UNITED STATES
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-9294
Imo Industries Inc.
(Exact name of registrant as specified in its charter)
Delaware 21-0733751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1009 Lenox Drive, Building Four West
Lawrenceville, New Jersey 08648
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 609-896-7600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, $1.00 Par Value--
17,127,859 shares as of April 30, 1998.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Condensed Statements of Income (Unaudited) -
Quarter ended April 3, 1998 and March 31, 1997
Consolidated Condensed Balance Sheets - April 3, 1998 (Unaudited)
and December 31, 1997
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Quarter ended April 3, 1998 and March 31, 1997
Notes to Consolidated Condensed Financial Statements (Unaudited) -
April 3, 1998
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Imo Industries Inc. and Subsidiaries
Consolidated Condensed Statements of Income
(Dollars in thousands except per share amounts)
Quarter Ended
April 3, 1998 March 31, 1997*
- ---------------------------------------------------------------------------
(Unaudited)
Net Sales $83,031 $ 78,927
Cost of products sold 56,286 54,299
- ---------------------------------------------------------------------------
Gross Profit 26,745 24,628
Selling, general and administrative expenses 15,199 17,365
Research and development expenses 1,456 1,340
Unusual item --- 12,900
- ---------------------------------------------------------------------------
Income (Loss) From Operations 10,090 (6,977)
Interest and other expense, net 5,937 6,779
- ---------------------------------------------------------------------------
Income (Loss) From Continuing Operations
Before Income Taxes, Discontinued Operations and
Extraordinary Item 4,153 (13,756)
Income tax expense 829 572
- ---------------------------------------------------------------------------
Income (Loss) From Continuing Operations 3,324 (14,328)
Income from Discontinued Operations --- 1,486
Extraordinary Item - Loss on Extinguishment
of Debt (5,603) ---
- ---------------------------------------------------------------------------
Net Income (Loss) $ (2,279) $(12,842)
===========================================================================
Earnings (Loss) per share, basic and diluted:
Continuing operations $ 0.20 $ (0.84)
Discontinued operations --- 0.09
Extraordinary item (0.33) ---
- ---------------------------------------------------------------------------
Net income (loss) $ (0.13) $ (0.75)
===========================================================================
Weighted average number of shares outstanding 17,127,859 17,125,047
===========================================================================
The accompanying notes are an integral part of these consolidated
condensed financial statements.
* Reclassified to conform to 1998 presentation. See Note C.
Imo Industries Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(Dollars in thousands except par value amounts)
April 3, 1998 December 31, 1997
- -----------------------------------------------------------------------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 2,158 $ 3,528
Trade accounts and notes receivable, less
allowance of $1,408 in 1998 and $1,435
in 1997 54,204 53,732
Inventories-net 65,302 64,888
Prepaid expenses and other current assets 12,938 17,656
- -----------------------------------------------------------------------
Total Current Assets 134,602 139,804
Property, plant and equipment, net of
accumulated depreciation of $4,571 and
$3,202, respectively 61,684 61,409
Intangible assets, principally goodwill 223,034 233,054
Net assets of discontinued operations 35 14,927
Other assets 14,611 14,106
- -----------------------------------------------------------------------
Total Assets $433,966 $463,300
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable and current portion of
long-term debt $ 43,504 $ 34,320
Trade accounts payable 21,348 22,750
Accrued expenses and other liabilities 65,758 64,065
- -----------------------------------------------------------------------
Total Current Liabilities 130,610 121,135
Long-term debt 150,159 192,319
Other liabilities 65,572 59,599
- -----------------------------------------------------------------------
Total Liabilities 346,341 373,053
- -----------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock: $1.00 par value;
5,000,000 shares authorized and unissued --- ---
Common stock: $1.00 par value; 25,000,000
shares authorized; issued 17,127,859 17,128 17,128
Additional paid-in capital 106,805 106,805
Retained earnings (deficit) (35,295) (33,016)
Cumulative foreign currency translation
adjustments (1,013) (670)
- ------------------------------------------------------------------------
Total Shareholders' Equity 87,625 90,247
========================================================================
Total Liabilities and Shareholders' Equity $433,966 $463,300
========================================================================
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Imo Industries Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Dollars in thousands)
Quarter Ended
April 3, 1998 March 31, 1997*
- --------------------------------------------------------------------------
(Unaudited)
OPERATING ACTIVITIES
Net income (loss) $(2,279) $ (12,842)
Adjustments to reconcile net income (loss) to net
cash provided by (used by) continuing operations:
Discontinued operations --- (1,486)
Depreciation and amortization 3,020 3,324
Extraordinary item 5,603 ---
Unusual item --- 12,900
Other 16 271
Other changes in operating assets and
liabilities:
Increase in accounts and notes
receivable (504) (5,129)
Increase in inventories (414) (1,756)
(Decrease) increase in accounts
payable and accrued expenses (2,862) 3,715
Other operating assets and
liabilities 6,232 (3,578)
- --------------------------------------------------------------------------
Net cash provided by (used by)
continuing operations 8,812 (4,581)
Net cash (used by) provided by
discontinued operations (920) 1,080
- --------------------------------------------------------------------------
Net Cash Provided by (Used by) Operating
Activities 7,892 (3,501)
- --------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (2,058) (1,912)
Proceeds from sale of business and
property, plant and equipment 30,735 264
Net cash used by discontinued operations (1,164) (1,029)
Other 80 528
- --------------------------------------------------------------------------
Net Cash Provided by (Used by) Investing
Activities 27,593 (2,149)
- --------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in notes payable 7,533 9,185
Principal payments on long-term debt (40,089) (3,065)
Payment of premium on notes repurchase and
debt financing costs (4,199) (384)
Other (37) (480)
- --------------------------------------------------------------------------
Net Cash (Used by) Provided by Financing
Activities (36,792) 5,256
- --------------------------------------------------------------------------
Effect of exchange rate changes on cash (63) (459)
- --------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents (1,370) (853)
Cash and cash equivalents at beginning of period 3,528 1,419
- --------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 2,158 $ 566
==========================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,532 $ 3,196
==========================================================================
Income taxes $ 442 $ 1,171
==========================================================================
The accompanying notes are an integral part of these consolidated
condensed financial statements.
* Reclassified to conform to 1998 presentation. See Note C.
