indebtedness of the Company the proceeds of which are used to
purchase shares of stock of (a) Hoeganaes pursuant to the right of first
refusal set forth in the stockholders' agreement among the Company,
Hoeganaes and Hoganas AB, the minority shareholder of Hoeganaes or (b)
Dexion (North Asia) Ltd. pursuant to the right of first refusal set forth
in the stockholders' agreement among the Company, Dexion (North Asia) Ltd.
and the minority shareholder of Dexion (North Asia) Ltd.
Limitation on Transactions with Stockholders and Affiliates. (a) So long as
any of the Senior Notes are Outstanding, the Company may not, and may not
permit any Subsidiary to, directly or indirectly, enter into or permit to exist
any transaction (including, without limitation, the purchase, sale, lease or
exchange of property or the rendering of any service but excluding transactions
between the Company and Controlled Subsidiaries of the Company or between
Controlled Subsidiaries of the Company not otherwise prohibited by the
Indenture) involving aggregate consideration in excess of $1.0 million not
otherwise prohibited by the Indenture, with a Related Person or with any
Affiliate of the Company; provided that this provision shall not be deemed to
prohibit transactions made in good faith the terms of which are fair and
reasonable to the Company or such Subsidiary, as the case may be, and are at
least as favorable as the terms which could be
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obtained by the Company or such Subsidiary, as the case may be, in a comparable
transaction made on an arm's length basis with Persons who are not such a
Related Person or Affiliate; provided, that any such transaction shall be
conclusively deemed to be on terms which are fair and reasonable to the Company
or any of its Subsidiaries and on terms which are at least as favorable as the
terms which could be obtained on an arm's length basis with Persons who are not
such a Related Person or Affiliate if such transaction is approved by a
majority of the Company's Board of Directors (including a majority of the
Company's independent directors, if any).
(b) Notwithstanding the provisions described in clause (a) above to the
contrary, transactions expressly contemplated by certain agreements with
Hoeganaes or Dexion (North Asia) Ltd., respectively, are permitted, so long as
the Company owns, directly or indirectly, the percentage of Capital Stock,
Voting Stock and other ownership interest of Hoeganaes or Dexion (North Asia)
Ltd., as the case may be, which is equal to or greater than the percentage of
such Capital Stock, Voting Stock or other ownership interest, respectively,
owned by the Company, directly or indirectly, as of the date of the Indenture.
Limitation on Restricted Payments. The Company:
(i) may not, directly or indirectly, declare or pay any dividend, or make
any distribution, in respect of any class of its Capital Stock or to the
holders of any class of its Capital Stock (including pursuant to a merger
or consolidation of the Company, but excluding any dividends or
distributions payable solely in shares of its Capital Stock (other than
Redeemable Stock) or in options, warrants or other rights to acquire its
Capital Stock (other than Redeemable Stock)),
(ii) may not, and may not permit any Subsidiary of the Company, directly
or indirectly, to purchase, redeem or otherwise acquire or retire for value
(a) any Capital Stock of the Company or (b) any options, warrants or rights
to acquire shares of Capital Stock of the Company or any Related Person of
the Company,
(iii) may not, and may not permit any Subsidiary of the Company to, make
any loan, advance or capital contribution to or investment in, transfer any
assets to or for the benefit of, assume any liability with respect to any
obligations of, or make any payment on a guarantee of any obligation of any
Affiliate or Related Person of the Company (other than (A) the Company or a
Wholly Owned Subsidiary of the Company which was a Wholly Owned Subsidiary
prior to, or becomes a Wholly Owned Subsidiary contemporaneously with, such
loan, advance, contribution, investment or payment; provided that such
loan, advance, contribution, investment or payment was not made or assumed
in anticipation of such Person becoming a Wholly Owned Subsidiary of the
Company and (B) Hoeganaes or Dexion (North Asia) Ltd., pursuant to certain
existing agreements related to Hoeganaes or Dexion (North Asia) Ltd.,
respectively, so long as the Company owns, directly or indirectly, the
percentage of Capital Stock, Voting Stock or other ownership interest of
Hoeganaes or Dexion (North Asia) Ltd., as the case may be, which is equal
to or greater than the percentage of such Capital Stock, Voting Stock or
other ownership interest, respectively, owned by the Company, directly or
indirectly, as of the date of the Indenture), and
(iv) may not, and may not permit any Subsidiary of the Company to,
redeem, defease, repurchase, retire or otherwise acquire or retire for
value, prior to any scheduled maturity, repayment or sinking fund payment,
Indebtedness of the Company which is subordinate in right of payment to the
Senior Notes (other than (A) redemptions, defeasances, repurchases,
retirements or acquisitions to the extent effected from the proceeds of
Capital Stock of the Company or any Subsidiary of the Company issued
subsequent to the date of this Indenture, including Redeemable Stock
permitted to be issued pursuant to the provisions described above under
clause (b)(v) of "Limitation on Consolidated Indebtedness," and (B) any
extensions, refundings or refinancing of such Indebtedness so long as such
extended, refunded or refinanced Indebtedness remains subordinate in right
of payment to the Senior Notes pursuant to terms of subordination at least
as favorable to the Holders of the Senior Notes as were contained in the
Indebtedness which was so extended, refunded or refinanced and so long as
such extended, refunded or refinanced Indebtedness has a maturity date on
or after the maturity date of such Indebtedness prior to such extension,
refunding or refinancing)
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(the transactions described in clauses (i) through (iv) being referred to
herein as "Restricted Payments"), if at the time thereof, or after giving
effect thereto:
(1) an Event of Default, or an event that with the lapse of time or the
giving of notice, or both, would constitute an Event of Default, has
occurred and is continuing; or
(2) the Consolidated Cash Flow Ratio of the Company for the four full
fiscal quarters immediately preceding the date on which such Restricted
Payment is made (after giving effect thereto, including the aggregate
amount of all Restricted Payments made pursuant to the last paragraph of
this section) will not be at least 2.5 to 1; provided that compliance with
the provisions described in this clause (2) shall not be required with
respect to the mandatory redemption of the Subordinated Debentures pursuant
to the terms thereof; or
(3) the aggregate amount of all Restricted Payments made (including any
amounts made pursuant to the last paragraph of this section) from the date
of the Indenture exceeds the sum (without duplication) of:
(a) the aggregate of 50% of cumulative Consolidated Net Income of the
Company (or, in the case Consolidated Net Income of the Company shall
be negative for any fiscal year, less 100% of such deficit) accrued for
the period (taken as one accounting period) commencing with the first
full fiscal quarter after the date of the Indenture to and including
the fiscal quarter ended immediately prior to the date of such
calculation; and
(b) 100% of (i) the aggregate net proceeds, including the fair value
of property other than cash (determined in good faith by the Board of
Directors as evidenced by a Board Resolution), received by the Company
from any Person other than a Subsidiary of the Company from all
issuances (including issuances of Capital Stock of the Company pursuant
to the exercise of any warrants or other rights to acquire Capital
Stock of the Company) after the date of the Indenture of Capital Stock
of the Company (and, in the event the Company merges or consolidates
with another corporation in a transaction in which the outstanding
Common Stock of the Company prior to the transaction is canceled, the
Consolidated Tangible Net Worth of such other corporation) and options,
warrants or other rights to acquire Capital Stock of the Company
(excluding for purposes of the provisions described in this clause (i)
any issuance of Redeemable Stock by the Company) and (ii) the aggregate
net proceeds, including the fair value of property other than cash
(determined in good faith by the Board of Directors as evidenced by a
Board Resolution), received by the Company from any Person other than a
Subsidiary of the Company of Indebtedness of the Company or any of its
Subsidiaries issued subsequent to the date of the Indenture which is
converted into Capital Stock of the Company (other than Redeemable
Stock) (excluding for purposes of the provisions described in this
clause (ii) any issuance of Capital Stock upon the conversion of the
Exchange Debentures).
The foregoing provision will not be violated by reason of the payment of any
dividend within 60 days after declaration thereof, if at the declaration date
such payment would have complied with the foregoing provision.
Notwithstanding the foregoing, the following shall not be prohibited:
(a) payments required to be made in connection with stock appreciation
rights with respect to the Capital Stock of the Company outstanding on the
date of the Indenture;
(b) the settlement of stock options with respect to the Capital Stock of
the Company outstanding on the date of the Indenture in an aggregate amount
not to exceed $2.5 million;
(c) payments in connection with the redemption of shareholder rights in
an aggregate amount not to exceed $1.0 million; or
(d) purchases of the Subordinated Debentures pursuant to Section 1016 of
the Subordinated Debenture Indenture governing purchases upon a change in
control.
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In addition, notwithstanding the provisions described above under clauses (2)
or (3) but subject to the provisions described above under clause (1), the
Company may make Restricted Payments not to exceed $10.0 million.
Limitation on Certain Asset Dispositions. (a) So long as any of the Senior
Notes are Outstanding, the Company may not, and may not permit any Subsidiary
of the Company to, make Asset Dispositions in one or more transactions in any
fiscal year that result, together with (x) the proceeds received from any
Indebtedness permitted by the provisions described above under clause (b)(vi)
of "Limitation on Consolidated Indebtedness" and (y) Sale and Leaseback
Transactions permitted by the provisions described below under "Limitation on
Sale and Leaseback Transactions," in Net Available Proceeds in excess of $5.0
million in the aggregate in such fiscal year unless:
(i) the Company or such Subsidiary, as the case may be, receives
consideration at the time of such Asset Dispositions at least equal to the
fair market value for the shares or assets disposed of (which shall be as
determined in good faith by the Board of Directors),
(ii) at least 75% of the consideration for such Asset Dispositions
consists of cash; provided, however, that the amount of (x) any liabilities
(as shown on the Company's or such Subsidiary's most recent balance sheet
or in the notes therein) of the Company or any Subsidiary that are assumed
by the transferee of any such assets and (y) any notes, other obligations
or other marketable securities received by the Company or any such
Subsidiary from the transferee that are immediately converted by the
Company or such Subsidiary into cash will be deemed to be cash for purposes
of this provision; and provided, further, that the 75% limitation referred
to above does not apply to any Asset Disposition in which the cash portion
of the consideration received therefor is equal to or greater than what the
net after-tax proceeds would have been had such Asset Disposition complied
with such 75% limitation, and
(iii) any applicable provisions of the Indenture described below under
"--Mergers, Consolidations and Certain Sales of Assets" shall have been
complied with.
(b) The Company is required to apply 100% of the Net Available Proceeds
(including the proceeds received from any Indebtedness permitted by the
provisions described above under clause (b)(vi) of "Limitation on Consolidated
Indebtedness" and Sale and Leaseback Transactions permitted by the provisions
described below under "Limitation on Sale and Leaseback Transactions"), in
excess of $5.0 million in the aggregate in any fiscal year from such Asset
Dispositions (including from the sale of any marketable cash equivalents
received therein): (A) first, within 90 days of receipt of such Net Available
Proceeds, to repayment (in whole or in part) of the principal and/or interest
on Senior Indebtedness then outstanding that is secured; (B) second, to the
extent such Net Available Proceeds are not applied to the principal and/or
interest on Senior Indebtedness that is secured as specified in clause (A), to
pro rata (determined by reference to principal amount or accreted value, as the
case may be) purchases of Outstanding Senior Notes and other Indebtedness
ranking Pari Passu with the Senior Notes for which the Company is obligated to
make an offer to purchase substantially similar to the Offer to Purchase
required pursuant to this provision, pursuant to an Offer to Purchase at a
purchase price equal to 100% of their principal amount, plus accrued interest
to the Purchase Date (subject to the rights of Holders of record on the
relevant Regular Record Date to receive interest due on an Interest Payment
Date that is on or prior to the Purchase Date); and (C) third, to the extent of
any remaining Net Available Proceeds following completion of the Offers to
Purchase referred to in clause (B) above, to the repayment, within five
Business Days of completion of such Offer to Purchase, of other Indebtedness
which is Pari Passu with the Senior Notes but is not required to be purchased
pursuant to an offer to purchase substantially similar to the Offer to Purchase
required pursuant to this provision or, in lieu thereof, other Indebtedness of
the Company or any Subsidiary, to the extent that the same may be repaid prior
to maturity.
(c) The Company has no obligation to apply the Net Available Proceeds
pursuant to the provisions described above under clause (b) if the Company has
a bona fide intent to reinvest the Net Available Proceeds from an Asset
Disposition in another asset or business in the same or similar line of
business as the Company or any of its Material Subsidiaries and the Net
Available Proceeds are so reinvested within 180 days of receipt thereof.
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Limitation on Certain Restrictions Affecting Any Subsidiary. So long as any
of the Senior Notes are Outstanding, the Company may not, and may not permit
any of its Subsidiaries to, create or otherwise cause or permit to exist or
become effective any consensual encumbrance or restriction on the ability of
any of its Subsidiaries to (i) pay dividends or make any other distributions on
such Subsidiary's Capital Stock to the Company or any of its Subsidiaries, (ii)
pay any Indebtedness owed to the Company or any of its Subsidiaries, (iii) make
loans or advances to the Company or any of its Subsidiaries, or (iv) transfer
any of its property or assets to the Company or any of its Subsidiaries, other
than restrictions on transfer contained in lease instruments Incurred in the
ordinary course of business or assumed in connection with an acquisition of
another Person; provided, however, that this covenant does not prohibit (a) any
restrictions or encumbrances contained in any Senior Credit Facility; (b) any
restrictions or encumbrances existing in the Indenture or under agreements in
effect at the date of execution and delivery of the Indenture; (c) consensual
encumbrances or restrictions binding upon any Person at the time such Person
becomes a Subsidiary of the Company; provided that such encumbrances or
restrictions were not Incurred in anticipation of such Person becoming a
Subsidiary of the Company; (d) encumbrances or restrictions imposed by
applicable law; or (e) subject to the terms of the provisions described above
under "Limitation on Certain Asset Dispositions," restrictions with respect to
a Subsidiary of the Company imposed pursuant to an agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary.
Limitation on Issuance of Shares of Subsidiaries. So long as any of the
Senior Notes are Outstanding, the Company may not permit any Subsidiary of the
Company to issue shares of Capital Stock or any other ownership interest to any
Person other than to the Company or a Wholly Owned Subsidiary of the Company
except to the extent, and subject to the conditions under which, the Company
could have sold, transferred or otherwise disposed of such shares or other
ownership interests in an Asset Disposition pursuant to the provisions
described above under "Limitation on Certain Asset Dispositions" if they had
first been issued to the Company or such Subsidiary; provided, however, that
the foregoing limitation does not apply to (a) the issuance of shares of
Capital Stock of a Subsidiary of the Company which is required in order to
provide collateral security in certain jurisdictions outside the U.S. with
respect to funds borrowed by certain non-U.S. Subsidiaries of the Company
pursuant to the terms of any Senior Credit Facility, (b) the issuance of shares
of Capital Stock or other ownership interests so long as immediately after such
issuance the Company owns, directly or indirectly, a percentage of the Capital
Stock, Voting Stock and other ownership interest of such Subsidiary which is
equal to or greater than the percentage of such Capital Stock, Voting Stock or
other ownership interest, respectively, owned by the Company, directly or
indirectly, immediately prior to such issuance or (c) the issuance of
directors' qualifying shares.
Limitation on Sale and Leaseback Transactions. The Company may not, and may
not permit any Subsidiary of the Company to, enter into any Sale and Leaseback
Transaction (except for a period not exceeding 30 months) unless the Company or
such Subsidiary applies or commits to apply within 180 days after the sale or
transfer an amount equal to the Net Available Proceeds of the sale pursuant to
the Sale and Leaseback Transaction in accordance with the provisions described
above under "Limitation on Certain Asset Dispositions" as if such proceeds were
received as a result of an Asset Disposition.
Limitation on Liens. The Company may not Incur any Indebtedness which is
secured, directly or indirectly, with a Lien on the property, assets or any
income or profits therefrom of the Company or any of its Subsidiaries other
than (i) Senior Indebtedness Incurred pursuant to any Senior Credit Facility or
(ii) Senior Indebtedness with respect to which such Lien is perfected at the
time of the Incurrence of such Senior Indebtedness or substantially
contemporaneously therewith, unless contemporaneously therewith or prior
thereto the Senior Notes are equally and ratably secured, except for (a) any
such Indebtedness secured by Liens on the assets of any entity existing at the
time such assets are acquired by the Company of any of its Subsidiaries,
whether by merger, consolidation, purchase of assets or otherwise; provided
that such Liens (x) are not Incurred in contemplation of such assets being
acquired by the Company or any of its Subsidiaries and (y) do not extend to any
other property or assets of the Company or any of its Subsidiaries or (b) any
other Indebtedness required to be equally and ratably secured as a result of
the Incurrence of such
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Indebtedness; provided that the provisions described in this paragraph shall
not in any way affect the Incurrence by the Company of Indebtedness permitted
pursuant to the provisions of the Indenture described above under clause (b)(i)
of "Limitation on Consolidated Indebtedness" and the securing of such
Indebtedness, directly or indirectly, with a Lien on the property, assets or
any income or profits therefrom of the Company or any of its Subsidiaries.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
The Company (a) may not consolidate with or merge into any other Person; (b)
may not permit any other Person to consolidate with or merge into the Company
or any Subsidiary of the Company (in a transaction in which such Subsidiary
remains a Subsidiary of the Company), except for transactions involving the
consolidation or merger of a Wholly Owned Subsidiary of the Company with or
into the Company or another Wholly Owned Subsidiary of the Company; and (c) may
not, directly or indirectly, transfer, convey, sell, lease or otherwise dispose
of all or substantially all of its properties and assets as an entirety, unless
in any such transaction:
(1) immediately before and after giving effect to such transaction and
treating any Indebtedness Incurred by the Company or a Subsidiary of the
Company as a result of such transaction as having been Incurred by the
Company or such Subsidiary at the time of such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, has occurred and is continuing;
(2) in case the Company consolidates with or merges into another Person
or directly or indirectly transfers, conveys, sells, leases or otherwise
disposes of all or substantially all of its properties and assets as an
entirety, the Person formed by such consolidation or into which the Company
is merged or the Person which acquires by transfer, conveyance, sale, lease
or other disposition all or substantially all the properties and assets of
the Company as an entirety (a "Successor Company") is a corporation
organized and validly existing under the laws of the U.S., any State
thereof or the District of Columbia, and expressly assumes, by a
supplemental indenture, the due and punctual payment of the principal of
(and premium, if any) and interest on all the Senior Notes and the
performance of every covenant of the Indenture on the part of the Company
to be performed or observed;
(3) immediately after giving effect to such transaction, on a pro forma
basis, the Consolidated Net Worth of the Company or, if applicable, the
Successor Company, shall be equal to or greater than the Consolidated Net
Worth of the Company immediately prior to such transaction;
(4) immediately after giving effect to such transaction, on a pro forma
basis, the Company or, if applicable, the Successor Company, is able to
incur at least $1.00 of additional Indebtedness under the provisions
described above under clause (a) of "Limitation on Consolidated
Indebtedness;" and
(5) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel as required by the Indenture, in each case to the
effect that the provisions described under this caption and all conditions
precedent relating to such transaction have been complied with and, with
respect to such Officers' Certificate, if applicable, setting forth the
manner of determination of the Consolidated Net Worth and Consolidated Cash
Flow Ratio of the Company or, if applicable, of the Successor Company.
As described above under "--Change of Control," there is no established
quantitative definition of the term "substantially all" of the Company's assets
as used in the foregoing described covenant. Accordingly, if the Company
engaged in a transaction in which it disposed of less than all of its assets, a
question of interpretation could arise as to whether such disposition was of
"substantially all" of the assets and whether the requirements of the foregoing
described covenant would apply to the transaction.
DEFEASANCE
The Indenture will provide that the Company, at the Company's option, (a)
will be discharged from its Obligations in respect of the Senior Notes (except
for certain Obligations to register the transfer or exchange of Senior Notes,
replace stolen, lost or mutilated Senior Notes, maintain paying agencies and
hold moneys
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for payment in trust), and (b) need not comply with certain provisions of the
Indenture, including, among others, those provisions described above under "--
Change of Control," "--Certain Covenants" and "--Mergers, Consolidations and
Certain Sales of Assets," in each case if the Company deposits, with the
Trustee, money, or U.S. Government Obligations which through the payment of
interest thereon and principal thereof in accordance with their terms, together
with any uninvested money so deposited, will provide money, in an amount
sufficient to pay all the principal of, premium, if any, and interest on, the
Senior Notes on the dates such payments are due (which may include one or more
redemption dates desired by the Company) in accordance with the terms of such
Senior Notes. Such a trust may only be established if, among other things, (i)
no Event of Default or event which with the giving of notice or lapse of time,
or both, would become an Event of Default under the Indenture has occurred and
is continuing on the date of such deposit, (ii) such defeasance or covenant
defeasance does not result in a breach or violation of, or constitute a default
under, the Indenture or any other agreement or instrument to which the Company
is a party or by which it is bound, (iii) such defeasance or covenant
defeasance does not cause the Trustee to have any conflicting interest (for
purposes of the Trust Indenture Act) with respect to other securities of the
Company, (iv) the Company has delivered an Opinion of Counsel to the effect
that the Holders of the Outstanding Senior Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same time as if such defeasance or
covenant defeasance had not occurred, and (v) the Company delivers an Officers'
Certificate and an Opinion of Counsel, in each case to the effect that all
conditions precedent relating to such defeasance have been complied with.
In the event the Company does not comply with its remaining Obligations under
the Indenture after a defeasance of the Indenture with respect to the Senior
Notes as described above and the Senior Notes are declared due and payable
because of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations on deposit with the Trustee may be insufficient to pay
amounts due on the Senior Notes at the time of the acceleration resulting from
such Event of Default. However, the Company will remain liable in respect of
such payments.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) default in
the payment of the principal of or premium, if any, on any Senior Note at its
Maturity; (b) default in the payment of any interest on any Senior Note when
due and payable, and continuance of such default for 30 days; (c) default in
the performance or breach of any other covenant of the Company in the
Indenture, and continuance of such default for 60 days after written notice to
the Company by the Trustee or to the Company and the Trustee by the holders of
at least 25% in principal amount of the Outstanding Senior Notes; (d) a default
under any Indebtedness by the Company and/or one or more Material Subsidiaries,
or under any instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness of the Company and/or one or more
Material Subsidiaries with a principal amount then outstanding in excess of
$8.0 million individually or in the aggregate for all such issues of all such
Persons, whether such Indebtedness now exists or shall hereafter be created,
which default shall constitute a failure to pay the principal of such
Indebtedness at final maturity or shall have resulted in such Indebtedness
becoming due and payable prior to its Stated Maturity if such Indebtedness is
not discharged, or its acceleration is not rescinded or annulled, within 60
days after written notice to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Senior Notes; (e) a final unappealable judgment or judgments remain
undischarged or unbonded for 60 consecutive days and create uninsured
liabilities against the Company and/or one or more Material Subsidiaries of
$5.0 million or more in the aggregate; and (f) certain events of bankruptcy,
insolvency or reorganization relating to the Company and/or one or more
Material Subsidiaries. Subject to the provisions of the Indenture relating to
the duties of the Trustee, in case an Event of Default shall occur and be
continuing, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
Holders, unless such Holders shall have offered to the Trustee reasonable
security or indemnity. Subject to such provisions for the
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indemnification of the Trustee, the Holders of a majority in aggregate
principal amount of the Outstanding Senior Notes will have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
If an Event of Default shall occur and be continuing (other than an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
relating to the Company) either the Trustee or the Holders of at least 25% in
aggregate principal amount of the Outstanding Senior Notes may accelerate the
maturity of all Senior Notes and the principal amount thereof shall become due
and payable upon the earlier of (i) five Business Days after the receipt by the
Company and the administrative agent(s) or similar Person under any Senior
Credit Facility of written notice, provided such Event of Default is then
continuing, or (ii) an acceleration under any Senior Credit Facility. If an
Event of Default relating to certain events of bankruptcy, insolvency or
reorganization relating to the Company occurs, the principal amount of all the
Senior Notes shall become due and payable without any declaration or other act
on the part of the Trustee or any Holder. After a declaration of acceleration,
but before a judgment or decree based on acceleration, the Holders of a
majority in aggregate principal amount of Outstanding Senior Notes may, in
certain circumstances, waive all defaults and rescind and annul such
declaration if (i) the Company has paid or deposited with the Trustee a sum
sufficient to pay overdue interest, principal amount and premium (if any) due
otherwise than by acceleration and certain other expenses and (ii) all Events
of Default, other than the non-payment of principal amount due by reason of
such declaration of acceleration, have been cured or waived as provided in the
Indenture. For information as to waiver of defaults, see "--Modification and
Waiver" below.
No Holder of any Senior Notes will have any right to institute any proceeding
with respect to the Indenture or for any other remedy thereunder, unless such
Holder shall have previously given to the Trustee written notice of a
continuing Event of Default and the Holders of at least 25% in aggregate
principal amount of the Outstanding Senior Notes shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee shall not have received from the Holders
of a majority in aggregate principal amount of the Outstanding Senior Notes a
direction inconsistent with such request and shall have failed to institute
such proceeding within 60 days. However, such limitations do not apply to a
suit instituted by a Holder of a Senior Note for enforcement of payment of the
principal of and premium, if any, and interest on such Senior Note on or after
the respective due dates expressed in such Senior Note.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Senior Notes; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
Outstanding Senior Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Senior Note, (b) reduce
the principal of, or the premium or interest on, any Senior Note or reduce any
amount payable on redemption thereof, (c) change the place or currency of
payment of principal of, or premium or interest on, any Senior Note, (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Note, (e) modify the provisions concerning purchase at
the Holder's option in a manner adverse to the Holders, (f) reduce the above-
stated percentage of Outstanding Senior Notes necessary to modify or amend the
Indenture or (g) reduce the percentage of aggregate principal amount of
Outstanding Senior Notes necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults. In certain
limited circumstances, the Indenture permits the amendment thereof without the
consent of the Holders.
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The Holders of a majority in aggregate principal amount of the Outstanding
Senior Notes may waive compliance by the Company with certain restrictive
provisions of the Indenture. The Holders of a majority in aggregate principal
amount of the Outstanding Senior Notes may waive any past default under the
Indenture, except a default in the payment of principal, premium or interest on
any Senior Note or a covenant provision that cannot be modified or amended
without the consent of each Holder of Outstanding Senior Notes affected.
GOVERNING LAW
The Indenture and the Senior Notes will be governed by the laws of the State
of New York.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Company or the Trustee may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Senior Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Senior Note for a period of 15 days before a selection of Senior
Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
"Acquisition Debt" means Indebtedness or Preferred Stock of any Person
existing at the time such Person became a Subsidiary of the Company (or such
Person is merged into the Company or one of its Subsidiaries) or assumed or
issued in connection with the acquisition of assets from any such Person (other
than assets acquired in the ordinary course of business), including
Indebtedness Incurred or Preferred Stock issued in connection with, or in
contemplation of, such Person becoming a Subsidiary of the Company (but
excluding Indebtedness or Preferred Stock of such Person which is extinguished,
retired, repaid, redeemed or repurchased in connection with such Person
becoming a Subsidiary of the Company).
"Amended Credit Agreement", for purposes of the Indenture, includes any
agreement extending the maturity of, refinancing or otherwise restructuring all
or any portion of the Obligations under the Amended Credit Agreement and any
successor agreement.
"Asset Acquisition" means (i) an investment by the Company or any of its
Subsidiaries in any other Person pursuant to which such Person shall become a
Subsidiary of the Company or any of its Subsidiaries or shall be merged with
the Company or any of its Subsidiaries or (ii) the acquisition by the Company
or any of its Subsidiaries of the assets of any Person which constitute
substantially all of an operating unit or business of such Person.
"Asset Disposition" by any Person means any sale, lease, conveyance, transfer
or other disposition (including, without limitation, by way of merger,
consolidation or Sale and Leaseback Transaction) of (i) shares of Capital Stock
of a Subsidiary of such Person, (ii) property of such Person or any of its
Subsidiaries or (iii) other assets of such Person or any of its Subsidiaries
(each referred to for the purposes of this definition as a "disposition") by
such Person or any of its Subsidiaries (other than a disposition (x) by a
Subsidiary of such Person to such Person, (y) by such Person or a Subsidiary of
such Person to a Wholly Owned Subsidiary of such Person or such Subsidiary or
(z) by such Person or a Subsidiary of such Person to a Controlled Subsidiary of
such Person or such Subsidiary so long as immediately after such disposition
such Person or such Subsidiary owns, directly or indirectly, a percentage of
the Capital Stock, Voting Stock and other ownership interest of such Subsidiary
which is equal to or greater than the percentage of such Capital Stock, Voting
Stock or other ownership interest, respectively, owned by such Person or such
Subsidiary, directly or
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indirectly, immediately prior to such disposition) other than dispositions of
property or assets in the ordinary course of business. For purposes of this
definition, any disposition in connection with directors' qualifying shares or
investments by foreign nationals mandated by applicable law shall not
constitute an Asset Disposition. Notwithstanding the foregoing, a pledge,
change in share registry or similar transaction shall not be deemed an Asset
Disposition if effected to secure Indebtedness permitted in accordance with the
provisions described above under "--Certain Covenants--Limitation on
Consolidated Indebtedness."
"Asset Sale" means the sale, lease, conveyance, transfer or other disposition
by the Company or any of its Subsidiaries (other than to one of its Wholly
Owned Subsidiaries or to one of its Controlled Subsidiaries so long as
immediately after such disposition the Company or Subsidiary owns, directly or
indirectly, a percentage of the Capital Stock, Voting Stock or other ownership
interest in such Subsidiary which is equal to or greater than the percentage of
Capital Stock, Voting Stock or other ownership interest, respectively, owned by
such Person or such Subsidiary, directly or indirectly, immediately prior to
such disposition) of (i) all or substantially all of the Capital Stock of any
Subsidiary or (ii) substantially all of the assets which constitute
substantially all of an operating unit or business of the Company or any of its
Subsidiaries.
"Attributable Value" means, as to any particular lease under which any Person
is at the time liable and at any date as of which the amount thereof is to be
determined, the total net amount of rent required to be paid by such Person
under such lease during the initial term thereof as determined in accordance
with generally accepted accounting principles, discounted from such initial
term date to the date of determination at a rate per annum equal to the
discount rate which would be applicable to a Capital Lease Obligation of such
Person with like term in accordance with generally accepted accounting
principles. The net amount of rent required to be paid under any such lease for
any such period shall be the aggregate amount of rent payable by the lessee
with respect to such period after excluding amounts required to be paid on
account of insurance, taxes, assessments, utility, operating and labor costs
and similar charges. In the case of any lease which is terminable by the lessee
upon the payment of a penalty, such net amount shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Capital Lease Obligation" of any Person means any obligation to pay rent or
other amounts under a lease of (or other Indebtedness arrangements conveying
the right to use) real, personal or mixed property of such Person which is
required to be classified and accounted for as a capital lease or a liability
on the face of a balance sheet of such Person in accordance with generally
accepted accounting principles, and the amount of such obligation shall be the
capitalized amount thereof in accordance with generally accepted accounting
principles 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,
participations, warrants, rights or other equivalents (however designated) of
corporate stock whether now outstanding or issued after the date of the
Indenture.
"Change of Control" means the occurrence of one or more of the following
events, whether or not approved by the Company's Board of Directors:
(1) any Person or any Persons acting together which would constitute a
"group" for purposes of Section 13(d) of the Exchange Act (a "Group"),
together with any Affiliates thereof, other than the ESOP or the trusts for
any other employee stock ownership, benefit or pension plans of the Company
or any Subsidiary and other than the original holders of Convertible
Preferred Stock, shall beneficially own (as defined in Rule 13d-3 of the
Commission) at least 50% of the total voting power of all classes of
Capital Stock of the Company entitled to vote generally in the election of
directors of the Company;
(2) any one Person or Group (other than the Board of Directors of the
Company as it may be constituted from time to time), or any Affiliates
thereof, shall succeed in having sufficient of its or their
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nominees elected to the Board of Directors of the Company such that such
nominees, when added to any existing director remaining on the Board of
Directors of the Company after such election who is an Affiliate of such
Group, shall constitute a majority of the Board of Directors of the
Company;
(3) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, the assets of
the Company to any Person or entity or Group of Persons or entities (other
than any Wholly Owned Subsidiary of the Company);
(4) the shareholders of the Company shall approve any plan for the
liquidation or dissolution of the Company; or
(5) the merger or consolidation of the Company with or into another
corporation or the merger of another corporation into the Company with the
effect that immediately after such transaction any Person or Group holds
more than 50% of the total voting power entitled to vote generally in the
election of directors, managers or trustees of the surviving corporation of
such merger or consolidation.
"Consolidated Capital Expenditures" means, for any period, the aggregate of
all expenditures Incurred (whether paid in cash or accrued as liabilities and
including Capital Lease Obligations) by the Company and its Subsidiaries during
such period that, in conformity with generally accepted accounting principles,
are included in the property, plant or equipment or similar fixed asset account
reflected in the consolidated balance sheet of the Company and its Consolidated
Subsidiaries.
"Consolidated Cash Flow Available for Fixed Charges" of any Person means, for
any period, the Consolidated Net Income of such Person for such period plus (i)
Consolidated Interest Expense of such Person for such period, plus (ii)
Consolidated Income Tax Expense of such Person for such period, plus (iii) the
consolidated depreciation and amortization expense included in the income
statement of such Person and its Consolidated Subsidiaries for such period,
less (iv) the aggregate amount actually paid by such Person and its
Consolidated Subsidiaries during such period on account of Consolidated Capital
Expenditures and less (v) dividends declared or paid (without duplication)
during such period to minority shareholders with respect to a Controlled
Subsidiary to the extent, if any, the amount thereof exceeds the difference
between the "minority interest" set forth on such Person's consolidated balance
sheet on the last day of such period and the lesser of (A) the minority
interest as set forth on such Person's consolidated balance sheet on the date
of the Indenture or (B) the minority interest as set forth on such Person's
consolidated balance sheet on the day immediately preceding the first day of
such period.
"Consolidated Cash Flow Ratio" of any Person means for any period the ratio
of (i) Consolidated Cash Flow Available for Fixed Charges of such Person for
such period to (ii) the sum of (A) Consolidated Interest Expense of such Person
for such period plus (B) the annual Consolidated Interest Expense with respect
to any Indebtedness or Subsidiary Preferred Stock proposed to be Incurred by
such Person or any of its Consolidated Subsidiaries which requires the
calculation of the Consolidated Cash Flow Ratio, as if such Indebtedness or
Subsidiary Preferred Stock had been Incurred on the first day of such period
plus (C) the annual Consolidated Interest Expense with respect to any other
Indebtedness or Subsidiary Preferred Stock Incurred by such Person or its
Consolidated Subsidiaries since the end of such period to the extent not
included in clause (ii)(A) as if such Indebtedness or Subsidiary Preferred
Stock had been Incurred on the first day of such period and after giving effect
to the application of the proceeds therefrom less (D) Consolidated Interest
Expense of such Person to the extent included in clause (ii)(A) or (C) with
respect to any Indebtedness or Subsidiary Preferred Stock that is or will be no
longer outstanding as a result of the redemption, defeasance, repurchase,
retirement or acquisition thereof from the proceeds of Capital Stock of the
Company or any Subsidiary of the Company (other than Redeemable Stock) or that
will no longer be outstanding as a result of the Incurrence of the Indebtedness
or Subsidiary Preferred Stock proposed to be Incurred by such Person or any of
its Consolidated Subsidiaries, except for Consolidated Interest Expense
actually Incurred with respect to Indebtedness borrowed (as adjusted pursuant
to the first proviso set forth below) (x) under a revolving credit or similar
arrangement to the extent the commitment thereunder remains in effect on the
date of computation or (y) pursuant to the provisions described above under
clause (b)(viii) of
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"--Certain Covenants--Limitations on Consolidated Indebtedness;" provided,
however, that in making such computation, the Consolidated Interest Expense of
such Person attributable to interest or dividends on any Indebtedness or
Subsidiary Preferred Stock bearing a floating interest rate shall be computed
on a pro forma basis as if the rate in effect on the date of computation had
been the applicable rate for the entire period, unless, in the case of any
Indebtedness, such Person or any of its Consolidated Subsidiaries is a party to
an Interest Rate Agreement (which shall remain in effect for the shorter of the
twelve month period after the date of computation or the term of such
Indebtedness) which has the effect of fixing the interest rate on the date of
computation, in which case such rate (whether higher or lower) shall be used;
provided further that in the event such Person or its Subsidiaries has made
Asset Sales or Asset Acquisitions during or after such period and prior to the
date of Incurrence of such Indebtedness which requires calculation of the
Consolidated Cash Flow Ratio, such computation of Consolidated Cash Flow
Available for Fixed Charges and Consolidated Interest Expense shall be made on
a pro forma basis as if the Asset Sales or Asset Acquisitions had taken place
on the first day of such period.
"Consolidated Income Tax Expense" for any Person means for any period the
consolidated provision for income taxes of such Person and its Consolidated
Subsidiaries for such period.
"Consolidated Interest Expense" for any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of such Person and its Consolidated
Subsidiaries for such period, including without limitation or duplication (or,
to the extent not so included, with the addition of), in respect of such Person
or any of its Consolidated Subsidiaries, (i) the interest component of such
Person's aggregate Capital Lease Obligations; (ii) the amortization of
Indebtedness discounts; (iii) any payments of fees with respect to letters of
credit, bankers' acceptances or similar facilities; (iv) fees with respect to
Interest Rate Agreements or Currency Agreements; and (v) Preferred Stock
dividends declared and payable in cash.
