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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1998
REGISTRATION NO. 333-57455
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THERMADYNE HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3548 74-2482571
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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101 SOUTH HANLEY ROAD, SUITE 300
ST. LOUIS, MISSOURI 63105
(314) 721-5573
(Address, including zip code, and telephone number,
including area code of registrant's principal executive offices)
RANDALL E. CURRAN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
THERMADYNE HOLDINGS CORPORATION
101 SOUTH HANLEY ROAD, SUITE 300
ST. LOUIS, MISSOURI 63105
(314) 721-5573
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
R. SCOTT COHEN
WEIL, GOTSHAL & MANGES LLP
100 CRESCENT COURT, SUITE 1300
DALLAS, TEXAS 75201
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes 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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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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.
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EXPLANATORY NOTE
This Registration Statement covers the registration of an aggregate
principal amount at maturity of $174,000,000 of 12 1/2% Senior Discount
Debentures due 2008 (the "New Debentures") of Thermadyne Holdings Corporation
(the "Company") that may be exchanged for equal principal amounts of the
Company's outstanding 12 1/2% Senior Discount Debentures due 2008 (the "Old
Debentures") (the "Exchange Offer"). This Registration Statement also covers the
registration of the New Debentures for resale by Donaldson, Lufkin & Jenrette
Securities Corporation in market-making transactions. The complete Prospectus
relating to the Exchange Offer (the "Prospectus") follows immediately after this
Explanatory Note. Following the Prospectus are certain pages of the Prospectus
relating solely to such market-making transactions (the "Market-Making
Prospectus"), including alternate front and back cover pages, a section entitled
"Risk Factors -- Trading Market for the New Debentures" to be used in lieu of
the section entitled "Risk Factors -- Absence of Public Market," an alternate
"Use of Proceeds" section and an alternate "Plan of Distribution" section. In
addition, the Market-Making Prospectus will not include the following captions
(or the information set forth under such captions) in the Exchange Offer
Prospectus: "Summary -- The Exchange Offer," "Risk Factors -- Absence of Public
Market," "The Exchange Offer" and "Certain United States Federal Income Tax
Consequences." All other sections of the Exchange Offer Prospectus will be
included in the Market-Making Prospectus.
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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 AUGUST 4, 1998
PROSPECTUS
OFFER FOR ALL OUTSTANDING
12 1/2% SENIOR DISCOUNT DEBENTURES DUE 2008
IN EXCHANGE FOR
12 1/2% SENIOR DISCOUNT DEBENTURES DUE 2008
OF
THERMADYNE HOLDINGS CORPORATION
Thermadyne Holdings Corporation ("Holdings" or the "Company") hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange $1,000 principal amount at maturity of registered 12 1/2%
Senior Discount Debentures due 2008 (the "New Debentures") issued by the Company
for each $1,000 principal amount at maturity of unregistered 12 1/2% Senior
Discount Debentures due 2008 (the "Old Debentures") issued by the Company, of
which an aggregate principal amount at maturity of $174,000,000 is outstanding.
The form and terms of the New Debentures are identical to the form and terms of
the Old Debentures except that the New Debentures have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and will not bear any
legends restricting their transfer. The New Debentures will evidence the same
debt as the Old Debentures and will be issued pursuant to, and entitled to the
benefits of, the Indenture (as defined) governing the Old Debentures. The
Exchange Offer is being made in order to satisfy certain contractual obligations
of the Company. See "The Exchange Offer" and "Description of New Debentures."
The New Debentures and the Old Debentures are sometimes collectively referred to
herein as the "Debentures."