Imo Industries Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements (Unaudited with respect to
April 3, 1998 and March 31, 1997 and the periods then ended.)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying unaudited consolidated condensed
financial statements have been prepared in accordance with generally accepted
accounting principles. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1997. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the first quarter of 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
Basis of Accounting: Effective January 1, 1998, the Company adopted a "4-4-5"
accounting calendar.
Change in Accounting Policies: The Company adopted Financial Accounting
Standards Board ("FASB") Statement No. 130, "Reporting Comprehensive Income," on
January 1, 1998. For the first quarter of 1998, total comprehensive loss was
$2.6 million, compared to a reported net loss of $2.3 million. For the first
quarter of 1997, total comprehensive loss was $14.8 million, compared to a
reported net loss of $12.8 million.
NOTE B - ACQUISITION BY II ACQUISITION CORP.
On August 28, 1997, II Acquisition Corp. acquired approximately 93% of the
Company's outstanding shares of common stock. The unaudited pro forma
information for the quarter ended March 31, 1997 set forth below gives effect to
the acquisition, and the refinancing of the Company's domestic senior debt, in
connection with the acquisition, as if they had occurred on January 1, 1997. The
pro forma information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would have
been achieved had these transactions been consummated at the beginning of the
periods presented.
Quarter Ended March 31, 1997
---------------
Net Sales $78,927
Net Income (Loss) (11,057)
Earnings (Loss) Per Share, basic and diluted (.65)
NOTE C--DISCONTINUED OPERATIONS
On February 27, 1998, the Company completed the sale of its Roltra-Morse
business segment to Magna International Inc. for cash proceeds of $30 million
plus the assumption of Roltra-Morse's debt. The operating results of the
Roltra-Morse segment have been segregated and reported as a discontinued
operation in the accompanying Consolidated Condensed Statements of Income. The
Company has also accounted for its former Electro-Optical Systems and
Instrumentation business segments as discontinued operations. The sale of the
Varo Electronic Systems division of the Electro-Optical Systems business and the
sale of the Instrumentation business segment were completed in April 1997 and
August 1997, respectively. Prior year financial statements have been
reclassified to conform to the current year presentation.
Net sales of the discontinued operations were $14.4 million and $48.1 million
for the first quarters of 1998 and 1997, respectively. Operating results of
discontinued operations for the first quarter of 1998 resulted in a net loss of
$1 million, or $.06 per share compared to net income of $1.5 million, or $.09
per share for the first quarter of 1997. Roltra-Morse's net loss of $1 million,
which includes $.2 million of allocated interest, was included with the net book
value of the assets on the date of sale, February 27, 1998. Therefore, there was
no income from discontinued operations for the first quarter of 1998. The
operating results from discontinued operations include allocated interest
expense of $.2 million and $1.2 million for the first quarters of 1998 and 1997,
respectively.
Allocated interest expense includes interest on debt of the discontinued
operations to be assumed by the buyer and an allocation of other consolidated
interest expense to the discontinued operations based on the ratio of net assets
to be sold to the sum of the Company's consolidated net assets, if positive,
plus other consolidated debt.
The Company reviews quarterly the assumptions used in determining the estimated
gain or loss from discontinued operations and the adequacy of the recorded
liabilities. Management believes that the recorded amount of estimated
liabilities related to its discontinued operations at April 3, 1998 is adequate.
However, the amounts estimated may differ from actual results.
NOTE D--INVENTORIES
Inventories (in thousands of dollars) are summarized as follows:
April 3, December 31,
1998 1997
------------- -------------
(Unaudited)
Finished products $23,354 $18,823
Work in process 22,144 23,218
Materials and supplies 20,414 23,481
---------- ---------
65,912 65,522
Less customers' progress payments 610 634
---------- ---------
$65,302 $64,888
========== =========
NOTE E--NOTES PAYABLE AND LONG-TERM DEBT
As of April 3, 1998, the Company had revolver borrowings of $35 million and
$19.6 million of outstanding standby letters of credit under the Company's
existing credit agreement. The Company had $7 million in foreign short-term
credit facilities with amounts outstanding at April 3, 1998 of $1.4 million. The
weighted average interest rate on short-term notes payable was 8.37% and 8.03%
at April 3, 1998 and December 31, 1997, respectively.
In addition, the Company had outstanding $102 million of its 11.75% senior
subordinated notes due in 2006, and $51 million of term loan borrowings. The
sale of Roltra-Morse and the resultant reduction in domestic senior debt
increased the Company's availability under its revolving credit facility,
allowing it to purchase a portion of its 11.75% senior subordinated notes (the
"Notes") in the open market. During the first quarter of 1998, the Company
purchased, in the open market at a premium, Notes in the face amount of $33.1
million. As a result of the early extinguishment of these Notes and the
prepayment of a portion of the term loan facility, an extraordinary charge of
$5.6 million was recognized in the first quarter of 1998.
NOTE F--CONTINGENCIES
Legal Proceedings
The Company and one of its subsidiaries are two of a large number of defendants
in a number of lawsuits brought in various jurisdictions by approximately 6,900
claimants who allege injury caused by exposure to asbestos. Although neither the
Company nor any of its subsidiaries has ever been a producer or direct supplier
of asbestos, it is alleged that the industrial and marine products formerly sold
by the Company and the subsidiary named in such complaints contained components
which contained asbestos. Suits against the Company and its subsidiary have been
tendered to its insurers, who are defending under their stated reservation of
rights. In addition, the Company and the subsidiary are named in cases,
involving approximately 22,000 claimants, which in 1996 were "administratively
dismissed" by the U.S. District Court for the Eastern District of Pennsylvania.
Cases that have been "administratively dismissed" may be reinstated only upon a
showing to the Court that (i) there is satisfactory evidence of an
asbestos-related injury; and (ii) there is probative evidence that the plaintiff
was exposed to products or equipment supplied by each individual defendant in
the case. The Company believes that it has adequate insurance coverage or has
established appropriate reserves to cover potential liabilities related to these
cases.
On April 3, 1998 the Company was served with a complaint in an action brought by
Dravo Corporation seeking damages in excess of $17 million for problems
associated with turbines sold to it in 1986 for use at a powerplant in Long
Beach, California. The Company has few details of this matter other than as set
forth in the complaint, however, the Company believes that there are legal and
factual defenses to the claims and intends to defend the action vigorously.