"Consolidated Net Income" of any Person means for any period the consolidated
net income (or loss) of such Person and its Consolidated Subsidiaries for such
period determined in accordance with generally accepted accounting principles;
provided, however, that there shall be excluded therefrom (a) the net income
(or loss) of any Person acquired by such Person or a Subsidiary of such Person
in a pooling-of-interests transaction for any period prior to the date of such
transaction, (b) the net income (but not the net loss) of any Consolidated
Subsidiary of such Person which is subject to restrictions which prevent the
payment of dividends or the making of distributions to such Person the extent
of such restrictions, (c) the net income (or loss) of any Person that is not a
Consolidated Subsidiary of such Person except to the extent of the amount of
any dividends or other distributions actually paid to such Person by such other
Person during such period, (d) gains or losses on Asset Dispositions by such
Person or its Consolidated Subsidiaries, (e) all extraordinary gains and
extraordinary losses and (f) the cumulative effect of a change in accounting
principle.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person and its Consolidated Subsidiaries, as determined on a
consolidated basis in accordance with generally accepted accounting principles,
less (to the extent reflected therein) (a) amounts attributable to the effects
of foreign currency exchange adjustments under Financial Accounting Standards
Board Opinion No. 52, (b) amounts attributable to Redeemable Stock of such
Person and (c) with respect to the Company and its Consolidated Subsidiaries,
adjustments following the date of the Indenture to the accounting books and
records of the Company and its Consolidated Subsidiaries resulting from the
acquisition of control of such Person by another Person in accordance with
Accounting Principles Board Opinions Nos. 16 and 17.
"Consolidated Tangible Net Worth" means with respect to any Person (i) the
consolidated stockholders' equity of such Person and its Consolidated
Subsidiaries as set forth on the most recent consolidated balance sheet of such
Person and its Consolidated Subsidiaries prepared in accordance with generally
accepted accounting principles less (ii) the value of all of the consolidated
intangible assets of such Person and its Consolidated Subsidiaries determined
in accordance with generally accepted accounting principles.
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"Controlled Subsidiary" of any Person means a Subsidiary, at least 80% of the
Voting Stock of which (other than directors' qualifying shares) shall at the
time be owned, directly or indirectly, by such Person (including ownership
through one or more Subsidiaries).
"Convertible Preferred Stock" means (a) the Company's Series A1 Convertible
Exchangeable Preferred Stock, par value $1.00 per share, (b) the Company's
Series A2 Convertible Exchangeable Preferred Stock, par value $1.00 per share,
(c) the Company's Series B1 Convertible Preferred Stock, par value $1.00 per
share, (d) the Company's Series B2 Convertible Preferred Stock, par value $1.00
per share, (e) the Company's Series A3 Convertible Exchangeable Preferred
Stock, par value $1.00 per share and (f) the Company's Series B3 Convertible
Preferred Stock, par value $1.00 per share.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect any
Person against fluctuations in currency values.
"Equity Sale" means a sale of Capital Stock (other than Redeemable Stock) of
the Company other than sales of such Capital Stock to Affiliates, employees,
officers or directors of the Company, including issuances pursuant to any
employee stock or option arrangements.
"Exchange Debentures" means the Company's Series 1 Junior Convertible
Subordinated Debentures, the Company's Series 2 Junior Convertible Subordinated
Debentures and the Company's Series 3 Junior Convertible Subordinated
Debentures, in each case for which certain of the Convertible Preferred Stock
may be exchanged.
"Incur" means, with respect to any Indebtedness, Lien or other obligation of
any Person, to create, issue, assume, guarantee, incur or otherwise become
liable in respect of such Indebtedness (including in the case of Indebtedness,
the extension of the maturity of or becoming responsible for the payment of,
any Indebtedness), Lien or other obligation (and "Incurrence," "Incurred" and
"Incurring" shall have the meanings correlative to the foregoing), provided
that a change in generally accepted accounting principles that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an Incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, (i)
every obligation of such Person for money borrowed, (ii) every obligation of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) every reimbursement obligation of such Person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
such Person, (iv) every obligation of such Person issued or assumed as the
deferred purchase price of property (including pursuant to Capital Lease
Obligations), every conditional sale obligation and every obligation under any
title retention agreement, in each case if on terms permitting any portion of
the purchase price to be paid beyond one year from the date of purchase (but
excluding trade accounts payable arising in the ordinary course of business
which are not overdue by more than 90 days or which are being contested in good
faith), (v) every obligation of such Person issued or contracted for as payment
in consideration of the purchase by such Person or an Affiliate of such Person
of the stock or substantially all of the assets of another Person or a merger
or consolidation to which such Person or an Affiliate of such Person was a
party, (vi) every obligation 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, (vii) every obligation 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) all Redeemable Stock valued at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge agreement.
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"Lien" means, with respect to any property or assets, any mortgage or deed of
trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Material Subsidiary" means, as of any date, any Subsidiary of any Person (a)
the value of whose assets, as such assets would appear on a consolidated
balance sheet of such Subsidiary and its Consolidated Subsidiaries prepared as
of the end of the fiscal quarter next preceding such determination in
accordance with generally accepted accounting principles, is at least 5% of the
value of the assets of such Person and its Consolidated Subsidiaries,
determined as aforesaid, or (b) which has revenues, as such revenues would
appear on a consolidated income statement of such Subsidiary and its
Consolidated Subsidiaries prepared as of the end of the fiscal quarter next
preceding such determination in accordance with generally accepted accounting
principles, constituting at least 5% of the revenues of such Person and its
Consolidated Subsidiaries, determined as aforesaid.
"Maturity," when used with respect to any Senior Note, means the date on
which the principal amount of such Senior Note becomes due and payable as
provided in the Senior Note or the Indenture, whether at the Stated Maturity or
by declaration of acceleration, call for redemption or otherwise.
"Net Available Proceeds" from any Asset Disposition by a Person means cash or
readily marketable cash equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Indebtedness or other obligations relating to such properties or
assets or received in any other non-cash form) therefrom by such Person, net of
all legal, title and recording tax expenses, commissions and other fees and
expenses Incurred by such Person and all federal, state, provincial, foreign
and local taxes and reserves required to be accrued by such Person as a
liability as a consequence of such Asset Disposition, and net of all payments
made by such Person or its Subsidiaries on any Indebtedness which is secured by
such assets in accordance with the terms of any Liens upon or with respect to
such assets or which must by the terms of such Liens, 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, and net of all distributions and
other payments made by such Person to minority interest holders in Subsidiaries
or joint ventures as a result of such Asset Disposition.
"Obligations" means all obligations for the reimbursement of amounts drawn
under any letter of credit or for the payment of principal, premium, interest
(including, without limitation, interest whether or not allowed after the
filing of a petition in bankruptcy or insolvency), penalties, fees, expenses,
indemnities or other amounts, now or hereafter existing, with respect to any
Indebtedness.
"Offer to Purchase" means a written notice (the "Notice") delivered to the
Trustee and given (a) with respect to an Offer to Purchase made as a result of
an Asset Disposition, by first class mail, postage prepaid, or (b) with respect
to an Offer to Purchase made as a result of a Change of Control, by overnight
carrier, in either event to each Holder at the address appearing in the
Security Register, offering to purchase up to the principal amount of Senior
Notes specified in such Notice, at the purchase price specified in such Notice
(as determined pursuant to the Indenture). Any Notice shall specify a purchase
date (the "Purchase Date") for such Offer to Purchase which (x) with respect to
an Offer to Purchase made as a result of an Asset Disposition, shall be not
less than 30 days or more than 60 days after the date of such Notice and (y)
with respect to an Offer to Purchase made as a result of a Change of Control,
shall not be less than 15 days after the date of such Notice (or, in either
event, such other time period as is necessary for the Offer to Purchase to
remain open for a sufficient period of time to comply with applicable
securities laws). Any Notice shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company and shall
contain (i) the most recent financial statements required to be filed with the
Trustee, (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such
56
<PAGE>
financial statements (including the events requiring the Company to make such
Offer to Purchase), (iii) if material, appropriate pro forma financial
information concerning such Offer to Purchase and the events requiring the
Company to make such Offer to Purchase and (iv) any other information required
by applicable law to be included therein. Any Notice shall contain all
instructions and materials necessary to enable such Holder to tender Senior
Notes for purchase pursuant to such Offer to Purchase and shall remain open
from the time of mailing of the Notice until the Purchase Date. Any Notice
shall state:
(1) the section of the Indenture pursuant to which such Offer to Purchase
is being made;
(2) the aggregate outstanding principal amount (the "Purchase Amount") of
the Senior Notes required to be offered to be purchased by the Company
pursuant to such Offer to Purchase;
(3) the Purchase Date;
(4) the purchase price to be paid by the Company for each $1,000
principal amount of Senior Notes accepted for payment;
(5) that the Holder of any Senior Notes may tender for purchase by the
Company all or any portion of such Senior Notes equal to $1,000 principal
amount or any integral multiple thereof;
(6) the place or places where Senior Notes are to be surrendered for
tender pursuant to such Offer to Purchase;
(7) that interest on any Senior Notes not tendered or tendered but not
purchased by the Company pursuant to such Offer to Purchase will continue
to accrue;
(8) that on the Purchase Date the purchase price will become due and
payable upon each Senior Note (or portion thereof) selected for purchase
pursuant to such Offer to Purchase and that interest thereon shall cease to
accrue on and after the Purchase Date;
(9) that each Holder electing to tender a Senior Note pursuant to such
Offer to Purchase will be required to surrender such Senior Note at the
place or places specified in the Notice prior to the close of business on
the fifth Business Day prior to the Purchase Date;
(10) that any Holder will be entitled to withdraw the tender of such
Holder's Senior Note upon written notice to the Trustee, not later than the
close of business on the fifth Business Day prior to the Purchase Date;
(11) that (a) if Senior Notes (or portions thereof) in an aggregate
principal amount less than or equal to the Purchase Amount are duly
tendered and not withdrawn pursuant to such Offer to Purchase, the Company
shall purchase all such Senior Notes and (b) if Senior Notes in an
aggregate principal amount in excess of the Purchase Amount are duly
tendered and not withdrawn pursuant to such Offer to Purchase, (i) the
Company shall purchase Senior Notes having an aggregate principal amount
equal to the Purchase Amount and (ii) the particular Senior Notes (or
portions thereof) to be purchased shall be selected by such method as the
Trustee shall deem fair and appropriate; and
(12) that, in the case of any Holder whose Senior Note is purchased only
in part, the Company shall execute a new Senior Note or Senior Notes, of
any Authorized Denomination as requested by such Holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of
the Senior Notes so tendered.
"Pari Passu" as applied to the ranking of any Indebtedness of a Person in
relation to other Indebtedness of such Person, means that each such
Indebtedness either (i) is not expressly subordinated in right of payment to
any Indebtedness or (ii) is expressly subordinated in right of payment to the
same Indebtedness as is the other, and is so subordinated to the same extent,
and is not expressly subordinated in right of payment to the other or to any
Indebtedness as to which the other is not so expressly subordinated.
"Preferred Stock" as applied to the capital stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
57
<PAGE>
"Redeemable Stock" of any Person means any class or series of Capital Stock
of such Person that by its terms or otherwise is (i) required to be redeemed
prior to the Maturity of the Senior Notes or (ii) redeemable at the option of
the holder thereof at any time prior to the Maturity of the Senior Notes or
(iii) convertible into or exchangeable for Capital Stock referred to in clause
(i) or (ii) or Indebtedness having a scheduled maturity prior to the Maturity
of the Senior Notes; provided that any Capital Stock which would not constitute
Redeemable Stock but for provisions thereof giving holders thereof the right to
require the Company to repurchase or redeem such Capital Stock upon the
occurrence of a change in control occurring prior to the Maturity of the Senior
Notes shall not constitute Redeemable Stock if the change in control provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions described above under "--Change of Control"
and such Capital Stock specifically provides that the Company will not
repurchase or redeem any such stock pursuant to such provisions prior to the
Company's repurchase of such Senior Notes as are required to be repurchased
pursuant to the provisions described above under "--Change of Control."
"Sale and Leaseback Transaction" of any Person means an arrangement with any
bank, insurance company or other lender or investor or to which such lender or
investor is a party, providing for the leasing by such Person or any Subsidiary
of such Person of any property or asset of such Person or such Subsidiary which
has been or is being sold or transferred by such Person or such Subsidiary to
such lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or asset.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest on, and all other amounts payable in respect of, (a) all Obligations
of the Company under the Indenture and the Senior Notes, (b) all Obligations of
the Company and its Subsidiaries created pursuant to any Senior Credit
Facility, (c) all other Indebtedness of the Company not prohibited by the
provisions described above under "--Certain Covenants--Limitation on
Consolidated Indebtedness," whether outstanding on the date of the Indenture or
thereafter Incurred, (d) obligations of the Company under Interest Rate
Agreements, (e) Obligations of the Company under Currency Agreements entered
into in respect of any such Indebtedness or obligation or in the ordinary
course of business and (f) amendments, renewals, extensions, modifications and
refundings of any such Indebtedness or obligation; provided that the term
Senior Indebtedness shall not include (to the extent any of the following
constitutes Indebtedness) (i) any Indebtedness or Obligation owed to a
Subsidiary, (ii) any Indebtedness or Obligation which is expressly subordinated
or junior to the Senior Notes or to any other Indebtedness or Obligation of the
Company (other than any Indebtedness secured by a subordinated Lien and
Incurred by the Company pursuant to any Senior Credit Facility) including the
Exchange Debentures, (iii) any Indebtedness of the Company which when Incurred
and without respect to any election under Section 1111(b) of the U.S.
Bankruptcy Code, as amended, was without recourse to the Company, (iv) any
Indebtedness (other than Indebtedness Incurred pursuant to the provisions
described above under clause (b) of "--Certain Covenants--Limitation on
Consolidated Indebtedness") of the Company not otherwise permitted by certain
sections of the Indenture, (v) any Indebtedness to any employee of the Company,
(vi) any liability for taxes and (vii) accounts payable or any other
Indebtedness or monetary obligations to trade creditors created or assumed by
the Company or any of its Subsidiaries in the ordinary course of business in
connection with the obtaining of materials or services. Any Obligation under
any Senior Credit Facility constituting Senior Indebtedness shall continue to
constitute Senior Indebtedness despite a determination that the Incurrence of
such Obligation by the Company was a preference under Section 547(b) of Title
11 of the U.S. Code (or any successor thereto) or was a fraudulent conveyance
or transfer under Federal or State law.
"Stated Maturity" when used with respect to any Senior Note or any
installment of interest thereon, means the date specified in such Senior Note
as the fixed date on which the principal amount of such Senior Note or such
installment of interest is due and payable.
"Subordinated Debentures" means the 12 1/8% Senior Subordinated Debentures of
the Company due 2002.
58
<PAGE>
"Subsidiary" of any Person means a corporation of which more than 50% of the
outstanding Voting Stock or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are owned, directly or indirectly, by such Person or by one
or more other Subsidiaries, or by such Person and one or more other
Subsidiaries. Voting Stock or other ownership interests shall be deemed owned
by a Person notwithstanding the pledge, transfer of registered ownership or
similar transaction relating to such Voting Stock or other ownership interests
to the extent such transaction secures Indebtedness permitted in accordance
with the provisions described above under "--Certain Covenants--Limitation on
Consolidated Indebtedness."
"Voting Stock" means stock which ordinarily has voting power for the election
of directors, whether at all times or only so long as no senior class of stock
has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary all of the
outstanding Capital Stock of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Subsidiaries or by such Person and one or more Wholly Owned Subsidiaries.
Capital Stock shall be deemed owned by a person notwithstanding the pledge,
transfer of registered ownership or similar transaction relating to such
Capital Stock to the extent such transaction secures Indebtedness permitted in
accordance with the provisions described above under "--Certain Covenants--
Limitation on Consolidated Indebtedness."
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
The Company will make the Loan Repayments with a portion of the net proceeds
of the Offering and the Amended Credit Agreement will become effective
simultaneously with the consummation of the Offering. The consummation of the
Offering, the effectiveness of the Amended Credit Agreement and the making of
the Loan Repayments are contingent on each other. Set forth below is a brief
description of certain terms of the Credit Agreement, the Amended Credit
Agreement and the Subordinated Debentures.
CREDIT AGREEMENT
The Credit Agreement provides for a total of $271.4 million in principal
amount of loan commitments, of which $239.2 million was available at April 2,
1995, consisting of the following components: (i) revolving loans aggregating
no more than $147.8 million, of which $115.6 million was available and $106.9
million was utilized; (ii) $89.9 million of term loans; (iii) $11.1 million of
delayed draw term loans; (iv) $7.5 million of deferred term loans; (v) a $5.8
million term loan facility available only to pay certain potential
environmental liabilities; and (vi) an ESOP Loan of $9.3 million, repayment of
which is guaranteed by the Company. The revolving loans mature in 1997. The
term loans have final maturities in 1996 and 1998 and require periodic
principal payments prior thereto. The ESOP loan matures in 1999 and requires
periodic principal payments prior thereto. Amounts borrowed under the Credit
Agreement (other than Sterling Loans) bear interest, at the option of the
Company (or, in the case of the ESOP Loan, at the option of the ESOP Borrower),
at the Alternate Base Rate plus a margin of 1.75% or the Adjusted LIBOR Rate
plus a margin of 2.75%. Sterling Loans bear interest at the Adjusted Sterling
LIBOR Rate plus a margin of 2.75%. Interest rates applicable to amounts
borrowed under the Credit Agreement ranged from 9.00% to 9.4375% at April 2,
1995. A portion of the amounts outstanding under the Credit Agreement will be
repaid and the Credit Agreement will be amended by execution of the Amended
Credit Agreement.
Under the Credit Agreement an event of default will occur if the amount of
costs and matured liabilities arising against the Company and its subsidiaries
pursuant to certain federal environmental statutes with respect to the Duluth
site exceeds $7.5 million in the aggregate.
59
<PAGE>
AMENDED CREDIT AGREEMENT
GENERAL
The following constitutes only a summary of the principal terms and
conditions which are expected to be contained in the Amended Credit Agreement,
when executed, and is qualified in its entirety by the actual terms of the
Amended Credit Agreement. Whenever particular provisions or defined terms of
the Amended Credit Agreement are referred to, such provisions or defined terms
are incorporated herein by reference as part of the statements made herein. The
Amended Credit Agreement is subject to the negotiation, execution and delivery
of definitive documentation. Accordingly, certain of the actual terms,
conditions and covenants may differ from those described below. For purposes of
this description of the Amended Credit Agreement, the term "Company" refers
only to The Interlake Corporation and does not include The Interlake
Corporation's consolidated subsidiaries.
The Company, the Subsidiary Borrowers, the ESOP Borrower and the Required
Banks propose to enter into the Amended Credit Agreement, pursuant to an
amendment of the Credit Agreement. The Amended Credit Agreement will become
effective upon the consummation of the Offering and the making of the Loan
Repayments. The Amended Credit Agreement will provide for a total of $175.4
million in principal amount of loan commitments consisting of the following
components: (i) revolving loans aggregating no more than $76.3 million and
subject to borrowing base limitations; (ii) $84.0 million of term loans; (iii)
an ESOP Loan of $9.3 million, repayment of which is guaranteed by the Company;
and (iv) a $5.8 million term loan facility available only to pay certain
potential environmental liabilities. Of the term loans, $18.0 million will be
sterling-denominated loans ("Sterling Loans"). The ESOP Loan will mature on
September 27, 1999 and will require periodic principal payments prior thereto.
All other loans under the Amended Credit Agreement will mature on June 30,
1999. The Amended Credit Agreement will modify certain covenants under the
Credit Agreement, including covenants regarding minimum consolidated EBITDA
levels, minimum consolidated net worth levels and minimum and maximum capital
expenditure levels. The Banks will continue to receive a commitment fee of 0.5%
of the Revolving A Loan Commitments not yet utilized but available to the
Company and its subsidiaries under the Amended Credit Agreement.
INTEREST RATES
Loans (other than Sterling Loans) under the Amended Credit Agreement will
continue to bear interest, at the option of the Company (or, in the case of the
ESOP Loan, at the option of the ESOP Borrower), at a rate equal to either the
Alternate Base Rate plus a margin of 1.75% or the Adjusted LIBOR Rate plus a
margin of 2.75%. Sterling Loans will continue to bear interest at the Adjusted
Sterling LIBOR Rate plus a margin of 2.75%. At April 2, 1995, the interest
rates on the outstanding Loans ranged from 9.00% to 9.4375%. After June 30,
1998, the interest rate margin for all Loans will increase by 0.75%.
COLLATERAL
The obligations of the Company and the Subsidiary Borrowers under the Amended
Credit Agreement will continue to be secured by pledges of and mortgages and
security interests in substantially all of the assets of the Company and
certain of its subsidiaries. The collateral securing the Company's obligations
under the Amended Credit Agreement will continue to include (i) all of the
capital stock of substantially all of the Company's domestic subsidiaries and a
substantial portion of the capital stock of most of the Company's material
foreign subsidiaries, (ii) existing and after-acquired accounts receivable and
inventory (together with all proceeds thereof) of the Company, and (iii)
certain real property and other assets of the Company and its foreign and
domestic subsidiaries. Certain of the domestic subsidiaries of the Company have
jointly and severally guaranteed the obligations of the Company, the Subsidiary
Borrowers and the ESOP Borrower under the Amended Credit Agreement. These
guarantees, as well as each Subsidiary Borrower's obligations under the Amended
Credit Agreement, will continue to be secured by (i) all the capital stock of
its material subsidiaries and (ii) security interests granted by such
Subsidiary Borrower in substantially all of its assets. In addition, the
obligations of the ESOP Borrower with respect to the ESOP Loan will continue to
be
60
<PAGE>
guaranteed by the Company and secured by a pledge of all shares of Common Stock
of the Company held by the ESOP Borrower which have been purchased with the
proceeds of the ESOP Loan and which have not been allocated to ESOP participant
accounts.
CERTAIN COVENANTS
The Amended Credit Agreement will also require that the Company satisfy
certain financial tests, including meeting specified tests for minimum
Consolidated EBITDA, minimum Consolidated Net Worth and minimum and maximum
capital expenditures. In addition, the Amended Credit Agreement will contain
covenants that restrict, among other things, (a) the incurrence of liens, (b)
mergers, consolidations and certain sales of assets, (c) dividends or other
distributions, (d) lease payments, (e) the incurrence of indebtedness, (f)
certain advances, investments and loans, (g) certain transactions with
affiliates, (h) payments, prepayments, repurchases and modification of certain
indebtedness, (i) the modification of the Company's Certificate, by-laws or
certain agreements, (j) the creation of encumbrances or restrictions on the
ability of the Company's subsidiaries to make payments, transfers or
distributions to the Company, (k) the issuance by the Company's subsidiaries of
capital stock, (l) the engaging by the Company or its subsidiaries in new
businesses and (m) the cancellation, termination or modification of the ESOP,
the ESOP Trust or any of the ESOP Documents.
Method of Calculations. A summary of certain covenants which are expected to
be contained in the Amended Credit Agreement appears below. The calculations
set forth below with respect to historical and pro forma compliance with the
various covenants have been prepared in a manner consistent with the
anticipated requirements of the Amended Credit Agreement. Information necessary
to calculate compliance with such covenants may not be readily derivable from
financial statements included elsewhere in this Prospectus.
Minimum Consolidated EBITDA. Consolidated EBITDA (defined in the Amended
Credit Agreement as consolidated earnings before extraordinary items, minority
interests, provisions for income taxes and net interest expense plus
depreciation and amortization expenses) of the Company and its subsidiaries,
computed for the four quarter period ending with the quarter of computation
(except for the calculations for the second and third quarters of fiscal 1995,
which will be computed for the two and three quarter periods, respectively,
ending with such quarters), will be required to be at least the amount set
forth below at the end of each of the following fiscal quarters.
<TABLE>
<CAPTION>
AMOUNT
(IN MILLIONS)
<C> <S> <C>
Fiscal 1995
2nd Quarter.............................. $41.0
3rd Quarter.............................. 62.0
4th Quarter.............................. 85.0
Fiscal 1996
1st Quarter.............................. 85.0
2nd Quarter.............................. 85.0
3rd Quarter.............................. 85.0
4th Quarter.............................. 87.5
Fiscal 1997
1st Quarter.............................. 87.5
2nd Quarter.............................. 87.5
3rd Quarter.............................. 87.5
4th Quarter.............................. 90.0
Fiscal 1998
1st Quarter.............................. 90.0
2nd Quarter.............................. 90.0
3rd Quarter.............................. 90.0
4th Quarter.............................. 92.5
Fiscal 1999
1st Quarter.............................. 92.5
2nd Quarter.............................. 92.5
</TABLE>
61
<PAGE>
In addition, in the event the Company exceeds the required minimum
Consolidated EBITDA levels at the end of the fourth quarter of fiscal year 1995
or 1996, up to 50% of the excess (or a maximum of $5.0 million) can be carried
forward and allocated, in whole or in part, to increase Consolidated EBITDA in
any one or more subsequent fiscal quarters for purposes of each four quarter
test of which such quarter(s) is a component; provided that any portion of such
excess carried forward and allocated to a particular fiscal quarter may not be
carried forward and allocated to any other fiscal quarter.
For the four quarters ended December 25, 1994 and April 2, 1995 and for the
quarter ended April 2, 1995, the Consolidated EBITDA of the Company (as
defined) would have been $82.0 million, $87.1 million and $24.1 million,
respectively.
Minimum Consolidated Net Worth. Consolidated Net Worth (defined in the
Amended Credit Agreement as consolidated shareholders' equity without giving
effect to negative adjustments to the value of non-domestic assets due solely
to currency fluctuations (in an amount not to exceed $30.0 million)) at the end
of each fiscal quarter will be required to be at least equal to Consolidated
Net Worth at December 25, 1994 minus $30.0 million plus any cumulative positive
net income earned subsequent to December 25, 1994, calculated in accordance
with generally accepted accounting principles in effect on December 25, 1994.
Minimum and Maximum Capital Expenditures. The Company and its subsidiaries
(on a consolidated basis) may not make or incur Capital Expenditures in any
fiscal year (i) less than $15.0 million or (ii) in excess of $25.0 million
plus, beginning in fiscal 1996, up to $5.0 million which could have been, but
was not, expended in the immediately prior fiscal year.
EVENTS OF DEFAULT
The Amended Credit Agreement will specify a number of "events of default"
including, among others, the failure to make timely principal and interest
payments or to perform the covenants or to meet the financial tests or maintain
the financial requirements contained therein. It will be an event of default
under the Amended Credit Agreement if the Company makes cash payments with
respect to the Duluth site, on a cumulative basis, beginning in fiscal year
1995, in amounts aggregating more than $5.0 million in fiscal year 1995, $10.0
million through fiscal year 1996, $15.0 million through fiscal year 1997 and
$20.0 million thereafter. See "Risk Factors--Environmental Matters." Upon the
occurrence of an event of default under the Amended Credit Agreement, the Banks
will have the right to cease making loans and to terminate the Amended Credit
Agreement and to declare all amounts outstanding thereunder immediately due and
payable. Because of cross-acceleration provisions in the Indenture, a payment
default under the Amended Credit Agreement, or certain other defaults under the
Amended Credit Agreement followed, in each case, by an acceleration of the
indebtedness outstanding under the Amended Credit Agreement, would constitute a
default under the Indenture which in turn could lead to an acceleration of the
Senior Notes.
SUBORDINATED DEBENTURES
The following summaries of certain provisions of the Subordinated Debentures
and the Subordinated Debenture Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Subordinated Debentures and the Subordinated Debenture
Indenture, including the definitions therein of certain terms. Wherever
particular provisions or defined terms of the Subordinated Debenture Indenture
are referred to, such provisions or defined terms are incorporated herein by
reference as part of the statements made herein.
GENERAL
The Subordinated Debentures are general, unsecured senior subordinated
obligations of the Company in an aggregate principal amount of $220.0 million
and will mature on March 1, 2002. The Subordinated Debentures bear interest at
the annual rate of 12 1/8%.
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<PAGE>
SINKING FUND
The Subordinated Debentures are redeemable through the operation of a sinking
fund on March 1, 2001, at a redemption price equal to 100% of the principal
amount thereof plus accrued interest. Prior to March 1, 2001, the Company is
required to pay to the trustee for the Subordinated Debentures, for the sinking
fund, funds sufficient to redeem Subordinated Debentures in the aggregate
principal amount of $50.0 million.
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
Subordinated Debentures is, to the extent set forth in the Subordinated
Debenture Indenture, subordinated in right of payment to the prior payment in
full in cash of all Senior Indebtedness, including the Senior Notes. In the
event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
in connection therewith, relative to the Company or to its creditors, as such,
or to its assets, or (b) any liquidation, dissolution or other winding up of
the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of the Company, then and in any
such event the holders of all Senior Indebtedness will first be entitled to
receive payment in full of all amounts due or to become due thereon before the
holders of the Subordinated Debentures will be entitled to receive any payments
in respect of the Subordinated Debentures. No payments on account of principal
(including without limitation, sinking fund payments), premium, if any, or
interest or repurchases, redemptions or retirements of the Subordinated
Debentures may be made if any Senior Indebtedness is not paid when due and such
default is not waived or cured, or any other event of default with respect to
any Senior Indebtedness occurs and the maturity of such Senior Indebtedness is
accelerated and such acceleration is not rescinded, or if judicial proceedings
shall be pending in respect such a default in payment or event of default.
CERTAIN COVENANTS
The Subordinated Debenture Indenture contains certain restrictive covenants
limiting, among other things, the issuance of additional indebtedness and
preferred stock by the Company and its subsidiaries, the payment by the Company
of dividends or other distributions, the redemption of capital stock of the
Company, transactions with affiliates, the use of proceeds from the disposal of
assets, the incurrence of liens and the merger, consolidation or sale of
substantially all of the assets of the Company. The restrictive covenants in
the Subordinated Debenture Indenture are substantially similar to the
restrictive covenants contained in the Indenture. See "Description of Senior
Notes--Certain Covenants."
CHANGE OF CONTROL
The Subordinated Debenture Indenture requires the Company, upon a Change of
Control, to make an offer to purchase all of the Subordinated Debentures at
101% of the principal amount thereof, plus accrued interest to the date of
purchase. The Indenture contains a similar provision requiring the Company to
make an offer to purchase all of the Senior Notes at 101% of the principal
amount thereof in the event of a Change of Control. See "Description of Senior
Notes--Change of Control." The Indenture expressly allows the Company to offer
to purchase, and to purchase, the Subordinated Debentures pursuant to a Change
of Control, even if no holder of Senior Notes tenders Senior Notes for payment.
EVENTS OF DEFAULT
The Subordinated Debenture Indenture specifies a number of "events of
default" including, among others, the failure to make timely principal and
interest payments or to perform the covenants or to meet the financial tests or
maintain the financial ratios contained therein. Upon the occurrence of an
event of default under the Subordinated Debenture Indenture, all amounts
outstanding thereunder may be declared to be immediately due and payable.
Because of cross-acceleration provisions in the Indenture, a payment default
under the Subordinated Debenture Indenture or certain other defaults under the
Subordinated Debenture
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<PAGE>
Indenture followed, in each case, by an acceleration of the indebtedness
outstanding under the Subordinated Debentures, would constitute a default under
the Indenture which in turn could lead to an acceleration of the Senior Notes.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among the Company and the Underwriters named below,
the Underwriters have severally agreed to purchase from the Company, and the
Company has agreed to sell to them, severally, all of the Senior Notes offered
hereby, in the respective principal amount set forth opposite their respective
names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
UNDERWRITER SENIOR NOTES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corpora-
tion.............................................. $
CS First Boston Corporation........................
------------
Total............................................ $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to certain conditions precedent. The Underwriting
Agreement also provides that the Company will indemnify the Underwriters and
their respective controlling persons against certain liabilities and expenses,
including liabilities under the Securities Act. The nature of the Underwriters'
obligations is such that the Underwriters are required to purchase all of the
Senior Notes if any of the Senior Notes are purchased.
The Underwriters propose to offer the Senior Notes directly to the public at
the public offering price set forth on the cover page of this Prospectus. After
the Senior Notes are released for sale to the public, the offering price may
from time to time be varied by the Underwriters.
The Company has no present plan to list any of the Senior Notes on a
securities exchange. The Underwriters have advised the Company that they
currently intend to make a market in the Senior Notes, but they are not
obligated to do so and may discontinue such market making at any time without
notice. Accordingly, there can be no assurance that an active trading market
will develop for, or as to the liquidity of, the Senior Notes.
LEGAL MATTERS
The validity of the issuance of the Senior Notes will be passed upon for the
Company by Jones, Day, Reavis & Pogue and for the Underwriters by Davis Polk &
Wardwell. In rendering their opinions on the validity of the Senior Notes,
neither counsel for the Company nor for the Underwriters will express any
opinions as to the applicability of federal and state statutes dealing with
fraudulent conveyances and obligations.
EXPERTS
The financial statements as of December 25, 1994 and December 26, 1993 and
for each of the three years in the period ended December 25, 1994 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
64
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................ F-2
Consolidated Statement of Operations for the years ended December 25,
1994, December 26, 1993 and December 27, 1992.......................... F-3
Consolidated Balance Sheet at December 25, 1994 and December 26, 1993... F-4
Consolidated Statement of Cash Flows for the years ended December 25,
1994, December 26, 1993 and December 27, 1992.......................... F-5
Consolidated Statement of Shareholders' Equity (Deficit) for the years
ended December 25, 1994, December 26, 1993 and December 27, 1992....... F-6
Notes to Consolidated Financial Statements.............................. F-7
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS:
Consolidated Statement of Operations for the three months ended March
27, 1994 and April 2, 1995............................................. F-26
Consolidated Balance Sheet at December 25, 1994 and April 2, 1995....... F-27
Consolidated Statement of Cash Flows for the three months ended March
27, 1994 and April 2, 1995............................................. F-28
Notes to Consolidated Interim Financial Statements...................... F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
The Interlake Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of shareholders'
equity (deficit) present fairly, in all material respects, the financial
position of The Interlake Corporation and its subsidiaries at December 25, 1994
and December 26, 1993, and the results of their operations and their cash flows
for each of the three years in the period ended December 25, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of The Interlake Corporation's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of evaluating the recoverability of goodwill and other long-
lived assets in 1994. As discussed in Note 4 to the consolidated financial
statements, the Company changed its method of accounting for postretirement
benefits other than pensions and its method of accounting for income taxes in
1992.