The New Debentures will mature on June 1, 2008. The New Debentures will accrete
at a rate of 12 1/2%, compounded semiannually, to an aggregate principal amount
at maturity of $174 million on June 1, 2003. Cash interest will not accrue on
the New Debentures prior to June 1, 2003. Commencing on June 1, 2003, cash
interest on the New Debentures will be payable, at a rate of 12 1/2% per annum,
semi-annually in arrears on each June 1 and December 1, commencing December 1,
2003. See "Description of New Debentures."
The New Debentures will be subject to redemption at any time on or after June 1,
2003 at the option of the Company, in whole or in part, in cash at the
redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined herein), if any, thereon to the applicable
redemption date. Notwithstanding the foregoing, on or prior to June 1, 2001, the
Company may redeem up to 100% of the aggregate principal amount at maturity of
Debentures ever issued under the Indenture in cash at a redemption price of
112.50% of the Accreted Value (as defined herein) thereof, plus Liquidated
Damages, if any, thereon to the redemption date, with the net cash proceeds of
one or more Public Equity Offerings (as defined herein); provided that, in the
event that the Company redeems less than 100% of the then outstanding
Debentures, at least 60% of the aggregate principal amount at maturity of
Debentures ever issued under the Indenture remains outstanding immediately after
the occurrence of any such redemption. In addition, at any time prior to June 1,
2003, the Issuer may, at its option upon the occurrence of a Change of Control
(as defined herein), redeem the New Debentures, in whole but not in part, in
cash at a redemption price equal to (i) the present value of the sum of all the
remaining premium and principal payments that would become due on the New
Debentures as if the New Debentures were to remain outstanding and be redeemed
on June 1, 2003, computed using a discount rate equal to the Treasury Rate (as
defined herein) plus 50 basis points, plus (ii) Liquidated Damages, if any, to
the date of redemption. Upon the occurrence of a Change of Control, each Holder
of New Debentures will have the right to require the Company to repurchase all
or any part of such Holder's New Debentures at an offer price in cash equal to
101% of the Accreted Value thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of repurchase. See "Description
of New Debentures."
The New Debentures will be senior obligations of the Company. The New Debentures
will rank pari passu in right of payment with all future senior indebtedness of
the Company and will rank senior in right of payment to all future indebtedness
of the Company that is subordinated to the New Debentures. The New Debentures
will be effectively subordinated to all liabilities of the Company's
subsidiaries. On a pro forma basis after giving effect to the Merger (as defined
herein), including the Merger Financing (as defined herein) and the application
of the proceeds therefrom, as of March 31, 1998, the Company (as defined herein)
would have had outstanding approximately $682.0 million of Indebtedness (as
defined herein) and the Company's subsidiaries would have had approximately
$733.2 million of liabilities outstanding, including Indebtedness under the
Senior Subordinated Notes (as defined herein) and the New Credit Facility (as
defined herein) and including trade payables.
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SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW DEBENTURES.
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The Company will accept for exchange any and all Old Debentures validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on September 3, 1998,
unless extended (as so extended, the "Expiration Date"). Tenders of Old
Debentures may be withdrawn at any time prior to the Expiration Date. The
Exchange Offer is subject to certain customary conditions. See "The Exchange
Offer."
(Cover page continued on next page)
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 CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS AUGUST , 1998.
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(Continued from Cover Page)
Each broker-dealer that receives New Debentures for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Debentures. The letter of transmittal
accompanying this Prospectus (the "Letter of Transmittal") states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Debentures received in
exchange for Old Debentures where such Old Debentures were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed, for a period of 90 days after the Expiration
Date, to make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
No public market existed for the Old Debentures before the Exchange Offer. The
Company currently does not intend to list the New Debentures on any securities
exchange or to seek approval for quotation through any automated quotation
system, and no active public market for the New Debentures is currently
anticipated. The Company will pay all the expenses incident to the Exchange
Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of Old
Debentures being tendered for exchange pursuant to the Exchange Offer.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith will file reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information may
be inspected and copied at the public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can also be obtained at prescribed rates by writing to
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is hereby made to such exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. Copies of the Registration Statement and the
exhibits thereto are on file with the Commission and may be examined without
charge at the public reference facilities of the Commission described above.
Copies of such materials can also be obtained at prescribed rates by writing to
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The reports, proxy statements and other
information filed by the Company with the Commission may also be obtained from
the web site that the Commission maintains at http://www.sec.gov.