The Company was a defendant in a lawsuit in the U.S. District Court for the
Western District of Pennsylvania, which alleged component failures in equipment
sold by its former diesel engine division. The complaint sought damages of
approximately $3 million. On September 30, 1997 the Court granted a summary
judgment motion filed by the Company which effectively dismissed all claims
against it. Plaintiffs have appealed this judgment to the United States Court of
Appeals for the Third Circuit.
The Company is a defendant in a lawsuit in the Circuit Court of Cook County,
Illinois alleging performance shortfalls in products delivered by the Company's
former Delaval Turbine Division and claiming damages of approximately $8
million. To date the Court has granted a series of summary judgment motions
filed by the Company which have significantly reduced the scope of damages which
the plaintiff may claim but the court has also permitted additional discovery to
determine whether any other damages exist which plaintiff may be entitled to
seek at a trial.
On June 3, 1997 the Company was served with a complaint in a case brought in the
Superior Court of New Jersey which alleges damages in excess of $10 million
incurred as a result of losses under a Government Contract Bid transferred in
connection with the sale of the Company's former Electro-Optical Systems
business. The Electro-Optical Systems business was sold in a transaction that
closed on June 2, 1995. The sales contract provided certain representations and
warranties as to the status of the business at the time of sale. The complaint
alleges that the Company failed to provide notice of a "reasonably anticipated
loss" under a bid that was pending at the time of the transfer of the business
and therefore a representation was breached. The contract was subsequently
awarded to the Company's Varo subsidiary and thereafter transferred to the buyer
of the Electro-Optical Systems business. The case is in the preliminary stages
of pleading but the Company believes that there are legal and factual defenses
to the claims and intends to defend the action vigorously.
The Company is one of five defendants in an action brought in the United States
District Court for the Middle District of Louisiana. In April 1991, the
Company's former Deltex division performed a repair of a turbine. Following the
repair, the turbine was included in a spare parts pool until January 1995. The
plaintiff alleges that following installation in its plant the turbine
experienced severe vibrations requiring the turbine to be run at less than
optimal speed. They further allege that the shortfall in performance caused them
to incur repair costs, and consequential damages in excess of $5 million. The
lawsuit is in the early discovery stage; however, the Company believes that
there are legal and factual defenses to the claims and intends to defend the
action vigorously.
The operations of the Company, like those of other companies engaged in similar
businesses, involve the use, disposal and clean up of substances regulated under
environmental protection laws. In a number of instances the Company has been
identified as a Potentially Responsible Party by the U.S. Environmental
Protection Agency, and in one instance by the State of Washington, with respect
to the disposal of hazardous wastes at a number of facilities that have been
targeted for clean-up pursuant to CERCLA or similar state law. Similarly, the
Company has received notice that it is one of a number of defendants named in an
action filed in the United States District Court, for the Southern District of
Ohio Western Division by a group of plaintiffs who are attempting to allocate a
share of cleanup costs, for which they are responsible, to a large number of
additional parties, including the Company. Although CERCLA and corresponding
state law liability is joint and several, the Company believes that its
liability will not have a material adverse effect on the financial condition of
the Company since it believes that it either qualifies as a de minimis or minor
contributor at each site. Accordingly, the Company believes that the portion of
remediation costs that it will be responsible for will not be material.
The Company is also involved in various other pending legal proceedings arising
out of the ordinary course of the Company's business. None of these legal
proceedings is expected to have a material adverse effect on the financial
condition of the Company. With respect to these proceedings and the litigation
and claims described in the preceding paragraphs, management of the Company
believes that it either will prevail, has adequate insurance coverage or has
established appropriate reserves to cover potential liabilities. There can be no
assurance, however, as to the ultimate outcome of any of these matters, and if
all or substantially all of these legal proceedings were to be determined
adversely to the Company, there could be a material adverse effect on the
financial condition or results of operations of the Company.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following paragraphs provide Management's discussion and analysis of the
significant factors which have affected the Company's consolidated results of
operations and financial condition during the first quarter of 1998. This
section should be read in conjunction with the Company's 1997 Form 10-K
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Recent Events
Consent Solicitation: On April 14, 1998, the Company commenced a consent
solicitation, seeking consents from the holders of the Company's 11 3/4% Senior
Subordinated Notes due 2006 ("the Notes") to certain amendments to the Indenture
governing the Notes. The proposed amendments would permit the Company to
complete a "short-form" merger with and into a wholly owned subsidiary of II
Acquisition Corp. On May 6, 1998, the Company received sufficient consents to
effect the proposed amendments, and entered into a Supplemental Indenture with
respect to such amendments. The Company paid an aggregate of $483,650 to holders
of Notes in connection with the solicitation. Notwithstanding that the proposed
amendments were adopted, there can be no assurance that any merger involving the
Company will be consummated.
New York Stock Exchange, Inc.: On March 16, 1998, the Company received a letter
from the New York Stock Exchange, Inc. ("NYSE") indicating the NYSE's
determination that the Company had fallen below certain continued listing
criteria, and that the NYSE was carefully considering the appropriateness of the
continued listing of the Company's common stock. The Company has been in contact
with representatives of the NYSE and has taken the position that the NYSE should
maintain the listing of the Company's common stock. The Company will seek to
persuade the NYSE to continue such listing, but there can be no assurance that
the NYSE will not attempt to delist the Company's common stock.
Roltra-Morse Sale: On February 27, 1998, the Company completed the sale of its
Roltra-Morse business to Magna International Inc. for cash of $30 million plus
the assumption of Roltra-Morse's debt. The sale price approximated the recorded
net book value of the business. Net proceeds were used to reduce domestic senior
debt. This transaction is reflected in the Company's consolidated condensed
financial statements for the quarter ended April 3, 1998.
The sale of Roltra-Morse and the resultant reduction in domestic senior debt
increased the Company's availability under its revolving credit facility,
allowing it to purchase a portion of its Notes in the open market. During the
first quarter of 1998, the Company purchased, in the open market at a premium,
Notes in the face amount of $33.1 million. As a result of the early
extinguishment of these Notes and the prepayment of a portion of the term loan
facility, an extraordinary charge of $5.6 million was recognized in the first
quarter of 1998.
Results of Operations
The Roltra-Morse, Instrumentation, and Electro-Optical Systems business segments
were sold in February 1998, August 1997, and April 1997, respectively, and were
accounted for as discontinued operations in the accompanying consolidated
condensed financial statements. Accordingly, the discussion that follows
concerns only the results of continuing operations. The Company's continuing
businesses are grouped into three business segments for management and segment
reporting purposes: Power Transmission, Pumps, and Morse Controls.