Price Waterhouse LLP
Chicago, Illinois
January 25, 1995, except as to Note 18,
which is as of March 8, 1995
F-2
<PAGE>
THE INTERLAKE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 25, 1994, DECEMBER 26, 1993 AND DECEMBER 27, 1992
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- --------
<S> <C> <C> <C>
Net Sales..................................... $ 752,592 $ 681,330 $708,199
Cost of Products Sold......................... 576,929 520,508 527,857
Selling and Administrative Expense............ 117,264 117,025 127,436
Restructuring Charge (See Note 3)............. -- 5,611 2,523
Goodwill Write-down (See Note 2).............. 34,174 -- --
--------- --------- --------
Operating Profit.............................. 24,225 38,186 50,383
Interest Expense.............................. 51,609 50,906 54,284
Interest Income............................... (1,369) (1,855) (2,859)
Nonoperating (Income) Expense (See Note 15)... (481) 5,359 484
--------- --------- --------
Income (Loss) Before Taxes, Minority Interest,
Extraordinary Loss and Accounting Changes.... (25,534) (16,224) (1,526)
Provision for Income Taxes (See Note 7)....... 10,888 6,542 9,040
--------- --------- --------
Income (Loss) Before Minority Interest,
Extraordinary Loss and Accounting Changes.... (36,422) (22,766) (10,566)
Minority Interest in Net Income of
Subsidiaries................................. 4,135 3,196 3,424
--------- --------- --------
Income (Loss) Before Extraordinary Loss and
Accounting Changes........................... (40,557) (25,962) (13,990)
Extraordinary Loss on Early Extinguishment of
Debt, Net of Applicable Income Taxes (See
Note 5)...................................... -- -- (7,567)
Cumulative Effect of Changes in Accounting
Principles (See Note 4)...................... (194) -- (6,141)
--------- --------- --------
Net Income (Loss)............................. $ (40,751) $ (25,962) $(27,698)
========= ========= ========
Income (Loss) Per Share of Common Stock:
Income (Loss) Before Extraordinary Loss and
Accounting Changes......................... $ (1.84) $ (1.18) $ (0.84)
Extraordinary Loss.......................... -- -- (0.46)
Accounting Changes.......................... (.01) -- (0.37)
--------- --------- --------
Net Income (Loss)........................... $ (1.85) $ (1.18) $ (1.67)
========= ========= ========
Average Shares Outstanding.................... 22,027 22,027 16,754
</TABLE>
(See notes to consolidated financial statements)
F-3
<PAGE>
THE INTERLAKE CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 25, 1994 AND DECEMBER 26, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 39,708 $ 31,934
Receivables less allowances of $2,977 in 1994 and
$2,775 in 1993........................................ 129,089 107,861
Inventories............................................ 73,853 77,025
Other current assets................................... 6,340 9,720
--------- ---------
Total Current Assets................................. 248,990 226,540
Goodwill and Other Assets:
Goodwill, less accumulated amortization of $6,622 in
1994 and $20,141 in 1993 (See Note 2)................. 4,667 38,916
Other assets........................................... 45,562 49,013
--------- ---------
Total Goodwill and Other Assets...................... 50,229 87,929
--------- ---------
Property, Plant and Equipment, net....................... 145,734 149,691
--------- ---------
Total Assets......................................... $ 444,953 $ 464,160
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable....................................... $ 71,957 $ 60,382
Accrued liabilities.................................... 42,563 43,272
Interest payable....................................... 13,910 13,913
Accrued salaries and wages............................. 18,060 14,713
Income taxes payable................................... 10,328 17,866
Debt due within one year (See Note 13)................. 24,553 2,525
--------- ---------
Total Current Liabilities............................ 181,371 152,671
--------- ---------
Long-Term Debt (See Note 13)............................. 417,898 440,610
Other Long-Term Liabilities.............................. 75,753 65,765
Deferred Tax Liabilities (See Note 7).................... 6,038 6,896
Commitments and Contingencies (See Note 16).............. -- --
Minority Interest........................................ 21,173 18,830
Preferred Stock--2,000,000 shares authorized
Convertible Exchangeable Preferred Stock--Redeemable,
par value $1 per share, issued 40,000 shares (See Note
10)................................................... 39,155 39,155
Shareholders' Equity (Deficit): (See Note 11)
Common stock, par value $1 per share, authorized
100,000,000 shares, issued 23,228,695 in 1994 and
1993.................................................. 23,229 23,229
Additional paid-in capital............................. 30,248 30,248
Cost of common stock held in treasury (1,202,000 shares
in 1994 and 1993)..................................... (28,047) (28,047)
Retained earnings (Accumulated deficit)................ (293,966) (253,215)
Unearned compensation.................................. (10,058) (11,279)
Accumulated foreign currency translation adjustments... (17,841) (20,703)
--------- ---------
Total Shareholders' Equity (Deficit)................. (296,435) (259,767)
--------- ---------
Total Liabilities and Shareholders' Equity (Deficit). $ 444,953 $ 464,160
========= =========
</TABLE>
(See notes to consolidated financial statements)
F-4
<PAGE>
THE INTERLAKE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 25, 1994, DECEMBER 26, 1993 AND DECEMBER 27, 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
Cash Flows from (for) Operating Activities:
Net income (loss)............................. $(40,751) $(25,962) $ (27,698)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Restructuring charge........................ -- 5,611 --
Goodwill write-down......................... 34,174 -- --
Depreciation and amortization............... 23,102 25,040 27,535
Extraordinary item.......................... -- -- 7,488
Debt issuance costs......................... (1,264) -- (11,952)
Accounting changes.......................... -- -- 6,141
Nonoperating environmental matters.......... -- 4,750 --
Other operating adjustments................. 13,172 (7,231) (4,412)
(Increase) Decrease working capital:
Accounts receivable....................... (18,754) 16,233 (6,469)
Inventories............................... 5,880 (4,190) (3,616)
Other current assets...................... 3,249 (1,642) 190
Accounts payable.......................... 9,897 519 2,724
Other accrued liabilities................. 758 (2,708) 10,779
Income taxes payable...................... (7,560) (2,432) (7,866)
-------- -------- ---------
Total Working Capital Change............ (6,530) 5,780 (4,258)
-------- -------- ---------
Net Cash Provided (Used) by Operating
Activities..................................... 21,903 7,988 (7,156)
-------- -------- ---------
Cash Flows from (for) Investing Activities:
Capital expenditures.......................... (15,485) (14,540) (24,588)
Proceeds from disposal of PP&E................ 477 284 636
Acquisitions.................................. (746) -- (2,319)
Other investment flows........................ 1,137 1,122 --
-------- -------- ---------
Net Cash Provided (Used) by Investing
Activities..................................... (14,617) (13,134) (26,271)
-------- -------- ---------
Cash Flows from (for) Financing Activities:
Proceeds from issuance of long-term debt...... 10,656 104 267,832
Retirements of long-term debt................. (11,970) (7,582) (282,430)
Proceeds from issuance of common stock........ -- -- 41,759
Proceeds from issuance of preferred stock..... -- -- 39,155
Other financing flows......................... 1,982 6,158 1,217
-------- -------- ---------
Net Cash Provided (Used) by Financing
Activities..................................... 668 (1,320) 67,533
-------- -------- ---------
Effect of Exchange Rate Changes on Cash......... (180) (240) (6,007)
-------- -------- ---------
Increase (Decrease) in Cash and Cash
Equivalents.................................... 7,774 (6,706) 28,099
Cash and Cash Equivalents, Beginning of Year.... 31,934 38,640 10,541
-------- -------- ---------
Cash and Cash Equivalents, End of Year.......... $ 39,708 $ 31,934 $ 38,640
======== ======== =========
</TABLE>
(See notes to consolidated financial statements)
F-5
<PAGE>
THE INTERLAKE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 25, 1994, DECEMBER 26, 1993 AND DECEMBER 27, 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
AND PAID-IN HELD IN
CAPITAL TREASURY RETAINED FOREIGN
-------------- ---------------- EARNINGS UNEARNED CURRENCY
SHARES AMOUNT SHARES AMOUNT (DEFICIT) COMPENSATION TRANSLATION TOTAL
------ ------- ------ -------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 29,
1991................... 11,741 $11,741 (1,257) $(28,709) $(198,408) $(14,112) $ (9,977) $(239,465)
Net income (loss)....... (27,698) (27,698)
Sale of stock (See Note
11).................... 11,488 41,759 41,759
Stock incentive plans
(See Note 12).......... 55 649 (1,146) 273 (224)
ESOP transactions (See
Note 11)............... 905 905
Translation loss........ (7,995) (7,995)
------ ------- ------ -------- --------- -------- -------- ---------
Balance December 27,
1992................... 23,229 53,500 (1,202) (28,060) (227,252) (12,934) (17,972) (232,718)
Net income (loss)....... (25,962) (25,962)
Stock incentive plans
(See Note 12).......... (23) 13 (1) 46 35
ESOP transactions (See
Note 11)............... 1,609 1,609
Translation loss........ (2,731) (2,731)
------ ------- ------ -------- --------- -------- -------- ---------
Balance December 26,
1993................... 23,229 53,477 (1,202) (28,047) (253,215) (11,279) (20,703) (259,767)
Net income (loss)....... (40,751) (40,751)
Stock incentive plans
(See Note 12).......... 15 15
ESOP transactions (See
Note 11)............... 1,206 1,206
Translation gain........ 2,862 2,862
------ ------- ------ -------- --------- -------- -------- ---------
Balance December 25,
1994................... 23,229 $53,477 (1,202) $(28,047) $(293,966) $(10,058) $(17,841) $(296,435)
====== ======= ====== ======== ========= ======== ======== =========
</TABLE>
(See notes to consolidated financial statements)
F-6
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 25, 1994, DECEMBER 26, 1993 AND DECEMBER 27, 1992
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT WHERE INDICATED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of all majority-owned domestic and foreign subsidiaries. All
significant intercompany transactions are eliminated.
Cash Equivalents--The Company considers all highly liquid financial
instruments with original maturities of three months or less to be cash
equivalents and reports the earnings from these instruments as interest income.
Revenue Recognition--Revenue from sales is generally recognized when product
is shipped, except on long-term contracts in the Handling/Packaging Systems
segment, where revenue is accounted for principally by the percentage-of-
completion method.
Deferred Charges--The Aerospace Components unit periodically enters into
long-term agreements with customers on major programs where tooling and other
development costs are capitalized as Other Assets. These assets are then
amortized during the production stage by the units-of-production method.
Inventories--Inventories are stated at the lower of cost or market value.
Gross inventories valued on the LIFO method represent approximately 41% and 44%
of gross inventories and 50% and 55% of domestic gross inventories at December
25, 1994 and December 26, 1993, respectively. The current cost of these
inventories exceeded their valuation determined on a LIFO basis by $15,513 at
December 25, 1994 and by $16,628 at December 26, 1993.
During 1994, 1993, and 1992, inventory quantities valued on the LIFO method
were reduced, resulting in the liquidation of LIFO inventory quantities carried
at lower costs that prevailed in prior years as compared with the costs of
production for 1994, 1993, and 1992. As a result, pre-tax income in 1994, 1993,
and 1992 was increased by $951, $1,201, and $1,948, respectively.
Inventories by category at December 25, 1994 and December 26, 1993 were:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Raw materials............................................ $14,703 $13,443
Semi-finished and finished products...................... 50,978 54,795
Supplies................................................. 8,172 8,787
------- -------
$73,853 $77,025
======= =======
</TABLE>
Leases--The Company frequently enters into operating leases in the normal
course of business. Amounts due under noncancelable operating leases in the
next five fiscal years are as follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C>
$5,875 $5,357 $4,866 $3,939 $3,577
</TABLE>
Rent expense charged to operating income was $11,853, $11,271, and $13,473 in
1994, 1993, and 1992, respectively.
Property, Plant and Equipment and Depreciation--For financial reporting
purposes, plant and equipment are depreciated principally on a straight-line
method over the estimated useful lives of the assets. Depreciation claimed for
income tax purposes is computed by use of accelerated methods.
F-7
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Upon sale or disposal of property, plant and equipment, the asset cost and
related accumulated depreciation are removed from the accounts, and any gain or
loss on the disposal is generally credited or charged to nonoperating income.
(In 1992, gains and losses on disposals related to the 1989 restructuring
program were included in operating income as restructuring charges.) (See Note
3).
Expenditures for renewals and betterments which extend the originally
estimated useful life of an asset or materially increase its productivity are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred. Property, plant and equipment by category at December 25, 1994 and
December 26, 1993 were:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
At Cost:
Land.............................................. $ 6,946 $ 6,729
Buildings......................................... 75,788 74,175
Equipment......................................... 294,239 284,060
Construction in progress.......................... 5,867 4,222
--------- ---------
382,840 369,186
Less-Depreciation................................. (237,106) (219,495)
--------- ---------
$ 145,734 $ 149,691
========= =========
</TABLE>
Goodwill--Goodwill represents the excess of the purchase price over the fair
value of the net assets of acquired companies and is amortized on a straight-
line method over periods not exceeding thirty years. The Company carries its
goodwill assets at their purchase prices, less amortized amounts, but subject
to annual review for impairment. During the fourth quarter of 1994, the Company
changed its accounting policy for valuation of its long-lived assets, primarily
goodwill, to reflect its cost of capital in calculating the present value of
the projected future cash flows expected to be generated over the lives of
those assets. Previously, the cash flows were used without discounting or
allocation of interest cost. Under the new policy, projections of cash flows
for individual business units are discounted at the approximate incremental
cost of borrowing for the Company. This discounted amount is then compared to
the carrying value of the long-lived assets to determine if their value is
impaired. (See Note 2).
Foreign Currency Translation--The financial position and results of
operations of the Company's foreign subsidiaries are measured using local
currency as the functional currency. Assets and liabilities of these
subsidiaries are translated at the exchange rate in effect at each year end.
Results of operations are translated at the average rates of exchange
prevailing during the year. Translation adjustments arising from differences in
exchange rates from period to period are included in the accumulated foreign
currency translation adjustments account in shareholders' equity.
Foreign Exchange Contracts--The Company periodically enters into foreign
exchange contracts to hedge specific inventory purchases and other transactions
denominated in foreign currencies. Premiums received and fees paid on foreign
exchange contracts are deferred and amortized over the period of the contracts.
At December 25, 1994, the Company had outstanding currency contracts to
exchange $1,918 for foreign currency (including Canadian dollars, Australian
dollars, deutsche marks, pounds sterling, Japanese yen and Belgian francs). The
Company's exposure to loss in the event of nonperformance by the other parties
to these contracts is limited to the effect of the currency fluctuations
related to the amounts to be exchanged; however, the Company does not
anticipate nonperformance by the counterparties.
Interest Rate Hedges--The Company utilizes swap agreements to hedge a portion
of its interest rate exposure on floating rate obligations (see Note 14).
Interest expense increases or decreases are accrued as they occur and are
settled on a quarterly basis. At current interest rates the Company has no
exposure to credit loss.
F-8
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Research and Development Expenses--Research and development expenditures for
Company sponsored projects are generally expensed as incurred. Research and
development expenses included in selling and administrative expenses were
$2,107, $2,153, and $2,209 for the Engineered Materials segment in 1994, 1993,
and 1992, respectively, and $1,303, $1,092, and $607 for the Handling/Packaging
Systems segment in 1994, 1993, and 1992, respectively.
Deferred Taxes--Certain prior year deferred tax amounts were reclassified to
conform to current year presentation.
NOTE 2--GOODWILL WRITE-DOWN
Prior to the fourth quarter of 1994, impairment with respect to the Company's
long-lived assets was determined by comparing the sum of the undiscounted
projected future cash flows attributable to each business unit to the carrying
value of the assets of that business unit. Projected future cash flows for each
business unit were estimated for a period approximating the remaining lives of
that business unit's long-lived assets, based on earnings history, market
conditions and assumptions reflected in internal operating plans and
strategies. In 1993, under this analysis, the Company determined that the cash
flows from each business unit would be sufficient to recover the carrying value
of its long-lived assets and, therefore, that the value of such assets was not
impaired.
In the fourth quarter of 1994, the Company concluded that, in the light of
its highly leveraged capital structure, a preferable accounting policy for
analyzing the potential impairment of long-lived assets would be to reflect the
cost of capital in computing the present value of the expected cash flows of
its businesses. Applying this new policy to all of its long-lived assets the
Company determined, with respect to its Aerospace Components and newspaper-
related Packaging businesses, that in the light of the significant
deterioration in business climates in the aerospace and newspaper industries
over recent years, the values of the discounted cash flows were insufficient to
recover the carrying value of the long-lived assets. Therefore, the goodwill
included among those assets was deemed to be impaired. As a result, a charge of
$34,174 was recorded for the write-down of goodwill established in connection
with the acquisitions of the Aerospace Components and newspaper-related
Packaging businesses. As of December 25, 1994, the remaining net investment in
these businesses was approximately equal to the value of the discounted
projected cash flows attributable to them, and consisted primarily of tangible
assets.
The Company intends to continue to annually assess the carrying values of its
long-lived assets using the analysis described above.
NOTE 3--RESTRUCTURING CHARGES
In 1993, the Company provided $5,611 for restructuring costs related to: the
exit from certain lines of business that were part of Handling North America;
reorganization and downsizing of portions of the European Handling operation;
and, in the Aerospace Components business, the abandonment of certain product
lines which resulted in idled equipment and severance costs related to a
downsizing of the Aviation Repair workforce. The $5,611 consisted of $1,676 in
severance costs, $1,515 of idled equipment written-down to fair market value,
$1,367 of inventory related to the exited businesses and $1,053 of other costs.
Quantification of the anticipated effects of the restructuring on future
operating results is not practical because some of the actions were taken to
avoid future costs while other actions were strategic in nature and
F-9
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
implemented to limit exposure to changing market dynamics. These restructuring
activities are substantially complete and the remaining reserves are immaterial
to the Company as a whole.
In 1992, the Company recorded $2,523 of additional costs related to
unfavorable adjustments on assets held for sale as part of an asset sale
program. The Company developed this program in 1989 as part of an overall
restructuring program which modified its strategic operating plan. The modified
strategic operating plan identified certain businesses and Corporate assets to
be disposed of and implemented major Corporate cost reductions. Most of the
designated businesses were sold or shut-down in 1990. The 1992 adjustment
reflected the decline in real-estate value of two properties held for sale,
both of which were former Handling operations.
NOTE 4--CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
In the fourth quarter of 1992, the Company changed its method of accounting
for postretirement benefits and income taxes by adopting pronouncements of the
Financial Accounting Standards Board which are mandatory for fiscal years
beginning after December 15, 1992. The one-time cumulative effect of these new
accounting standards on income was a net charge of $6,141 which was reported
retroactively to the beginning of fiscal 1992. Such accounting changes did not
affect cash flows in 1992 and will not affect future cash flows.
The Company provides certain medical and life insurance benefits to
qualifying domestic retirees. In 1992, the Company changed its method of
accounting for these postretirement benefits by adopting the Financial
Accounting Standards Board's Statement of Financial Accounting Standards (FAS)
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions". This change recognized the difference between the estimated
accumulated postretirement benefit obligation under FAS No. 106 ($34,477) and
the obligation accrued under the Company's previous accrual method ($20,439) by
making a charge against income of $14,038 ($9,265 after taxes, equivalent to
$.56 per share) retroactively to the beginning of the fiscal year.
In the fourth quarter of 1994, the Company elected to adopt FAS No. 106 for
its foreign plans. Adoption is mandatory for foreign plans for fiscal years
beginning after December 15, 1994. The one-time cumulative effect of this
adoption on income was a net charge of $194 ($.01 per share) which was reported
retroactively to the beginning of fiscal 1994.
In 1992, the Company changed its method of accounting for income taxes by
adopting the Financial Accounting Standards Board's FAS No. 109, "Accounting
for Income Taxes". In making this change, the Company recognized the cumulative
effect of the difference in accounting methods as a $3,124 credit to earnings
(equivalent to $.19 per share) retroactive to the beginning of the fiscal year.
NOTE 5--EXTRAORDINARY LOSS
In 1992, the Company refinanced certain long-term debt and entered into a
comprehensive amendment and restatement of its bank credit agreement. This
necessitated the write-off of issuance costs related to this previously
outstanding indebtedness which were originally deferred so that they could be
expensed over the original lives of such indebtedness. This resulted in an
extraordinary loss of $7,567 without any currently usable tax benefit in 1992
(equivalent to $.46 per share).
The cash flow impact of the early extinguishment of debt was immaterial.
However, new debt issuance costs had a negative cash flow consequence of
$11,952 in 1992 which was deducted in determining net cash provided (used) by
operating activities in the Consolidated Statement of Cash Flows.
F-10
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--BUSINESS SEGMENT INFORMATION
The Company operates in two segments, each of which is composed of products
which have a similar strategic emphasis. The two business segments are:
Engineered Materials--includes Special Materials, which produces ferrous
metal powder used to manufacture precision parts, and Aerospace Components,
which manufactures precision jet engine components and repairs jet engine
fan blades.
Handling/Packaging Systems--is comprised of the Company's Handling
operations, which design, manufacture and sell storage rack, shelving and
related equipment primarily for use in warehouses, distribution centers and
for other storage applications; and the Company's Packaging operations,
which design and sell machinery for applying strapping and stitching wire,
and also supply strapping and stitching wire for use in such machines.
The accompanying tables present financial information by business segment for
the years 1994, 1993, and 1992. Operating profit consists of net sales of the
segment less all costs and expenses related to the segment. "Corporate Items"
includes items which are not related to either of the two business segments.
Total assets by business segment consist of those assets used directly in the
operations of each segment. Corporate net assets consist principally of cash,
nonoperating investments, prepaid pension cost and liabilities related to
closed plants.
INFORMATION ABOUT THE COMPANY'S BUSINESS SEGMENTS
<TABLE>
<CAPTION>
NET SALES OPERATING PROFIT (LOSS) IDENTIFIABLE ASSETS
---------------------- --------------------------- --------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Engineered Materials
Special Materials...... $ 153.9 $ 131.5 $122.5
Aerospace Components... 62.5 61.0 67.5
------- ------- ------
216.4 192.5 190.0 $ 32.3 $ 26.3 $ 29.6
Goodwill Write-down.... (13.2) -- --
Restructuring Charge... -- (1.8) --
------- ------- ------ -------- -------- -------
216.4 192.5 190.0 19.1 24.5 29.6 $166.6 $178.3 $173.5
------- ------- ------ -------- -------- ------- ------ ------ ------
Handling/Packaging
Systems
Handling............... 406.0 366.7 395.3
Packaging.............. 130.2 122.1 122.9
------- ------- ------
536.2 488.8 518.2 28.1 19.1 24.0
Goodwill Write-down.... (21.0) -- --
Restructuring Charge... -- (3.8) (2.5)
------- ------- ------ -------- -------- -------
536.2 488.8 518.2 7.1 15.3 21.5 252.1 265.6 279.4
------- ------- ------ -------- -------- ------- ------ ------ ------
Corporate Items......... (2.0) (1.6) (0.7) 26.3 20.3 58.4
-------- -------- ------- ------ ------ ------
Operating Profit........ 24.2 38.2 50.4
Net Interest Expense.... (50.2) (49.1) (51.4)
Nonoperating Income
(Expense).............. 0.5 (5.3) (0.5)
-------- -------- -------
Consolidated Totals..... $ 752.6 $ 681.3 $708.2 $(25.5) $(16.2) $ (1.5) $445.0 $464.2 $511.3
======= ======= ====== ======== ======== ======= ====== ====== ======
Depreciation and
Amortization
Engineered Materials... $ 11.7 $ 12.2 $ 11.8
Handling/Packaging
Systems............... 11.2 12.6 15.5
Corporate Items........ 0.2 0.2 0.2
------- ------- ------
Consolidated Total...... $ 23.1 $ 25.0 $ 27.5
======= ======= ======
Capital Expenditures
Engineered Materials... $ 8.3 $ 9.0 $ 15.5
Handling/Packaging
Systems............... 7.2 5.5 9.1
------- ------- ------
Consolidated Total...... $ 15.5 $ 14.5 $ 24.6
======= ======= ======
Liquidation of LIFO
Inventory Quantities
Engineered Materials... $ -- $ -- $ 0.4
Handling/Packaging
Systems............... 1.0 1.2 1.5
</TABLE>
F-11
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION ABOUT THE COMPANY'S OPERATIONS BY GEOGRAPHIC REGION
The following table presents information about the Company's operations by
geographic area. Transfers between geographic areas, which are all in the
Handling/Packaging Systems segment, are made at prices which approximate the
prices of similar items sold to distributors. Operating profit by geographic
area is the difference between net sales attributable to the area and all costs
and expenses related to that area. Export sales to unaffiliated customers
included in the United States' sales are not material. Sales to domestic and
foreign government agencies are not material.
<TABLE>
<CAPTION>
OPERATING PROFIT
NET SALES (LOSS) IDENTIFIABLE ASSETS
---------------------- ---------------------- --------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States
Customer Sales......... $439.1 $390.0 $363.5
Inter-geographic....... 3.3 2.6 3.6
------ ------ ------
Subtotal................ 442.4 392.6 367.1 $ 43.1 $ 32.1 $ 32.7
Goodwill Write-down.... (34.2) -- --
Restructuring Charge... -- (3.8) --
------ ------ ------ ------ ------ ------
442.4 392.6 367.1 8.9 28.3 32.7 $240.1 $275.1 $274.4
------ ------ ------ ------ ------ ------ ------ ------ ------
Europe
Customer Sales......... 210.1 206.5 256.5
Inter-geographic....... 2.8 1.4 1.2
------ ------ ------
Subtotal................ 212.9 207.9 257.7 11.4 9.6 17.3
Restructuring Charge... -- (1.1) (1.6)
------ ------ ------ ------ ------ ------
212.9 207.9 257.7 11.4 8.5 15.7 100.8 94.7 106.3
------ ------ ------ ------ ------ ------ ------ ------ ------
Canada and Asia Pacific
Customer Sales......... 103.4 84.8 88.2
Inter-geographic....... 2.9 1.2 2.2
------ ------ ------
Subtotal................ 106.3 86.0 90.4 5.9 3.7 3.6
Restructuring Charge... -- (0.7) (0.9)
------ ------ ------ ------ ------ ------
106.3 86.0 90.4 5.9 3.0 2.7 77.8 74.1 72.2
------ ------ ------ ------ ------ ------ ------ ------ ------
Corporate
Items/Eliminations..... (9.0) (5.2) (7.0) (2.0) (1.6) (0.7) 26.3 20.3 58.4
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating Profit........ 24.2 38.2 50.4
Net Interest Expense.... (50.2) (49.1) (51.4)
Nonoperating Income
(Expense).............. 0.5 (5.3) (0.5)
------ ------ ------
Consolidated Totals..... $752.6 $681.3 $708.2 $(25.5) $(16.2) $ (1.5) $445.0 $464.2 $511.3
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<S> <C> <C> <C>
Liquidation of LIFO Inventory Quantities
United States................................................. $0.1 $ -- $1.1
Europe........................................................ 0.6 1.1 0.7
Canada and Asia Pacific....................................... 0.3 0.1 0.1
</TABLE>
F-12
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--INCOME TAXES
Pretax income (loss) consisted of:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Domestic..................................... $(39,187) $(25,482) $(16,854)
Foreign...................................... 13,654 9,258 15,328
-------- -------- --------
$(25,533) $(16,224) $ (1,526)
======== ======== ========
The provisions for taxes on income consisted
of:
Current:
U.S. Federal............................. $ 2,688 $ 602 $ 1,080
State.................................... 2,892 2,343 689
Foreign.................................. 3,001 3,697 6,527
-------- -------- --------
Total.................................. 8,581 6,642 8,296
-------- -------- --------
Deferred:
U.S. Federal............................. (3,493) -- --
State.................................... -- -- --
Foreign.................................. 1,676 (100) 744
-------- -------- --------
Total.................................. (1,817) (100) 744
-------- -------- --------
Benefit of Net Operating Loss
Carryforwards:
U.S. Federal............................. 3,172 -- --
Foreign.................................. 952 -- --
Total.................................. 4,124 -- --
-------- -------- --------
Tax Provision.............................. $ 10,888 $ 6,542 $ 9,040
======== ======== ========
</TABLE>
In 1993 and 1992, high levels of interest expense resulted in losses for U.S.
federal tax purposes. Because most of the interest expense is borne in the
United States at the parent company level, throughout the period the Company
had taxable income in foreign and state jurisdictions despite the high levels
of consolidated interest expense. Foreign taxes paid did not result in a
benefit in the U.S. and, as a result, the Company had tax expense in 1994,
1993, and 1992, notwithstanding consolidated pretax losses in each of those
years.
In 1994, a small amount of domestic taxable income was generated as the
write-down of goodwill did not increase the deduction allowable for tax
purposes. This taxable income was offset with the carryforward of prior year
losses. The Company also provided for additional amounts related to open
federal tax returns for the years 1982 through 1990. In addition, in 1994 the
Company had a small amount of income subject to Alternative Minimum Tax (AMT)
in the U.S. because of certain restrictions on the amount of net operating loss
that can be carried forward for purposes of calculating that tax.
The federal tax net operating loss carryforward, which was $19,878 at the end
of 1994, will not begin to expire until 2006. (The tax effect of this benefit
was fully reserved for in the valuation allowance).
Actual cash disbursements for income taxes and other tax assessments were
$4,844, $8,586, and $16,151 in 1994, 1993, and 1992, respectively. Because of
the Company's tax situation in 1994, 1993, and 1992, effective tax rate
analysis would not be meaningful.
F-13
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax liabilities and assets are comprised of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Deferred tax liabilities
Depreciation....................................... $ 20,123 $ 19,771
Other............................................... 3,034 3,156
-------- --------
$ 23,157 $ 22,927
======== ========
Deferred tax assets
Deferred employee benefits.......................... $ 16,905 $ 16,400
Net operating loss carryforward..................... 8,557 12,681
AMT credit carryforwards............................ 2,168 2,078
Inventory........................................... 3,407 4,188
Recapitalization costs.............................. 2,049 2,419
Environmental reserves.............................. 2,189 2,884
Other............................................... 3,795 5,681
-------- --------
39,070 46,331
Valuation allowances.................................. (18,165) (23,489)
-------- --------
$ 20,905 $ 22,842
======== ========
</TABLE>
As of December 25, 1994, U.S. federal income tax returns for the years 1988
through 1990 were in the process of examination. Resolution of tax years 1982-
1984 is pending with the U.S. Tax Court following receipt in 1994 by the
Company of a statutory notice for $17,000 plus penalties and interest.
Resolution of tax years 1985-1987 is pending with the Appeals Division of the
Internal Revenue Service. The Company believes that adequate provision has been
made for possible assessments of additional taxes.
No provision has been made for U.S. income taxes on approximately $25,967 of
undistributed earnings of foreign subsidiaries, some of which are subject to
statutory restrictions on distribution.
NOTE 8--PENSIONS
The Company has various defined benefit and defined contribution pension
plans which among them cover substantially all employees.
The provision for defined benefit pension costs includes current costs,
interest costs, actual return on plan assets, amortization of the unrecognized
net asset existing at the date of transition and net unrealized gains and
losses. Benefits are computed based mainly on years of service and compensation
during the latter years of employment. Company contributions are determined
according to the funding requirements set forth by ERISA and in the case of
foreign plans local statutory requirements.
F-14
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Certain of the Company's defined benefit plans relate to foreign locations
and are denominated in currencies other than U.S. dollars. All plans use
similar economic assumptions. The following table sets forth the funded status
of the ongoing, domestic and foreign defined benefit plans and the amounts
included in the year-end balance sheet. The Company's plans were generally
overfunded and the underfunded plans which existed were not significant.
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Plan assets at fair value............................ $131,387 $142,009
Actuarial present value of accumulated benefit
obligation:
Vested benefits.................................... 108,143 110,693
Non-vested benefits................................ 1,243 907
-------- --------
109,386 111,600
Effect of assumed future compensation increases...... 13,452 10,010
-------- --------
Projected benefit obligation for service to date..... 122,838 121,610
-------- --------
Plan assets in excess of projected benefit
obligation.......................................... 8,549 20,399
Items not yet recognized in earnings:
Unrecognized net asset at December 28, 1986 (being
recognized over 15 years)......................... 13,881 15,704
Unrecognized net actuarial gain (loss)............. (6,231) 3,834
Unrecognized prior service cost.................... (6,456) (5,033)
-------- --------
1,194 14,505
-------- --------
Prepaid (Accrued) pension liability................ $ 7,355 $ 5,894
======== ========
</TABLE>
Net pension cost (income) included in operating profit for these plans
consists of the following components:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost.................................. $ 3,679 $ 3,068 $3,232
Interest cost................................. 9,747 9,298 9,596
Actual return on plan assets [(income) loss].. (6,795) (12,107) (9,923)
Net amortization and deferred items........... (7,657) (434) (3,177)
------- -------- ------
Net pension cost (income)..................... $(1,026) $ (175) $ (272)
======= ======== ======
Assumptions used in the computations:
Assumed discount rate....................... 7.5-9% 7-9% 7-9%
Expected long-term rate of return on plan
assets..................................... 8.5-9% 7-9% 7-9%
Rate of increase in future compensation
levels..................................... 4-7% 4-6% 5-7%
</TABLE>
Pension plan assets are primarily invested in common and preferred stock,
short and intermediate term cash investments, and corporate bonds.
The expense for the Company's defined contribution pension plans covering
certain domestic employees was $1,835, $2,267, and $2,307 in 1994, 1993, and
1992, respectively. Annual contributions to defined contribution plans are
equal to the amounts accrued during the year.
In 1989, the Company established a non-contributory, defined contribution
employee stock ownership plan (ESOP) covering all domestic employees not
covered by collective bargaining agreements. Company contributions are
allocated to participants based on the ratio each participant's compensation
bears to the total compensation of all eligible participants. The Company makes
contributions to the plan in the amount
F-15
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
necessary to enable the plan to make its regularly scheduled payments of
principal and interest on its term loan under the bank credit agreement (see
Note 13). Amounts charged to employee benefits and interest during the year
totalled $1,307 and $741, respectively, in 1994, $1,508 and $703, respectively,
in 1993, and $1,307 and $846, respectively, in 1992.
NOTE 9--POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has unfunded postretirement health care and death benefit plans
covering certain domestic employees and retirees. Effective as of the beginning
of 1992, the Company adopted FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", for these domestic retiree
benefit plans. Under FAS No. 106, the Company is required to accrue the
estimated cost of retiree benefit payments, other than pensions, during the
employee's active service period. The cost of postretirement benefits
historically has been actuarially determined and accrued over the working lives
of employees expected to receive benefits with prior service costs being
accrued over periods not exceeding twenty-five years.
The Company elected to recognize this change in accounting on the immediate
recognition basis. The difference between the estimated accumulated
postretirement benefit obligation under FAS No. 106 ($34,477) and the unfunded
obligation accrued under the Company's previous accounting method ($20,439) was
charged against earnings as of the beginning of fiscal 1992 ($14,038). The
related balance sheet effect was an increase to long-term liabilities of
$14,038.
Effective as of the beginning of fiscal 1994, the Company adopted FAS No. 106
for its foreign plans. This change in accounting principle required restatement
of previously reported first quarter 1994 results by a charge of $194.
The following table sets forth the status of the plans, reconciled to the
accrued postretirement benefit cost recognized in the Company's year-end
balance sheet.
Accumulated postretirement benefit obligation:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Retirees................................................... $22,751 $26,171
Fully eligible active plan participants.................... 2,203 2,436
Other active plan participants............................. 1,975 2,245
------- -------
Total accumulated postretirement benefit obligation...... 26,929 30,852
Unrecognized prior service cost............................ 2,177 2,341
Unrecognized gain (loss)................................... 5,595 1,511
------- -------
Accrued postretirement benefit cost........................ $34,701 $34,704
======= =======
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost on benefits earned.................... $ 205 $ 242 $ 464
Interest cost on accumulated postretirement benefit
obligation........................................ 2,062 2,389 2,808
Unrecognized prior service cost.................... (164) (123) --
Unrecognized gain (loss)........................... (118) (57) --
------ ------ ------
Net periodic postretirement benefit cost charged
to results from operations...................... $1,985 $2,451 $3,272
====== ====== ======
</TABLE>
F-16
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For measuring the expected postretirement benefit obligation, a 14% annual
rate of increase in the per capita claims cost was assumed for 1994. This rate
was assumed to decrease 1% per year to 6% in 2002 and remain at that level
thereafter. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 8.5% at December 31, 1994 and
7.5% at December 31, 1993. The rate of compensation increase used to measure
the accumulated postretirement benefit obligation for the death benefit plans
was 4% in both 1994 and 1993.
If the health care cost trend rate were increased 1%, the accumulated
postretirement benefit obligation as of December 31, 1994 would have increased
by 5%. The effect of this change on the aggregate of service and interest cost
for 1994 would be an increase of 5%.
The provision for postretirement benefits other than pensions included in
operating profit was $1,107, $167, and $1,958 in 1994, 1993, and 1992,
respectively. In 1993, costs were down from 1992 because of benefit changes
made by the Company in the second quarter which resulted in a curtailment gain
of $1,141. The provision for such costs included in nonoperating income was
$878, $1,143, and $1,314 in 1994, 1993, and 1992, respectively.
NOTE 10--CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
As part of its 1992 financing plan, the Company issued 40,000 shares of
Series A Preferred Stock. The preferred stock is convertible into common stock
at an initial conversion price of $6.50 per share and bears a 9% per annum
dividend payable semi-annually beginning December 31, 1992. To the extent
dividends are not paid in cash on a semi-annual dividend payment date, an
adjustment is made which reduces the per share conversion price. Upon such an
adjustment, all accrued and unpaid dividends on the shares of preferred stock
through the date of adjustment cease to be accrued and unpaid. Due to
restrictions in the bank credit agreement and the indenture under which the
Senior Subordinated Debentures were issued, it is not expected that cash
dividends will be paid on the preferred stock for the foreseeable future.
Accordingly, it is expected that the conversion price of the preferred stock
will continue to decline approximately 4.5% on each semi-annual dividend
payment date, resulting in an increase in the aggregate number of shares of
common stock issuable upon conversion of the preferred stock. As a result of
the operation of these dividend adjustment provisions of the preferred stock,
the conversion price of the preferred stock was reduced to $5.20 per share as
of December 31, 1994. In addition, to the extent dividends are not paid on the
preferred stock in cash, the liquidation preference on the preferred stock
increases at a rate of 9% per year, compounded semi-annually, and as of
December 31, 1994 was $50,000. Upon certain events defined as "changes in
control" or fundamental changes, the holders of the convertible preferred stock
have the right to require the Company to purchase the shares, subject to
certain limitations.
NOTE 11--SHAREHOLDERS' EQUITY (DEFICIT)
As part of its 1992 financing plan, the Company sold 11,488,000 shares of
common stock, par value $1 per share, in an underwritten public offering at an
initial public offering price of $4.00 per share. The net proceeds of this sale
of $41,759 were added to common stock and additional paid-in capital in the
amounts of $11,488 and $30,271, respectively. Each share of common stock has
the right to one vote per share on all matters submitted to a vote of the
shareholders of the Company.
A new class of non-voting common stock with a par value of $1 per share was
created, of which 15,000,000 shares were authorized. None has been issued.
Shares of non-voting common stock have no voting rights except as otherwise
provided or as required by law.
F-17
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
No dividend payments were made in 1994, 1993, and 1992 and, due to
restrictions in the bank credit agreement and the indenture for the Senior
Subordinated Debentures, it is not expected that cash dividends will be paid in
the foreseeable future.
The Company established an ESOP in 1989 with an initial contribution of
10,000 shares, followed by the sale of 1,100,000 shares to the ESOP. Under a
related stock purchase program, Interlake undertook to purchase the lesser of
1,100,000 shares or the number of shares purchasable for $16,088 in the open
market or in privately negotiated transactions. As of December 25, 1994, a
total of 893,739 shares had been acquired at a cost of $11,083, unchanged from
the prior year end.
Unearned compensation represents estimated future charges to income by reason
of the ESOP and stock awards previously granted. Principal and interest
payments on the ESOP borrowings are charged against earnings as employee
compensation and interest expenses, respectively.