The Company is required by the Indenture to furnish the holders of the New
Debentures with copies of the annual reports and of the information, documents
and other reports specified in Sections 13 and 15(d) of the Exchange Act, so
long as any New Debentures are outstanding.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Investors are urged to read this Prospectus in its
entirety. As used in this Prospectus, the term "Mercury" means Mercury
Acquisition Corporation, the term "Issuer" means Mercury before the Merger and
Thermadyne Holdings Corporation after the Merger, the term "Holdings" means
Thermadyne Holdings Corporation, the terms "Thermadyne" and the "Company" mean
Thermadyne Holdings Corporation, its predecessors and subsidiaries, the term
"Thermadyne LLC" means Thermadyne Mfg. LLC, a wholly owned and the principal
operating subsidiary of Thermadyne Holdings Corporation, and the term
"Thermadyne Capital" means Thermadyne Capital Corp., a wholly owned subsidiary
of Thermadyne LLC.
THE COMPANY
OVERVIEW
Thermadyne is a leading global manufacturer of cutting and welding products
and accessories. The Company manufactures a broad range of gas (oxy-fuel) and
electric arc cutting and welding products that are ultimately sold to end-user
customers principally engaged in the aerospace, automotive, construction, metal
fabrication, mining, mill and foundry, petroleum and shipbuilding industries.
Thermadyne sells its products through a long-established domestic network of
approximately 1,100 independent distributors who market Thermadyne products to
over 10,000 end-user customers. For the twelve months ended March 31, 1998, the
Company's net sales and Adjusted EBITDA (as defined herein), on a pro forma
basis, were $548.2 million and $115.5 million, respectively.
The Company's core products enjoy leading brand recognition, a reputation
for quality and strong market positions. In 1994, following the Company's
Restructuring (as defined herein), current management initiated a series of
transactions to focus the Company's business exclusively on the cutting and
welding industry. As part of this strategy, the Company divested three non-core
businesses and acquired six cutting and welding businesses, which collectively
generated approximately $169 million in annual revenues at the respective times
of acquisition. As a result of this repositioning strategy, along with ongoing
new product introductions, an extensive distribution network and market leading
brands, the Company has achieved a compound annual growth in net sales and
EBITDA of 20.3% and 12.5%, respectively, from 1993 to 1997.
According to the United States Department of Commerce, domestic welding
industry revenues totaled over $3.6 billion in 1997. The domestic industry has
grown at an annual rate of 5.9% since 1989 and is expected to grow 4.2% in 1998.
Global welding industry revenues are estimated to total over $10.0 billion, and
management believes that growth in the international market has been faster than
the domestic market, driven, in large part, by infrastructure spending in
developing markets. International markets, including Australia and Italy,
represented approximately 42% of the Company's net sales in 1997, up from
approximately 20% of net sales in 1994. Although the industry has begun to
experience global consolidation, it continues to be very fragmented.
COMPETITIVE STRENGTHS
Thermadyne possesses a number of competitive strengths that have allowed it
to develop and maintain a strong position within the cutting and welding
industry, including the following:
Market Leading Brands. Management believes that the strength and longevity
of the numerous Thermadyne brand names create a significant competitive
advantage and position Thermadyne as one of the leaders in the cutting and
welding industry. Each of the Company's major divisions maintains
industry-leading brand names with significant market shares. Management believes
that VICTOR(R), founded in 1913, is the leading brand name in domestic
gas-operated cutting and welding torches and equipment; TWECO(R), founded in
1936, is the leading domestic manufacturer of metal inert gas ("MIG") and manual
welding torches; ARCAIR(R) is the leading domestic brand name of tungsten inert
gas ("TIG") torch and accessory products; THERMAL
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DYNAMICS(R), founded in 1957, is a leading domestic manufacturer of manual
plasma cutting products; and CIGWELD(R), founded in 1922, is the leading brand
name in the Australia/New Zealand cutting and welding products market. Each of
the manufacturing operations associated with these brands is ISO-9000 series
certified.
Diverse and Stable Customer Base. The Company's customer base includes
cutting and welding product distributors as well as end-user customers
principally engaged in the aerospace, automotive, construction, metal
fabrication, mining, mill and foundry, petroleum and ship building industries.
No one customer accounted for more than 9% of the Company's 1997 net sales.