Sales. Net sales from continuing operations for the first quarter of 1998 were
$83 million, an increase of 5.2%, compared with $78.9 million in the comparable
1997 period. Increases in the volume of shipments and new products provided this
growth. First quarter 1998 net sales increased for the Pumps and Morse Controls
segments and remained flat for the Power Transmission segment, compared to the
prior year period.
Gross Profit. Gross profit increased as a percentage of sales to 32.2% for the
first quarter of 1998 compared with 31.2% in the first quarter of 1997. The
higher gross profit was the result of increased sales volume and productivity
improvements in each segment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased as a percentage of sales to 18.3% for the
first quarter of 1998 compared with 22.0% in the first quarter of 1997. The
decreased expenses as a percentage of sales in 1998 were due to increased sales
volume and the effects of Company-wide cost reduction programs instituted in
August of 1997, offset by increased goodwill amortization resulting from the
purchase of the Company by II Acquisition Corp.
Unusual Item. In the first quarter of 1997, the Company recorded an unusual
charge of $12.9 million, as a result of the reinstatement of a judgment, plus
interest to date, against the Company in favor of International Insurance
Company.
Interest Expense. Average borrowings in the first quarter of 1998 were
approximately $93 million lower than the first quarter of 1997. Total interest
expense (before allocation to discontinued operations) was $6.7 million for the
first quarter of 1998 compared with $8.8 million for the same period in 1997.
Interest expense for continuing operations excludes a general interest
allocation to the discontinued operations of $.2 million and $1.2 million for
the first quarters of 1998 and 1997, respectively.
Provision for Income Taxes. Income tax expense for continuing operations was $.8
million and $.6 million for the first quarters of 1998 and 1997, respectively.
These amounts represent current tax expense for foreign and state income taxes,
as the Company is utilizing existing U.S. net operating loss carryforwards with
its domestic earnings.
Income from Continuing Operations. The Company had net income from continuing
operations of $3.3 million, or $0.20 per share, for the first quarter of 1998,
compared with a net loss of $14.3 million, or $0.84 per share, for the
comparable 1997 period.
Income (Loss) from Discontinued Operations. Roltra-Morse's net loss of $1
million, which includes $.2 million of allocated interest, was included with the
net book value of the assets on the date of sale February 27, 1998. Therefore,
there was no income from discontinued operations for the first quarter of 1998
compared with income of $1.5 million for the first quarter of 1997. Results from
operations for the discontinued operations include allocations for interest of
$1.2 million for the 1997 period.
Extraordinary Item. In March 1998, the Company purchased, in the open market at
a premium, Notes in the face amount of $33.1 million. As a result of the early
extinguishment of these Notes and the prepayment of a portion of the term loan,
an extraordinary charge of $5.6 million was recognized in the first quarter of
1998.
Net Income (Loss). The net loss in the first quarter of 1998 was $2.3 million,
or $0.13 per share, compared with a net loss of $12.8 million, or $0.75 per
share, in the comparable 1997 period. The net loss in the first quarters of 1998
and 1997 were due to the factors discussed above.
Liquidity and Capital Resources
Short-term and Long-term Debt
As of April 3, 1998, availability under the revolving credit facility was $15.4
million, as the Company had revolver borrowings of $35 million and $19.6 million
of outstanding standby letters of credit under the Company's existing credit
agreement. The Company's continuing operations had $7 million in foreign
short-term credit facilities with amounts outstanding at April 3, 1998 of $1.4
million.
In addition, the Company had outstanding $102 million of its 11.75% senior
subordinated notes due in 2006, and $51 million of term loan borrowings.
Cash Flow
The Company's operating activities provided net cash of $7.9 million in the
first quarter of 1998, compared with cash used of $3.5 million in the comparable
1997 period. The cash provided by operating activities in 1998 was attributable
to net operating profits and the decrease in working capital in the period,
primarily due to the decrease in other current assets. The cash used by
operating activities in 1997 was primarily due to the increase in working
capital. For the quarter, total debt reduction was $32.5 million, $30 million of
which was provided by the sale of Roltra-Morse. Cash and cash equivalents were
$2.2 million at April 3, 1998 compared with $3.5 million at December 31, 1997.
The sale of the Roltra-Morse business segment has improved the Company's
liquidity position. Management believes that cash flow from operations and cash
available from unused credit facilities will be sufficient to meet the Company's
foreseeable liquidity needs.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. Except for historical matters, the
matters discussed in this Form 10-Q Report are forward-looking statements based
on current expectations and involve risks and uncertainties. Forward-looking
statements include, but are not limited to, statements under the following
headings: (i) Legal Proceedings - the future impact of legal proceedings on the
financial condition of the Company; and, (ii) "Results of Operations" - the
future performance of various programs and foreign market conditions in each
segment and the impact of such programs and foreign market conditions on future
sales and on operating income. The Company wishes to caution the reader that, in
addition to the matters described above, various factors such as delays in
contracts from key customers, demand and market acceptance risk for new
products, continued or increased competitive pricing and the effects of
under-utilization of plants and facilities, particularly in Europe, and the
impact of worldwide economic conditions on demand for the Company's products,
could cause results to differ materially from those in any forward-looking
statement.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
For information regarding certain pending lawsuits, reference is made to the
Company's Form 10-K for the year ended December 31, 1997, which is incorporated
herein by reference, and to Note F in Part I of this Form 10-Q Report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
The following exhibits are being filed as part of this Report:
Exhibit No. Description
4.3 (E) Fourth Amendment to the Rights Agreement, dated as of
April 30, 1998, between the Company and First Chicago Trust
Company of New York, dated as of April 15, 1998 (incorporated
by reference to Exhibit 5 of the Company's Form 8-A/A dated
as of May 1, 1998).
10.27 (E) Fourth Amendment to Credit and Guaranty Agreement dated
as of March 9, 1998
10.28 Third Supplemental Indenture, dated as of May 6, 1998, to
Indenture dated as of April 15, 1996, with respect to the
Company's 11 3/4% Senior Subordinated Notes due 2006.