In 1989, the Board of Directors declared a stock right dividend distribution.
The purpose of these rights is to protect the Company against certain unfair
and abusive takeover tactics. In certain circumstances, shareholders, other
than certain holders of 15% or more of Interlake's stock, have the right to
purchase Interlake stock from Interlake for less than its market price. In
certain circumstances, Interlake shareholders can purchase, for less than
market value, shares of a company which acquires The Interlake Corporation.
NOTE 12--STOCK INCENTIVE PLANS
The Company has in place two stock incentive programs adopted by its Board of
Directors and approved by the shareholders--the 1986 Stock Incentive Program
(the "1986 Program") and the 1989 Stock Incentive Program (the "1989 Program"
and, together with the 1986 Program, the "Stock Incentive Programs"). The Stock
Incentive Programs provide for the grant of awards of and options for shares of
the Company's common stock to officers, key employees and outside directors of
the Company and its subsidiaries. The 1989 Program also provides for the grant
of shares of common stock in lieu of cash bonuses and the 1986 Program also
provides for the grant of stock appreciation rights.
A summary of stock option activity under the Stock Incentive Programs
follows:
<TABLE>
<CAPTION>
1994 1993
------------------ ------------------
AVERAGE AVERAGE
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C>
Stock Options:
Outstanding--beginning of year....... 1,188,162 $6.15 1,331,955 $6.81
Granted.............................. -- -- 106,000 4.09
Exercised............................ -- -- -- --
Canceled or expired.................. (111,874) 6.13 (249,793) 8.77
--------- ---------
Outstanding--end of year............. 1,076,288 6.15 1,188,162 6.15
========= =========
Exercisable--end of year............. 535,663 8.31 427,937 9.95
========= =========
Available shares....................... 908,529 796,655
========= =========
</TABLE>
F-18
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt of the Company consists of the following:
<TABLE>
<CAPTION>
DECEMBER 25, INTEREST DECEMBER 26, INTEREST
1994 RATES 1993 RATES
<S> <C> <C> <C> <C>
Senior Subordinated
Debentures................. $220,000 12.13% $220,000 12.13%
Term Loans.................. 94,383 8.00-8.63 94,136 5.69-8.44
Delayed Draw Term Loan...... 11,125 8.00 11,125 5.69
Deferred Term Loans......... 7,500 8.00 7,500 5.69
Revolving Loans............. 76,314 8.00-8.63 76,031 5.69-8.44
ESOP Note................... 10,055 8.00 11,261 5.69
Obligations under long-term
lease agreements........... 8,930 6.13-7.88 10,230 6.13-7.88
Pollution control and
industrial development loan
agreements................. 12,150 6.25-7.13 12,150 6.25-7.13
Other....................... 1,994 -- 702 --
-------- --------
442,451 443,135
Less--current maturities.... 24,553 2,525
-------- --------
$417,898 $440,610
======== ========
Weighted average interest
rate....................... 11.66% 11.39%
</TABLE>
During 1992, the Company implemented a financing plan which included the sale
of $220,000 of 12 1/8% Senior Subordinated Debentures due in 2002, redemption
of $200,000 of subordinated increasing rate notes, repayment of $51,074 of
long-term bank debt, and entering into an agreement with its bank group which
amended and restated the Company's bank credit agreement to modify payment and
other terms. Certain covenants in the agreement were further modified in 1993
and again early in 1995.
At the end of 1994, the bank credit agreement provided facilities for term
loans of $118,792, revolving loans of up to $102,114 (subject to limitations
described below), and ESOP loans of $10,055. Principal repayments for term and
revolving loans are due in varying annual amounts from 1995 through 1998.
Principal amounts for ESOP loans are due in varying amounts through 1999.
Under the terms of the bank credit agreement, the Company pays a commitment
fee of 1/2 percent on unused credit facilities and, in 1994, had the option to
borrow funds under the revolving and term facilities at the prime rate plus 1
3/4 percent, or various London Interbank Offered Rates (LIBOR) plus 2 3/4
percent, with such rates adjusted periodically. The bank credit agreement
borrowing rates at December 25, 1994 ranged from 8.00% to 8.625%. The bank
credit agreement also required the Company to enter into long-term interest
rate swap agreements to reduce the impact of changes in interest rates on its
floating rate long-term debt. At the end of 1994, the Company had interest rate
hedging arrangements with members of the bank group limiting interest rates on
$113,000 of debt under the bank credit agreement to 8.57% plus the applicable
spread. These agreements mature on a quarterly basis through 1997. Without the
swap agreements, the weighted average cost of borrowing would have been 1.2
percentage points lower in 1994, 1.6 lower in 1993 and 1.4 lower in 1992. The
expiration dates of the swap agreements correlate to the original schedule of
principal term loan repayment dates and extend, on a declining basis, through
the final maturity of the term loans.
The long-term lease obligations relate principally to capitalized pollution
control facilities. The interest rates on these obligations vary from 6.125% to
7.875%. Principal repayments are due in varying amounts through 2002.
F-19
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has borrowed funds under several loan agreements with state and
county pollution control and industrial development authorities to finance
certain environmental and facility expansion and improvement projects. Interest
rates on these obligations vary from 6.25% to 7.125%. Principal repayments are
to be made in various amounts from 1998 to 2009. At the time of the spin-off of
Acme Steel Company from the Company in 1986, Acme assumed an obligation to pay
the Company for pollution control bonds related to its facilities, which are
currently outstanding for $6,000.
The schedule of debt repayment requirements for the five years following 1994
are as follows:
<TABLE>
<S> <C>
1995............................. $24,553
1996............................. 88,824
1997............................. 80,262
1998............................. 11,544
1999............................. 4,095
</TABLE>
Although there can be no assurances, based on current levels of performance
the Company believes it will be able to comply with all bank credit agreement
covenants in 1995. In 1996, the Company has long-term debt amortization
requirements of $88,824 and, potentially, significant payments related to tax
matters (see "Provision for Income Taxes") which it does not expect to be able
to meet from operating cash flow. The Company continues to evaluate alternative
actions to refinance some or all of its long-term bank obligations including
among others the raising of new equity capital and the issuance of replacement
debt.
Under the bank credit agreement the Company is limited in its ability to pay
cash dividends and repurchase its common stock. There are no plans to pay
dividends in the immediate future and stock repurchases will be limited to
those related to the ESOP. In addition to scheduled repayments of debt, the
bank credit agreement requires certain mandatory prepayments in connection with
asset dispositions, issuances of stock, incurrence of indebtedness and
generation of annual excess cash flows. The bank credit agreement contains
covenants relating to earnings before interest, taxes and depreciation and
amortization, capital expenditures and net worth, and limits the amount of
revolving loan balance outstanding. Substantially all of the Company's assets
are pledged under the bank credit agreement.
Actual cash disbursements for interest were $49,413, $48,326, and $41,179 in
1994, 1993, and 1992, respectively.
At December 25, 1994 the Company had unamortized deferred debt issuance costs
of $9,021 included in other assets which are being amortized as part of
interest expense over the lives of the related debt issues. Amortization
included in interest expense was $2,199, $1,786, and $1,594, in 1994, 1993, and
1992, respectively.
Under the bank credit agreement, the Company will be able to borrow under its
revolving facility up to an additional $44,000 over the year-end revolving
indebtedness. However, outstanding revolver borrowings at the end of each of
the Company's fiscal 1995 quarters will be limited to between $17,000 and
$29,000 above the year-end 1994 revolver borrowings. In addition, the Company
will have up to $6,000 of deferred term loan availability during the year for
amounts incurred on certain environmental matters.
NOTE 14--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents--The carrying amount approximates fair value
because of the short maturities of such instruments.
F-20
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other assets--The fair values for financial instruments included in other
assets were estimated based on quoted market prices for the same or similar
issues.
Long-term debt (See Note 13)--The interest rate on the Company's bank debt is
reset every quarter to reflect current market rates. Consequently, the carrying
value of the bank debt approximates fair value. The fair values of the long-
term debt other than bank debt were estimated based on quoted market prices for
the same or similar issues.
Convertible exchangeable preferred stock (See Note 10)--The fair value of the
preferred stock, which was issued in a private placement, is estimated at its
carrying value as such stock is not traded in the open market and a market
price is not readily available.
Foreign exchange contracts (See Note 1)--The fair value associated with the
foreign currency contracts has been estimated by valuing the net position of
the contracts using applicable spot rates and thirty day forward rates as of
the end of the fiscal year.
Interest rate swap agreements (See Note 13)--The fair value of interest rate
swaps (used for hedging purposes) is the estimated amount that the Company
would pay to terminate the swap agreements at the reporting date, taking into
account current interest rates and the present creditworthiness of the swap
counterparties. Under the restrictions of the bank credit agreement, the
Company does not expect to cancel these agreements, and expects them to expire
as originally contracted.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 25, 1994 DECEMBER 26, 1993
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 39,708 $ 39,708 $ 31,934 $ 31,934
Other assets.......................... 6,000 5,220 6,942 6,996
Long-term debt(1)..................... 433,521 418,440 432,905 435,754
Convertible exchangeable preferred
stock................................ 39,155 39,155 39,155 39,155
Foreign currency contract assets...... -- (43) -- (75)
Interest rate swap liabilities........ 932 1,838 1,824 12,226
</TABLE>
--------
(1)Includes current maturities and excludes capitalized long-term leases
NOTE 15--ENVIRONMENTAL MATTERS
In connection with the reorganization of the old Interlake, Inc. (now Acme
Steel Company ("Acme")) in 1986, the Company, then newly-formed, indemnified
Acme against certain environmental liabilities relating to properties which had
been shut down or disposed of by Acme's iron and steel division prior to the
1986 reorganization. The Company recorded a charge of $6 million in 1991 and
charges of $4.8 million in 1993 for anticipated liabilities for environmental
matters relating to nonoperating sites. As of December 25, 1994, the Company's
reserves for environmental liabilities totalled $6.2 million.
Based on its current estimate of its potential environmental liabilities,
including all contingent liabilities, individually and in the aggregate,
asserted and unasserted, the Company believes that the costs of environmental
matters have been fully provided for or are unlikely to have a material adverse
effect on the
F-21
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's business, future results of operations, liquidity or consolidated
financial condition. In arriving at its current estimate of its potential
environmental liabilities, the Company has relied upon the estimates and
analysis of its environmental consultants and legal advisors, as well as its
own evaluation, and has considered: the probable scope and cost of
investigations and remediations for which the Company expects to have
liability; the likelihood of the Company being found liable for the claims
asserted or threatened against it; and the risk of other responsible parties
not being able to meet their obligations with respect to clean-ups. In
estimating its potential environmental liabilities, the Company has not taken
into consideration any potential recoveries from insurance companies, although
in May 1994 the Company instituted an action seeking a declaratory judgment
against and recoveries from insurers under policies covering nearly 30 years.
The Company's estimate has not been discounted to reflect the time-value of
money, although a significant delay in implementation of certain of the
remedies thought to be probable could result in cost estimates increasing due
to inflation.
The Company's current estimates of its potential environmental liabilities
are subject to considerable uncertainty due to the continuing uncertainty
surrounding one of the sites for which the Company is responsible pursuant to
its indemnity of Acme--namely, the Superfund site on the St. Louis River in
Duluth, Minnesota (the "Duluth Site"). These uncertainties relate to both the
clean-up of certain contaminated soils at the site, as well as the remediation
of certain underwater sediments. In the light of these uncertainties, the
Company's estimates could be subject to change in the future.
With respect to the contaminated soils, the Company has conducted certain
investigations at the request of the Minnesota Pollution Control Agency
("MPCA"), including a study outlining a broad range of remedial alternatives
and associated costs. The alternatives studied have included both those that
assume that the Duluth Site will be used for industrial purposes, consistent
with its current and historical uses, and those that would meet standards for
unrestricted use. The Company and the MPCA are engaged in discussions regarding
the development of a work plan for clean-up to industrial use standards. The
costs of the alternatives for clean-up to industrial use standards believed to
be most appropriate by the Company range from $3 million to $4 million.
However, the Company has reviewed other remedial plans for the contaminated
soils which also contemplate the continued industrial use of the property but
which could cost as much as $20 million, due to their being based upon certain
risk assessments and other assumptions which the Company believes to be overly
conservative. The Company expects to arrive at an agreed-upon work plan with
the MPCA, based on appropriate assumptions, sometime during 1995, but there can
be no assurance it will do so.
With respect to the underwater sediments, the MPCA has requested the Company
to undertake an investigation and to evaluate remedial alternatives. The
Company is presently negotiating with the MPCA the scope of the sediments
investigation. The Company believes that any estimate of the potential costs of
remediating the underwater sediments will not be meaningful until the
investigation is completed and possible remedial alternatives are reviewed by
the Company and the MPCA. To date, there have been few sites in the United
States involving the clean-up of underwater sediments, and none in which the
MPCA has acted as lead agency. On a preliminary basis, the Company believes
that the range of reasonable remedial alternatives for the underwater sediments
includes that of taking no action, thereby avoiding the disruption of the
natural remediation of the underwater sediments which has been under way for
over 30 years. Thus, the Company believes the minimum of the range of costs of
remedial alternatives to be zero, and to date has made provision for only the
investigation, and not for the clean-up, of underwater sediments.
In March 1994, the citizen board of the MPCA, contrary to the recommendation
of the MPCA professional staff, named only the Company as a responsible party
with respect to the underwater sediments
F-22
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
at the Duluth Site. The MPCA staff had recommended that the successors to
certain coal tar processors at the site (the "tar companies") also be named as
responsible parties. The Company believes that the tar companies are the cause
of a major portion of the underwater contamination of the site, and is
reviewing its options for either obtaining the inclusion of the tar companies
as responsible parties or recovering a portion of the Company's costs from the
tar companies.
The Company's current expectation is that cash outlays related to its
outstanding reserves for environmental matters will be made over the period of
1995 to 1997, or later. If the Company ultimately determines that additional
charges beyond its present reserves are necessary in connection with the Duluth
Site, the Company believes it is likely that cash outlays would occur near the
end of the decade, or later.
NOTE 16--COMMITMENTS AND CONTINGENCIES
The Company is engaged in certain routine litigation arising in the ordinary
course of business. Based upon its evaluation of available information,
management does not believe that any such matters are likely, individually or
in the aggregate, to have a material adverse effect upon the Company's business
future, results of operations, liquidity or consolidated financial condition.
On July 9, 1990, the City of Toledo, Ohio, brought an action in Federal
district court in Toledo, Ohio, against the Company, Acme Steel Company ("Acme"
or the "old Interlake"), Beazer Materials and Services, Inc. ("Beazer") and
Toledo Coke Corporation ("Toledo Coke") in connection with the alleged
contamination of a 1.7 acre parcel of land the City had purchased from Toledo
Coke for purposes of building a road. The City has alleged various claims, both
with respect to the 1.7 acres of right-of-way it purchased and owns and the
entire coke facility owned by Toledo Coke which adjoins the right-of-way. These
claims seek a judgment finding the Company and the other defendants liable for
the environmental remediation costs and other relief. The Company's alleged
liability arises from its indemnification obligations with respect to Acme,
which as the old Interlake operated coke ovens and by-product recovery
facilities on the site from 1930 through 1978. In 1978 the old Interlake sold
the coke plant to Koppers Company, Inc., which was later acquired by Beazer,
and which indemnified Interlake against environmental liabilities. Koppers, in
turn, sold the facility to Toledo Coke. Interlake has cross-claimed against
Beazer under its indemnity.
Prior to the filing of the preliminary injunction described below, the City
of Toledo and the defendants had been discussing possible remedial plans which
the defendants believe would enable the City to build the road in question.
Under these plans, the amounts required to be contributed by the Company would
not have been material to the business or financial condition of the Company.
On or about January 31, 1994, the City filed a motion seeking a preliminary
injunction under the Resource Conservation Recovery Act ordering the defendants
to take certain remedial actions with respect to the right-of-way. A hearing on
the City's motion was completed in October 1994. The City is seeking an order
compelling the defendants to perform a remedy which the City asserts would cost
approximately $4 million. The Company believes that the right-of-way could be
remedied to a degree sufficient to enable the building of the road at a cost
far less than $4 million. Although the Company believes that it is entitled to
be indemnified by Beazer, to the extent the Company incurs any liabilities or
costs by virtue of the ongoing injunction hearing, the Company could be
compelled to incur costs prior to having its indemnification cross-claim
against Beazer decided by the court.
In January 1995, Beazer filed a motion for summary judgment seeking to have
the Company's indemnification cross-claim denied. The Company intends to resist
such motion, and to file its own motion for summary judgment seeking the
enforcement of the indemnification from Beazer.
F-23
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--QUARTERLY RESULTS (UNAUDITED)
Quarterly results of operations for 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
(IN MILLIONS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
1994
Net sales
Engineered Materials....................... $ 48.2 $ 54.4 $ 54.2 $ 59.6
Handling/Packaging Systems................. 121.1 127.7 139.5 147.9
------ ------ ------ ------
$169.3 $182.1 $193.7 $207.5
====== ====== ====== ======
Gross Profit................................. $ 39.5 $ 43.4 $ 42.9 $ 49.9
====== ====== ====== ======
Operating profit
Engineered Materials....................... $ 7.8 $ 8.1 $ 6.8 $ 9.6
Handling/Packaging Systems................. 5.5 5.8 7.9 8.9
Corporate Items............................ (1.3) (.3) (.3) (.1)
------ ------ ------ ------
Operating profit before goodwill write-down.. 12.0 13.6 14.4 18.4
Goodwill write-down.......................... -- -- -- (34.2)
------ ------ ------ ------
Operating profit............................. $ 12.0 $ 13.6 $ 14.4 $(15.8)
====== ====== ====== ======
Income (loss) before accounting change....... $ (2.4) $ (2.4) $ (1.9) $(33.9)
Net income (loss)............................ (2.6) (2.4) (1.9) (33.9)
Income (loss) before accounting change per
common share................................ (.11) (.11) (.08) (1.54)
Net income (loss) per common share........... (.12) (.11) (.08) (1.54)
1993
Net sales
Engineered Materials....................... $ 51.5 $ 48.7 $ 46.9 $ 45.4
Handling/Packaging Systems................. 117.0 124.4 122.1 125.3
------ ------ ------ ------
$168.5 $173.1 $169.0 $170.7
====== ====== ====== ======
Gross profit................................. $ 41.7 $ 41.4 $ 37.8 $ 39.9
====== ====== ====== ======
Operating profit
Engineered Materials....................... $ 7.7 $ 7.3 $ 6.2 $ 5.1
Handling/Packaging Systems................. 4.3 5.6 3.7 5.5
Corporate Items............................ (.3) (.1) (.2) (1.0)
------ ------ ------ ------
Operating profit before restructuring charge. 11.7 12.8 9.7 9.6
Restructuring charge......................... -- -- -- (5.6)
------ ------ ------ ------
Operating profit............................. $ 11.7 $ 12.8 $ 9.7 $ 4.0
====== ====== ====== ======
Net income (loss)............................ $ (3.6) $ (3.1) $ (4.7) $(14.6)
Net income (loss) per common share........... (.16) (.14) (.22) (.66)
</TABLE>
In the fourth quarter 1994, the Company revised its accounting policy for
valuing its long-lived assets to include the cost of capital in estimating the
total projected future cash flows from its business units. Previously, the cash
flows were computed without discounting or allocation of interest cost. In the
fourth quarter 1994, the Company determined that in the case of certain
businesses, the projected cash flows on a discounted basis were insufficient to
recover the carrying value of the assets. As a result, certain goodwill assets
totalling $34,174 were written off in full (see Note 2).
F-24
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
In the fourth quarter of 1993, the Company took a restructuring charge of
$5,611 (see Note 3).
Nonoperating expenses consist of items which are not related to activities
that constitute the Company's ongoing operations. Nonoperating income was
recorded in the first quarter of 1994 in the amount of $1,100 related to a one-
time gain from settlement of a real-estate matter with a local transportation
authority. In 1993, nonoperating expenses included a special charge of $3,850
in the fourth quarter and $900 in the second quarter for environmental matters
involving nonoperating locations (see Note 15).
In 1994 and 1993, benefits to pretax income due to reductions in LIFO
inventories were $626 and $1,000, respectively, in the first quarter and $325
and $200, respectively, in the fourth quarter.
Effective as of the beginning of fiscal 1994, the Company changed its method
of accounting for postretirement benefits for its foreign plans by adopting the
Financial Accounting Standards Board's FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". This change in accounting
principle required restatement of previously reported first quarter 1994
results by a charge of $194 or $.01 per share.
NOTE 18--SUBSEQUENT EVENT
In March of 1995, the Company amended its bank credit agreement to modify
certain covenants as they relate to 1995.
F-25
<PAGE>
THE INTERLAKE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 27, 1994 AND APRIL 2, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
MARCH 27, 1994 APRIL 2, 1995
(13 WEEKS) (14 WEEKS)
-------------- -------------
(UNAUDITED)
<S> <C> <C>
Net sales......................................... $169,336 $206,898
Cost of products sold............................. 129,863 155,979
Selling and administrative expense................ 27,440 32,212
-------- --------
Operating profit.................................. 12,033 18,707
Interest expense.................................. 12,818 13,950
Interest income................................... (277) (471)
Nonoperating (income) expense..................... (996) (71)
-------- --------
Income (loss) before taxes on income, minority
interest and accounting changes.................. 488 5,299
Provision for income taxes........................ 1,988 3,489
-------- --------
Income (loss) before minority interest and
accounting change................................ (1,500) 1,810
Minority interest in net income of subsidiaries... 895 1,416
-------- --------
Income (loss) before accounting change............ (2,395) 394
Accounting change................................. (194) --
-------- --------
Net income (loss)................................. $ (2,589) $ 394
======== ========
Primary net income (loss) per share:
Before accounting change........................ $ (.11) $ .02
Accounting change............................... (.01) --
-------- --------
Primary net income (loss) per share............. $ (.12) $ .02
======== ========
Fully diluted net income per share................ N/A $ .01
========
Weighted average shares outstanding
Primary......................................... 22,027 22,341
Fully diluted................................... N/A 29,921
</TABLE>
F-26
<PAGE>
THE INTERLAKE CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 25, 1994 AND APRIL 2, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 25, 1994 APRIL 2, 1995
----------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 39,708 $ 22,473
Receivables less allowances of $2,977 at
December 25, 1994 and $3,171 at April 2,
1995........................................ 129,089 126,056
Inventories--Raw materials and supplies...... 22,875 23,283
--Semi-finished and finished products.... 50,978 59,225
Other current assets......................... 6,340 8,309
--------- ---------
Total Current Assets....................... 248,990 239,346
--------- ---------
Goodwill and Other Assets:
Goodwill, less amortization.................. 4,667 4,426
Other assets................................. 45,562 45,909
--------- ---------
50,229 50,335
--------- ---------
Property, Plant and Equipment, at cost......... 382,840 392,327
Less--Depreciation and amortization............ (237,106) (246,404)
--------- ---------
145,734 145,923
--------- ---------
Total Assets............................... $ 444,953 $ 435,604
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable............................. $ 71,957 $ 68,860
Accrued liabilities.......................... 42,563 40,847
Interest payable............................. 13,910 3,249
Accrued salaries and wages................... 18,060 12,807
Income taxes payable......................... 10,328 11,230
Debt due within one year..................... 24,553 30,527
--------- ---------
Total Current Liabilities.................. 181,371 167,520
--------- ---------
Long-Term Debt................................. 417,898 417,067
--------- ---------
Other Long-Term Liabilities and Deferred
Credits....................................... 102,964 104,240
--------- ---------
Preferred Stock--2,000,000 shares authorized
Convertible Exchangeable Preferred Stock--
Redeemable, par value $1 per share, issued
40,000 shares................................. 39,155 39,155
Shareholders' Equity (Deficit):
Common stock, par value $1 per share,
authorized 100,000,000 shares, issued
23,228,695 shares........................... 23,229 23,229
Additional paid-in capital................... 30,248 13,504
Cost of common stock held in treasury
(1,202,000 shares at December 25, 1994 and
412,500 shares at April 2, 1995)........... (28,047) (9,625)
Accumulated deficit.......................... (293,966) (293,571)
Unearned compensation........................ (10,058) (10,752)
Accumulated foreign currency translation
adjustments................................. (17,841) (15,163)
--------- ---------
Total Shareholders' Equity (Deficit)....... (296,435) (292,378)
--------- ---------
Total Liabilities and Shareholders' Equity
(Deficit)................................. $ 444,953 $ 435,604
========= =========
</TABLE>
F-27
<PAGE>
THE INTERLAKE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 27, 1994 AND APRIL 2, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
MARCH 27, 1994 APRIL 2, 1995
(13 WEEKS) (14 WEEKS)
-------------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from (for) operating activities:
Net income (loss)............................... $ (2,589) $ 394
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................. 5,987 5,322
Debt issuance costs........................... (1,137) (1,236)
Other operating adjustments................... (288) 1,155
(Increase) decrease in working capital:
Accounts receivable......................... (3,952) 6,188
Inventories................................. (1,914) (6,590)
Other current assets........................ (540) (1,759)
Accounts payable............................ 4,318 (4,219)
Other accrued liabilities................... (10,537) (19,352)
Income taxes payable........................ 577 953
-------- --------
Total Working Capital Change.............. (12,048) (24,779)
-------- --------
Net cash provided (used) by operating activities.. (10,075) (19,144)
-------- --------
Cash flows from (for) investing activities:
Capital expenditures............................ (3,675) (3,051)
Proceeds from disposal of PP&E.................. 38 23
Other investment flows.......................... 93 42
-------- --------
Net cash provided (used) by investing activities.. (3,544) (2,986)
-------- --------
Cash flows from (for) financing activities:
Proceeds from issuance of long-term debt........ -- 10,000
Retirements of long-term debt................... (925) (5,210)
Other financing flows........................... 302 804
-------- --------
Net cash provided (used) by financing activities.. (623) 5,594
-------- --------
Effect of exchange rate changes................... (86) (699)
-------- --------
Increase (decrease) in cash and cash equivalents.. (14,328) (17,235)
Cash and cash equivalents, beginning of period.... 31,934 39,708
-------- --------
Cash and cash equivalents, end of period.......... $ 17,606 $ 22,473
======== ========
</TABLE>
F-28
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 27, 1994 AND APRIL 2, 1995
NOTE 1--UNAUDITED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements of the Company for
the three month periods ended March 27, 1994 and April 2, 1995 and as of April
2, 1995 have been prepared in accordance with generally accepted accounting
principles for interim financial information, in accordance with the
instructions to Form 10-Q and in accordance with Rule 10-01 of Regulation S-X.
Accordingly, such statements do not include all of the information and
footnotes that are included in the annual consolidated financial statements. In
the opinion of management, all adjustments (except as noted consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the three month period ended April 2, 1995
are not necessarily indicative of the results that may be expected for the
entire 1995 fiscal year.
The Registrant and its subsidiaries are referred to herein on a consolidated
basis as the Company.
NOTE 2--COMPUTATION OF COMMON SHARE DATA
The weighted average number of common shares outstanding used to compute
income (loss) per common share for the first quarter was 22,341,000 in 1995 and
22,027,000 in 1994 for primary shares, and for fully diluted shares was
29,921,000 in 1995. (The weighted average shares outstanding excludes common
stock equivalents of 7,055,000 shares in 1994 related to the convertible
preferred stock because the conversion of the preferred stock into such shares
would have an anti-dilutive effect.)
NOTE 3--NON-OPERATING (INCOME) EXPENSE
Non-operating (income) expense consists of items which are not related to
activities that constitute the Company's ongoing major operations. In 1994,
non-operating (income) expense reflected a $1.1 million nonrecurring gain at
Aerospace Components from the settlement of a real estate matter with a local
transportation authority.
NOTE 4--LIFO INVENTORIES
The liquidation of LIFO inventories benefited income before taxes by $0.8
million in the first quarter of 1995 and by $0.6 million in the first quarter
of 1994.
NOTE 5--INCOME TAXES
In the first quarter of 1995, the Company had an effective tax rate of 65.8%.
Because most of the interest expense is borne in the United States at the
parent company level, the Company had substantial taxable income in foreign and
state jurisdictions. Taxes due to foreign authorities were not offset by U.S.
federal income tax benefits.
The high level of net interest expense caused domestic losses in 1994 which
were not eligible for federal tax benefits in the periods in which they were
incurred (although such losses may be carried forward and tax benefits realized
in future years to the extent that domestic income is earned). As a result, the
taxes due to foreign and state authorities were not offset by U.S. federal
income tax benefits in 1994 and, as a result, the Company recorded tax expense
in excess of pretax income in 1994.
NOTE 6--ENVIRONMENTAL MATTERS
In connection with the reorganization of the old Interlake, Inc. (now Acme
Steel Company ("Acme")) in 1986, the Registrant, then newly-formed, indemnified
Acme against certain environmental liabilities relating to properties which had
been shut down or disposed of by Acme's iron and steel division prior to the
1986 reorganization. As of April 2, 1995, the Company's reserves for
environmental liabilities totalled $5.9 million.
F-29
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED)
Based on its current estimate of its potential environmental liabilities,
including all contingent liabilities, individually and in the aggregate,
asserted and unasserted, the Company believes that the costs of environmental
matters have been fully provided for or are unlikely to have a material adverse
effect on the Company's business, future results of operations, liquidity or
consolidated financial condition. In arriving at its current estimate of its
potential environmental liabilities, the Company has relied upon the estimates
and analysis of its environmental consultants and legal advisors, as well as
its own evaluation, and has considered: the probable scope and cost of
investigations and remediations for which the Company expects to have
liability; the likelihood of the Company being found liable for the claims
asserted or threatened against it; and the risk of other responsible parties
not being able to meet their obligations with respect to clean-ups. In
estimating its potential environmental liabilities, the Company has not taken
into consideration any potential recoveries from insurance companies, although
in May 1994 the Company instituted an action seeking a declaratory judgment
against and recoveries from insurers under policies covering nearly 30 years.
The Company's estimate has not been discounted to reflect the time-value of
money, although a significant delay in implementation of certain of the
remedies thought to be probable could result in cost estimates increasing due
to inflation.
The Company's current estimates of its potential environmental liabilities
are subject to considerable uncertainty due to the continuing uncertainty
surrounding one of the sites for which the Company is responsible pursuant to
its indemnity of Acme--namely, the Superfund site on the St. Louis River in
Duluth, Minnesota (the "Duluth Site"). These uncertainties relate to both the
clean-up of certain contaminated soils at the site, as well as the remediation
of certain underwater sediments.
With respect to the contaminated soils, the Company has conducted certain
investigations at the request of the Minnesota Pollution Control Agency
("MPCA"), and has studied various remedial alternatives and associated costs.
The alternatives studied have included both those that assume that the Duluth
Site will be used for industrial purposes, consistent with its current and
historical uses, and those that would meet standards for unrestricted use.
Based on these investigations and studies, the Company's estimate of its share
of the likely costs to complete remediation of certain contaminated soils at
the site to standards consistent with the site's present industrial use, based
on risk assessments and other assumptions it believes to be most appropriate,
range from $3 million to $4 million. The Company has reviewed other remedial
plans prepared on behalf of the Company for the contaminated soils which also
contemplate the continued industrial use of the property but which could cost
as much as $20 million. This higher amount is based upon certain risk
assessments and other assumptions which the Company believes to be overly
conservative. If remediation to an unrestricted use standard were required, the
cost likely would be higher yet. The cost of the remedial alternative designed
to meet unrestricted use standards most recently prepared for the Company was
calculated to be approximately $38 million.
With respect to the underwater sediments, the MPCA has requested the Company
to undertake an investigation and to evaluate remedial alternatives. The
Company is presently negotiating with the MPCA the scope of the sediments
investigation. The Company believes that any estimate of the potential costs of
remediating the underwater sediments will not be meaningful until the
investigation is completed and possible remedial alternatives are reviewed by
the Company and the MPCA. To date, there have been few sites in the United
States involving the clean-up of underwater sediments, and none in which the
MPCA has acted as lead agency. On a preliminary basis, the Company believes
that the range of reasonable remedial alternatives for the underwater sediments
includes that of taking no action, thereby avoiding the disruption of the
natural remediation of the underwater sediments which has been underway for
over 30 years. Thus, the Company believes the minimum of the range of costs of
remedial alternatives to be zero, and to date has made provision for only the
investigation, and not for the clean-up, of underwater sediments.
F-30
<PAGE>
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED)
The Company's current expectation is that cash outlays related to its
outstanding reserves for environmental matters will be made over the period of
1995 to 1997, or later. If the Company ultimately determines that additional
charges are necessary in connection with the Duluth Site, the Company believes
it is likely that cash outlays would occur near the end of the decade, or
later.
NOTE 7--ACCOUNTING CHANGE
Effective as of the beginning of fiscal 1994, the Company changed its method
of accounting for postretirement benefits for its foreign plans by adopting the
Financial Accounting Standards Board's FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This change in accounting
principle required restatement of previously reported first quarter 1994
results by a charge of $0.2 million.
F-31
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE UNDERWRITERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY IN ANY
JURISDICTION IN WHICH OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER
OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Information by Reference......................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 17
Capitalization............................................................ 17
Selected Consolidated Financial Data...................................... 18
Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................... 21
Business.................................................................. 30
Management................................................................ 38
Description of Senior Notes............................................... 40
Description of Certain Other Indebtedness................................. 59
Underwriting.............................................................. 64
Legal Matters............................................................. 64
Experts................................................................... 64
Index to Consolidated Financial Statements................................ F-1
</TABLE>
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$100,000,000
[LOGO OF INTERLAKE]
% SENIOR NOTES
DUE 2001
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CS FIRST BOSTON
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by The
Interlake Corporation (the "Company") in connection with the issuance and
distribution of the Senior Notes being registered hereby, other than
underwriting discounts and commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 34,483*
National Association of Securities Dealers, Inc. filing fee... 10,500*
Trustee fees.................................................. 8,000
Printing costs................................................ 200,000
Accounting fees and expenses.................................. 100,000
Legal fees and expenses (not including Blue Sky).............. 500,000
Blue Sky qualifications and related legal fees and expenses... 20,000
Miscellaneous expenses........................................ 127,017
----------
Total......................................................... $1,000,000
==========
</TABLE>
--------
*Actual expense.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware sets
forth provisions which define the extent to which a corporation organized under
the laws of Delaware may indemnify directors, officers, employees and agents.
Article Thirteenth of the Company's Certificate of Incorporation and Article
III, Section 8, of the Company's By-Laws provide for the indemnification by the
Company of each person who is or was or had agreed to become a director,
officer, employee or agent of the Company, or, at the request of the Company, a
director, officer, employee or agent of another enterprise, against all
expenses and other amounts for which indemnification may be made under law.
Section 145 provides in pertinent part as follows:
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he 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 him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
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 his 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 he 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 his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he 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) actually and reasonably incurred by
him in connection with the
II-1
<PAGE>
defense or settlement of such action or suit if he acted in good faith and
in a manner he 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 director, officer, employee or agent 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, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him 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 director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) there are no
such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
(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 he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors
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 his 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 him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under 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.
The Company also maintains directors' and officers' reimbursement and and
liability insurance and has entered into agreements with its directors and
certain officers providing for indemnification in certain events.
Reference is made to Section 7 of the Underwriting Agreement (Exhibit 1.1 to
this Registration Statement), which provides for indemnification of the
Company's officers, directors and controlling persons by the Underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
II-2
<PAGE>
ITEM 16. EXHIBITS.
The following Exhibits are filed herewith and made part hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Composite of the Registrant's Restated Certificate of Incorpora-
tion as amended.
3.2 Bylaws of Registrant as amended and restated dated August 23,
1990, incorporated by reference to Exhibit 3(b) of the Regis-
trant's Annual Report on Form 10-K for the year ended December
30, 1990 (the "1990 10-K").
4.1** Form of Indenture (including table of contents and form of Se-
nior Note).
4.2 Form of Indenture (including form of Subordinated Debenture),
incorporated by reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form S-2, File No.
33-46247, as amended (the "Debt S-2").
4.3 Rights Agreement dated as of January 26, 1989 between the Regis-
trant and the First National Bank of Chicago, as Rights Agent,
(the "Rights Agreement") incorporated by reference to Exhibit 2
of the Registrant's Registration Statement on Form 8-A dated as
of January 27, 1989.
4.4 Amendment to Rights Agreement dated as of August 15, 1989, in-
corporated by reference to Exhibit (a) of the Company's Form 8
dated May 22, 1990.
4.5 Amendment to Rights Agreement dated as of May 7, 1990, incorpo-
rated by reference to Exhibit (b) of the Company's Form 8 dated
May 22, 1990.
4.6 Form of Amendment to Rights Agreement, incorporated by reference
to Exhibit 4.5 of the Registrant's Registration Statement on
Form S-2, File No. 33-46248, as amended (the "Common Stock S-
2").
4.7 Amendment to Rights Agreement dated as of April 13, 1994, incor-
porated by reference to Exhibit 7 of the Company's Form 8-A/A
dated April 19, 1994.
4.8 Preferred Stock Purchase Agreement dated as of March 6, 1992
among the Registrant and the persons listed on the Schedule of
Purchasers attached thereto, incorporated by reference to Ex-
hibit 4.6 of the Common Stock S-2.
4.9 Revised Form of Registration Rights Agreement among the Regis-
trant and the parties listed on the signature pages thereof, in-
corporated by reference to Exhibit 4.4 of the Registrant's Post-
Effective Amendment No. 4 to the Registration Statement on Form
S-2, File No. 33-37041 (the "IRN Post-Effective Amendment No.