Further, the Company's top 20 customers have been associated with the Company
for an average of over 10 years.
Established, Effective Distribution Channels. The Company believes that its
strong, established and long-standing relationships with over 1,100 independent
cutting and welding products distributors in the United States provide a
significant competitive advantage and support the Company's strong market
position. Thermadyne's domestic distributor relationships are maintained by 11
area business managers who oversee the Company's relationships with large
distributors and by separate product-specific sales forces for each of
Thermadyne's business units. Management believes that this unique structure,
which combines relationship managers with technically trained product
specialists, will enable the Company to more effectively maintain and utilize
its distributor networks. Management also believes that this established
distribution network enables the Company to achieve market penetration when
introducing newly developed or acquired products.
Proven and Committed Senior Management Team. Thermadyne's management team
has strategically repositioned the Company over the past four years to focus
exclusively in its core cutting and welding markets. This repositioning was
accomplished through divestitures of three non-core assets and acquisitions of
six strategic businesses or product lines. In addition, management has initiated
the development and introduction of significant new products and product lines.
As a result of management's efforts, the Company achieved a 20.3% growth rate in
net sales from 1993 to 1997. In connection with the Merger each member of the
senior management team signed an employment contract with the Company.
Additionally, the Company adopted an incentive plan to tie each member of senior
management's compensation to the Company's financial performance. See "Executive
Compensation."
BUSINESS STRATEGY
Thermadyne has developed a business strategy designed to enhance its strong
market positions and continue to improve its growth and profitability. The
primary elements of the Company's business strategy are as follows:
Continue New Product Development and Enhancement. The foundation for
Thermadyne's strong market positions and leading brand names is the development
and introduction of new products and enhancements of existing products. The
Company believes it is at the forefront of cutting and welding technology with a
proven track-record of continual new product introductions and existing product
enhancements that have resulted in 262 issued or pending United States and
foreign patents. New products and product enhancements are designed to add value
for customers, including enhanced safety features, improved productivity and
ergonomics and an improved welding environment. Examples of recent new product
introductions include robotic welding systems and accessories, high-purity
instrumentation, automated plasma cutting and safety products as well as
underwater cutting electrodes. During 1997, the Company introduced over 135 new
products or product enhancements, and the Company expects to continue this
effort in the future.
Expand Strategic Acquisitions. The Company has completed six acquisitions
since 1994, which collectively generated approximately $169 million in annual
revenues at the respective times of acquisition, including over $135 million of
revenues in Australia and Italy. The Company believes that numerous acquisition
candidates exist globally, and the Company intends to continue to seek new
acquisition opportunities in its cutting and welding business. Thermadyne
intends to continue its focused acquisition strategy that includes the following
principal elements: (i) entering and expanding in geographic areas where the
Company does not currently have a significant presence through acquisitions of
local cutting and welding
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businesses and (ii) expanding in geographic areas where the Company currently
maintains a strong presence through the acquisition of complementary product
lines.
Leverage Existing Distribution Network. The Company intends to leverage its
existing distribution network through the acquisition or introduction of new
products and product enhancements. Management believes that when the Company
acquires a local presence in a new geographic area, it can utilize the acquired
distribution network to sell existing Thermadyne brands into that local market.
In addition, the Company believes that significant opportunities exist to
purchase complementary product lines and expand its business by selling the new
product lines through Thermadyne's extensive distribution network. For example,
through recent acquisitions the Company has expanded its offering of filler
metals, conventional arc welding power supplies, safety equipment and
engine-driven welding power sources and began marketing such products through
its established distribution network. The Company intends to continue this
strategy of penetrating new welding product markets by leveraging its extensive
distribution network in conjunction with its new product development and focused
acquisition strategies.
Broaden International Presence. Thermadyne has maintained an international
presence for over 30 years and continues to broaden its presence throughout the
world. International sales accounted for approximately 42% of net sales in 1997
as compared to approximately 20% in 1994. The Company has established a
dedicated international market presence and maintains the leading position in
Australia/New Zealand and significant and growing positions in Europe, Asia and
Latin America. Management intends to continue the expansion of its strong
domestic brand names into the international market and to continue to penetrate
the growing Asian and Latin American cutting and welding markets.