27 Financial Data Schedule as of April 3, 1998
(b) Reports on Form 8-K:
On February 3, 1998, the Company filed a report on Form 8-K, reporting
under Item 5, disclosing the announcement that the Company had entered
into an agreement to sell its Roltra Morse S.p.A. subsidiary to Magna
International Inc.
On March 13, 1998, the Company filed a report on Form 8-K, reporting under
Item 2, disclosing that on February 27, 1998, the Company completed the
sale of its Roltra Morse S.p.A. subsidiary to Magna International Inc.
On April 17, 1998, the Company filed a report on Form 8-K, reporting under
Item 5, disclosing that on April 14, 1998, the Company announced that it
is soliciting the consents of holders of its 11 3/4% Senior Subordinated
Notes due 2006 to certain amendments to the Indenture governing the Notes.
On May 1, 1998, the Company filed a report on Form 8-K, reporting under
Item 5, disclosing that on April 30, 1998, the Company announced that it
is supplementing its Consent Solicitation Statement, dated April 14, 1998,
in which the Company is soliciting the consents of holders of its 11 3/4%
Senior Subordinated Notes due 2006 to certain amendments to the Indenture
governing the Notes.
On May 12, 1998, the Company filed a report on Form 8-K, reporting under
Item 5, disclosing that on May 7, 1998, the Company announced that holders
of more than 51% of the outstanding principal amount of the Company's
11 3/4% Senior Subordinated Notes due 2006 consented to certain proposed
amendments to the Indenture governing the Notes, pursuant to the Company's
Consent Solicitation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Imo Industries Inc.
-------------------
(Registrant)
Date: May 13, 1998
/s/ JOHN A. YOUNG
-------------------------
John A. Young
Chief Financial Officer
Date: May 13, 1998
/s/ G. SCOTT FAISON
-------------------------
G. Scott Faison
Corporate Controller
FOURTH AMENDMENT TO CREDIT AND GUARANTY AGREEMENT
THIS FOURTH AMENDMENT, dated as of March 9, 1998 (this "Amendment") to the
Existing Credit Agreement referred to below is among IMO INDUSTRIES INC., a
Delaware corporation (the "Borrower"), II ACQUISITION CORP., a Delaware
corporation (the "Parent") and the Lenders (as defined below) parties hereto.
W I T N E S S E T H:
WHEREAS, the Borrower, the Parent, certain financial institutions from
time to time parties thereto (collectively, the "Lenders"), The Bank of Nova
Scotia, as the Administrative Agent and NationsBanc Capital Markets, Inc., as
the Syndication Agent have entered into the Credit and Guaranty Agreement, dated
as of August 29, 1997 (as amended, supplemented, amended and restated or
otherwise modified prior to the date hereof, the "Existing Credit Agreement"
and, as amended by, and together with, this Amendment, the "Credit Agreement");
and
WHEREAS, the Borrower and the Parent have requested that the Existing
Credit Agreement be amended in certain respects and that the Lenders grant a
waiver to certain terms of the Existing Credit Agreement and consent to the
Transaction (as defined below), and the Lenders have agreed to amend the
Existing Credit Agreement and grant such waivers and consent (subject to the
terms and conditions of this Amendment);
NOW, THEREFORE, in consideration of the premises and the other provisions
herein contained, the parties hereto hereby agree as follows.
PART I
DEFINITIONS
SUBPART 1.1. Use of Defined Terms. Unless otherwise defined herein or the
context otherwise requires, terms used in this Amendment, including its preamble
and recitals, have the respective meanings provided therefor in the Existing
Credit Agreement.
PART II
AMENDMENTS TO THE EXISTING CREDIT AGREEMENT
Effective upon (and subject to) the occurrence of the Fourth Amendment
Effective Date (as defined in Subpart 3.1), certain terms and provisions of the
Existing Credit Agreement are hereby amended, and the waivers and consent
described below are hereby granted, in accordance with this Part. Except as so
amended or modified by this Amendment, the Existing Credit Agreement shall
continue in full force and effect in accordance with its terms.
SUBPART 2.1. Amendment to Article I. Article I of the Existing Credit
Agreement is hereby amended in accordance with Subparts 2.1.1 and 2.1.2.
SUBPART 2.1.1. Section 1.1 of the Existing Credit Agreement is hereby
amended by inserting the following definitions in the appropriate alphabetical
order:
"Amendment No. 4" means the Fourth Amendment, dated as of
March 9, 1998, to this Agreement among the Borrower, the Parent and the
Lenders parties thereto.
"Borrower Merger" means the merger of Newco with and into the
Borrower, with the Borrower being the surviving corporation at such
merger.
"Fourth Amendment Effective Date" is defined in Subpart 3.1 of
Amendment No. 4.
"Newco" means a to be formed Delaware corporation that will be a
direct, wholly owned Subsidiary of the Parent.
"Transaction" means the incorporation of Newco by the Parent, the
contribution of cash by the Parent to Newco sufficient in amount to pay
for the redemption of approximately 1,200,000 issued and outstanding
shares of the Borrower's common stock (owned by other than Affiliates of
the Borrower) required as a result of the Borrower Merger and the
contribution of all of the issued and outstanding shares of common stock
of the Borrower owned on March 9, 1998 by the Parent into Newco (with the
contribution of such cash and shares by the Parent into Newco collectively
referred to as the "Contribution"), and within three Business Days
following the Contribution, the consummation of the Borrower Merger.
SUBPART 2.1.2. Section 1.1 of the Existing Credit Agreement is hereby
further amended by amending the definition of "Permitted Amount" in its entirety
to read as follows:
"Permitted Amount" means in the case of (a) the permitted maximum
amount of Revolving Loans which may be applied by the Borrower to purchase
outstanding Senior Subordinated Notes "put" to the Borrower pursuant to
the "put" provision contained in the Senior Subordinated Notes in the
event of a Change of Control (as defined therein) pursuant to the terms of
Section 4.10, $40,000,000, (b) the permitted maximum aggregate amount of
Revolving Loans which may be applied from time to time by the Borrower to
open market purchases or redemptions of outstanding Senior Subordinated
Notes pursuant to the terms of Section 4.10 (whether or not the Borrower
has repaid or prepaid Revolving Loans subsequent to the date such
Revolving Loans were made (even if all Revolving Loans are repaid or
prepaid in full on any given date)), the sum of (i) $75,000,000 (payable
in respect of the face amount of Senior Subordinated Notes purchased or
redeemed) plus (ii) an amount (referred to as the "Additional Amount")
payable in respect of any premium over the face amount of the Senior
Subordinated Notes purchased or redeemed by it in the open market (with
the payment of such Additional Amount being in all events subject to the
terms of clause (iv) of Section 4.10), (c) the permitted maximum amount of
Revolving Loans which may be applied by the Borrower to make intercompany
loans to Non- U.S. Subsidiaries to refinance existing Indebtedness of such
Non-U.S. Subsidiaries, $25,000,000, and (d) guarantees by the Borrower of
Indebtedness of Non-U.S. Subsidiaries, in an amount not to exceed
$20,000,000; provided, however, that the sum of clauses (a), (b), (c) and
(d) above shall not at any time exceed $75,000,000 plus (in the case of
clause (b) only), the Additional Amount.