4").
4.10 Form of Series 1 Junior Convertible Subordinated Debenture, in-
corporated by reference to Exhibit 4.11 of the Common Stock S-2.
4.11 Form of Series 2 Junior Convertible Subordinated Debenture, in-
corporated by reference to Exhibit 4.12 of the Common Stock S-2.
4.12 Series A-3 Preferred Stock Purchase Agreement dated as of May 7,
1992 by and between the Registrant and the persons listed on the
signature pages thereto, incorporated by reference to Exhibit
4.9 of the IRN Post-Effective Amendment No. 4.
4.13 Form of Series 3 Junior Convertible Subordinated Debenture (Ex-
change Debentures relating to the Series A-3 Preferred Stock),
incorporated by reference to Exhibit 4.10 of the IRN Post-Effec-
tive Amendment No. 4.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S> <C>
4.14 Stock Purchase Agreement dated November 2, 1989 between
the Registrant and LaSalle National Bank, trustee for The
Interlake Corporation Employee Stock Ownership Plan, in-
corporated by reference to Exhibit 10(v) of the Regis-
trant's Annual Report on Form 10-K for the year ended De-
cember 29, 1991 (the "1991 10-K").
4.15 Form of Amended and Restated Credit Agreement, incorpo-
rated by reference to Exhibit 10.15 of the IRN Post-Effec-
tive Amendment No. 4.
4.16 First Amendment, dated as of August 17, 1992, to the
Amended and Restated Credit Agreement, incorporated by
reference to Exhibit 4.18 of the 1992 10-K.
4.17 Second Amendment, dated as of October 30, 1992, to the
Amended and Restated Credit Agreement, incorporated by
reference to Exhibit 4.19 of the 1992 10-K.
4.18 Third Amendment, dated August 20, 1993, to the Amended and
Restated Credit Agreement, incorporated by reference to
the Registrant's quarterly report on Form 10-Q for the
quarter ended September 26, 1993.
4.19 Fourth Amendment, dated December 22, 1993, to the Amended
and Restated Credit Agreement, incorporated by reference
to Exhibit 4.29 of the Registrant's Annual Report on Form
10-K for the year ended December 26, 1993 (the "1993 10-
K").
4.20 Fifth Amendment, dated February 23, 1994, to the Amended
and Restated Credit Agreement, incorporated by reference
to Exhibit 4.30 of the 1993 10-K.
4.21 Sixth Amendment, dated August 16, 1994, to the Amended and
Restated Credit Agreement, incorporated by reference to
Exhibit 4.20 of the Registrant's Annual Report on Form 10-
K for the year ended December 25, 1994 (the "1994 10-K").
4.22 Seventh Amendment, dated as of January 24, 1995, to the
Amended and Restated Credit Agreement, incorporated by
reference to Exhibit 4.21 of the 1994 10-K.
4.23 Eighth Amendment, dated as of February 1, 1995, to the
Amended and Restated Credit Agreement, incorporated by
reference to Exhibit 4.22 of the 1994 10-K.
4.24 The Registrant Term Notes dated June 18, 1992, incorpo-
rated by reference to Exhibit 4.20 of the 1992 10-K.
4.25 The Registrant Revolving Notes dated June 18, 1992, incor-
porated by reference to Exhibit 4.21 of the 1992 10-K.
4.26 Subsidiary Term Notes dated June 18, 1992, incorporated by
reference to Exhibit 4.22 of the 1992 10-K.
4.27 Subsidiary Revolving Notes dated June 18, 1992, incorpo-
rated by reference to Exhibit 4.23 of the 1992 10-K.
4.28 The Registrant Delayed Draw Notes dated June 18, 1992, in-
corporated by reference to Exhibit 4.24 of the 1992 10-K.
4.29 The Registrant Deferred Term Notes dated June 18, 1992,
incorporated by reference to Exhibit 4.25 of the 1992 10-
K.
4.30 The Registrant Pledge Agreement dated September 27, 1989,
made by the Registrant and accepted by Chemical Bank,
along with stock certificates of the two subsidiaries, in-
corporated by reference to Exhibit 10(t) of the Regis-
trant's Annual Report on Form 10-K for the year ended De-
cember 31, 1989 (the "1989 10-K").
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S> <C>
4.31 Amended and Restated Security Agreement dated September
27, 1989 and amended and restated as of August 17, 1992
between the Registrant and Chemical Bank, incorporated by
reference to Exhibit 4.27 of the 1992 10-K.
4.32 Amended and Restated Security Agreement among Certain Sub-
sidiaries of the Registrant and Chemical Bank dated as of
September 27, 1989 and amended and restated as of August
17, 1992, incorporated by reference to Exhibit 4.28 of the
1992 10-K.
4.33* Form of Amended Credit Agreement.
5.1** Opinion of Jones, Day, Reavis & Pogue as to the validity
of the Senior Notes being offered.
10.1 1995 Executive Incentive Compensation Plan, incorporated
by reference to Exhibit 10.1 to the 1994 10-K.
10.2 1994 Executive Incentive Compensation Plan, incorporated
by reference to Exhibit 10.1 of the 1993 Form 10-K.
10.3 Key Executive Retention Program adopted February 23, 1995,
incorporated by reference to Exhibit 10.3 of the 1994 10-
K.
10.4 Form of Grant of Stock Award as of February 23, 1995, in-
corporated by reference to Exhibit 10.4 of the 1994 10-K.
10.5 Form of Agreement dated August 27, 1992 for the Cancella-
tion and Re-Granting of Non-Qualified Stock Options be-
tween the Registrant and U.S. executive officers and em-
ployees, incorporated by reference to Exhibit 10.7 of the
1992 10-K.
10.6 Form of Non-Qualified Stock Option Agreement dated January
26, 1995 between the Registrant and one executive officer,
incorporated by reference to Exhibit 10.6 of the 1994 10-
K.
10.7 Form of Non-Qualified Stock Option Agreement dated January
26, 1995 between the Registrant and one foreign executive,
incorporated by reference to Exhibit 10.7 of the 1994 10-
K.
10.8 Form of Grant of Stock Award as of May 23, 1991--Outside
Director, incorporated by reference to Exhibit 10(a) of
the 1991 10-K.
10.9 Form of Grant of Stock Award as of April 26, 1990--Outside
Directors, incorporated by reference to Exhibit 10(a) of
the 1990 10-K.
10.10 Amendment to Non-Qualified Stock Option Agreement and to
Stock Appreciation Rights granted July 23, 1987 by the
Registrant to one U.S. executive officer, incorporated by
reference to Exhibit 10(i) of the 1990 10-K.
10.11 Amendment to Non-Qualified Stock Option Agreement and to
Stock Appreciation Rights granted July 28, 1988 by the
Registrant to one U.S. executive officer, incorporated by
reference to Exhibit 10(j) of the 1990 10-K.
10.12 1989 Stock Incentive Program, incorporated by reference to
the proxy statement filed in connection with the Regis-
trant's 1990 annual meeting of shareholders.
10.13 1986 Stock Incentive Program, incorporated by reference to
Appendix D to the Registrant's Registration Statement on
Form S-4 filed with the Securities and Exchange Commission
on March 26, 1986.
10.14 Trust Agreement between the Registrant and Continental
Illinois National Bank and Trust Company of Chicago with
respect to The Interlake Corporation Restated Directors'
Post-Retirement Income Plan dated September 30, 1988,
incorporated by reference to Exhibit 10(p) of the
Registrant's Annual Report on Form 10-K for the year ended
December 25, 1988 (the "1988 10-K").
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.15 Trust Agreement between the Registrant and Continental Illinois
National Bank and Trust Company of Chicago with respect to the
Deferred Compensation Agreement dated May 29, 1986 (as amended
August 5, 1988) between the Registrant and Frederick C.
Langenberg dated September 30, 1988, incorporated by reference
to Exhibit 10(q) of the 1988 10-K.
10.16 Form of Indemnification Agreement between the Registrant and
Outside Directors, incorporated by reference to Exhibit 10(a) of
the Registrant's Annual Report on Form 10-K for the year ending
December 27, 1987 (the "1987 10-K").
10.17 Form of Indemnification Agreement between the Registrant and
executive officers, including inside directors, incorporated by
reference to Exhibit 10(b) of the 1987 10-K.
10.18 Form of Severance Pay Agreement between the Registrant and 12
executive officers, incorporated by reference to Exhibit 10.18
of the 1994 10-K.
10.19 Form of Severance Pay Agreement between the Registrant and two
executive officers, incorporated by reference to Exhibit 10.19
of the 1994 10-K.
10.20 Cross Indemnification Agreement dated as of May 29, 1986,
between the Registrant and Acme Steel Company, incorporated by
reference to Exhibit 10(b) of the Registrant's Annual Report on
Form 10-K for the year ended December 28, 1986 (the "1986 10-
K").
10.21 Parallel Loan Agreement dated as of May 29, 1986, between Acme
Steel Company and The Interlake Companies, Inc., as amended by
letter agreement dated June 27, 1986, incorporated by reference
to Exhibit 10(c) of the 1986 10-K.
10.22 Tax Indemnification Agreement dated as of May 29, 1986, between
the Registrant and Acme Steel Company, incorporated by reference
to Exhibit 10(i) of the 1986 10-K.
10.23 Deferred Compensation Agreement dated May 29, 1986, between the
Registrant and Frederick C. Langenberg, incorporated by
reference to Exhibit 10(j) of the 1986 10-K.
10.24 Instrument of Assumption and Release dated May 29, 1986, between
the Registrant,
W. R. Reum and Acme Steel Company, concerning an April 12, 1982
Agreement between W. R. Reum and Interlake, Inc. (n.k.a. Acme
Metals, Inc.), incorporated by reference to Exhibit 10(l) of the
1986 10-K.
12.1** Statement regarding calculation of ratios.
23.1** Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP.
24.1** Powers of Attorney.
25.1** Statement of eligibility and qualification of trustee.
</TABLE>
--------
*To be filed by amendment.
**Previously filed.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such
II-6
<PAGE>
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 2 TO
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN LISLE, ILLINOIS, ON MAY 22, 1995.
The Interlake Corporation
/s/ W. Robert Reum
By: _________________________________
W. Robert Reum
Chairman, President and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ W. Robert Reum Chairman, President, Chief May 22 1995
____________________________________ Executive Officer and
W. Robert Reum Director (Principal
Executive Officer)
/s/ Stephen Gregory Vice President--Finance, May 22, 1995
____________________________________ Treasurer and Chief
Stephen Gregory Financial Officer
(Principal Financial
Officer)
/s/ John P. Miller Controller (Principal May 22, 1995
____________________________________ Accounting Officer)
John P. Miller
* Director May 22, 1995
____________________________________
John A. Canning, Jr.
* Director May 22, 1995
____________________________________
James C. Cotting
* Director May 22, 1995
____________________________________
John E. Jones
* Director May 22, 1995
____________________________________
Frederick C. Langenberg
* Director May 22, 1995
____________________________________
Quentin C. McKenna
* Director May 22, 1995
____________________________________
William G. Mitchell
* Director May 22, 1995
____________________________________
Erwin E. Schulze
</TABLE>
*The undersigned by signing his name hereunto has hereby signed this Amendment
No. 2 to Registration Statement on behalf of the above-named officers and
directors, on May 22, 1995, pursuant to a power of attorney executed on behalf
of each such director and officer and filed with the Securities and Exchange
Commission.
/s/ Stephen R. Smith
By: ___________________________
Stephen R. Smith
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ----------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1 Composite of the Registrant's Restated Certificate of
Incorporation as amended.
3.2 Bylaws of Registrant as amended and restated dated Au-
gust 23, 1990, incorporated by reference to Exhibit
3(b) of the Registrant's Annual Report on Form 10-K for
the year ended December 30, 1990 (the "1990 10-K").
4.1** Form of Indenture (including table of contents and form
of Senior Note).
4.2 Form of Indenture (including form of Subordinated De-
benture), incorporated by reference to Exhibit 4.1 of
the Registrant's Registration Statement on Form S-2,
File No.
33-46247, as amended (the "Debt S-2").
4.3 Rights Agreement dated as of January 26, 1989 between
the Registrant and the First National Bank of Chicago,
as Rights Agent, (the "Rights Agreement") incorporated
by reference to Exhibit 2 of the Registrant's Registra-
tion Statement on Form 8-A dated as of January 27,
1989.
4.4 Amendment to Rights Agreement dated as of August 15,
1989, incorporated by reference to Exhibit (a) of the
Company's Form 8 dated May 22, 1990.
4.5 Amendment to Rights Agreement dated as of May 7, 1990,
incorporated by reference to Exhibit (b) of the
Company's Form 8 dated May 22, 1990.
4.6 Form of Amendment to Rights Agreement, incorporated by
reference to Exhibit 4.5 of the Registrant's Registra-
tion Statement on Form S-2, File No. 33-46248, as
amended (the "Common Stock S-2").
4.7 Amendment to Rights Agreement dated as of April 13,
1994, incorporated by reference to Exhibit 7 of the
Company's Form 8-A/A dated April 19, 1994.
4.8 Preferred Stock Purchase Agreement dated as of March 6,
1992 among the Registrant and the persons listed on the
Schedule of Purchasers attached thereto, incorporated
by reference to Exhibit 4.6 of the Common Stock S-2.
4.9 Revised Form of Registration Rights Agreement among the
Registrant and the parties listed on the signature
pages thereof, incorporated by reference to Exhibit 4.4
of the Registrant's Post-Effective Amendment No. 4 to
the Registration Statement on Form S-2, File No. 33-
37041 (the "IRN Post-Effective Amendment No. 4").
4.10 Form of Series 1 Junior Convertible Subordinated Deben-
ture, incorporated by reference to Exhibit 4.11 of the
Common Stock S-2.
4.11 Form of Series 2 Junior Convertible Subordinated Deben-
ture, incorporated by reference to Exhibit 4.12 of the
Common Stock S-2.
4.12 Series A-3 Preferred Stock Purchase Agreement dated as
of May 7, 1992 by and between the Registrant and the
persons listed on the signature pages thereto, incorpo-
rated by reference to Exhibit 4.9 of the IRN Post-Ef-
fective Amendment No. 4.
4.13 Form of Series 3 Junior Convertible Subordinated Deben-
ture (Exchange Debentures relating to the Series A-3
Preferred Stock), incorporated by reference to Exhibit
4.10 of the IRN Post-Effective Amendment No. 4.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
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<C> <S> <C>
4.14 Stock Purchase Agreement dated November 2, 1989 between
the Registrant and LaSalle National Bank, trustee for
The Interlake Corporation Employee Stock Ownership
Plan, incorporated by reference to Exhibit 10(v) of the
Registrant's Annual Report on Form 10-K for the year
ended December 29, 1991 (the "1991 10-K").
4.15 Form of Amended and Restated Credit Agreement, incorpo-
rated by reference to Exhibit 10.15 of the IRN Post-Ef-
fective Amendment No. 4.
4.16 First Amendment, dated as of August 17, 1992, to the
Amended and Restated Credit Agreement, incorporated by
reference to Exhibit 4.18 of the 1992 10-K.
4.17 Second Amendment, dated as of October 30, 1992, to the
Amended and Restated Credit Agreement, incorporated by
reference to Exhibit 4.19 of the 1992 10-K.
4.18 Third Amendment, dated August 20, 1993, to the Amended
and Restated Credit Agreement, incorporated by refer-
ence to the Registrant's quarterly report on Form 10-Q
for the quarter ended September 26, 1993.
4.19 Fourth Amendment, dated December 22, 1993, to the
Amended and Restated Credit Agreement, incorporated by
reference to Exhibit 4.29 of the Registrant's Annual
Report on Form 10-K for the year ended December 26,
1993 (the "1993 10-K").
4.20 Fifth Amendment, dated February 23, 1994, to the
Amended and Restated Credit Agreement, incorporated by
reference to Exhibit 4.30 of the 1993 10-K.
4.21 Sixth Amendment, dated August 16, 1994, to the Amended
and Restated Credit Agreement, incorporated by refer-
ence to Exhibit 4.20 of the Registrant's Annual Report
on Form 10-K for the year ended December 25, 1994 (the
"1994 10-K").
4.22 Seventh Amendment, dated as of January 24, 1995, to the
Amended and Restated Credit Agreement, incorporated by
reference to Exhibit 4.21 of the 1994 10-K.
4.23 Eighth Amendment, dated as of February 1, 1995, to the
Amended and Restated Credit Agreement, incorporated by
reference to Exhibit 4.22 of the 1994 10-K.
4.24 The Registrant Term Notes dated June 18, 1992, incorpo-
rated by reference to Exhibit 4.20 of the 1992 10-K.
4.25 The Registrant Revolving Notes dated June 18, 1992, in-
corporated by reference to Exhibit 4.21 of the 1992 10-
K.
4.26 Subsidiary Term Notes dated June 18, 1992, incorporated
by reference to Exhibit 4.22 of the 1992 10-K.
4.27 Subsidiary Revolving Notes dated June 18, 1992, incor-
porated by reference to Exhibit 4.23 of the 1992 10-K.
4.28 The Registrant Delayed Draw Notes dated June 18, 1992,
incorporated by reference to Exhibit 4.24 of the 1992
10-K.
4.29 The Registrant Deferred Term Notes dated June 18, 1992,
incorporated by reference to Exhibit 4.25 of the 1992
10-K.
4.30 The Registrant Pledge Agreement dated September 27,
1989, made by the Registrant and accepted by Chemical
Bank, along with stock certificates of the two subsidi-
aries, incorporated by reference to Exhibit 10(t) of
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989 (the "1989 10-K").
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
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<C> <S> <C>
4.31 Amended and Restated Security Agreement dated September
27, 1989 and amended and restated as of August 17, 1992
between the Registrant and Chemical Bank, incorporated
by reference to Exhibit 4.27 of the 1992 10-K.
4.32 Amended and Restated Security Agreement among Certain
Subsidiaries of the Registrant and Chemical Bank dated
as of September 27, 1989 and amended and restated as of
August 17, 1992, incorporated by reference to Exhibit
4.28 of the 1992 10-K.
4.33* Form of Amended Credit Agreement.
5.1** Opinion of Jones, Day, Reavis & Pogue as to the valid-
ity of the Senior Notes being offered.
10.1 1995 Executive Incentive Compensation Plan, incorpo-
rated by reference to Exhibit 10.1 to the 1994 10-K.
10.2 1994 Executive Incentive Compensation Plan, incorpo-
rated by reference to Exhibit 10.1 of the 1993 Form 10-
K.
10.3 Key Executive Retention Program adopted February 23,
1995, incorporated by reference to Exhibit 10.3 of the
1994 10-K.
10.4 Form of Grant of Stock Award as of February 23, 1995,
incorporated by reference to Exhibit 10.4 of the 1994
10-K.
10.5 Form of Agreement dated August 27, 1992 for the Cancel-
lation and Re-Granting of Non-Qualified Stock Options
between the Registrant and U.S. executive officers and
employees, incorporated by reference to Exhibit 10.7 of
the 1992 10-K.
10.6 Form of Non-Qualified Stock Option Agreement dated Jan-
uary 26, 1995 between the Registrant and one executive
officer, incorporated by reference to Exhibit 10.6 of
the 1994 10-K.
10.7 Form of Non-Qualified Stock Option Agreement dated Jan-
uary 26, 1995 between the Registrant and one foreign
executive, incorporated by reference to Exhibit 10.7 of
the 1994 10-K.
10.8 Form of Grant of Stock Award as of May 23, 1991--Out-
side Director, incorporated by reference to Exhibit
10(a) of the 1991 10-K.
10.9 Form of Grant of Stock Award as of April 26, 1990--Out-
side Directors, incorporated by reference to Exhibit
10(a) of the 1990 10-K.
10.10 Amendment to Non-Qualified Stock Option Agreement and
to Stock Appreciation Rights granted July 23, 1987 by
the Registrant to one U.S. executive officer, incorpo-
rated by reference to Exhibit 10(i) of the 1990 10-K.
10.11 Amendment to Non-Qualified Stock Option Agreement and
to Stock Appreciation Rights granted July 28, 1988 by
the Registrant to one U.S. executive officer, incorpo-
rated by reference to Exhibit 10(j) of the 1990 10-K.
10.12 1989 Stock Incentive Program, incorporated by reference
to the proxy statement filed in connection with the
Registrant's 1990 annual meeting of shareholders.
10.13 1986 Stock Incentive Program, incorporated by reference
to Appendix D to the Registrant's Registration
Statement on Form S-4 filed with the Securities and
Exchange Commission on March 26, 1986.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
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<C> <S> <C>
10.14 Trust Agreement between the Registrant and Continental
Illinois National Bank and Trust Company of Chicago
with respect to The Interlake Corporation Restated Di-
rectors' Post-Retirement Income Plan dated September
30, 1988, incorporated by reference to Exhibit 10(p) of
the Registrant's Annual Report on Form 10-K for the
year ended December 25, 1988 (the "1988 10-K").
10.15 Trust Agreement between the Registrant and Continental
Illinois National Bank and Trust Company of Chicago
with respect to the Deferred Compensation Agreement
dated May 29, 1986 (as amended August 5, 1988) between
the Registrant and Frederick C. Langenberg dated
September 30, 1988, incorporated by reference to
Exhibit 10(q) of the 1988 10-K.
10.16 Form of Indemnification Agreement between the
Registrant and Outside Directors, incorporated by
reference to Exhibit 10(a) of the Registrant's Annual
Report on Form 10-K for the year ending December 27,
1987 (the "1987 10-K").
10.17 Form of Indemnification Agreement between the
Registrant and executive officers, including inside
directors, incorporated by reference to Exhibit 10(b)
of the 1987 10-K.
10.18 Form of Severance Pay Agreement between the Registrant
and 12 executive officers, incorporated by reference to
Exhibit 10.18 of the 1994 10-K.
10.19 Form of Severance Pay Agreement between the Registrant
and two executive officers, incorporated by reference
to Exhibit 10.19 of the 1994 10-K.
10.20 Cross Indemnification Agreement dated as of May 29,
1986, between the Registrant and Acme Steel Company,
incorporated by reference to Exhibit 10(b) of the
Registrant's Annual Report on Form 10-K for the year
ended December 28, 1986 (the "1986 10-K").
10.21 Parallel Loan Agreement dated as of May 29, 1986,
between Acme Steel Company and The Interlake Companies,
Inc., as amended by letter agreement dated June 27,
1986, incorporated by reference to Exhibit 10(c) of the
1986 10-K.
10.22 Tax Indemnification Agreement dated as of May 29, 1986,
between the Registrant and Acme Steel Company,
incorporated by reference to Exhibit 10(i) of the 1986
10-K.
10.23 Deferred Compensation Agreement dated May 29, 1986,
between the Registrant and Frederick C. Langenberg,
incorporated by reference to Exhibit 10(j) of the 1986
10-K.
10.24 Instrument of Assumption and Release dated May 29,
1986, between the Registrant,
W. R. Reum and Acme Steel Company, concerning an April
12, 1982 Agreement between W. R. Reum and Interlake,
Inc. (n.k.a. Acme Metals, Inc.), incorporated by
reference to Exhibit 10(l) of the 1986 10-K.
12.1** Statement regarding calculation of ratios.
23.1** Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP.
24.1** Powers of Attorney.
25.1** Statement of eligibility and qualification of trustee.
</TABLE>
--------
*To be filed by amendment.
**Previously filed.
<PAGE>
COMPOSITE
RESTATED
CERTIFICATE OF INCORPORATION
OF
THE INTERLAKE CORPORATION, AS AMENDED
THROUGH MAY 12, 1995
AND
CERTIFICATE OF STOCK DESIGNATION FILED JUNE 17, 1992
FIRST:
The name of the Corporation is The Interlake Corporation.
SECOND:
The address of the Corporation's registered office in the State of Delaware
is 32 Loockerman Square, Suite L-100, Dover, Delaware 19901, County of Kent.
The name of the Corporation's registered agent at such address is The Prentice-
Hall Corporation System, Inc.
THIRD:
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH:
A. General Authorization
The aggregate number of shares which the Corporation is authorized to issue
is 117,000,000 shares consisting of:
(1) 100,000,000 shares of Common Stock having a par value of $1.00 per
share;
(2) 15,000,000 shares of Non Voting Common Stock having a par value of $1.00
per share;
(3) 2,000,000 shares of Serial Preferred Stock having a par value of $1.00
per share.
B. Serial Preferred Stock*
----------------------------
*A 26 page certificate of stock designation begins on page 16 and another 20
page certificate of stock designation begins on page 42.
Page 1 of 61
<PAGE>
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of this Section B, to provide for the issuance of the
Serial Preferred Stock in series, and by filing a certificate pursuant to
Section 151 of the General Corporation Law of the State of Delaware, to
establish the number of shares to be included in each such series, and to fix
the designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions of the shares of
each such series. The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of the following:
(1) The number of shares constituting the series and the distinctive
designation of that series;
(2) The dividend rate on the shares of that series, whether dividends shall
be cumulative, and, if so, from which date or dates;
(3) Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
(4) Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
(5) Whether the shares of that series shall be redeemable, and, if so, the
terms and conditions of such redemption, including the date or dates upon or
after which they shall be redeemable, and the amount per share payable in the
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(6) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation; and
(7) Any other designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions of that series.
C. Common Stock and Non-Voting Common Stock
Except as otherwise provided in this Section C or as otherwise required by
applicable law, all shares of Common Stock and Non-Voting Common Stock shall be
identical in all respects and shall entitle the holders thereof to the same
rights and privileges, subject to the same qualifications, limitations and
restrictions.
1. Voting Rights. Except as otherwise provided in this Section C or as
otherwise required by applicable law, holders of Common Stock shall be
entitled to one vote per share on all matters to be voted on by the
stockholders of the Corporation, and the holders of Non-Voting Common
Stock shall have no right to vote on any matters to be voted on by the
stockholders of the Corporation; provided that the holders of Non-Voting
Common Stock shall have the right to vote as a separate class on any
merger or consolidation of the Corporation with or into another entity
or entities, or any
Page 2 of 61
<PAGE>
recapitalization or reorganization, in which shares of Non-Voting Common
Stock would receive or be exchanged for consideration different on a per
share basis from consideration received with respect to or in exchange
for the shares of Common Stock or would otherwise be treated differently
from shares of Common Stock in connection with such transaction, except
that shares of Non-Voting Common Stock may, without such a separate
class vote, receive or be exchanged for non-voting securities which are
otherwise identical on a per share basis in amount and form to the
voting securities received with respect to or exchanged for the Common
Stock so long as (i) such non-voting securities are convertible into
such voting securities on the same terms as the Non-Voting Common Stock
is convertible into Common Stock and (ii) all other consideration is
equal on a per share basis.
2. Dividends. As and when dividends are declared or paid thereon, whether
in cash, property or securities of the Corporation, the holders of
Common Stock and the holders of Non-Voting Common Stock shall be
entitled to participate in such dividends ratably on a per share basis;
provided that (i) if dividends are declared which are payable in shares
of Common Stock or Non-Voting Common Stock, dividends shall be declared
which are payable at the same rate on both classes of stock and the
dividends payable in shares of Common Stock shall be payable to holders
of that class of stock and the dividends payable in shares of Non-Voting
Common Stock shall be payable to holders of that class of stock and (ii)
if the dividends consist of other voting securities of the Corporation,
the Corporation shall make available to each holder of Non-Voting Common
Stock, at such holder's request, dividends consisting of non-voting
securities of the Corporation which are otherwise identical to such
other voting securities and which are convertible into or exchangeable
for such other voting securities on the same terms as the Non-Voting
Common Stock is convertible into the Common Stock. The rights of the
holders of Common Stock to receive dividends are subject to the
provisions of the Serial Preferred Stock.
3. Liquidation. Subject to the provisions of the Serial Preferred Stock,
the holders of the Common Stock and the Non-Voting Common Stock shall be
entitled to participate ratably on a per share basis in all
distributions to the holders of Common Stock in any liquidation,
dissolution or winding up of the Corporation.
4. Conversion.
4A. Conversion of Non-Voting Common Stock.
(i) Upon the occurrence (or the expected occurrence as
described in (iii) below) of any Conversion Event, each holder of
Non-Voting Common Stock shall be entitled to convert into the same
number of shares of Common Stock any or all of the shares of such
holder's Non-Voting Common Stock being (or
Page 3 of 61
<PAGE>
expected to be) distributed, disposed of or sold in connection
with such Conversion Event.
(ii) For purposes of this paragraph 4A, a "Conversion Event"
shall mean (a) any public offering or public sale of securities of
the Corporation (including a public offering registered under the
Securities Act of 1933, as amended, and a public sale pursuant to
Rule 144 of the Securities and Exchange Commission or any similar
rule then in force), (b) any sale of securities of the Corporation
to a person or group of persons (within the meaning of the
Securities Exchange Act of 1934, as amended) if, after such sale,
such person or group of persons in the aggregate would own or
control securities which possess in the aggregate the ordinary
voting power to elect a majority of the Corporation's directors
(provided that such sale has been approved by the Corporation's
Board of Directors or a committee thereof), (c) any sale of
securities of the Corporation to a person or group of persons
(within the meaning of the Securities Exchange Act of 1934, as
amended) if, after such sale, such person or group of persons in
the aggregate would own or control securities of the Corporation
(excluding any Non-Voting Common Stock being converted and disposed
of in connection with such Conversion Event) which possess in the
aggregate the ordinary voting power to elect a majority of the
Corporation's directors, (d) any sale of securities of the
Corporation to a person or group of persons (within the meaning of
the Securities Exchange Act of 1934, as amended) if, after such
sale, such person or group of persons would not, in the aggregate,
own, control or have the right to acquire more than two percent
(2%) of the outstanding securities of any class of voting
securities of the Corporation, and (e) a merger, consolidation or
similar transaction involving the Corporation if, after such
transaction, a person or group of persons (within the meaning of
the Securities Exchange Act of 1934, as amended) in the aggregate
would own or control securities which possess in the aggregate the
ordinary voting power to elect a majority of the surviving
corporation's directors (provided that the transaction has been
approved by the Corporation's Board of Directors or a committee
thereof). For purpose of this paragraph 4A, "person" shall include
any natural person and any corporation, partnership, joint venture,
trust, unincorporated organization and any other entity or
organization.
(iii) Each holder of Non-Voting Common Stock shall be
entitled to convert shares of Non-Voting Common Stock in connection
with any Conversion Event if such holder reasonably believes that
such Conversion Event shall be consummated, and a written request
for conversion from any holder of Non-Voting Common Stock to the
Corporation stating such holder's reasonable belief that a
Conversion Event shall occur shall be
Page 4 of 61
<PAGE>
conclusive and shall obligate the Corporation to effect such conversion
in a timely manner so as to enable each such holder to participate in
such Conversion Event. The Corporation shall not cancel the shares of
Non-Voting Common Stock so converted before the tenth day following such
Conversion Event and shall reserve such shares until such tenth day for
reissuance in compliance with the next sentence. If any shares of Non-
Voting Common Stock are converted into shares of Common Stock in
connection with a Conversion Event and such shares of Common Stock are
not actually distributed, disposed of or sold pursuant to such
Conversion Event, such shares of Common Stock shall be promptly
converted back into the same number of shares of Non-Voting Common
Stock.
4B. Conversion Procedure.
(i) Unless otherwise provided in connection with a Conversion
Event with respect to the Non-Voting Common Stock, each conversion of
shares of Non-Voting Common Stock into shares of the Common Stock shall
be effected by the surrender of the certificate or certificates
representing the shares to be converted at the principal office of the
Corporation at any time during normal business hours, together with a
written notice by the holder of Non-Voting Common Stock stating that
such holder desires to convert the shares, or a stated number of the
shares, of Non-Voting Common Stock represented by such certificate or
certificates into shares of the Common Stock. Each conversion shall be
deemed to have been effected as of the close of business on the date on
which such certificate or certificates have been surrendered and such
notice has been received, and at such time the rights of the holder of
the converted Non-Voting Common Stock shall cease and the person or
persons in whose name or names the certificate or certificates for
shares of Common Stock are to be issued upon such conversion shall be
deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
(ii) Promptly after the surrender of certificates and the
receipt of written notice, the Corporation shall issue and deliver in
accordance with the surrendering holder's instructions (a) the
certificate or certificates for the Common Stock issuable upon such
conversion and (b) a certificate representing any Non-Voting Common
Stock represented by the certificate or certificates delivered to the
Corporation in connection with such conversion but which was not
converted.
(iii) The issuance of certificates for Common Stock upon
conversion of Non-Voting Common Stock will be made without charge to the
holders of such shares for any issuance tax in respect thereof or other
cost incurred by the Corporation in
Page 5 of 61
<PAGE>
connection with such conversion and the related issuance of Common
Stock.
(iv) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the conversion of the Non-Voting
Common Stock such number of shares of Common Stock issuable upon the
conversion of all outstanding Non-Voting Common Stock. All shares of
Common Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes,
liens and charges. The Corporation shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon
which shares of Common Stock may be listed (except for official notice
of issuance which shall be immediately transmitted by the Corporation
upon issuance).
(v) The Corporation shall not close its books against the
transfer of shares of Common Stock in any manner which interferes with
the timely conversion of any shares of Non-Voting Common Stock.
4C. Stock Splits. If the Corporation in any manner subdivides or
combines the outstanding shares of Common Stock, the outstanding shares of
Non-Voting Common Stock shall be proportionately subdivided or combined in
a similar manner, and vice-versa.
5. Registration of Transfer. The Corporation shall keep at its
principal office a register for the registration of shares of Common Stock
and Non-Voting Common Stock. Upon the surrender of any certificate
representing shares of Common Stock or Non-Voting Common Stock at such
place, the Corporation shall, at the request of the registered holder of
such certificate, execute and deliver a new certificate or certificates in
exchange therefor representing in the aggregate the number of shares of
such class represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such
number of shares of such class as is requested by the holder of the
surrendered certificate and shall be substantially identical in form to the
surrendered certificate. The issuance of new certificates shall be made
without charge to the holders of the surrendered certificates for any
issuance tax in respect thereof or other cost incurred by the Corporation
in connection with such issuance.
6. Replacement. Upon receipt of evidence reasonably satisfactory to
the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing one or more shares of Common Stock
or Non-Voting Common Stock, and in the case
Page 6 of 61
<PAGE>
of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is
a financial institution or other institutional investor its own agreement
will be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation shall (at its expense)
execute and deliver in lieu of such certificate a new certificate of like
kind representing the number of shares of such class represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.
7. Notices. All notices referred to herein shall be in writing, shall
be delivered personally or by first class mail, postage prepaid, and shall
be deemed to have been given when so delivered or mailed to the Corporation
at its principal executive offices and to any stockholder at such holder's
address as it appears in the stock records of the Corporation (unless
otherwise specified in a written notice to the Corporation by such holder).
8. Amendment and Waiver. No amendment or waiver of any provision of
this Section C shall be effective without the prior approval of the holders
of a majority of the then outstanding Non-Voting Common Stock voting as a
separate class.
FIFTH:
The name and mailing address of the incorporator is Ian R. MacLeod, 2015
Spring Road, Oak Brook, Illinois 60521.
SIXTH:
A. Number, Election and Terms of Directors.
The business and affairs of the Corporation shall be managed by or under the
direction of a Board of Directors consisting of not fewer than seven nor more
than fifteen directors, the exact number of directors to be determined from time
to time by resolution adopted by the affirmative vote of a majority of the
entire Board of Directors. The directors shall be divided into three classes,
as nearly equal in number as possible, designated Class I, Class II and Class
III. Class I directors shall hold office initially for a term expiring at the
annual meeting of stockholders to be held in 1987, Class II directors to hold
office initially for a term expiring at the annual meeting of stockholders to be
held in 1988, and Class III directors to hold office initially for a term
expiring at the annual meeting of stockholders to be held in 1989. At each
annual meeting of stockholders, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term.
Elections of directors need not be by written ballot unless required by the By-
Laws of the Corporation.
Page 7 of 61
<PAGE>
B. Change In Number of Directorships and Vacancies.
If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting for
the year in which his term expires and until his successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors
that results from an increase in the number of directors shall be filled by a
majority of the Board of Directors then in office, provided that a quorum is
present, and any other vacancy occurring in the Board of Directors shall be
filled by a majority of the directors then in office, even if less than a
quorum, or by a sole remaining director. Any director elected to fill a vacancy
not resulting from an increase in the number of directors shall have the same
remaining term as that of his predecessor.
Notwithstanding the foregoing paragraphs A and B, whenever the holders of
any one or more classes or series of stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
SIXTH unless expressly provided by such terms.
C. Removal of Directors.
Any director may be removed from office only for cause.
SEVENTH:
The Board of Directors of the Corporation, when evaluating any offer of
another party to (a) make a tender or exchange offer for any equity security of
the Corporation, (b) merge or consolidate the Corporation with another
corporation, or (c) purchase or otherwise acquire all or substantially all of
the properties and assets of the Corporation, shall in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its stockholders, give due consideration to (i) all relevant
factors, including without limitation the social, legal, environmental and
economic effects on the employees, customers, suppliers and other affected
persons, firms and corporations and on the communities and geographical areas in
which the Corporation and its subsidiaries operate or are located and on any of
the businesses and properties of the Corporation or any of its subsidiaries, as
well as such other factors as the directors deem relevant, and (ii) not only the
consideration being offered, in relation to the then current market price for
the Corporation's outstanding shares of capital stock, but also in relation to
the then current value of the Corporation in a freely negotiated transaction and
in relation to the Board of Directors'
Page 8 of 61
<PAGE>
estimate of the future value of the Corporation (including the unrealized value
of its properties and assets) as an independent going concern.