Continue Cost Reduction Efforts. Thermadyne strives to continually improve
manufacturing efficiencies and reduce unit costs. In December 1997, the Company
implemented a cost reduction program that includes the following principal
elements: (i) vendor rationalization and consolidation; (ii) manufacturing
process and product improvements and product design changes; (iii) personnel
rationalization and expense reductions; (iv) advertising and trade show expense
reductions; (v) aircraft, charter and other travel expense reductions; and (vi)
elimination of the annual sales meeting. These cost reduction initiatives are
expected to generate approximately $10 million in savings on an annualized
basis. In addition, the Company has initiated the implementation of a new global
information system that is designed to allow the Company to further integrate
administrative functions and improve information flow across business unit
lines.
Continue Dedicated Customer Service. The Company believes that effective
and proactive customer service has enabled the Company to build and maintain its
leading market positions and strong distributor relationships. Management plans
to continue this strategy of enhancing distributor and end-user relationships
through continuous customer service improvements. Each of Thermadyne's divisions
maintains a dedicated, well trained, technically oriented and product-specific
sales and customer service team. Management believes that the dedicated product
teams provide Thermadyne with a significant competitive advantage. In addition,
to further improve customer service, the Company has implemented a national
accounts team of 11 area business managers to support the dedicated product
sales and service teams and further support sales to the Company's key
distributors.
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THE MERGER AND MERGER FINANCING
On May 22, 1998, Holdings consummated the merger of Mercury Acquisition
Corporation ("Mercury"), a corporation organized by DLJ Merchant Banking
Partners II, L.P. ("DLJMB") and affiliated funds and entities (the "DLJMB
Funds"), with and into Holdings, with Holdings continuing as the surviving
corporation (the "Merger").
In order to fund the payment of the cash portion of the Merger
Consideration (as defined herein), the Option Cash Proceeds (as defined herein)
and the ESPP Cash Proceeds (as defined herein), to refinance and/or retire
outstanding indebtedness of the Company, and to pay expenses incurred in
connection with the Merger, Thermadyne LLC and Thermadyne Capital issued $207
million principal amount of 9 7/8% Senior Subordinated Notes due 2008 (the
"Senior Subordinated Notes") and Thermadyne LLC entered into a syndicated senior
secured loan facility providing for term loan borrowings in the aggregate
principal amount of approximately $330 million and revolving loan borrowings of
$100 million (the "New Credit Facility"). In connection with the Merger,
Thermadyne LLC borrowed all term loans available under the New Credit Facility
plus approximately $25 million of revolving loans. The remaining revolving loans
will be available to fund the working capital requirements of Thermadyne LLC.
The proceeds of such financings were distributed to Holdings in the form of a
dividend. See "Description of New Credit Facility," "The Merger and Merger
Financing" and "Certain Relationships and Related Transactions."
Mercury issued approximately $94.6 million aggregate proceeds of the
Debentures. In connection with the Merger, Holdings succeeded to the obligations
of Mercury with respect to the Debentures. The DLJMB Funds also purchased
2,608,696 shares of common stock of Mercury ("Mercury Common Stock"), 2,000,000
shares of senior exchangeable preferred stock of Mercury ("Mercury Preferred
Stock") and warrants to purchase 353,428 shares of Mercury Common Stock at an
exercise price of $0.01 per share (the "DLJMB Warrants") for approximately $140
million (the "DLJMB Equity Investment"). As a result of the Merger, the proceeds
of such purchases became an asset of Holdings, each share of Mercury Common
Stock became a share of Holdings ("Holdings Common Stock"), each share of
Mercury Preferred Stock became a share of senior exchangeable preferred stock of
Holdings ("Holdings Preferred Stock") and each DLJMB Warrant to acquire Mercury
Common Stock became exercisable for an equal number of shares of Holdings Common
Stock. In addition, in connection with the Merger, certain members of senior
management purchased 143,192 shares of Holdings Common Stock for approximately
$4.9 million (the "Management Share Purchase"), of which approximately $3.6
million was provided through non-recourse loans from Holdings (the "Management
Loans").