SUBPART 2.2. Amendment to Article II. Section 2.7 of the Existing Credit
Agreement is hereby amended by inserting the following sentence after the first
sentence contained in such Section:
"Notwithstanding the immediately preceding sentence, solely with regard to
Letter of Credit No. 90016/80085 issued in favor of Magna International
Inc. on February 27, 1998, the Borrower may deliver an Issuance Request on
not less than 60 nor more than 90 Business Days' notice prior to the then
existing Stated Expiry Date of such Letter of Credit requesting that the
Issuer extend the Stated Expiry Date of such Letter of Credit and unless
the Borrower delivers an Issuance Request during such period, such Letter
of Credit will not be extended by the Issuer pursuant to the "evergreen"
provisions."
SUBPART 2.3. Amendment to Article IV. Clause (iv)(B) of Section 4.10 of
the Existing Credit Agreement is hereby amended by deleting the figure
"$50,000,000" in such clause, and inserting the figure "$75,000,000" in its
place.
SUBPART 2.4. Amendment to Article VII. Article VII of the Existing Credit
Agreement is hereby amended in accordance with Subparts 2.4.1 through 2.4.2.
SUBPART 2.4.1. Clause (e) of Section 7.2.2 of the Existing Credit
Agreement is hereby amended by designating existing clause (e) as clause
"(e)(i), and adding a new clause (e)(ii) to read in its entirety to read as
follows:
"(e)(ii) unsecured Indebtedness of the Parent in a principal amount not to
exceed $95,000,000 at any time outstanding owing to Persons (other than
the Borrower or any Subsidiary of the Borrower) that are directly or
indirectly wholly owned and controlled by the two largest individual
Stockholders of the Parent (determined as of March 9, 1998) pursuant to
documentation containing terms (including the events of default, rights of
acceleration, representations and covenants) satisfactory to the
Administrative Agent; provided, that such Indebtedness shall be fully
subordinated on terms satisfactory to the Administrative Agent to the
obligations of the Parent under the guaranty of the Parent contained in
Article IX hereof and the final maturity date is at least one year
following the Stated Maturity Date (with no amortization or other payments
of principal required prior to such final maturity date), and the lenders
of such unsecured Indebtedness shall covenant that they will not commence
or cause the commencement of any of the actions described in clause (b),
(c) or (d) of Section 8.1.9 of this Agreement with respect to the Parent;"
SUBPART 2.4.2. Clause (b)(ii) of Section 7.2.6 of the Existing Credit
Agreement is hereby amended by deleting the figure "$50,000,000" in such clause,
and inserting the figure "$75,000,000" in its place.
SUBPART 2.5. Limited Waivers and Consent. Subject to the terms of this
Subpart, by their signatures below the Lenders hereby waive compliance with the
following terms of the Credit Agreement, but only to the extent necessary to
enable the Parent and the Borrower to consummate the Transaction:
(a) the provisions of clause (d) of the definition of "Change in
Control" for the period of time from the date of the Contribution to the
date of the consummation of the Borrower Merger;
(b) the representation contained in Section 6.17 of the Credit
Agreement; provided, that from the date of the Contribution until the date
of the consummation of the Borrower Merger, "(together with Newco)" shall
be deemed to be substituted for the words "(together with management
shareholders of the Parent and the Borrower)" and the phrase "(other than
Liens pursuant to a Loan Document)" shall be deemed to be substituted for
the phrase "(other than Liens pursuant to the Parent Pledge Agreement)";
(c) the provisions of clause (a) of Section 7.2.5 of the Credit
Agreement limiting the Parent's Investment to its Investment existing on
the Effective Date in the Borrower, but only to the extent of an
Investment by the Parent in Newco contemplated by the Transaction and to
the extent that the Parent is the owner of 100% of the capital stock of
Newco prior to the Borrower Merger;
(d) the provisions of Section 7.2.6 of the Credit Agreement, but
only to the extent the Borrower is obligated to pay consideration
(including cash) to holders (other than Affiliates of the Borrower) of the
Senior Subordinated Notes for consents to amend the Senior Subordinated
Indenture in connection with the Transaction in an amount agreed to by the
Administrative Agent;
(e) the provisions of Section 7.2.10 of the Credit Agreement in
connection with the Borrower Merger, but only to the extent that the
Borrower is the surviving corporation of the Borrower Merger; and
(f) the provisions of Section 7.2.11 and Section 7.2.19 of the
Credit Agreement, but only to the extent necessary to permit the Parent to
contribute cash and the Borrower Shares to Newco (as described in the
definition of "Transaction") in connection with the Transaction.
The limited waivers and consent described above are subject to the
following conditions:
(i) Newco shall at all times prior to the consummation of the
Borrower Merger be a direct, wholly owned Subsidiary of the Parent, and
Newco shall own directly all the issued and outstanding shares of the
Borrower that were owned on March 9, 1998 by the Stockholders and
management shareholders of the Borrower and of the Parent (the "Borrower
Shares"), free and clear of all Liens (other than Liens granted pursuant
to a Loan Document);
(ii) if the Borrower Merger shall not have been consummated
within three Business Days following the Contribution, Newco shall have
executed and delivered on such third Business Day a Guaranty in
substantially the form of the Parent Guaranty (with such changes thereto
as are deemed to be necessary by the Administrative Agent) and a Pledge
Agreement in substantially the form of the Borrower Pledge Agreement (with
such changes thereto as are deemed to be necessary by the Administrative
Agent), and Newco shall have delivered in pledge to the Administrative
Agent on such third Business Day the original share certificates
evidencing all of the Borrower Shares, together with undated stock powers
executed by Newco in blank for all Borrower Shares, and legal opinions
from counsel to the Borrower and Newco in form and substance satisfactory
to the Administrative Agent; and
(iii) prior to the date of the Contribution, the Administrative
Agent shall have received copies of all documentation to be
delivered in connection with the Transaction.