EIGHTH:
(A) The affirmative vote (i) of the holders of shares entitling them to
exercise two-thirds of the voting power of the Corporation, and (ii) of the
holders of two-thirds of the shares of Common Stock at the time outstanding,
given in person or by proxy at a meeting called for the purpose at which the
holders of Common Stock shall vote separately as a class, shall be necessary to
approve (l) any merger or consolidation of the Corporation or any Subsidiary (as
hereinafter defined) with (a) any Related Corporation (as hereinafter defined)
or (b) any other corporation (whether or not itself a Related Corporation) which
is, or after such merger or consolidation would be, an Affiliate (as hereinafter
defined) of a Related Corporation; or (2) any sale, lease, exchange, mortgage,
pledge, transfer or disposition (in one transaction or in a series of
transactions) to or with any Related Corporation or any Affiliate of any Related
Corporation of all or substantially all of the assets of the Corporation or any
Subsidiary; or (3) the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Related Corporation or any Affiliate of any
Related Corporation in exchange for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market Value (as hereinafter
defined) of ten million dollars or more; (4) the adoption of any plan or
proposal for the liquidation or dissolution of the Corporation proposed by or on
behalf of a Related Corporation or any Affiliate of a Related Corporation; or
(5) any reclassification of securities (including any reverse stock split), or
recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other transaction (whether or
not with or into or otherwise involving a Related Corporation) which has the
affect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by any
Related Corporation or any Affiliate of any Related Corporation; or (6) any
agreement, contract, or other arrangement with a Related Corporation providing
for any of the transactions described in clauses (l) through (5) of this
Paragraph (A); provided, however, that approval of any of such matters shall
require the affirmative vote (x) of the holders of shares entitling them to
exercise eighty per cent (80%) of the voting power of the Corporation, and (y)
of the holders of eighty per cent (80%) of the shares of Common Stock at the
time outstanding, given in person or by proxy at a meeting called for the
purpose at which the holders of Common Stock shall vote separately as a class,
unless all of the conditions in either subparagraph (a) or (b) of Paragraph (B)
of this Article Eighth have been fulfilled. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required or that a lesser
percentage may be specified by law or in any agreement with any national
securities exchange or otherwise.
(B) The provisions of Paragraph (A) of this Article Eighth requiring an
eighty per cent (80%) vote shall not be applicable to any particular Business
Combination (as hereinafter defined) and such Business Combination shall
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require only the two-thirds affirmative vote as is otherwise required by said
Paragraph (A), if all of the conditions specified in either of the following
subparagraphs (a) or (b) are met:
(a) The Business Combination shall have been approved by a majority of
the Board of Directors of the Corporation consisting of no fewer than three
Continuing Directors (as hereinafter defined) and shall have been approved by
two-thirds of the Continuing Directors; or
(b) All of the following conditions have been met:
(i) The aggregate amount of the cash and the Fair Market Value as of
the date of consummation of the Business Combination of consideration other than
cash to be received per share by holders of Common Stock in such Business
Combination is at least equal to the highest of the following:
(l) The highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealer's fees) paid by the Related
Corporation for any shares of Common Stock acquired by the Related Corporation;
(2) The Fair Market Value per share of Common Stock on the date
of the first public announcement of the proposal of the Business Combination the
("Announcement Date") or on the date on which the Related Corporation became a
Related Corporation (such latter date is referred to in this Paragraph (B) as
the "Determination Date"), whichever is higher;
(3) If applicable, the price per share equal to the Fair Market
Value per share of common stock determined pursuant to subparagraph (b)(i)(2)
above, multiplied by the ratio of (a) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealer's fees) paid by the
Related Corporation for any shares of Common Stock acquired by it within the
two-year period immediately prior to the Announcement Date to (b) the Fair
Market Value per share of Common Stock on the first day in such two-year period
upon which the Related Corporation acquired any shares of Common Stock; and
(4) The per share book value of the Common Stock at the end of the
fiscal month immediately preceding the Announcement Date of such Business
Combination.
(ii) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of consideration other
than cash to be received per share by holders of shares of any other class of
outstanding voting stock [other than Institutional Voting Stock (as hereinafter
defined)] shall be at least equal to the highest of the following (it being
intended that the requirements of this subparagraph (b)(ii) shall be required to
be met with respect to every class of outstanding voting stock other than
Institutional Voting Stock), whether or not the Related Corporation has
previously acquired any shares of a particular class of voting stock:
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(l) If applicable, the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealer's fees) paid by the
Related Corporation for any shares of such class of voting stock acquired by the
Related Corporation;
(2) The highest preferential amount per share to which the
holders of shares of such class of voting stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(3) The Fair Market Value per share of such class of voting
stock on the Announcement Date or on the Determination Date, whichever is
higher; and
(4) If applicable, the price per share equal to the Fair Market
Value per share of such class of voting stock determined pursuant to paragraph
(b)(ii)(3) above, multiplied by the ratio of (a) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealer's
fees) paid by the Related Corporation for any shares of such class of voting
stock acquired by it within the two-year period immediately prior to the
Announcement Date to (b) the Fair Market Value per share of such class of voting
stock on the first day of such two-year period upon which the Related
Corporation acquired any shares of such class of voting stock.
(iii) The consideration to be received by holders of a particular
class of outstanding voting stock (including Common Stock) shall be in cash or
in the same form as the Related Corporation has previously paid for such shares
of such class of voting stock. If the Related Corporation has paid for shares
of any class of voting stock with varying forms of consideration, the form of
consideration for such class of voting stock shall be either cash or the form
used to acquire the largest number of shares of such class of voting stock
previously acquired by it.
(iv) After such Related Corporation has become a Related Corporation
and prior to the consummation of such Business Combination: (l) except as
approved by two-thirds of the Continuing Directors, there shall have been no
failure to declare and pay at the regular date thereof any full quarterly
dividends, whether or not cumulative, on the outstanding Preferred Stock; and
(2) there shall have been (a) no reduction in the annual rate of dividends paid
on Common Stock (except as necessary to reflect any subdivision of the Common
Stock), except as approved by two-thirds of the Continuing Directors, and (b) an
increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the affect of reducing the
number of outstanding shares of Common Stock, unless the failure so to increase
such annual rate is approved by two-thirds of the Continuing Directors, and (3)
such Related Corporation shall not have become the beneficial owner of any
additional shares of voting stock of the Corporation except as part of the
transaction which results in such Related Corporation becoming a Related
Corporation.
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(v) After such Related Corporation has become a Related Corporation,
such Related Corporation shall not have received the benefit, directly or
indirectly (except proportionally as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credit or other tax
advantage provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange Act
of l934 and the rules and regulations thereunder (or any subsequent provision
replacing such Act, rules or regulations) shall be mailed to the public
shareholders of the Corporation at least thirty (30) days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such act or
subsequent provision).
(C) For the purposes of this Article Eighth:
(l) A 'Person' shall mean any individual, firm, corporation or other
entity.
*(2) "Related Corporation" shall mean any Person (other than the
Corporation, any Subsidiary, or any pension, profit-sharing, stock ownership or
other employee benefit plan of the Corporation or any Subsidiary, or any trustee
of, or fiduciary with respect to, any such plan when acting in such capacity),
who or which, (a) is the Beneficial Owner, directly or indirectly, of more than
twelve per cent (12%) of the voting power of the outstanding voting stock of the
Corporation; or (b) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was the Beneficial
Owner, directly or indirectly, of twelve per cent (12%) or more of the voting
power of the then outstanding voting stock of the Corporation; or (c) is an
assignee of or has otherwise succeeded to any shares of voting stock of the
Corporation which were at any time within the two-year period immediately prior
to the date in question beneficially owned by any Related Corporation if such
assignment or succession should have occurred in the course of a transaction or
series of transactions not involving a public offering within the meaning of the
Securities Act of 1933.
(3) A Person shall be a "Beneficial Owner" of any voting stock of the
Corporation: (a) which such Person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or (b) which
such Person or any of its Affiliates or Associates has (l) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or other options, or
otherwise, or (2) the right to vote pursuant to any agreement, arrangement or
understanding; or (c) which are beneficially owned, directly or indirectly, by
any Person with which such Person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose, holding, voting or
disposing of any shares of voting stock.
------------------------
*Original document reads "(2)..."
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(4) For the purpose of determining whether a Person is a Related
Corporation pursuant to Paragraph (C)(2) of this Article Eighth, the number of
shares of voting stock of the Corporation deemed to be outstanding shall include
shares deemed owned through application of Paragraph (C)(3) but shall not
include any other shares of voting stock of the Corporation which may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(5) "Affiliates" or "Associates" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on March 14, 1983.
(6) "Subsidiary" shall mean any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Related
Corporation set forth in Paragraph (C)(2), the term 'Subsidiary' shall mean only
a corporation of which a majority of each class of equity securities is owned,
directly or indirectly, by the Corporation.
(7) "Continuing Director" shall mean any Director of the Corporation who
is unaffiliated with the Related Corporation and was a Director prior to the
time that the Related Corporation became a Related Corporation and any successor
of a Continuing Director who is unaffiliated with the Related Corporation and is
recommended to succeed a Continuing Director by two-thirds of the Continuing
Directors.
(8) "Fair Market Value" shall mean: (a) in the case of stock, the
highest closing sale price during the thirty (30) day period immediately
preceding the date in question of a share of such stock on the Composite Tape
for the New York Stock Exchange--Listed Stock, or, if such stock is not quoted
on the Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such stock is
listed, or if such stock is not listed on any such exchange, the highest closing
bid quotation with respect to a share of such stock during the thirty (30) day
period immediately preceding the date in question on the National Association of
Securities Dealers, Inc., Automated Quotations System, or any system then in
use, or if no such quotations are available, the Fair Market Value on the date
in question of a share of such stock as determined by the Directors in good
faith; or (b) in the case of property other than cash or stock, the Fair Market
Value of such property on the date in question as determined by the Directors in
good faith.
(9) "Institutional Voting Stock" shall mean any class of voting stock
which was issued to and continues to be held solely by one or more insurance
companies, pension funds, commercial banks, savings banks or similar financial
institutions or institutional investors other than such stock held for the
benefit of current or former employees of the Corporation.
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(10) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used in
subparagraphs (b), (i) and (ii) of Paragraph (B) of this Article Eighth shall
include the shares of Common Stock and/or the shares of any other class of
outstanding voting stock retained by the holder of such shares.
(11) "Business Combination" shall mean any transaction which is referred
to in Paragraph (A) of this Article Eighth.
(D) The majority of the Continuing Directors shall have the power and duty
to determine for the purposes of this Article Eighth on the basis of information
known to them after reasonable inquiry, (a) whether a person is a Related
Corporation, (b) the number of shares of voting stock of the Corporation
beneficially owned by any Person, (c) whether a Person is an Affiliate or an
Associate of another, (d) whether a class of voting stock is Institutional
Voting Stock and (e) whether the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any Business
Combination has an aggregate Fair Market Value of ten million dollars or more.
(E) Nothing contained in this Article Eighth shall be construed to relieve
any Related Corporation from any fiduciary obligation imposed by law.
NINTH:
Any action required or permitted to be taken by the stockholders must be at
an annual or special meeting of stockholders of the Corporation and may not be
effected by any consent in writing of such stockholders.
TENTH:
Notwithstanding any other provisions of the Certificate of Incorporation of
the Corporation or of the By-Laws of the Corporation (and notwithstanding the
fact that a lesser percentage may be specified by law, the Certificate of
Incorporation or the By-Laws), the affirmative vote of the holders of not less
than eighty per cent of the voting power of the Corporation, and of the holders
of eighty per cent (80%) of the shares of the Common Stock at the time
outstanding, voting together as a separate class, shall be required to amend or
repeal or adopt any provisions inconsistent with Articles SIXTH, SEVENTH,
EIGHTH, NINTH, TENTH AND ELEVENTH.
ELEVENTH:
In furtherance and not in limitation of the powers conferred by statute, the
Board of Directors is expressly authorized to make, alter, amend or repeal the
By-Laws of the Corporation, without any action on the part of the stockholders,
by the affirmative vote of at least a majority of the Board of Directors, only
if the Board of Directors is composed solely of directors who are directors on
or immediately after the date hereof, or who have been elected or recommended to
be elected as directors by two-thirds of such initial directors. The By-Laws
may also be altered, amended or repealed by
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the affirmative vote of the holders of shares representing at least eighty per
cent (80%) of the shares of the Corporation entitled to vote in the election of
directors, voting as one class; provided, however, that the affirmative vote of
the holders of shares representing only a majority of the shares of the
Corporation entitled to vote in the election of directors, voting as one class,
shall be required if such alteration, amendment or repeal of the By-Laws has
been previously approved by the affirmative vote of at least two-thirds of the
entire Board of Directors of the Corporation.
*TWELFTH:
To the full extent permitted by the General Corporation Law of the State of
Delaware or any other applicable laws as presently or hereafter in effect, no
director of the Corporation shall be personally liable to the Corporation or its
shareholders for or with respect to any acts or omissions in the performance of
his or her duties as a director of the Corporation. No amendment to or repeal
of this Article TWELFTH shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
THIRTEENTH:
Each person who (a) is or was or had agreed to become a director, officer,
employee or agent of the Corporation, or at the request of the Corporation, a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (including the heirs, executors,
administrators or estate of such person), and (b) is made, or threatened to be
made, a party to any threatened, pending or completed action, suit or
proceeding, shall be entitled to indemnification (including, without limitation,
expenses in advance of the final disposition of any such action, suit or
proceeding) by the Corporation to the full extent permitted by the General
Corporation Law of the State of Delaware or any other applicable laws as
presently or hereafter in effect. Without limiting the generality or effect of
the foregoing, the Corporation may enter into one or more agreements with any
person which provide for indemnification greater or different than that provided
in this Article THIRTEENTH. No amendment to or repeal of this Article
THIRTEENTH shall apply to or have any effect on the right to indemnification
permitted or authorized hereunder for or with respect to claims asserted before
or after such amendment or repeal arising from acts or omissions occurring in
whole or in part before the effective date of such amendment or repeal.
----------------------
*Certificate as filed has quotes before "TWELFTH" and at the end of Article
"THIRTEENTH".
Signatures Omitted
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CERTIFICATE OF DESIGNATION OF
SERIES A1 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
SERIES A2 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
AND SERIES A3 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
OF
THE INTERLAKE CORPORATION
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The Interlake Corporation, a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article FOURTH of its
Restated Certificate of Incorporation, as amended, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors has adopted the following resolutions creating
three series of its Preferred Stock, $1.00 par value per share, designated as
Series A1 Convertible Exchangeable Preferred Stock, Series A2 Convertible
Exchangeable Preferred Stock and Series A3 Convertible Exchangeable Preferred
Stock and authorizing the Series 1 Junior Convertible Subordinated Debenture
(the "Series 1 Debenture") for which the Series A1 Convertible Exchangeable
Preferred Stock may be exchanged, the Series 2 Junior Convertible Subordinated
Debenture (the "Series 2 Debenture") for which the Series A2 Convertible
Exchangeable Preferred Stock may be exchanged, and the Series 3 Junior
Convertible Subordinated Debenture (the "Series 3 Debenture") for which the
Series A3 Convertible Exchangeable Preferred Stock may be exchanged, in each
case, at the Corporation's option:
RESOLVED, that pursuant to Article FOURTH of the Restated Certificate of
Incorporation, as amended, of the Corporation, whereby 2,000,000 shares of
Preferred Stock, par value $1.00 per share, are authorized, there be and hereby
is designated and created a Series A1 Convertible Exchangeable Preferred Stock,
par value $1.00 per share (the "Series A1 Preferred"), to consist of 35,000
shares, a Series A2 Convertible Exchangeable Preferred Stock, par value $1.00
per share (the "Series A2 Preferred"), to consist of 35,000 shares and a Series
A3 Convertible Exchangeable Preferred Stock, par value $1.00 per share (the
"Series A3 Preferred"), to consist of 5,000 shares, which Series A1 Preferred,
Series A2 Preferred and Series A3 Preferred are collectively referred to herein
as the "Series A Preferred"; and
FURTHER RESOLVED, that the powers, preferences and rights of, and
qualifications, limitations and restrictions on, the Series A Preferred are set
forth below and in the agenda material sent to all directors on May 21, 1992,
and except as otherwise expressly provided below, the Series A1 Preferred,
Series A2 Preferred and Series A3 Preferred shall be identical in all respects;
and
FURTHER RESOLVED, that the Corporation hereby authorizes the forms of
the junior convertible subordinated debentures which are set forth in the
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agenda material sent to all directors on May 21, 1992 (the "Exchange
Debentures") and which are issuable upon exchange of the Series A Preferred.
Section 1. Dividends.
1A. General Obligation. To the extent permitted under the General
Corporation Law of Delaware, when, as and if declared by the Corporation's Board
of Directors, the Corporation shall pay preferential dividends in cash to the
holder of each Share as provided in this Section 1. Dividends on each Share
shall accrue on a daily basis at the rate of 9% per annum (except as otherwise
provided in Section 9 hereof) of the Dividend Reference Value thereof, from and
including the date of issuance of such Share to and including the first Dividend
Reference Date, thereafter from the immediately preceding Dividend Reference
Date to and including the next occurring Dividend Reference Date and finally
from the immediately preceding Dividend Reference Date to and including the date
on which the total amount payable in respect of such Share pursuant to Section 2
hereof upon the liquidation, dissolution or winding up of the Corporation or
pursuant to Section 4 hereof upon the redemption of such Share is paid or the
date on which such Share is converted pursuant to Section 6 hereof or the date
on which such Share is exchanged pursuant to Section 10 hereof for an Exchange
Debenture, as the case may be, hereunder. For each period during which
dividends accrue, the "Dividend Reference Value" for such period shall mean the
sum of the Liquidation Value of such Share plus the amount of all dividends
which have not been paid in cash and which would have accrued since the date of
issuance and accumulated on each such Dividend Reference Date through the last
Dividend Reference Date if the accrued dividends had remained outstanding and
accumulated in lieu of the adjustment to the Conversion Price as provided for
below. Such dividends shall accrue whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. The date on which the
Corporation initially issues any Share shall be deemed to be its "date of
issuance" regardless of the number of times transfer of such Share is made on
the stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Share.
1B. Dividend Reference Dates. To the extent not paid on June 30 and
December 31 of each year (or the next business day if June 30 or December 31 is
not a business day) beginning December 31, 1992 (each a "Dividend Reference
Date"), all dividends which have accrued on each Share outstanding since the
immediately preceding Dividend Reference Date (or other period in the case of
the initial Dividend Reference Date) and ending upon each such Dividend
Reference Date shall result in an adjustment to the Conversion Price (as defined
below) as provided in the first sentence of Section 6C(ii) hereof (a "Dividend
Conversion Price Adjustment"). Upon a Dividend Conversion Price Adjustment, all
accrued and unpaid dividends on the Shares under this Section 1 shall be
eliminated and shall cease to be accrued and outstanding, except for purposes of
the calculation of the Dividend Reference Value.
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1C. Distribution of Partial Dividend Payments. If at any time the
Corporation pays in cash less than the total amount of dividends then accrued
with respect to the Shares, such payment shall be distributed ratably among the
holders thereof based upon the amount of accrued and unpaid dividends payable to
each such holder and the aggregate amount of accrued and unpaid dividends
payable to all such holders.
Section 2. Liquidation.
Upon any liquidation, dissolution or winding up of the Corporation, each
holder of Shares shall be entitled to be paid, before any distribution or
payment is made upon any Junior Securities, an amount in cash equal to the
aggregate Dividend Reference Value plus all accrued and unpaid dividends since
the last Dividend Reference Date of all Shares held by such holder, and the
holders of Shares shall not be entitled to any further payment. If upon any
such liquidation, dissolution or winding up of the Corporation, the
Corporation's assets to be distributed among the holders of Shares are
insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid, then the entire assets to be distributed shall be
distributed ratably among such holders based upon the amount which each such
holder is entitled to be paid pursuant to the first sentence of this Section 2
and the aggregate amount all holders of Shares are entitled to be paid pursuant
to such sentence. The Corporation shall mail written notice of such
liquidation, dissolution or winding up, not less than 60 days prior to the
payment date stated therein, to each holder of Shares. Neither the
consolidation or merger of the Corporation into or with any other entity or
entities, nor the sale or transfer by the Corporation of all or any part of its
assets, nor the reduction of the capital stock of the Corporation, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section 2.
Section 3. Priority of Series A Preferred.
So long as any Series A Preferred remains outstanding, neither the
Corporation nor any Subsidiary shall redeem, purchase or otherwise acquire
directly or indirectly any Junior Securities, nor shall the Corporation directly
or indirectly declare or pay any dividend or make any distribution upon any
Junior Securities; provided that the Corporation may purchase shares of Common
Stock from present or former employees of the Corporation and its Subsidiaries
or from the Corporation's independent outside directors pursuant to the
Corporation's or any Subsidiary's existing or future stock option or benefit
plans approved by the Corporation's board of directors and may redeem rights or
securities issued under the Rights Agreement or issued with respect to the
Series A Preferred; and further provided that, after the second anniversary of
the Closing Date (as defined in the Purchase Agreement) and so long as the
Corporation is not otherwise in default under the Purchase Agreement, the
Corporation may declare and pay dividends and make distributions upon Junior
Securities during the six-month period beginning on any Dividend Reference Date
if the Corporation has paid in cash all dividends accrued on the Shares of
Series A Preferred on such Dividend Reference Date and on the immediately
preceding Dividend Reference Date.
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Section 4. Redemptions.
4A. Optional Redemptions. If the Corporation's restated certificate of
incorporation has been amended to authorize the Non-Voting Common and such Non-
Voting Common is issuable upon conversion of the Series A2 Preferred, then from
and after June 18, 1998, the Corporation may make redemptions of all or any
portion of the Shares then outstanding; provided, however, that the Corporation
may not redeem a portion of the Series A Preferred if (i) the Liquidation Value
of such Series A Preferred to be redeemed is less than $5,000,000 or (ii) the
Liquidation Value of the remaining outstanding Series A1 Preferred and Series A2
Preferred is less than $10,000,000; and provided further that the Corporation
may only redeem portions of the Series A Preferred in increments of $1,000,000
of the Liquidation Value. The Corporation shall only be entitled to request a
redemption pursuant to this paragraph 4A one time in any 90-day period. On any
such redemption, the Corporation shall pay a price per Share equal to the sum of
the Dividend Reference Value thereof plus all accrued and unpaid dividends
thereon since the immediately preceding Dividend Reference Date.
4B. Notice of Redemption. Except as otherwise provided in paragraph
4I below, the Corporation shall mail written notice of each redemption of any
Shares to each record holder thereof not more than 60 nor less than 30 days
prior to the date on which such redemption is to be made. Upon mailing any
notice of redemption which relates to a redemption at the Corporation's option,
the Corporation shall become obligated to redeem the total number of Shares
specified in such notice at the time of redemption specified therein. In case
fewer than the total number of Shares represented by any certificate are
redeemed, a new certificate representing the number of unredeemed Shares shall
be issued to the holder thereof without cost to such holder within three
business days after surrender of the certificate representing the redeemed
Shares.
4C. Surrender of Shares. If any holder of the Shares elects to convert
all or a portion of the Shares rather than having such Shares redeemed, such
holder shall deliver to the Corporation in person or by registered or certified
mail, return receipt requested, such holders' Shares on or prior to the date of
redemption (the "Redemption Date"), and such conversion shall be effected in
accordance with the terms of Section 6 hereof. If any holder of the Shares does
not convert the Shares, such holder shall deliver to the Corporation the
certificates representing the Shares to be redeemed on or prior to the
Redemption Date.
4D. Redemption Payment. For each of the Shares which are to be
redeemed, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Shares) the full amount for such
Shares by cashier's or certified check.
4E. Determination of the Number of Each Holder's Shares to Be Redeemed.
If at any time the Corporation makes a redemption of less than all of the Shares
outstanding, such redemption shall be made ratably among the holders thereof
based upon the Dividend Reference Value of the Shares (plus
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<PAGE>
all accrued and unpaid dividends on such Shares since the immediately preceding
Dividend Reference Date) of each such holder and the aggregate Dividend
Reference Value of all Shares (plus all accrued and unpaid dividends on such
Shares since the immediately preceding Dividend Reference Date) issued and
outstanding.
4F. Dividends After Redemption Date. No Share shall be entitled to any
dividends accruing after the date on which the amount payable thereon pursuant
to Section 4A hereof is paid to the holder thereof. On such date all rights of
the holder of such Share shall cease, and such Share shall not be deemed to be
outstanding.
4G. Redeemed or Otherwise Acquired Shares. Any Shares which are
redeemed or otherwise acquired by the Corporation shall be cancelled and shall
not be reissued, sold or transferred.
4H. Other Redemptions or Acquisitions. Neither the Corporation nor any
Subsidiary shall redeem or otherwise acquire any Series A Preferred, except as
expressly authorized herein or pursuant to a purchase offer made pro-rata to all
holders of Series A Preferred on the basis of the Dividend Reference Value of
the Shares (plus all accrued and unpaid dividends on such Shares since the
immediately preceding Dividend Reference Date) owned by each such holder.
4I. Special Redemptions.
(i) If a Change of Control has occurred or the Corporation obtains
knowledge that a Change of Control is to occur, the Corporation shall give
prompt written notice of such Change of Control, describing in reasonable detail
the definitive terms and date of consummation thereof to each holder of Shares,
but in any event such notice shall not to the extent practicable be given later
than five days after the occurrence of such Change of Control. Subject to the
provisions of clause (iii) below, the holder or holders of a majority of the
Shares then outstanding may require the Corporation to redeem all or any portion
of the Shares owned by such holder or holders at a price per Share equal to
the Dividend Reference Value thereof plus all accrued and unpaid
dividends thereon since the last Dividend Reference Date by giving written
notice to the Corporation of such election prior to the later of (a) 15
business days after receipt of the Corporation's notice and (b) five
business days prior to the consummation of the Change of Control (the
"Expiration Date"). The Corporation shall give prompt written notice of any
such election to all other holders of Shares within five days after the receipt
thereof, and each such holder shall have until the later of (a) the Expiration
Date or (b) ten days after receipt of such second notice to request redemption
(by giving written notice to the Corporation) of all or any portion of the
Shares owned by such holder. Subject to the provisions of clause (iii) below,
upon receipt of such election(s), the Corporation shall be obligated to redeem
the aggregate number of Shares specified therein on the later of (a) the
occurrence of the Change of Control or (b) five days after the Corporation's
receipt of such election(s). If in any case a proposed Change of Control does
not occur, all requests for redemption in connection therewith shall be
automatically
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rescinded. The term "Change of Control" means the occurrence of one or both of
the following events: (1) any Person or any Persons acting together which would
constitute a "group" for purposes of Section 13(d) of the Exchange Act (a
"Group"), together with any Affiliates thereof, other than the ESOP or the
trusts for any other employee stock ownership, benefit or pension plans of the
Corporation or any Subsidiary and other than the holders of Series A Preferred
which are requiring the Corporation to redeem their Shares, shall beneficially
own (as defined in Rule 13d-3 promulgated under the Exchange Act) at least 50%
of the total voting power of all classes of capital stock of the Corporation
entitled to vote generally in the election of directors of the Corporation; or
(2) any one Person or Group (other than the Board of Directors of the
Corporation as it may be constituted from time to time and other than the
holders of the Series A Preferred which are requiring the Corporation to redeem
their Shares), or any Affiliates thereof, shall succeed in having sufficient of
its or their nominees elected to the Board of Directors of the Corporation such
that such nominees, when added to any existing director remaining on the Board
of Directors of the Corporation after such election who is an Affiliate of such
Group, shall constitute a majority of the Board of Directors of the Corporation.
(ii) If a Fundamental Change is proposed to occur, the Corporation
shall give written notice of such Fundamental Change, describing in reasonable
detail the definitive terms and date of consummation thereof, to each holder of
Shares not more than 45 days nor less than 20 days prior to the consummation
thereof. Subject to the provisions of clause (iii) below, the holder or holders
of a majority of the Shares then outstanding may require the Corporation to
redeem all or any portion of the Shares owned by such holder or holders at a
price per Share equal to the Dividend Reference Value thereof plus all accrued
and unpaid dividends thereon since the last Dividend Reference Date by giving
written notice to the Corporation of such election prior to the later of (a) ten
days prior to the consummation of the Fundamental Change or (b) ten days after
receipt of notice from the Corporation. The Corporation shall give prompt
written notice of such election to all other holders of Shares (but in any event
to the extent practicable within five days prior to the consummation of the
Fundamental Change), and each such holder shall have until two days after the
receipt of such notice to request redemption (by written notice given to the
Corporation) of all or any portion of the Shares owned by such holder. Subject
to the provisions of clause (iii) below, upon receipt of such election(s), the
Corporation shall be obligated to redeem the aggregate number of Shares
specified therein upon the consummation of such Fundamental Change. If any
proposed Fundamental Change does not occur, all requests for redemption
in connection therewith shall be automatically rescinded. The term
"Fundamental Change" means the occurrence of one or both of the following
events: (1) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, the assets of the
Corporation to any Person or entity or Group of Persons or entities (other than
any wholly-owned Subsidiary of the Corporation); or (2) the merger or
consolidation of the Corporation with or into another corporation or other
entity or the merger of another corporation or other entity into the Corporation
with the effect that immediately after such transaction any Person or Group
(other than the holders of the Series A Preferred which are requiring
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the Corporation to redeem their Shares) holds more than 50% of the total voting
power entitled to vote generally in the election of directors, managers or
trustees of the surviving corporation of such merger or consolidation.
(iii) Notwithstanding the provisions contained in clauses (i) and (ii)
of this Section 4I to the contrary, the Corporation shall not be obligated to
redeem any Shares of Series A Preferred hereunder until (A) all indebtedness
outstanding under the Credit Agreement or indebtedness guaranteed by the
Corporation under the Credit Agreement has been paid in full or offers of such
payment have been declined by the lenders party thereto and (B) all holders of
indebtedness for borrowed money of the Corporation who directly or through their
agents or representatives are entitled to demand prepayment of such indebtedness
upon the occurrence of a Change of Control or Fundamental Change and who have so
demanded such prepayment have been paid in full in cash. Notwithstanding the
provisions of this Section 4I, no Person or Group which effects a Change of
Control or a Fundamental Change shall be entitled to the benefits of clauses (i)
or (ii) of this Section 4I.
Section 5. Voting Rights.
Except as required in this Certificate of Designation and as otherwise
required by law, the Shares shall have no voting rights; provided, however, that
the holders of the Shares shall be entitled to notice of all stockholders'
meetings at the same time and in the same manner as notice is given to the
stockholders entitled to vote at such meetings.
Section 6. Conversion.
6A. Automatic Conversion. Upon the occurrence of the Trigger Date, each
Share of the Series A1 Preferred shall automatically convert into a share of
Series B1 Preferred, each Share of Series A2 Preferred shall automatically
convert into a share of Series B2 Preferred and each share of Series A3
Preferred shall automatically convert into a share of Series B3 Preferred. The
conversion of the Series A Preferred pursuant to this paragraph 6A shall occur
without any further action being taken by the Corporation or the holders of the
Shares. The "Trigger Date" shall occur following the third anniversary of the
date of issuance of the Series A Preferred on the date immediately after each of
the closing sales prices of the Common Stock on the principal securities
exchange on which the Common Stock may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices of the Common Stock on such exchange at the end of such
days, or, if on any days such Common Stock is not so listed, the average of the
representative bid and asked prices of the Common Stock quoted in the NASDAQ
System as of 4:00 P.M., New York time, or, if on any days the Common Stock is
not quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices of the Common Stock on such days in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, for 20 consecutive trading days was equal to or above
$25.00 per share (subject to proportionate adjustment for stock splits, stock
dividends, stock distributions, recapitalizations or combinations). All
dividends which have accrued up to the Trigger Date and since the immediately
preceding
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Dividend Reference Date at the Corporation's option shall either (a) to the
extent permitted under the General Corporation Law of Delaware, when, as and if
declared by the Corporation's Board of Directors, be paid in cash on the Trigger
Date, (b) or if not so paid, result in a Dividend Conversion Price Adjustment as
provided in the second sentence of Section 6C(ii) calculated in the same manner
as if dividends accrued to and including the Trigger Date were not declared and
paid in cash. Promptly after the occurrence of the Trigger Date, the
Corporation shall deliver to the holders of the Shares written notice of such
occurrence, and the holders of the Shares shall promptly deliver the
certificates representing the Series A Preferred in exchange for the
certificates representing the Series B Preferred. After the Trigger Date and
prior to the time the certificates representing the Series A Preferred are
delivered to the Company, such certificates shall represent shares of Series B
Preferred.
6B. Optional Conversion Procedure.
(i) Each holder of Series A1 Preferred, and each holder of Series A3
Preferred, shall be entitled at any time and from time to time to convert all or
any portion of the Series A1 Preferred or the Series A3 Preferred, as the case
may be (including any fraction of a Share), held by such holder into a number of
shares of Conversion Stock computed by multiplying the number of Shares to be
converted by $1,000 and dividing the result by the Conversion Price then in
effect.
(ii) In the event that the Corporation has authorized the issuance of
Non-Voting Common, each holder of Series A2 Preferred shall be entitled at any
time to convert all or any portion of the Series A2 Preferred (including any
fraction of a Share) held by such holder into a number of Shares of Non-Voting
Common computed by multiplying the number of Shares to be converted by $1,000
and dividing the result by the Conversion Price then in effect.
(iii) In the event that the Corporation has not authorized the issuance
of Non-Voting Common, upon the occurrence (or the expected occurrence as
described in (iv) and (vi) below) of any Conversion Event, each holder of Series
A2 Preferred shall be entitled to convert all or any portion of the Series A2
Preferred (including any fraction of a Share) held by such holder being (or
expected to be) distributed, disposed of or sold in connection with such
Conversion Event into a number of shares of Conversion Stock computed by
multiplying the number of Shares to be converted by $1,000 and dividing the
result by the Conversion Price then in effect. The term "Conversion Event" means
(A) any public offering or public sale of Common Stock (including a public
offering registered under the Securities Act of 1933, as amended, and a public
sale pursuant to Rule 144 of the Securities and Exchange Commission or any
similar rule then in force), (B) any sale of securities of the Corporation to a
person or group of persons (within the meaning of the Exchange Act) if, after
such disposition, such person or group of persons would not, in the aggregate,
own, control or have the right to acquire more than two percent (2%) of the
outstanding securities of any class of voting securities of the Corporation, (C)
a merger, consolidation or similar transaction if, after such transaction, a
person or group of persons (within the meaning of the Exchange Act) in the
aggregate would own or control securities which possess in the
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aggregate the ordinary voting power to elect a majority of the surviving
corporation's directors (provided that such disposition has been approved by the
Corporation's Board of Directors or a committee thereof), (D) any sale of
securities of the Corporation to a person or group of persons (within the
meaning of the Exchange Act) if, after such sale, such person or group of
persons in the aggregate would own or control securities which possess in the
aggregate the ordinary voting power to elect a majority of the Corporation's
directors (provided that such sale has been approved by the Corporation's Board
of Directors or a committee thereof), (E) any sale of securities of the
Corporation to a person or group of persons (within the meaning of the Exchange
Act) if, after such sale, such person or group of persons in the aggregate would
own or control securities of the Corporation (excluding the Series A Preferred
or the Conversion Stock issued upon conversion of the Series A Preferred and
being disposed of in connection with such Conversion Event) which possess in the
aggregate the ordinary voting power to elect a majority of the Corporation's
directors, or (F) the liquidation, dissolution or winding up of the Corporation.
(iv) Each holder of Series A2 Preferred shall be entitled to convert
Shares of Series A2 Preferred into Conversion Stock in connection with any
Conversion Event if such holder reasonably believes that such Conversion Event
shall be consummated, and a written request for conversion from any holder of
Series A2 Preferred to the Corporation stating such holder's reasonable belief
that a Conversion Event shall occur shall be conclusive and shall obligate the
Corporation to effect such conversion in a timely manner so as to enable each
such holder to participate in such Conversion Event. The Corporation shall not
cancel the shares of Series A2 Preferred so converted before the tenth day
following such Conversion Event and shall reserve such shares until such tenth
day for reissuance in compliance with the next sentence. If any shares of
Series A2 Preferred are converted into shares of Conversion Stock in connection
with a Conversion Event and such shares of Conversion Stock are not actually
distributed, disposed of or sold pursuant to such Conversion Event, or if the
Corporation has not been liquidated, such shares of Conversion Stock shall be
promptly converted back into the same number of shares of Series A2 Preferred.
(v) In the event that a holder of Series A2 Preferred delivers a
certificate to the Corporation stating that upon conversion of Shares of Series
A2 Preferred into Shares of Series A1 Preferred such holder and its affiliates
would not have a Regulatory Problem, such holder of Series A2 Preferred shall be
entitled to convert and the Corporation shall be obligated to convert all or any
portion of the Series A2 Preferred (including any fraction of a Share) held by
such holder into the same number of Shares of Series A1 Preferred.