The equity and debt financings referred to above are collectively referred
to herein as the "Merger Financing."
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THE EXCHANGE OFFER
The Exchange Offer......... $1,000 principal amount at maturity of New
Debentures in exchange for each $1,000 principal
amount at maturity of Old Debentures. The Old
Debentures were sold on May 22, 1998, in a private
placement to Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC" or the "Initial
Purchaser"), which immediately resold the Old
Debentures pursuant to Rule 144A promulgated under
the Securities Act (the "Original Offering"). As of
the date hereof, Old Debentures representing $174
million aggregate principal amount at maturity are
outstanding. The terms of the New Debentures and
the Old Debentures are substantially identical in
all material respects, except that the New
Debentures will be freely transferable by the
holders thereof except as otherwise provided
herein. See "Description of New Debentures."
Based on an interpretation by the Commission's
staff set forth in no-action letters issued to
third parties unrelated to the Issuer, the Issuer
believes that New Debentures issued pursuant to the
Exchange Offer in exchange for Old Debentures may
be offered for resale, sold and otherwise
transferred by any person receiving the New
Debentures, whether or not that person is the
registered holder (other than any such holder or
such other person that is an "affiliate" of the
Issuer within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that (i) the New
Debentures are acquired in the ordinary course of
business of that holder or such other person, (ii)
neither the holder nor such other person is
engaging in or intends to engage in a distribution
of the New Debentures and (iii) neither the holder
nor such other person has an arrangement or
understanding with any person to participate in the
distribution of the New Debentures. See "The
Exchange Offer -- Purpose and Effect." Each
broker-dealer that receives New Debentures for its
own account in exchange for Old Debentures, where
those Old Debentures were acquired by the
broker-dealer as a result of its market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of these New Debentures.
See "Plan of Distribution."
Registration Rights
Agreement................ In connection with the Original Offering, the
Issuer entered into a Registration Rights Agreement
with the Initial Purchaser (the "Registration
Rights Agreement") requiring the Issuer to make the
Exchange Offer. See "The Exchange Offer -- Purpose
and Effect."
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, September 3, 1998, or such later
date and time to which it is extended by the Issuer
(the "Expiration Date").
Withdrawal................. The tender of the Old Debentures pursuant to the
Exchange Offer may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration
Date. Any Old Debentures not accepted for exchange
for any reason will be returned without expense to
the tendering holder thereof as promptly as
practicable after the expiration or termination of
the Exchange Offer.
7
<PAGE> 11
Interest on the New
Debentures and Old
Debentures............... Interest on each New Debenture will accrue from the
date of issuance of the Old Debenture for which the
New Debenture is exchanged or from the date of the
last periodic payment of interest on such Old
Debenture, whichever is later. No additional
interest will be paid on Old Debentures tendered
and accepted for exchange.
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by the
Issuer. See "The Exchange Offer -- Conditions to
the Exchange Offer."
Procedures for Tendering
Old
Debentures............... Each holder of Old Debentures wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a copy thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or the copy, together with
the Old Debentures and any other required
documentation, to the Exchange Agent (as defined
herein) at the address set forth herein. Persons
holding the Old Debentures through the Depository
Trust Company ("DTC") and wishing to accept the
Exchange Offer must do so pursuant to the DTC's
Automated Tender Offer Program, by which each
tendering participant will agree to be bound by the
Letter of Transmittal. By executing or agreeing to
be bound by the Letter of Transmittal, each holder
will represent to the Issuer that, among other
things, (i) the New Debentures acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person receiving
such New Debentures, whether or not such person is
the registered holder of the Old Debentures, (ii)
neither the holder nor any such other person is
engaging in or intends to engage in a distribution
of such New Debentures, (iii) neither the holder
nor any such other person has an arrangement or
understanding with any person to participate in the
distribution of such New Debentures, and (iv)
neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated
under the Securities Act, of the Issuer. Pursuant
to the Registration Rights Agreement, the Issuer is
required to file a "shelf" registration statement
for a continuous offering pursuant to Rule 415
under the Securities Act in respect of the Old
Debentures if (a) it is prohibited from
consummating the Exchange Offer because the
Exchange Offer is not permitted by applicable law
of Commission policy or (b) any holder of Transfer
Restricted Securities (as defined) notifies the
Issuer in writing prior to the 20th business day
following consummation of the Exchange Offer that
(i) based on an opinion of counsel, it is
prohibited by law or Commission policy from
participating in the Exchange Offer or (ii) it is a
broker-dealer and owns Debentures acquired directly
from the Issuer.