PART III
CONDITIONS TO EFFECTIVENESS
SUBPART 3.1. This Amendment shall become effective on the date first set
forth above (the "Fourth Amendment Effective Date") when all of the following
conditions have been satisfied to the satisfaction of the Administrative Agent.
SUBPART 3.1.1. Execution of Counterparts. The Administrative Agent shall
have received copies of this Amendment, duly executed and delivered by the
Borrower, the Parent and the Required Lenders.
SUBPART 3.1.2. Affirmation and Consent. The Administrative Agent shall
have received an affirmation and consent in form and substance satisfactory to
it, duly executed and delivered by the Parent and each other Guarantor.
SUBPART 3.1.3. Satisfactory Legal Form. All documents executed or
submitted pursuant hereto shall be satisfactory in form and substance to the
Administrative Agent and its counsel. The Administrative Agent and its counsel
shall have received all information and such counterpart originals or such
certified or other copies or such materials, as the Administrative Agent or its
counsel may reasonably request, and all legal matters incident to the
transactions contemplated by this Amendment shall be satisfactory to the
Administrative Agents and its counsel.
PART IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Amendment, the Borrower
and the Parent represent and warrant to the Administrative Agent, each Issuer
and each Lender as set forth in this Part.
SUBPART 4.1. Compliance with Warranties. The representations and
warranties set forth herein, in Article VI of the Credit Agreement and in each
other Loan Document delivered in connection herewith or therewith are true and
correct in all material respects with the same effect as if made on and as of
the date hereof (unless stated to relate solely to an earlier date, in which
case they were true and correct as of such earlier date).
SUBPART 4.2. Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Borrower, the Parent and the Guarantors of this
Amendment and other documents delivered pursuant hereto are within the
Borrower's, the Parent's and the Guarantors' corporate powers, have been duly
authorized by all necessary corporate action, and do not (i) contravene either
the Borrower's, the Parent's or the Guarantors' Organic Documents, (ii)
contravene or result in a default under any contractual restriction, law or
governmental regulation or court decree or order binding on or affecting either
the Borrower, the Parent or the Guarantors, or (iii) result in, or require the
creation or imposition of, any Lien (except as contemplated in or created by the
Loan Documents).
SUBPART 4.3. Validity, etc. This Amendment has been duly executed and
delivered by the Borrower and the Parent and constitutes the legal, valid and
binding obligation of the Borrower and the Parent enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and to
general principles of equity, regardless of whether enforcement is sought in a
proceeding at law or in equity.
SUBPART 4.4. Compliance With Existing Credit Agreement. As of the Fourth
Amendment Effective Date, and both before and after giving effect to the terms
of this Amendment, no Default has occurred and is continuing.
PART V
MISCELLANEOUS PROVISIONS
SUBPART 5.1. Ratification of and Limited Amendment to the Credit
Agreement. This Amendment shall be deemed to be an amendment to the Existing
Credit Agreement, and the Existing Credit Agreement, as amended hereby, is
hereby ratified, approved and confirmed in each and every respect. Except as
specifically amended or modified herein, the Existing Credit Agreement shall
continue in full force and effect in accordance with the provisions thereof and
except as expressly set forth herein the provisions hereof shall not operate as
a waiver of or amendment of any right, power or privilege of the Administrative
Agent and the Lenders nor shall the entering into of this Amendment preclude the
Lenders from refusing to enter into any further or future amendments. This
Amendment shall be deemed to be a "Loan Document" for all purposes of the Credit
Agreement.
SUBPART 5.2. Credit Agreement, References, etc. All references to the
Credit Agreement in any other document, instrument, agreement or writing shall
hereafter be deemed to refer to the Existing Credit Agreement as amended hereby.
As used in the Credit Agreement, the terms "Agreement", "herein", "hereinafter",
"hereunder", "hereto" and words of similar import shall mean, from and after the
date hereof, the Existing Credit Agreement as amended by this Amendment.
SUBPART 5.3. Expenses. The Borrower agrees to pay all out-of-pocket
expenses incurred by the Administrative Agent in connection with the
preparation, negotiation, execution and delivery of this Amendment.
SUBPART 5.4. Headings; Counterparts. The various headings of this
Amendment are inserted for convenience only and shall not affect the meaning or
interpretation of this Amendment or any provisions hereof. This Amendment may be
signed in any number of separate counterparts, each of which shall be an
original, and all of which taken together shall constitute one instrument.
SUBPART 5.5. Governing Law; Entire Agreement. THIS AMENDMENT SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK. This Amendment constitutes the entire understanding among the parties
hereto with respect to the subject matter hereof and supersedes any prior
agreements, written or oral, with respect thereto.
SUBPART 5.6. Loan Document Pursuant to Credit Agreement. This Amendment is
a Loan Document executed pursuant to the Credit Agreement and shall be
construed, administered and applied in accordance with all of the terms and
provisions of the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
IMO INDUSTRIES INC.
By: John A. Young
Title: Vice President
II ACQUISITION CORP.
By: John A. Young
Title: Vice President
THE BANK OF NOVA SCOTIA
By: James R. Trimble
Title: Senior Relationship Manager
NATIONSBANK, N.A.
By: Michael R. Heredis
Title: Senior Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: Amy L. Robbins
Title: Vice President
FLEET CAPITAL CORPORATION
By: Roland J. Robinson
Title: Senior Vice President
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE
By: Brian O'Leary
Title: Vice President
By: Sean Mounier
Title: First Vice President
CRESTAR BANK
By: Christopher B. Werner
Title: Vice President
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN
BRANCHES
By: Richard W. Conroy
Title: Vice President
By: Kam Pasha
Title: Vice President
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: Perry Vavoules
Title: Senior Vice President
US TRUST
By: Thomas F. Macina
Title: Vice President
CIBC INC.
By: William M. Swenson
Title: Authorized Signatory
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE dated as of May 6, 1998 between IMO
INDUSTRIES INC., a Delaware corporation (the "Company"), and IBJ SCHRODER BANK &
TRUST COMPANY, as trustee (the "Trustee").