Notwithstanding anything to the contrary contained herein, the Conversion Price
for the Series A1 Preferred issued upon conversion from the Series A2 Preferred
shall be the same Conversion Price as was in effect for the Series A2 Preferred
being converted immediately prior to such conversion. For purposes of this
paragraph 6B(v), a holder shall be deemed to have a "Regulatory Problem" when
such holder and such holder's affiliates (A) would own, control or have power
over a greater quantity of securities of any kind issued by the Corporation than
are permitted under any laws or governmental regulations applicable to banks,
bank holding companies,
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small business investment companies or their affiliates or (B) would not be able
to hold an investment in or provide financing to the Corporation in compliance
with any laws or governmental regulations applicable to banks, bank holding
companies, small business investment companies or their affiliates.
(vi) Notwithstanding any other provision hereof, if a conversion of
Series A Preferred is to be made in connection with a Public Offering, the
conversion of any Shares of Series A Preferred may, at the election of the
holder of such Shares, be conditioned upon the consummation of the Public
Offering in which case such conversion shall not be deemed to be effective until
the consummation of the Public Offering.
(vii) Each holder of Shares desiring to convert Shares shall deliver to
the Corporation a written request for conversion setting forth the name of such
holder, the number of Shares to be converted and the name or names and
denomination or denominations in which, upon conversion, the new certificate or
certificates representing the converted Shares are to be issued.
(viii) Except as otherwise provided herein, each conversion of Shares
shall be deemed to have been effected as of the close of business on the date on
which the certificate or certificates representing the Shares to be converted
have been surrendered at the principal office of the Corporation. At such time
as such conversion has been effected, the rights of the holder of such Shares
shall cease and the Person or Persons in whose name or names any certificate or
certificates for shares of Conversion Stock (or Non-Voting Common, if
applicable) or Shares of Series A1 Preferred are to be issued upon such
conversion shall be deemed to have become the holder or holders of record of the
shares of Conversion Stock (or Non-Voting Common, if applicable) or Shares of
Series A1 Preferred represented thereby.
(ix) As soon as possible after the conversion has been effected (but in
any event within five business days in the case of subparagraph (A) below), the
Corporation shall deliver to each converting holder:
(A) a certificate or certificates representing the number of shares of
Conversion Stock (or Non-Voting Common, if applicable) or the number of
Shares of Series A1 Preferred issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting
holder has specified; and
(B) a certificate representing any Shares which were represented by
the certificate or certificates delivered to the Corporation in connection
with such conversion but which were not converted.
(x) The issuance of certificates for shares of Conversion Stock (or
Non-Voting Common, if applicable) upon conversion of Shares or the issuance of
certificates for Shares of Series A1 Preferred upon conversion of Shares of
Series A2 Preferred shall be made without charge to the holders of such Shares
for any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the related issuance of
shares of Conversion Stock (or Non-Voting Common, if applicable) or Shares of
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Series A1 Preferred. Upon conversion of each Share, the Corporation shall take
all such actions as are necessary in order to insure that the Conversion Stock
(or Non-Voting Common, if applicable) or the Series A1 Preferred issuable with
respect to such conversion shall be validly issued, fully paid and
nonassessable.
(xi) The Corporation shall not close its books against the transfer of
Shares or of Conversion Stock (or Non-Voting Common, if applicable) issued or
issuable upon conversion of Shares or against the transfer of Shares of Series
A1 Preferred issued or issuable upon conversion of Shares of Series A2 Preferred
in any manner which interferes with the timely conversion of Shares. The
Corporation shall assist and cooperate with any holder of Shares required to
make any governmental filings or obtain any governmental approval prior to or in
connection with any conversion of Shares hereunder (including, without
limitation, making any filings required to be made by the Corporation).
(xii) If any fractional interest in a share of Conversion Stock (or
Non-Voting Common Stock, if applicable) would, except for the provisions of this
subparagraph, be deliverable upon any conversion of Shares, the Corporation, in
lieu of delivering the fractional share therefor, shall pay an amount to the
holder thereof equal to the Market Price of such fractional interest as of the
date of conversion.
(xiii) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Conversion Stock (or Non-Voting Common,
if applicable), solely for the purpose of issuance upon the conversion of
Shares, such number of shares of Conversion Stock and Non-Voting Common issuable
upon the conversion of all outstanding Shares. The Corporation shall at all
times reserve and keep available out of its authorized but unissued Shares of
Series A1 Preferred, solely for the purpose of issuance upon the conversion of
Shares of Series A2 Preferred, such number of Shares of Series A1 Preferred
issuable upon the conversion of all outstanding Shares of Series A2 Preferred.
All shares of Conversion Stock and Non-Voting Common and all Shares of Series A
Preferred which are so issuable shall, when issued, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges. The
Corporation shall take all such actions as may be necessary to assure that all
such shares of Conversion Stock and Non-Voting Common and Shares of Series A
Preferred may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Conversion Stock may be listed (except for official notice
of issuance which shall be immediately delivered by the Corporation upon such
issuance).
6C. Conversion Price.
(i) The initial Conversion Price shall be $6.50. In order to prevent
dilution of the conversion rights granted under this Section 6, the Conversion
Price shall be subject to adjustment from time to time pursuant to this Section
6C. Anything herein to the contrary notwithstanding, no adjustment in the
Conversion Price shall be required unless such adjustment, either by itself or
with other adjustments not previously made, would require a change of at least
$.05 in such price; provided, however, that any
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adjustment which by reason of this subparagraph 6C(i) is not required to be made
shall be carried forward and taken into account in any subsequent adjustment and
upon conversion of each Share.
(ii) If and whenever on any Dividend Reference Date the Board of
Directors of the Corporation does not declare and the Corporation does not pay
in cash and in full the dividends contemplated by Section 1A hereof, the
Conversion Price for each of the Series A1 Preferred, Series A2 Preferred and
Series A3 Preferred shall be adjusted as of such Dividend Reference Date such
that the Conversion Price for each of the Series A1 Preferred, Series A2
Preferred and Series A3 Preferred shall equal the product of the then-current
Conversion Price for such series of Series A Preferred times a fraction, the
numerator of which is the Liquidation Value and the denominator of which is the
sum of the Liquidation Value plus the amount of any dividend which would have
accrued since the immediately preceding Dividend Reference Date (or other period
in the case of the initial Dividend Reference Date) at a rate of 9% per annum
(or such other rate which may apply to such series of Series A Preferred as
provided herein) of the Liquidation Value. If on the Trigger Date or on the
date which the holder of Shares converts the Shares pursuant to paragraph 6B the
Board of Directors of the Corporation does not declare and the Corporation does
not pay in cash and in full the dividends contemplated by the last sentence of
Section 1B hereof, the Conversion Price for each of the Series A1 Preferred,
Series A2 Preferred and Series A3 Preferred shall be adjusted as of the Trigger
Date or such conversion date such that the Conversion Price for each of the
Series A1 Preferred, Series A2 Preferred and Series A3 Preferred shall equal the
product of the then-current Conversion Price for such series of Series A
Preferred times a fraction, the numerator of which is the Liquidation Value and
the denominator of which is the sum of the Liquidation Value plus the amount of
any dividend which would have accrued through the Trigger Date if calculated at
a rate of 9% per annum (or such other rate which may apply to such series of
Series A Preferred as provided herein) of the Liquidation Value since the
immediately preceding Dividend Reference Date.
(iii) If and whenever on or after the original date of issuance of
Shares the Corporation issues or sells, or in accordance with Section 6D is
deemed to have issued or sold, any shares of its Common Stock (except in
connection with the Equity Offering (as defined in the Purchase Agreement)) for
a consideration per share less than (a) the Conversion Price in effect
immediately prior to the time of such issue or sale or (b) 95% of the Market
Price of the Common Stock determined as of the date of such issue or sale, then
forthwith upon such issue or sale the Conversion Price shall be reduced to
whichever of the following Conversion Prices is lower (except that none of the
following shall apply to the issuance of Excluded Stock):
(A) the Conversion Price determined by dividing (1) the sum of (x) the
product derived by multiplying the Conversion Price in effect immediately
prior to such issue or sale times the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale, plus (y) the
consideration, if any, received by the Corporation upon such issue or sale,
by (2) the number of shares of Common Stock Deemed Outstanding immediately
after such issue or sale; or
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(B) the Conversion Price determined by multiplying the Conversion Price
in effect immediately prior to such issue or sale by a fraction, the
numerator of which shall be the sum of (1) the number of shares of Common
Stock Deemed Outstanding immediately prior to such issue or sale multiplied
by 95% of the Market Price of the Common Stock determined as of the date of
such issuance or sale, plus (2) the consideration, if any, received by the
Corporation upon such issue or sale, and the denominator of which shall be
the product derived by multiplying 95% of the Market Price of the Common
Stock times the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale.
6D. Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under paragraph 6C(iii), the following
shall be applicable (except that none of the following shall apply to the
issuance of Excluded Stock):
(i) Issuance of Rights or Options. If the Corporation in any manner
grants or sells any Options and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or exchange of the
Convertible Securities issued upon exercise of any such Options is less than (a)
the Conversion Price in effect immediately prior to the time of the granting of
such Options or (b) 95% of the Market Price of the Common Stock determined as of
such time, then the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise of such Options
shall be deemed to be outstanding and to have been issued and sold by the
Corporation at the time of the granting of or sale of such Options for such
price per share. For purposes of this subparagraph, the "price per share for
which Common Stock is issuable" shall be determined by dividing (A) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting or sale of such Options, plus the then minimum aggregate amount of
additional consideration payable to the Corporation upon exercise of all such
Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock then issuable upon the exercise of such Options
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. No further adjustment of the Conversion
Price shall be made when Convertible Securities are actually issued upon the
exercise of such Options or when Common Stock is actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Corporation in any
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon such conversion or exchange is less than (a)
the Conversion Price in effect immediately prior to the time of such issue or
sale or (b) 95% of the Market Price of the Common Stock determined as of such
time, then the maximum number of shares of Common Stock issuable upon conversion
or exchange of such Convertible Securities shall be deemed to be
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outstanding and to have been issued and sold by the Corporation at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this subparagraph, the "price per share for which Common
Stock is issuable" shall be determined by dividing (A) the total amount received
or receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the then minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock then
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Conversion Price shall be made when Common Stock is
actually issued upon the conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made upon
exercise of any options for which adjustments of the Conversion Price had been
or are to be made pursuant to other provisions of this Section 6, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
(iii) Change in Option Price or Conversion Rate. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities, or the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
change at any time, the Conversion Price in effect at the time of such change
shall be adjusted to the Conversion Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right
to convert or exchange any Convertible Security without the exercise of any such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
to the Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.
(v) Calculation of Consideration Received. If any Common Stock, Option
or Convertible Security is issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be the net
amount received by the Corporation therefor. In case any Common Stock, Options
or Convertible Securities are issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Corporation shall be the Market Price thereof as of the date of
receipt. If any Common Stock, Option or Convertible Security is issued in
connection with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any
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consideration other than cash and securities shall be determined in good faith
by the Corporation's Board of Directors.
(vi) Integrated Transactions. In case any option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such option by the parties thereto, such option
shall be deemed to have been issued for a consideration determined in good faith
by the Corporation's Board of Directors, and if the Board of Directors cannot in
good faith determine such consideration, then such option shall be deemed to
have been issued for a consideration of $.01.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Corporation takes a record of the holders of
Common Stock for the purpose of entitling them (a) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (b) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.
6E. Subdivision or Combination of Common Stock. If the Corporation at
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Corporation at any
time combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6F. Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Corporation's assets to another Person
or other transaction which is effected in such a manner that holders of Common
Stock (and/or Rights) are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock (and/or Rights) is referred to herein as an "Organic
Change". Prior to the consummation of any Organic Change, the Corporation shall
make appropriate provisions (in form and substance satisfactory to the holders
of a majority of the Series A Preferred then outstanding) to insure that each of
the holders of Series A Preferred shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be), the shares of
Conversion Stock or Non-Voting Common (as the case may be) (and Rights)
immediately theretofore acquirable and receivable upon the conversion of such
holder's Series A Preferred, such
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shares of stock, securities or assets as such holder would have received in
connection with such Organic Change if such holder had converted its Series A
Preferred immediately prior to such Organic Change. In each such case, the
Corporation shall also make appropriate provisions (in form and substance
satisfactory to the holders of a majority of the Series A Preferred then
outstanding) to insure that the provisions of this Section 6 and Sections 7 and
8 hereof shall thereafter be applicable to the Series A Preferred (including, in
the case of any such consolidation, merger or sale in which the successor entity
or purchasing entity is other than the Corporation, an immediate adjustment of
the Conversion Price to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and a corresponding immediate adjustment in
the number of shares of Conversion Stock acquirable and receivable upon
conversion of Series A Preferred, if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation, merger or
sale). The Corporation shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof, the successor entity (if other than
the Corporation) resulting from consolidation or merger or the entity purchasing
such assets assumes by written instrument (in form reasonably satisfactory to
the holders of a majority of the Series A Preferred then outstanding), the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
6G. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 6 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Corporation's board of directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of Series A
Preferred; provided that no such adjustment shall increase the Conversion Price
as otherwise determined pursuant to this Section 6 or decrease the number of
shares of Conversion Stock issuable upon conversion of each Share of Series A
Preferred.
6H. Notices.
(i) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Shares, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders of Shares
at least 20 days prior to the date on which the Corporation closes its books or
takes a record (a) with respect to any dividend or distribution upon Common
Stock or Non-Voting Common Stock, as the case may be, (b) with respect to any
pro rata subscription offer to holders of Common Stock, or (c) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation.
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(iii) The Corporation shall also give written notice to the holders of
Shares at least 20 days prior to the date on which any Organic Change shall take
place.
Section 7. Liquidating Dividends.
If the Corporation declares or pays a dividend upon the Common Stock
payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock (a "Liquidating
Dividend"), then the Corporation shall pay to the holders of Series A Preferred
at the time of payment thereof the Liquidating Dividends which would have been
paid on the shares of Conversion Stock had such Series A Preferred been
converted immediately prior to the date on which a record is taken for such
Liquidating Dividend, or, if no record is taken, the date as of which the record
holders of Common Stock entitled to such dividends are to be determined;
provided that if the Liquidating Dividends consist of voting securities, the
Corporation shall make available to each holder of Series A2 Preferred, at such
holder's request, Liquidating Dividends consisting of non-voting securities
which are otherwise identical to the Liquidating Dividends consisting of voting
securities and which non-voting securities are convertible into such voting
securities on the same terms as Series A2 Preferred is convertible into
Conversion Stock.
Section 8. Purchase Rights.
If at any time the Corporation grants, issues, distributes or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then each holder of Series A Preferred
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Conversion Stock acquirable upon
conversion of such holder's Series A Preferred immediately before the date on
which a record is taken for the grant, issuance, distribution or sale of such
Purchase Rights, or, if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue, distribution
or sale of such Purchase Rights; provided that if the grant, issue, distribution
or sale of the Purchase Rights entitle the holders of the Series A Preferred to
an adjustment in the Conversion Price pursuant to Section 6 hereof, then the
holders of a majority of Series A Preferred will have the option to either (a)
acquire the Purchase Rights pursuant to this Section 8, or (b) adjust the
Conversion Price pursuant to Section 6; provided further that if the Purchase
Rights involve voting securities, the Corporation shall make available to each
holder of Series A2 Preferred, at such holder's request, Purchase Rights
involving non-voting securities which are otherwise identical to the Purchase
Rights involving voting securities and which non-voting securities are
convertible into such voting securities on the same terms as Series A2 Preferred
is convertible into Conversion Stock.
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If the Distribution Date (as defined in the Rights Agreement) occurs,
the Company shall issue to each holder of Series A Preferred a number of rights
("New Rights") equal to the number of Rights such holder would have held if such
holder had held the number of shares of Conversion Stock acquirable upon
conversion of such holder's Series A Preferred immediately prior to the
Distribution Date. The New Rights shall be substantially similar to the Rights;
provided, however, that such New Rights shall provide for the issuance, at the
request of any holder of New Rights, of non-voting securities which are
otherwise identical to any voting securities issuable upon exercise of the
Rights and which non-voting securities are convertible into voting securities on
the same terms as the Series A2 Preferred is convertible into Conversion Stock.
Section 9. Events of Noncompliance.
9A.1. Definition. An Event of Noncompliance shall be deemed to have
occurred with respect to the Series A1 and Series A2 Preferred if:
(i) the Corporation breaches or otherwise fails to perform or observe
any covenant or agreement set forth in Section 6.1 of the Purchase Agreement or
set forth in this Certificate of Designation;
(ii) a representation or warranty contained in paragraphs 3.3, 3.6, 3.7,
3.8, 3.10, 3.12(c) through (g) inclusive, 3.13, 3.14 or 3.15 of the Purchase
Agreement (including any closing certificate with respect to such
representations and warranties), is false or misleading in any material respect
on the date made or furnished and such breach has a Material Adverse Effect (as
defined in the Purchase Agreement) on the Corporation or on the value of the
Series A1 Preferred and Series A2 Preferred; or
(iii) the Corporation or any Significant Subsidiary makes an assignment
for the benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Corporation or any Significant Subsidiary bankrupt or
insolvent; or any order for relief with respect to the Corporation or any
Significant Subsidiary is entered under the Federal Bankruptcy Code; or the
Corporation or any Significant Subsidiary petitions or applies to any tribunal
for the appointment of a custodian, trustee, receiver or liquidator of the
Corporation or any Significant Subsidiary or of any substantial part of the
assets of the Corporation or any Significant Subsidiary, or commences any
proceeding (other than a proceeding for the voluntary liquidation and
dissolution of a Subsidiary) relating to the Corporation or any Significant
Subsidiary under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding is commenced,
against the Corporation or any Significant Subsidiary and either (a) the
Corporation or any such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein or (b) such petition, application or
proceeding is not dismissed within 60 days.
9A.2. Definition. An Event of Noncompliance shall be deemed to have
occurred with respect to the Series A3 Preferred if:
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(i) the Corporation breaches or otherwise fails to perform or observe
any covenant or agreement set forth in Section 6.1 of the Series A3 Purchase
Agreement or set forth in this Certificate of Designation;
(ii) a representation or warranty contained in paragraphs 3.2, 3.4 or
3.5 of the Series A3 Purchase Agreement (including any closing certificate with
respect to such representations and warranties), is false or misleading in any
material respect on the date made or furnished and such breach has a Material
Adverse Effect (as defined in the Series A3 Purchase Agreement) on the
Corporation or on the value of the Series A3 Preferred; or
(iii) the Corporation or any Significant Subsidiary makes an assignment
for the benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Corporation or any Significant Subsidiary bankrupt or
insolvent; or any order for relief with respect to the Corporation or any
Significant Subsidiary is entered under the Federal Bankruptcy Code; or the
Corporation or any Significant Subsidiary petitions or applies to any tribunal
for the appointment of a custodian, trustee, receiver or liquidator of the
Corporation or any Significant Subsidiary or of any substantial part of the
assets of the Corporation or any Significant Subsidiary, or commences any
proceeding (other than a proceeding for the voluntary liquidation and
dissolution of a Subsidiary) relating to the Corporation or any Significant
Subsidiary under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding is commenced,
against the Corporation or any Significant Subsidiary and either (a) the
Corporation or any such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein or (b) such petition, application or
proceeding is not dismissed within 60 days.
9B. Consequences of Certain Events of Noncompliance.
(i)(A) If an Event of Noncompliance described in Sections 9A.1 has
occurred, the dividend rate on the Series A1 Preferred and Series A2 Preferred
shall increase immediately by an increment of .5 percentage point. Thereafter,
until such time as no such Event of Noncompliance exists, the dividend rate for
the Series A1 Preferred and Series A2 Preferred shall increase automatically at
the end of each succeeding 180-day period by an additional increment of .5
percentage point (but in no event shall the dividend rate exceed 12%). Any
increase of the dividend rate resulting from the operation of this paragraph
shall terminate as of the close of business on the date on which no such Event
of Noncompliance exists, subject to subsequent increases pursuant to this
paragraph.
(i)(B) If an Event of Noncompliance described in Section 9A.2 has
occurred, the dividend rate on the Series A3 Preferred shall increase
immediately by an increment of .5 percentage point. Thereafter, until such time
as no such Event of Noncompliance exists, the dividend rate for the Series A3
Preferred shall increase automatically at the end of each succeeding 180-day
period by an additional increment of .5 percentage point (but in no event shall
the dividend rate exceed 12%). Any increase of the dividend rate
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resulting from the operation of this paragraph shall terminate as of the close
of business on the date on which no such Event of Noncompliance exists, subject
to subsequent increases pursuant to this paragraph.
(ii) If an Event of Noncompliance set forth in paragraph 9A.1(iii) or
9A.2(iii) hereof has occurred, the holder or holders of a majority of the Series
A Preferred then outstanding may demand (by written notice delivered to the
Corporation) immediate redemption of all or any portion of the Series A
Preferred owned by such holder or holders at a price per Share equal to the
Dividend Reference Value thereof plus all accrued and unpaid dividends thereon.
The Corporation shall give prompt written notice of such election to the other
holders of Series A Preferred (but in any event within five days after receipt
of the initial demand for redemption), and each such other holder may demand
immediate redemption of all or any portion of such holder's Series A Preferred
by giving written notice thereof to the Corporation within seven days after
receipt of the Corporation's notice. The Corporation shall redeem all Series A
Preferred as to which rights under this paragraph have been exercised within 15
days after receipt of the initial demand for redemption. Notwithstanding any
other provision of this clause (ii) to the contrary, the Corporation shall not
be obligated to redeem any Series A Preferred hereunder until such time as all
of the indebtedness for borrowed money of the Corporation and indebtedness of
any subsidiary or the ESOP guaranteed by the Corporation under the Credit
Agreement has been paid in full in cash.
(iii) If any Event of Noncompliance exists with respect to the Series A1
Preferred, Series A2 Preferred and/or Series A3 Preferred, each holder of the
Series A1 Preferred, Series A2 Preferred or Series A3 Preferred, as the case may
be, to which an Event of Noncompliance applies, shall also have any other rights
which such holder is entitled to under any contract or agreement at any time and
any other rights which such holder may have pursuant to applicable law.
Section 10. Exchange of Shares.
(i) The Corporation, at its option, may at any time exchange all or any
portion of the shares (including any fraction of a share) of the Series A1
Preferred, Series A2 Preferred or Series A3 Preferred for Series 1 Debentures,
Series 2 Debentures or Series 3 Debentures, respectively, (the "Exchange
Option"); provided, however, that the Corporation shall not exchange Shares if
(i) the Liquidation Value of the Series A Preferred to be exchanged is less than
$5,000,000 or (ii) the Liquidation Value of the remaining outstanding Series A1
Preferred and Series A2 Preferred is less than $10,000,000 and provided further,
that the Corporation may only exchange portions of the Series A Preferred in
increments of $1,000,000 of Liquidation Value. If at any time the Corporation
exchanges less than all of the Shares outstanding, such exchange shall be made
ratably among the holders thereof based upon the Dividend Reference Value of the
Shares (plus all accrued and unpaid dividends on such Shares since the
immediately preceding Dividend Reference Date) of each such holder and the
aggregate Dividend Reference Value of all Shares (plus all accrued and unpaid
dividends on such
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Shares since the immediately preceding Dividend Reference Date) issued and
outstanding.
(ii) The Corporation shall mail written notice of an exchange of any
Shares to each holder thereof no more than 60 nor less than 30 days prior to the
date on which such exchange is to be made.
(iii) Upon the exercise of the Exchange Option, each holder of
outstanding Shares shall receive Exchange Debentures in an aggregate principal
amount equal to the sum of (a) the Dividend Reference Value times the number of
Shares to be exchanged by the Corporation, plus (b) accrued and unpaid dividends
on such Shares since the immediately preceding Dividend Reference Date.
(iv) Upon such exchange, the rights of the holders of Shares so
exchanged shall cease as stockholders of the Corporation with respect to such
Shares, and the Person or Persons entitled to receive the Exchange Debentures
issuable upon exchange shall be treated for all purposes as the holder or
holders of such Exchange Debentures. The Corporation shall cause the Exchange
Debentures to be duly executed and authenticated as of the date on which such
exchange is effective.
(v) Notwithstanding the foregoing, the Corporation shall not exercise
the Exchange Option with respect to Shares held by a holder or holders if,
within 21 days after receipt of the notice from the Corporation of the exchange,
such holder(s) delivers to the Corporation a written opinion of nationally
recognized tax counsel stating that such exchange would more likely than not
result in the recognition of taxable gain by such holder(s).
Section 11. Registration of Transfer.
The Corporation shall keep at its principal office a register for the
registration of Shares. Upon the surrender of any certificate representing
Shares at such place, the Corporation shall, at the request of the record holder
of such certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
Shares as is requested by the holder of the surrendered certificates and shall
be substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Shares represented by such new certificate from the
immediately preceding Dividend Reference Date.
Section 12. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing Shares
of any class of Series A Preferred, and in the case of any such loss, theft or
destruction, upon receipt of indemnity satisfactory to the Corporation (provided
that if the holder is a financial institution or other
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institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Shares represented by such new certificate from the
immediately preceding Dividend Reference Date.
Section 13. Definitions.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified 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.
"Common Stock" means, collectively, the Corporation's Common Stock, par
value $1.00 per share, and any capital stock of any class of the Corporation
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.
"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 6D(i) and
6D(ii) hereof (including Excluded Stock) whether or not the Options or options
for Convertible Securities or Convertible Securities are actually exercisable or
exchangeable, as the case may be, at such time.
"Conversion Stock" means shares of the Corporation's Common Stock, par
value $1.00 per share; provided that if there is a change such that the
securities issuable upon conversion of the Series A Preferred are issued by an
entity other than the Corporation or there is a change in the class of
securities so issuable, then the term "Conversion Stock" shall mean one share of
the security issuable upon conversion of the Series A Preferred if such security
is issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Convertible Securities" means any stock or securities convertible into
or exchangeable for Common Stock.
"Credit Agreement" means the Amended and Restated Credit Agreement,
dated as of June 18, 1992, (including, without limitation, any "Credit
Documents" (as defined in the New Credit Agreement)) among the Corporation, the
ESOP and certain Subsidiaries of the Corporation, the Agent Bank and the Lenders
listed therein, as such Agreement may be amended, amended and restated,
supplemented or otherwise modified from time to time, and includes
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any agreement extending the maturity of, refinancing or otherwise restructuring
(including, but not limited to, the inclusion of additional borrowers thereunder
that are Subsidiaries of the Corporation and additional lenders) all or any
portion of the Obligations under such Agreement (as defined therein) or any
successor agreement.
"ESOP" means the Corporation's Employee Stock Ownership Plan effective
as of September 1, 1989.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Debentures" means the Corporation's Series 1 Debentures,
Series 2 Debentures and Series 3 Debentures each due June 18, 2002, authorized
but reserved for issuance as of the date of issuance of the Series A Preferred
and in the forms of Exhibit C-1 and C-2, respectively, attached to the Purchase
Agreement and Exhibit B to the Series A3 Purchase Agreement.
"Excluded Stock" means the shares of Common Stock issued or issuable
pursuant to the Corporation's existing and future employee stock option and
benefit plans approved by the Corporation's board of directors, including the
Corporation's 1989 Employee Stock Option Plan pursuant to which 1,600,000 shares
of Common Stock which were authorized for options, stock awards and partial
payment of bonuses, in each case which are issued or granted (including by way
of amendment or modification thereof) at a price equal to at least 95% of the
Market Value of the Common Stock on the date of such issuance or grant
(including any such amendment or modification thereof.)
"Junior Securities" means any of the Corporation's equity securities
other than the Series A Preferred.
"Liquidation Value" of any Share as of any particular date shall be
equal to $1,000.
"Market Price" of any security means the average of the closing prices
of such security's sales on the principal securities exchange on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
such exchange at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, or, if on any day such securities
not quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which "Market Price" is being determined and the 20 consecutive business days
prior to such day. If at any time such security is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the
Corporation and the holders of a majority of the Shares. If such parties are
unable to reach agreement within a reasonably period of time, much fair value
shall be
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determined by an independent appraiser experienced in valuing securities jointly
selected by the Corporation and the holders of a majority of the Shares. The
determination of such appraiser shall be final and binding upon the parties, and
the Corporation shall pay the fees and expenses of such appraiser.
"Non-Voting Common" means the Corporation's Non-Voting Common Stock, par
value $1.00 per share, having the terms as set forth in Exhibit B to the
Purchase Agreement; provided, that if there is a change such that the securities
issuable upon conversion of the Series A2 Preferred are issued by an entity
other than the Corporation or if there is a change in the class of securities so
issuable, then the term "Non-Voting Common" shall mean one share of the security
issuable upon conversion of the Series A2 Preferred if such security is issuable
in shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.
"Options" means any rights or portions to subscribe for or purchase
Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Public Offering" means any offering by the Corporation of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act of 1933, as then in effect, or any comparable statement under
any similar federal statute then in force.
"Purchase Agreement" means the Preferred Stock Purchase Agreement, dated
as of March 6, 1992, by and between the Corporation and certain investors, as
such agreement may from time to time be amended in accordance with its terms.
"Rights" means the Rights defined in the Rights Agreement and any
securities issued in connection with or upon exercise of the Rights.
"Rights Agreement" means that certain Rights Agreement, dated as of
January 26, 1989 as amended, between the Corporation and The First National Bank
of Chicago, and any successor rights plan.
"Series A3 Purchase Agreement" means the Preferred Stock Purchase
Agreement, dated as of May 7, 1992, by and between the Corporation and certain
investors, as such agreement from time to time may be amended in accordance with
its terms.
"Series B Preferred" means collectively the Series B1 Preferred, the
Series B2 Preferred and the Series B3 Preferred.
"Series B1 Preferred" means the Corporation's Series B1 Convertible
Preferred Stock, par value $1.00 per share.
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"Series B2 Preferred" means the Corporation's Series B2 Convertible
Preferred Stock, par value $1.00 per share.
"Series B3 Preferred" means the Corporation's Series B3 Convertible
Preferred Stock, par value $1.00 per share.
"Significant Subsidiaries" means those Subsidiaries of the Corporation
listed as Significant Subsidiaries pursuant to Section 3.3 of the Purchase
Agreement.
"Subsidiary" means any corporation of which the shares of outstanding
capital stock possessing the voting power (under ordinary circumstances) in
electing the Board of Directors are, at the time as of which any determination
is being made, owned by the Corporation either directly or indirectly through
Subsidiaries.
Section 14. Amendment and Waiver.
No amendment, modification or waiver shall be binding or effective with
respect to any provision of Sections 1 to 12 hereof without the prior written
consent of the holders of a majority of the Shares outstanding at the time such
action is taken; provided, that, in addition to such majority vote, no such
action shall change (i)(a) the rate at which or the manner in which dividends on
the Series A1 Preferred accrue or the times at which such dividends become
payable or the amount payable on redemption of the Series A1 Preferred or the
times at which redemption of the Series A1 Preferred is to occur, without the
prior written consent of the holders of at least 80% of the Series A1 Preferred
then outstanding, (b) the Conversion Price of the Series A1 Preferred or the
number of shares or class of stock into which the Series A1 Preferred are
convertible, without the prior written consent of the holders of at least 80% of
the Series A1 Preferred then outstanding or (c) the percentage required to
approve any change described in clauses (i)(a) and (i)(b) above, without the
prior written consent of the holders of at least 80% of the Series A1 Preferred
then outstanding, (ii)(a) the rate at which or the manner in which dividends on
the Series A2 Preferred accrue or the times at which such dividends become
payable or the amount payable on redemption of the Series A2 Preferred or the
times at which redemption of the Series A2 Preferred is to occur, without the
prior written consent of the holders of at least 80% of the Series A2 Preferred
then outstanding, (b) the Conversion Price of the Series A2 Preferred or the
number of shares or class of stock into which the Series A2 Preferred are
convertible, without the prior written consent of the holders of at least 80% of
the Series A2 Preferred then outstanding or (c) the percentage required to
approve any change described in clauses (ii)(a) and (ii)(b) above, without the
prior written consent of the holders of at least 80% of the Series A2 Preferred
then outstanding or (iii)(a) the rate at which or the manner in which dividends
on the Series A3 Preferred accrue or the times at which such dividends become
payable or the amount payable on redemption of the Series A3 Preferred or the
times at which redemption of Series A3 Preferred is to occur, without the prior
written consent of the holders of at least 80% of the Series A3 Preferred then
outstanding, (b) the Conversion Price of the Series A3 Preferred or the number
of shares or class of stock into which the Series A3 Preferred are
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convertible, without the prior written consent of the holders of at least 80% of
the Series A3 Preferred then outstanding or (c) the percentage required to
approve any change described in clauses (iii)(a) and (iii)(b) above, without the
prior written consent of the holders of at least 80% of the Series A3 Preferred
then outstanding; and provided further, that no change in the terms hereof may
be accomplished by merger or consolidation of the Corporation with another
corporation or entity unless the Corporation has obtained the prior written
consent of the holders of the applicable percentage of the Shares then
outstanding.
Section 15. Notices.
Except as otherwise expressly provided hereunder, all notice referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charge prepaid, and shall be deemed to have been given when so
mailed or sent (i) to the Corporation, at its principal executive offices and
(ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation.
IN WITNESS WHEREOF, The Interlake Corporation has caused this
Certificate to be duly executed this _____ day of June, 1992.
THE INTERLAKE CORPORATION
By:______________________
Stephen R. Smith
Vice President and General
Counsel
Attest:
----------------------
Ian R. MacLeod
Secretary
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<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES B1 CONVERTIBLE PREFERRED STOCK
SERIES B2 CONVERTIBLE PREFERRED STOCK
AND SERIES B3 CONVERTIBLE PREFERRED STOCK
OF
THE INTERLAKE CORPORATION
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The Interlake Corporation, a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article FOURTH of its
Restated Certificate of Incorporation, as amended, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors has adopted the following resolutions creating
three series of its Preferred Stock, $1.00 par value per share, designated as
Series B1 Convertible Preferred Stock, Series B2 Convertible Preferred Stock and
Series B3 Convertible Preferred Stock:
RESOLVED, that pursuant to Article FOURTH of the Restated Certificate of
Incorporation, as amended, of the Corporation, whereby 2,000,000 shares of
Preferred Stock, par value $1.00 per share, are authorized, there be and hereby
is designated and created a Series B1 Convertible Preferred Stock, par value
$1.00 per share (the "Series B1 Preferred"), to consist of 35,000 shares, a
Series B2 Convertible Preferred Stock, par value $1.00 per share (the "Series B2
Preferred"), to consist of 35,000 shares and a Series B3 Convertible Preferred
Stock, par value $1.00 per share (the "Series B3 Preferred"), to consist of
5,000 shares. The Series B1 Preferred, Series B2 Preferred and Series B3
Preferred are collectively referred to herein as the "Series B Preferred"; and
FURTHER RESOLVED, that the powers, preferences and rights of, and
qualifications, limitations and restrictions on, the Series B Preferred are set
forth below and in the agenda material sent to all directors on May 21, 1992 and
except as otherwise expressly provided below, the Series B1 Preferred, the
Series B2 Preferred and the Series B3 Preferred shall be identical in all
respects.
Section 1. Dividends. In the event that the Board of Directors of the
Corporation shall declare a dividend payable upon the then outstanding shares of
Common Stock (other than a stock dividend on the Common Stock distributed solely
in the form of additional shares of Common Stock) and shall pay such dividend,
the holders of the Series B Preferred shall be paid at the same time as the
holders of Common Stock the amount of dividends per share of Series B Preferred
as would be declared payable on the largest number of whole shares of Common
Stock into which the total number of Shares of Series B Preferred held by each
holder thereof could be converted pursuant to the provisions of Section 6 hereof
immediately prior to the declaration of such
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<PAGE>
dividend, such number determined as of the record date for the determination of
holders of Common Stock entitled to receive such dividend.
Section 2. Liquidation.
Upon any liquidation, dissolution or winding up of the Corporation, each
holder of Shares shall be entitled to be paid, before any distribution or
payment is made upon any Junior Securities, an amount in cash equal to the
aggregate Liquidation Value (plus all accrued and unpaid dividends thereon) of
all Shares held by such holder, and the holders of Shares shall not be entitled
to any further payment. If upon any such liquidation, dissolution or winding up
of the Corporation, the Corporation's assets to be distributed among the holders
of Shares are insufficient to permit payment to such holders of the aggregate
amount which they are entitled to be paid, then the entire assets to be
distributed shall be distributed ratably among such holders based upon the
amounts which each such holder is entitled to be paid pursuant to the first
sentence of this Section 2 and the aggregate amount all holders of Shares are
entitled to be paid pursuant to such sentence. The Corporation shall mail
written notice of such liquidation, dissolution or winding up, not less than 60
days prior to the payment date stated therein, to each holder of Shares.
Neither the consolidation or merger of the Corporation into or with any other
entity or entities, nor the sale or transfer by the Corporation of all or any
part of its assets, nor the reduction of the capital stock of the Corporation,
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of this Section 2.
Section 3. Priority of Series B Preferred.
So long as any Series B Preferred remains outstanding, neither the
Corporation nor any Subsidiary shall redeem, purchase or otherwise acquire
directly or indirectly any Junior Securities; provided that the Corporation may
purchase shares of Common Stock from present or former employees of the
Corporation and its Subsidiaries or from the Corporation's independent outside
directors pursuant to the Corporation's or any Subsidiary's existing or future
stock option or benefit plans approved by the Corporation's board of directors
and may redeem rights or securities issued under the Rights Agreement or issued
with respect to the Series A Preferred or the Series B Preferred.