W I T N E S S E T H :
WHEREAS, the Company and the Trustee have heretofore entered into an
Indenture dated as of April 15, 1996 (as previously supplemented, the
"Indenture") pursuant to which the Company issued its 11 3/4% Senior
Subordinated Notes due 2006 (the "Notes"); and
WHEREAS, the Company has caused to be delivered to the holders of
the Notes a Consent Solicitation Statement, dated April 14, 1998 (as the same
may be amended from time to time, the "Consent Solicitation Statement"), and a
related Consent Letter pursuant to which the Company has solicited consents to
the adoption of certain proposed amendments to the Indenture, as further
described herein;
WHEREAS, Section 9.02 of the Indenture provides that the Company and
the Trustee may amend or supplement the Indenture and the Notes with the consent
of the Holders of at least a majority in principal amount of the outstanding
Notes (the "Requisite Holders"), subject to paragraphs (1) - (8) thereof;
WHEREAS, the Company has received the consents of the Requisite
Holders to the amendments set forth in this Third Supplemental Indenture;
WHEREAS, the Company has delivered an Officers' Certificate and
Opinion of Counsel to the Trustee pursuant to Section 9.06 of the Indenture;
WHEREAS, all other actions necessary to make this Third Supplemental
Indenture a legal, valid and binding obligation of the parties hereto in
accordance with its terms and the terms of the Indenture have been performed;
and
WHEREAS, the Company and the Trustee desire to enter into, execute
and deliver this Third Supplemental Indenture in compliance with the provisions
of the Indenture.
NOW, THEREFORE, the Company and the Trustee hereby agree as follows
for the benefit of each other and for the equal and ratable benefit of the
holders of the Notes:
ARTICLE ONE
DEFINITIONS
1.1. Definitions. Unless otherwise specifically defined herein, each
term used herein which is defined in the Indenture shall have the meaning
assigned to such term in the Indenture.
ARTICLE TWO
AMENDMENTS TO INDENTURE
2.1. Amendment of Article 1. The definition of "Change of Control"
in Section 1.01 ("Definitions") of Article 1 ("Definitions and Incorporation by
Reference") of the Indenture is hereby amended by inserting the following
sentence at the end of the current text of the definition:
"Notwithstanding the preceding sentence or any other provision in
this Indenture, neither (a) the contribution by II Acquisition
Corp., a Delaware corporation ("IIAC"), of 100% of its holdings of
the common stock of the Company, par value $1.00 per share, to any
wholly-owned subsidiary of IIAC, nor (b) the merger of the Company
with and into a wholly-owned subsidiary of IIAC, shall consitute a
"Change of Control" under this Indenture; provided that in the case
of (b), such subsidiary, at the time of such merger, is not,
individually or jointly with any other party, an obligor with
respect to, or guarantor of, any indebtedness."
2.2. Amendment of Article 5. Article 5 ("Successor Company") of the
Indenture is hereby amended by adding a subsection (c) to Section 5.01 ("When
Company May Merge or Transfer Assets") that reads in its entirety as follows:
"(c) Nothing in this Article 5 or any other provision in this
Indenture shall prevent or in any way limit the Company from
consummating a merger with and into any wholly-owned
subsidiary of II Acquisition Corp., a Delaware corporation
("IIAC"), or from effecting the payment, in connection with
such merger, for the remaining equity interests in the Company
not already owned by IIAC or its affiliates, and the
provisions of Section 5.01(a) and (b) shall be null and void
and of no force and effect with respect to such merger and
payment; provided, that such subsidiary, at the time of such
merger, is not, individually or jointly with any other party,
an obligor with respect to, or guarantor of, any
indebtedness."
2.3. Amendment of Article 6. Article 6 ("Defaults and Remedies") of
the Indenture is hereby amended by inserting a new paragraph after the final
paragraph of the current Section 6.01 ("Events of Default"), reading in its
entirety as follows:
"Notwithstanding the foregoing or any other provision in this
Indenture, neither (a) the contribution by II Acquisition Corp., a
Delaware corporation ("IIAC"), of 100% of its holdings of the common
stock of the Company, par value $1.00 per share, to any wholly-owned
subsidiary of IIAC, nor (b) the merger of the Company with and into
a wholly-owned subsidiary of IIAC, nor (c) the payment, in
connection with the merger, for the remaining equity interests in
the Company not already owned by IIAC or its affiliates, nor (d) the
failure to comply with Section 4.10 as a result of (a) or (b), shall
consitute a "Event of Default" under this Indenture; provided that
in the case of (b), such subsidiary, at the time of such merger, is
not, individually or jointly with any other party, an obligor with
respect to, or guarantor of, any indebtedness."
ARTICLE THREE
MISCELLANEOUS
3.1 Indemnification. The Company agrees to indemnify the Trustee and
hold the Trustee harmless from and against any and all liabilities, losses,
damages, claims or actions to which the Trustee may become subject as a result
of or in connection with the execution of this Third Supplemental Indenture and
the amendment of the Indenture pursuant hereto, and will reimburse the Trustee
for any legal or other expenses reasonably incurred by the Trustee in connection
with investigating or defending any such liability, loss, damage, claim or
action.
3.2. Ratification. Except as hereby expressly amended, the Indenture
and the Notes issued thereunder are in all respects ratified and confirmed and
all the terms, conditions and provisions thereof shall remain in full force and
effect. Upon execution, this Third Supplemental Indenture shall form a part of
the Indenture, and the Third Supplemental Indenture and the Indenture shall be
read, taken and construed as one and the same instrument for all purposes, and
every holder of Notes heretofore or hereafter authenticated and delivered under
the Indenture shall be bound hereby.
3.3. Effectiveness. This Third Supplemental Indenture shall become
effective as of the date first above written.
3.4. Governing Law. THIS THIRD SUPPLEMENTAL INDENTURE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
3.5. Counterpart Originals. The parties may sign any number of
copies of this Third Supplemental Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement. One signed copy
is enough to prove this Third Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this THIRD
SUPPLEMENTAL INDENTURE to be duly executed as of the date hereof.
IMO INDUSTRIES INC.
By: /s/ Michael G. Ryan
Name: Michael G. Ryan
Title: Vice President
IBJ SCHRODER BANK & TRUST
COMPANY, as Trustee
By: /s/ Terence Rawlins
Name: Terence Rawlins
Title: Assistant Vice President
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