Section 4. Redemptions.
4A. Optional Redemptions. If the Corporation's restated certificate of
incorporation has been amended to authorize the Non-Voting Common and such Non-
Voting Common is issuable upon conversion of the Series B2 Preferred, then from
and after June 18, 1998, the Corporation may make redemptions of all or any
portion of the Shares then outstanding; provided, however, that the Corporation
may not redeem a portion of the Series B Preferred if (i) the Liquidation Value
of such Series B Preferred to be redeemed is less than $5,000,000 or (ii) the
Liquidation Value of the remaining outstanding Series B1 Preferred and Series B2
Preferred is less than $10,000,000; and provided further that the Corporation
may only redeem portions of the Series B Preferred in increments of $1,000,000
of the Liquidation Value. The Corporation shall only be entitled to request a
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<PAGE>
redemption pursuant to this paragraph 4A one time in any 90-day period. On any
such redemption, the Corporation shall pay a price per Share equal to the sum of
the Liquidation Value thereof and an amount equal to all accrued and unpaid
dividends thereon.
4B. Notice of Redemption. Except as otherwise provided in paragraph 4I
below, the Corporation shall mail written notice of each redemption of any
Shares to each record holder thereof not more than 60 nor less than 30 days
prior to the date on which such redemption is to be made. Upon mailing any
notice of redemption which relates to a redemption at the Corporation's option,
the Corporation shall become obligated to redeem the total number of Shares
specified in such notice at the time of redemption specified therein. In case
fewer than the total number of Shares represented by any certificate are
redeemed, a new certificate representing the number of unredeemed Shares shall
be issued to the holder thereof without cost to such holder within three
business days after surrender of the certificate representing the redeemed
Shares.
4C. Surrender of Shares. If any holder of the Shares elects to convert
all or a portion of the Shares rather than having such Shares redeemed, such
holder shall deliver to the Corporation in person or by registered or certified
mail, return receipt requested, such holders' Shares on or prior to the date of
redemption (the "Redemption Date"), and such conversion shall be effected in
accordance with the terms of Section 6 hereof. If any holder of the Shares does
not convert the Shares, such holder shall deliver to the Corporation the
certificates representing the Shares to be redeemed on or prior to the
Redemption Date.
4D. Redemption Payment. For each of the Shares which are to be
redeemed, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Shares) the full amount for such
Shares by cashier's or certified check.
4E. Determination of the Number of Each Holder's Shares to Be Redeemed.
If at any time the Corporation makes a redemption of less than all of the Shares
outstanding, such redemption shall be made ratably among the holders thereof
based upon the Liquidation Value of the Shares (plus all accrued and unpaid
dividends thereon) of each such holder and the aggregate Liquidation Value of
all Shares (plus all accrued and unpaid dividends thereon) issued and
outstanding.
4F. Dividends After Redemption Date. No Share shall be entitled to any
dividends accruing after the date on which the amount payable thereon pursuant
to Section 4A hereof is paid to the holder thereof. On such date all rights of
the holder of such Share shall cease, and such Share shall not be deemed to be
outstanding.
4G. Redeemed or Otherwise Acquired Shares. Any Shares which are
redeemed or otherwise acquired by the Corporation shall be cancelled and shall
not be reissued, sold or transferred.
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<PAGE>
4H. Other Redemptions or Acquisitions. Neither the Corporation nor any
Subsidiary shall redeem or otherwise acquire any Series B Preferred, except as
expressly authorized herein or pursuant to a purchase offer made pro-rata to all
holders of Series B Preferred on the basis of the Liquidation Value of the
Shares (plus all accrued and unpaid dividends thereon) owned by each such
holder.
4I. Special Redemptions.
(i) If a Change of Control has occurred or the Corporation obtains
knowledge that a Change of Control is to occur, the Corporation shall give
prompt written notice of such Change of Control, describing in reasonable detail
the definitive terms and date of consummation thereof to each holder of Shares,
but in any event such notice shall not to the extent practicable be given later
than five days after the occurrence of such Change of Control. Subject to the
provisions of clause (iii) below, the holder or holders of a majority of the
Shares then outstanding may require the Corporation to redeem all or any portion
of the Shares owned by such holder or holders at a price per Share equal to the
Liquidation Value thereof (plus all accrued and unpaid dividends thereon) by
giving written notice to the Corporation of such election prior to the later of
(a) 15 business days after receipt of the Corporation's notice and (b) five
business days prior to the consummation of the Change of Control (the
"Expiration Date"). The Corporation shall give prompt written notice of any
such election to all other holders of Shares within five days after the receipt
thereof, and each such holder shall have until the later of (a) the Expiration
Date or (b) ten days after receipt of such second notice to request redemption
(by giving written notice to the Corporation) of all or any portion of the
Shares owned by such holder. Subject to the provisions of clause (iii) below,
upon receipt of such election(s), the Corporation shall be obligated to redeem
the aggregate number of Shares specified therein on the later of (a) the
occurrence of the Change of Control or (b) five days after the Corporation's
receipt of such election(s). If in any case a proposed Change of Control does
not occur, all requests for redemption in connection therewith shall be
automatically rescinded. The term "Change of Control" means the occurrence of
one or both of the following events: (1) any Person or any Persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Exchange Act (a "Group"), together with any Affiliates thereof, other than the
ESOP or the trusts for any other employee stock ownership, benefit or pension
plans of the Corporation or any Subsidiary and other than the holders of Series
A Preferred which are requiring the Corporation to redeem their Shares, shall
beneficially own (as defined in Rule 13d-3 promulgated under the Exchange Act)
at least 50% of the total voting power of all classes of capital stock of the
Corporation entitled to vote generally in the election of directors of the
Corporation; or (2) any Person or Group (other than the Board of Directors of
the Corporation as it may be constituted from time to time and other than the
holders of the Series B Preferred which are requiring the Corporation to redeem
their Shares), or any Affiliates thereof, shall succeed in having sufficient of
its or their nominees elected to the Board of Directors of the Corporation such
that such nominees, when added to any existing director remaining on the Board
of Directors of the Corporation after such election who is an Affiliate of such
Group, shall constitute a majority of the Board of Directors of the Corporation.
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<PAGE>
(ii) If a Fundamental Change is proposed to occur, the Corporation
shall give written notice of such Fundamental Change, describing in reasonable
detail the definitive terms and date of consummation thereof, to each holder of
Shares not more than 45 days nor less than 20 days prior to the consummation
thereof. Subject to the provisions of clause (iii) below, the holder or holders
of a majority of the Shares then outstanding may require the Corporation to
redeem all or any portion of the Shares owned by such holder or holders at a
price per Share equal to the Liquidation Value thereof (plus all accrued and
unpaid dividends thereon) by giving written notice to the Corporation of such
election prior to the later of (a) ten days prior to the consummation of the
Fundamental Change or (b) ten days after receipt of notice from the Corporation.
The Corporation shall give prompt written notice of such election to all other
holders of Shares (but in any event to the extent practicable within five days
prior to the consummation of the Fundamental Change), and each such holder shall
have until two days after the receipt of such notice to request redemption (by
written notice given to the Corporation) of all or any portion of the Shares
owned by such holder. Subject to the provisions of clause (iii) below, upon
receipt of such election(s), the Corporation shall be obligated to redeem the
aggregate number of Shares specified therein upon the consummation of such
Fundamental Change. If any proposed Fundamental Change does not occur, all
requests for redemption in connection therewith shall be automatically
rescinded. The term "Fundamental Change" means the occurrence of one or both of
the following events: (1) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
the assets of the Corporation to any Person or entity or Group of Persons or
entities (other than any wholly-owned Subsidiary of the Corporation); or (2) the
merger or consolidation of the Corporation with or into another corporation or
other entity or the merger of another corporation or other entity into the
Corporation with the effect that immediately after such transaction any Person
or Group (other than the holders of the Series B Preferred which are requiring
the Corporation to redeem their Shares) holds more than 50% of the total voting
power entitled to vote generally in the election of directors, managers or
trustees of the surviving corporation of such merger or consolidation.
(iii) Notwithstanding the provisions contained in clauses (i) and (ii)
of this Section 4I to the contrary, the Corporation shall not be obligated to
redeem any Shares of Series B Preferred hereunder until (A) all indebtedness
outstanding under the Credit Agreement or indebtedness guaranteed by the
Corporation under the Credit Agreement has been paid in full or offers of such
payment have been declined by the lenders party thereto and (B) all holders of
indebtedness for borrowed money of the Corporation who are directly or through
their agents or representatives entitled to demand prepayment of such
indebtedness upon the occurrence of a Change of Control or Fundamental Change
and who have so demanded such prepayment have been paid in full in cash.
Notwithstanding the provisions of this Section 4I, no Person or Group which
effects a Change of Control or a Fundamental Change shall be entitled to the
benefits of clauses (i) or (ii) of this Section 4I.
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<PAGE>
Section 5. Voting Rights.
Except as required in this Certificate of Designation and as otherwise
required by law, the Shares shall have no voting rights; provided, however, that
the holders of the Shares shall be entitled to notice of all stockholders'
meetings at the same time and in the same manner as notice is given to the
stockholders entitled to vote at such meetings.
Section 6. Conversion.
6A. Conversion Procedure.
(i) Each holder of Series B1 Preferred, and each holder of Series B3
Preferred, shall be entitled at any time and from time to time to convert all or
any portion of the Series B1 Preferred or the Series B3 Preferred, as the case
may be (including any fraction of a Share), held by such holder into a number of
shares of Conversion Stock computed by multiplying the number of Shares to be
converted by $1,000 and dividing the result by the Conversion Price then in
effect.
(ii) In the event that the Corporation has authorized the issuance of
Non-Voting Common, each holder of Series B2 Preferred shall be entitled at any
time to convert all or any portion of the Series B2 Preferred (including any
fraction of a Share) held by such holder into a number of shares of Non-Voting
Common computed by multiplying the number of Shares to be converted by $1,000
and dividing the result by the Conversion Price then in effect.
(iii) In the event that the Corporation has not authorized the issuance
of Non-Voting Common, upon the occurrence (or the expected occurrence as
described in (iv) and (vi) below) of any Conversion Event, each holder of Series
B2 Preferred shall be entitled to convert all or any portion of the Series B2
Preferred (including any fraction of a Share) held by such holder being (or
expected to be) distributed, disposed of or sold in connection with such
Conversion Event into a number of shares of Conversion Stock computed by
multiplying the number of Shares to be converted by $1,000 and dividing the
result by the Conversion Price then in effect. The term "Conversion Event" means
(A) any public offering or public sale of Common Stock (including a public
offering registered under the Securities Act of 1933, as amended, and a public
sale pursuant to Rule 144 of the Securities and Exchange Commission or any
similar rule then in force), (B) any sale of securities of the Corporation to a
person or group of persons (within the meaning of the Exchange Act) if, after
such disposition, such person or group of persons would not, in the aggregate,
own, control or have the right to acquire more than two percent (2%) of the
outstanding securities of any class of voting securities of the Corporation, (C)
a merger, consolidation or similar transaction if, after such transaction, a
person or group of persons (within the meaning of the Exchange Act) in the
aggregate would own or control securities which possess in the aggregate the
ordinary voting power to elect a majority of the surviving corporation's
directors (provided that such disposition has been approved by the Corporation's
Board of Directors or a committee thereof), (D) any sale of securities of the
Corporation to a person or group of persons (within the meaning of the Exchange
Act) if, after such sale, such person or group of
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<PAGE>
persons in the aggregate would own or control securities which possess in the
aggregate the ordinary voting power to elect a majority of the Corporation's
directors (provided that such sale has been approved by the Corporation's Board
of Directors or a committee thereof), (E) any sale of securities of the
Corporation to a person or group of persons (within the meaning of the Exchange
Act) if, after such sale, such person or group of persons in the aggregate would
own or control securities of the Corporation (excluding the Series B Preferred
or the Conversion Stock issued upon conversion of the Series B Preferred and
being disposed of in connection with such Conversion Event) which possess in the
aggregate the ordinary voting power to elect a majority of the Corporation's
directors, or (F) the liquidation, dissolution or winding up of the Corporation.
(iv) Each holder of Series B2 Preferred shall be entitled to convert
Shares of Series B2 Preferred into Conversion Stock in connection with any
Conversion Event if such holder reasonably believes that such Conversion Event
shall be consummated, and a written request for conversion from any holder of
Series B2 Preferred to the Corporation stating such holder's reasonable belief
that a Conversion Event shall occur shall be conclusive and shall obligate the
Corporation to effect such conversion in a timely manner so as to enable each
such holder to participate in such Conversion Event. The Corporation shall not
cancel the shares of Series B2 Preferred so converted before the tenth day
following such Conversion Event and shall reserve such shares until such tenth
day for reissuance in compliance with the next sentence. If any shares of
Series B2 Preferred are converted into shares of Conversion Stock in connection
with a Conversion Event and such shares of Conversion Stock are not actually
distributed, disposed of or sold pursuant to such Conversion Event, or if the
Corporation has not been liquidated, such shares of Conversion Stock shall be
promptly converted back into the same number of shares of Series B2 Preferred.
(v) In the event that a holder of Series B2 Preferred delivers a
certificate to the Corporation stating that upon conversion of Shares of Series
B2 Preferred into Shares of Series B1 Preferred such holder and its affiliates
would not have a Regulatory Problem, such holder of Series B2 Preferred shall be
entitled to convert and the Corporation shall be obligated to convert all or any
portion of the Series B2 Preferred (including any fraction of a Share) held by
such holder into the same number of Shares of Series B1 Preferred.
Notwithstanding anything to the contrary contained herein, the Conversion Price
for the Series B1 Preferred issued upon conversion from the Series B2 Preferred
shall be the same Conversion Price as was in effect for the Series B2 Preferred
being converted immediately prior to such conversion. For purposes of this
paragraph 6A(v), a holder shall be deemed to have a "Regulatory Problem" when
such holder and such holder's affiliates (A) would own, control or have power
over a greater quantity of securities of any kind issued by the Corporation than
are permitted under any laws or governmental regulations applicable to banks,
bank holding companies, small business investment companies or their affiliates
or (B) would not be able to hold an investment in or provide financing to the
Corporation in compliance with any laws or governmental regulations applicable
to banks, bank holding companies, small business investment companies or their
affiliates.
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(vi) Notwithstanding any other provision hereof, if a conversion of
Series B Preferred is to be made in connection with a Public Offering, the
conversion of any Shares of Series B Preferred may, at the election of the
holder of such Shares, be conditioned upon the consummation of the Public
Offering in which case such conversion shall not be deemed to be effective until
the consummation of the Public Offering.
(vii) Each holder of Shares desiring to convert Shares shall deliver to
the Corporation a written request for conversion setting forth the name of such
holder, the number of Shares to be converted and the name or names and
denomination or denominations in which, upon conversion, the new certificate or
certificates representing the converted Shares are to be issued.
(viii) Except as otherwise provided herein, each conversion of Shares
shall be deemed to have been effected as of the close of business on the date on
which the certificate or certificates representing the Shares to be converted
have been surrendered at the principal office of the Corporation. At such time
as such conversion has been effected, the rights of the holder of such Shares
shall cease and the Person or Persons in whose name or names any certificate or
certificates for shares of Conversion Stock (or Non-Voting Common, if
applicable) or Shares of Series B1 Preferred are to be issued upon such
conversion shall be deemed to have become the holder or holders of record of the
shares of Conversion Stock (or Non-Voting Common, if applicable) or Shares of B1
Preferred represented thereby.
(ix) As soon as possible after the conversion has been effected (but in
any event within five business days in the case of subparagraph (A) below), the
Corporation shall deliver to each converting holder:
(A) a certificate or certificates representing the number of shares
of Conversion Stock (or Non-Voting Common, if applicable) or the number of
Shares of Series B1 Preferred issuable by reason of such conversion in
such name or names and such denomination or denominations as the
converting holder has specified; and
(B) a certificate representing any Shares which were represented by
the certificate or certificates delivered to the Corporation in connection
with such conversion but which were not converted.
(x) The issuance of certificates for shares of Conversion Stock (or
Non-Voting Common, if applicable) upon conversion of Shares or the issuance of
certificates for Shares of Series B1 Preferred upon conversion of Shares of
Series B2 Preferred shall be made without charge to the holders of such Shares
for any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the related issuance of
shares of Conversion Stock (or Non-Voting Common, if applicable) or Shares of
Series B1 Preferred. Upon conversion of each Share, the Corporation shall take
all such actions as are necessary in order to insure that the Conversion Stock
(or Non-Voting Common, if applicable) or the Series B1 Preferred issuable with
respect to such conversion shall be validly issued, fully paid and
nonassessable.
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(xi) The Corporation shall not close its books against the transfer of
Shares or of Conversion Stock (or Non-Voting Common, if applicable) issued or
issuable upon conversion of Shares or against the transfer of Shares of Series
B1 Preferred issued or issuable upon conversion of Shares of Series B2 Preferred
in any manner which interferes with the timely conversion of Shares. The
Corporation shall assist and cooperate with any holder of Shares required to
make any governmental filings or obtain any governmental approval prior to or in
connection with any conversion of Shares hereunder (including, without
limitation, making any filings required to be made by the Corporation).
(xii) If any fractional interest in a share of Conversion Stock (or
Non-Voting Common Stock, if applicable) would, except for the provisions of this
subparagraph, be deliverable upon any conversion of Shares, the Corporation, in
lieu of delivering the fractional share therefor, shall pay an amount to the
holder thereof equal to the Market Price of such fractional interest as of the
date of conversion.
(xiii) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Conversion Stock (or Non-Voting Common,
if applicable) solely for the purpose of issuance upon the conversion of Shares,
such number of shares of Conversion Stock and Non-Voting Common issuable upon
the conversion of all outstanding Shares. The Corporation shall at all times
reserve and keep available out of its authorized but unissued Shares of Series
B1 Preferred, solely for the purpose of issuance upon the conversion of Shares
of Series B2 Preferred, such number of Shares of Series A1 Preferred issuable
upon the conversion of all outstanding Shares of Series B2 Preferred. All
shares of Conversion Stock and Non-Voting Common and all Shares of Series B
Preferred, which are so issuable shall, when issued, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges. The
Corporation shall take all such actions as may be necessary to assure that all
such shares of Conversion Stock and Non-Voting Common and Shares of Series B
Preferred may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Conversion Stock may be listed (except for official notice
of issuance which shall be immediately delivered by the Corporation upon such
issuance).
6B. Conversion Price.
(i) The initial Conversion Price shall be the Conversion Price in
effect for the Series A Preferred immediately prior to the conversion of the
Series A Preferred into the Series B Preferred. In order to prevent dilution of
the conversion rights granted under this Section 6, the Conversion Price shall
be subject to adjustment from time to time pursuant to this Section 6B. Anything
herein to the contrary notwithstanding, no adjustment in the Conversion Price
shall be required unless such adjustment, either by itself or with other
adjustments not previously made, would require a change of at least $.05 in such
price; provided, however, that any adjustment which by reason of this
subparagraph 6B(i) is not required to be made shall be carried forward and taken
into account in any subsequent adjustment and upon conversion of each Share.
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(ii) If and whenever on or after the original date of issuance of
Shares the Corporation issues or sells, or in accordance with Section 6C is
deemed to have issued or sold, any shares of its Common Stock for a
consideration per share less than (a) the Conversion Price in effect immediately
prior to the time of such issue or sale or (b) 95% of the Market Price of the
Common Stock determined as of the date of such issue or sale, then forthwith
upon such issue or sale the Conversion Price shall be reduced to whichever of
the following Conversion Prices is lower (except that none of the following
shall apply to the issuance of Excluded Stock):
(A) the Conversion Price determined by dividing (1) the sum of (x)
the product derived by multiplying the Conversion Price in effect
immediately prior to such issue or sale times the number of shares of Common
Stock Deemed Outstanding immediately prior to such issue or sale, plus (y)
the consideration, if any, received by the Corporation upon such issue or
sale, by (2) the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale; or
(B) the Conversion Price determined by multiplying the Conversion
Price in effect immediately prior to such issue or sale by a fraction, the
numerator of which shall be the sum of (1) the number of shares of Common
Stock Deemed Outstanding immediately prior to such issue or sale multiplied
by 95% of the Market Price of the Common Stock determined as of the date of
such issuance or sale, plus (2) the consideration, if any, received by the
Corporation upon such issue or sale, and the denominator of which shall be
the product derived by multiplying 95% of the Market Price of the Common
Stock times the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale.
6C. Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under paragraph 6B(ii), the following
shall be applicable (except that none of the following shall apply to the
issuance of Excluded Stock):
(i) Issuance of Rights or Options. If the Corporation in any manner
grants or sells any Options and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or exchange of the
Convertible Securities issued upon exercise of any such Options is less than (a)
the Conversion Price in effect immediately prior to the time of the granting of
such Options or (b) 95% of the Market Price of the Common Stock determined as of
such time, then the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise of such Options
shall be deemed to be outstanding and to have been issued and sold by the
Corporation at the time of the granting of or sale of such Options for such
price per share. For purposes of this subparagraph, the "price per share for
which Common Stock is issuable" shall be determined by dividing (A) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting or sale of such Options, plus the then minimum aggregate amount of
additional consideration payable to the Corporation upon exercise of all such
Options,
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plus in the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the issuance or sale of such Convertible Securities and the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock then issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Options. No further adjustment of the Conversion Price shall
be made when Convertible Securities are actually issued upon the exercise of
such Options or when Common Stock is actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Corporation in any
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon such conversion or exchange is less than (a)
the Conversion Price in effect immediately prior to the time of such issue or
sale or (b) 95% of the Market Price of the Common Stock determined as of such
time, then the maximum number of shares of Common Stock issuable upon conversion
or exchange of such Convertible Securities shall be deemed to be outstanding and
to have been issued and sold by the Corporation at the time of the issuance or
sale of such Convertible Securities for such price per share. For the purposes
of this subparagraph, the "price per share for which Common Stock is issuable"
shall be determined by dividing (A) the total amount received or receivable by
the Corporation as consideration for the issue or sale of such Convertible
Securities, plus the then minimum aggregate amount of additional consideration,
if any, payable to the Corporation upon the conversion or exchange thereof, by
(B) the total maximum number of shares of Common Stock then issuable upon the
conversion or exchange of all such Convertible Securities. No further
adjustment of the Conversion Price shall be made when Common Stock is actually
issued upon the conversion or exchange of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of
any options for which adjustments of the Conversion Price had been or are to be
made pursuant to other provisions of this Section 6, no further adjustment of
the Conversion Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities, or the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
change at any time, the Conversion Price in effect at the time of such change
shall be adjusted to the Conversion Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right
to convert or exchange any Convertible Security without the exercise of any such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
to the Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Security, to
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the extent outstanding immediately prior to such expiration or termination,
never been issued.
(v) Calculation of Consideration Received. If any Common Stock, Option
or Convertible Security is issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be the net
amount received by the Corporation therefor. In case any Common Stock, Options
or Convertible Securities are issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Corporation shall be the Market Price thereof as of the date of
receipt. If any Common Stock, Option or Convertible Security is issued in
connection with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash and securities shall be determined in good faith by the Corporation's Board
of Directors.
(vi) Integrated Transactions. In case any option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such option by the parties thereto, such option
shall be deemed to have been issued for a consideration determined in good faith
by the Corporation's Board of Directors, and if the Board of Directors cannot in
good faith determine such consideration, then such option shall be deemed to
have been issued for a consideration of $.01.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Corporation takes a record of the holders of
Common Stock for the purpose of entitling them (a) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (b) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.
6D. Subdivision or Combination of Common Stock. If the Corporation at
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Corporation at any
time combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into
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a smaller number of shares, the Conversion Price in effect immediately prior to
such combination shall be proportionately increased.
6E. Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Corporation's assets to another Person
or other transaction which is effected in such a manner that holders of Common
Stock (and/or Rights) are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock (and/or Rights) is referred to herein as an "Organic
Change". Prior to the consummation of any Organic Change, the Corporation shall
make appropriate provisions (in form and substance satisfactory to the holders
of a majority of the Series B Preferred then outstanding) to insure that each of
the holders of Series B Preferred shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be), the shares of
Conversion Stock or Non-Voting Common (as the case may be) (and Rights)
immediately theretofore acquirable and receivable upon the conversion of such
holder's Series B Preferred, such shares of stock, securities or assets as such
holder would have received in connection with such Organic Change if such holder
had converted its Series B Preferred immediately prior to such Organic Change.
In each such case, the Corporation shall also make appropriate provisions (in
form and substance satisfactory to the holders of a majority of the Series B
Preferred then outstanding) to insure that the provisions of this Section 6 and
Sections 7 and 8 hereof shall thereafter be applicable to the Series B Preferred
(including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Corporation, an
immediate adjustment of the Conversion Price to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of shares of Conversion Stock
acquirable and receivable upon conversion of Series B Preferred, if the value so
reflected is less than the Conversion Price in effect immediately prior to such
consolidation, merger or sale). The Corporation shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Corporation) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form reasonably satisfactory to the holders of a majority of the Series B
Preferred then outstanding), the obligation to deliver to each such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
6F. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 6 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Corporation's board of directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of Series B
Preferred; provided that no such adjustment shall increase the Conversion
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Price as otherwise determined pursuant to this Section 6 or decrease the number
of shares of Conversion Stock issuable upon conversion of each Share of Series B
Preferred.
6G. Notices.
(i) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Shares, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders of Shares
at least 20 days prior to the date on which the Corporation closes its books or
takes a record (a) with respect to any dividend or distribution upon Common
Stock or Non-Voting Common Stock, as the case may be, (b) with respect to any
pro rata subscription offer to holders of Common Stock, or (c) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to the holders of
Shares at least 20 days prior to the date on which any Organic Change shall take
place.
Section 7. Liquidating Dividends.
If the Corporation declares or pays a dividend upon the Common Stock
payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock (a "Liquidating
Dividend"), then the Corporation shall pay to the holders of Series B Preferred
at the time of payment thereof the Liquidating Dividends which would have been
paid on the shares of Conversion Stock had such Series B Preferred been
converted immediately prior to the date on which a record is taken for such
Liquidating Dividend, or, if no record is taken, the date as of which the record
holders of Common Stock entitled to such dividends are to be determined;
provided that if the Liquidating Dividends consist of voting securities, the
Corporation shall make available to each holder of Series B2 Preferred, at such
holder's request, Liquidating Dividends consisting of non-voting securities
which are otherwise identical to the Liquidating Dividends consisting of voting
securities and which non-voting securities are convertible into such voting
securities on the same terms as Series B2 Preferred is convertible into
Conversion Stock.
Section 8. Purchase Rights.
If at any time the Corporation grants, issues, distributes or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then each holder of Series B Preferred
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Conversion Stock acquirable upon
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conversion of such holder's Series B Preferred immediately before the date on
which a record is taken for the grant, issuance, distribution or sale of such
Purchase Rights, or, if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue, distribution
or sale of such Purchase Rights; provided that if the grant, issue, distribution
or sale of the Purchase Rights entitle the holders of the Series B Preferred to
an adjustment in the Conversion Price pursuant to Section 6 hereof, then the
holders of a majority of Series B Preferred will have the option to either (a)
acquire the Purchase Rights pursuant to this Section 8, or (b) adjust the
Conversion Price pursuant to Section 6; provided further that if the Purchase
Rights involve voting securities, the Corporation shall make available to each
holder of Series B2 Preferred, at such holder's request, Purchase Rights
involving non-voting securities which are otherwise identical to the Purchase
Rights involving voting securities and which non-voting securities are
convertible into such voting securities on the same terms as Series B2 Preferred
is convertible into Conversion Stock.
If the Distribution Date (as defined in the Rights Agreement) occurs,
the Company shall issue to each holder of Series B Preferred a number of rights
("New Rights") equal to the number of Rights such holder would have held if such
holder had held the number of shares of Conversion Stock acquirable upon
conversion of such holder's Series B Preferred immediately prior to the
Distribution Date. The New Rights shall be substantially similar to the Rights;
provided, however, that such New Rights shall provide for the issuance, at the
request of any holder of New Rights, of non-voting securities which are
otherwise identical to any voting securities issuable upon exercise of the
Rights and which non-voting securities are convertible into voting securities on
the same terms as the Series B2 Preferred is convertible into Conversion Stock.
Section 9. Registration of Transfer.
The Corporation shall keep at its principal office a register for the
registration of Shares. Upon the surrender of any certificate representing
Shares at such place, the Corporation shall, at the request of the record holder
of such certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
Shares as is requested by the holder of the surrendered certificates and shall
be substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Shares represented by such new certificate from the
immediately preceding Dividend Reference Date.
Section 10. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing Shares
of any class of Series B Preferred, and in the case of any such loss, theft or
destruction, upon receipt of indemnity satisfactory to the
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Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Shares represented by such new certificate from the
immediately preceding Dividend Reference Date.
Section 11. Definitions.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified 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.
"Common Stock" means, collectively, the Corporation's Common Stock, par
value $1.00 per share, and any capital stock of any class of the Corporation
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.
"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 6C(i) and
6C(ii) hereof (including Excluded Stock) whether or not the Options or options
for Convertible Securities or Convertible Securities are actually exercisable or
exchangeable, as the case may be, at such time.
"Conversion Stock" means shares of the Corporation's Common Stock, par
value $1.00 per share; provided that if there is a change such that the
securities issuable upon conversion of the Series B Preferred are issued by an
entity other than the Corporation or there is a change in the class of
securities so issuable, then the term "Conversion Stock" shall mean one share of
the security issuable upon conversion of the Series B Preferred if such security
is issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Convertible Securities" means any stock or securities convertible into
or exchangeable for Common Stock.
"Credit Agreement" means the Amended and Restated Credit Agreement,
dated as of June 18, 1992, (including, without limitation, any "Credit
Documents" (as defined in the New Credit Agreement)) among the Corporation, the
ESOP and certain Subsidiaries of the Corporation, the Agent Bank and the Lenders
listed therein, as such Agreement may be amended, amended and
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restated, supplemented or otherwise modified from time to time, and includes any
agreement extending the maturity of, refinancing or otherwise restructuring
(including, but not limited to, the inclusion of additional borrowers thereunder
that are Subsidiaries of the Corporation and additional lenders) all or any
portion of the Obligations under such Agreement (as defined therein) or any
successor agreement.
"ESOP" means the Corporation's Employee Stock Ownership Plan effective
as of September 1, 1989.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Stock" means the shares of Common Stock issued or issuable
pursuant to the Corporation's existing and future employee stock option and
benefit plans approved by the Corporation's board of directors, including the
Corporation's 1989 Employee Stock Option Plan pursuant to which 1,600,000 shares
of Common Stock which were authorized for options, stock awards and partial
payment of bonuses, in each case which are issued or granted (including by way
of amendment or modification thereof) at a price equal at least to 95% of the
Market Value of the Common Stock on the date of such issuance or grant
(including any such amendment or modification thereof).
"Junior Securities" means any of the Corporation's equity securities
other than the Series B Preferred.
"Liquidation Value" of any Share as of any particular date shall be
equal to the amount which each share of Series A Preferred was entitled to upon
liquidation of the Corporation as of the date which such Series A Preferred was
converted into Series B Preferred.
"Market Price" of any security means the average of the closing prices
of such security's sales on the principal securities exchange on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
such exchange at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is
not quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which "Market Price" is being determined and the 20 consecutive business days
prior to such day. If at any time such security is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the
Corporation and the holders of a majority of the Shares. If such parties are
unable to reach agreement within a reasonable period of time, such fair value
shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the Corporation and the holders of a majority of
the
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Shares. The determination of such appraiser shall be final and binding upon the
parties, and the Corporation shall pay the fees and expenses of such appraiser.
"Non-Voting Common" means the Corporation's Non-Voting Common Stock, par
value $1.00 per share, having the terms as set forth in Exhibit B to the
Purchase Agreement; provided, that if there is a change such that the securities
issuable upon conversion of the Series B2 Preferred are issued by an entity
other than the Corporation or if there is a change in the class of securities so
issuable, then the term "Non-Voting Common" shall mean one share of the security
issuable upon conversion of the Series B2 Preferred if such security is issuable
in shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.
"Options" means any rights or options to subscribe for or purchase
Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Public Offering" means any offering by the Corporation of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act of 1933, as then in effect, or any comparable statement under
any similar federal statute then in force.
"Purchase Agreement" means the Preferred Stock Purchase Agreement, dated
as of March 6, 1992, by and between the Corporation and certain investors, as
such agreement may from time to time be amended in accordance with its terms.
"Rights" means the Rights defined in the Rights Agreement and any
securities issued in connection with or upon exercise of the Rights.
"Rights Agreement" means that certain Rights Agreement, dated as of
January 26, 1989 as amended, between the Corporation and The First National Bank
of Chicago, and any successor rights plan.
"Series A Preferred" means, collectively, the Series A1 Preferred and
the Series A2 Preferred.
"Series A1 Preferred" means the Corporation's Series A1 Convertible
Exchangeable Preferred Stock, par value $1.00 per share.
"Series A2 Preferred" means the Corporation's Series A2 Convertible
Exchangeable Preferred Stock, par value $1.00 per share.
"Series A3 Preferred" means the Corporation's Series A3 Convertible
Exchangeable Preferred Stock, par value $1.00 per share.
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"Significant Subsidiaries" means those Subsidiaries of the Corporation
listed as Significant Subsidiaries pursuant to Section 3.3 of the Purchase
Agreement.
"Subsidiary" means any corporation of which the shares of outstanding
capital stock possessing the voting power (under ordinary circumstances) in
electing the Board of Directors are, at the time as of which any determination
is being made, owned by the Corporation either directly or indirectly through
Subsidiaries.
Section 12. Amendment and Waiver.
No amendment, modification or waiver shall be binding or effective with
respect to any provision of Sections 1 to 11 hereof without the prior written
consent of the holders of a majority of the Shares outstanding at the time such
action is taken; provided, that, in addition to such majority vote, no such
action shall change (i)(a) the rate at which or the manner in which dividends on
the Series B1 Preferred accrue or the times at which such dividends become
payable or the amount payable on redemption of the Series B1 Preferred or the
times at which redemption of the Series B1 Preferred is to occur, without the
prior written consent of the holders of at least 80% of the Series B1 Preferred
then outstanding, (b) the Conversion Price of the Series B1 Preferred or the
number of shares or class of stock into which the Series B1 Preferred are
convertible, without the prior written consent of the holders of at least 80% of
the Series B1 Preferred then outstanding or (c) the percentage required to
approve any change described in clauses (i)(a) and (i)(b) above, without the
prior written consent of the holders of at least 80% of the Series B1 Preferred
then outstanding, (ii)(a) the rate at which or the manner in which dividends on
the Series B2 Preferred accrue or the times at which such dividends become
payable or the amount payable on redemption of the Series B2 Preferred or the
times at which redemption of the Series B2 Preferred is to occur, without the
prior written consent of the holders of at least 80% of the Series B2 Preferred
then outstanding, (b) the Conversion Price of the Series B2 Preferred or the
number of shares or class of stock into which the Series B2 Preferred are
convertible, without the prior written consent of the holders of at least 80% of
the Series B2 Preferred then outstanding or (c) the percentage required to
approve any change described in clauses (ii)(a) and (ii)(b) above, without the
prior written consent of the holders of at least 80% of the Series B2 Preferred
then outstanding or (iii)(a) the rate at which or the manner in which dividends
on the Series B3 Preferred accrue or the times at which such dividends become
payable or the amount payable on redemption of the Series B3 Preferred or the
times at which redemption of Series B3 Preferred is to occur, without the prior
written consent of the holders of at least 80% of the Series B3 Preferred then
outstanding, (b) the Conversion Price of the Series B3 Preferred or the number
of shares or class of stock into which the Series B3 Preferred are convertible,
without the prior written consent of the holders of at least 80% of the Series
B3 Preferred then outstanding or (c) the percentage required to approve any
change described in clauses (iii)(a) and (iii)(b) above, without the prior
written consent of the holders of at least 80% of the Series B3 Preferred then
outstanding; and provided further, that no change in the terms hereof may be
accomplished by merger or consolidation of the Corporation with
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another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Shares then
outstanding.
Section 13. Notices.
Except as otherwise expressly provided hereunder, all notices referred
to herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charge prepaid, and shall be deemed to have been given when so
mailed or sent (i) to the Corporation, at its principal executive offices and
(ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation.
IN WITNESS WHEREOF, The Interlake Corporation has caused this
Certificate to be duly executed this _____ day of June, 1992.
THE INTERLAKE CORPORATION
By:______________________
Stephen R. Smith
Vice President and General
Counsel
Attest:
----------------------
Ian R. MacLeod
Secretary
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EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-2 of our report dated January 25, 1995, except
as to Note 18, which is as of March 8, 1995, relating to the financial
statements of The Interlake Corporation, which appears in such Prospectus. We
also consent to the application of such report to the Financial Statement
Schedules for the three years ended December 25, 1994 listed under Item 14(a) of
The Interlake Corporation's Annual Report on Form 10-K for the year ended
December 25, 1994 when such schedules are read in conjunction with the financial
statements referred to in our report. The audits referred to in such report
also included these Financial Statement Schedules. We also consent to the
references to us under the headings "Experts" and "Selected Consolidated
Financial Data" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Consolidated
Financial Data."
Price Waterhouse LLP
May 22, 1995