Acceptance of Old
Debentures and Delivery of
New Debentures........... The Issuer will accept for exchange any and all Old
Debentures which are properly tendered (and not
withdrawn) in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date.
The New Debentures issued pursuant to the Exchange
Offer will be delivered
8
<PAGE> 12
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
Exchange Agent............. IBJ Schroder bank & Trust Company, is serving as
Exchange Agent (the "Exchange Agent") in connection
with the Exchange Offer.
Federal Income Tax
Considerations........... The exchange pursuant to the Exchange Offer should
not be a taxable event for federal income tax
purposes. See "Certain United States Federal Income
Tax Considerations."
Effect of Not Tendering.... Old Debentures that are not tendered or that are
improperly tendered and not accepted will,
following the completion of the Exchange Offer,
continue to be subject to the existing restrictions
upon transfer thereof. The Issuer will have no
further obligation to provide for the registration
under the Securities Act of such Old Debentures.
9
<PAGE> 13
THE NEW DEBENTURES
Securities Offered......... $174 million aggregate principal amount at maturity
of 12 1/2% Senior Discount Debentures due 2008.
Maturity Date.............. June 1, 2008.
Yield and Interest......... 12 1/2% (computed on a semi-annual bond equivalent
basis) calculated from May 22, 1998. The New
Debentures will accrete at a rate of 12 1/2%,
compounded semi-annually, to an aggregate principal
amount at maturity of $174 million on June 1, 2003.
Cash interest will not accrue on the New Debentures
prior to June 1, 2003. Commencing on June 1, 2003,
cash interest on the New Debentures will accrue and
be payable, at a rate of 12 1/2% per annum,
semi-annually in arrears on each June 1 and
December 1, commencing December 1, 2003.
Optional Redemption........ The New Debentures will be subject to redemption at
any time on or after June 1, 2003 at the option of
the Issuer, in whole or in part, in cash at the
redemption prices set forth herein, plus accrued
and unpaid interest and Liquidated Damages, if any,
thereon to the applicable redemption date.
Notwithstanding the foregoing, on or prior to June
1, 2001, the Issuer may redeem up to 100% of the
aggregate principal amount at maturity of
Debentures ever issued under the Indenture in cash
at a redemption price of 112.50% of the Accreted
Value thereof, plus Liquidated Damages, if any,
thereon to the redemption date, with the net cash
proceeds of one or more Public Equity Offerings;
provided that, in the event that the Issuer redeems
less than 100% of the then outstanding Debentures,
at least 60% of the aggregate principal amount at
maturity of Debentures ever issued under the
Indenture remains outstanding immediately after the
occurrence of any such redemption. In addition, at
any time prior to June 1, 2003, the Issuer may, at
its option upon the occurrence of a Change of
Control, redeem the Debentures, in whole but not in
part, in cash at a redemption price equal to (i)
the present value of the sum of all the remaining
premium and principal payments that would become
due on the Debentures as if the Debentures were to
remain outstanding and be redeemed on June 1, 2003,
computed using a discount rate equal to the
Treasury Rate plus 50 basis points, plus (ii)
Liquidated Damages, if any, to the date of
redemption. See "Description of New
Debentures -- Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, each
Holder of the New Debentures will have the right to
require the Issuer to repurchase all or any part of
such Holder's New Debentures at an offer price in
cash equal to 101% of the Accreted Value thereof,
in the case of any such purchase prior to June 1,
2003, or 101% of the aggregate principal amount at
maturity thereof, in the case of any such purchase
on or after June 1, 2003, in each case, plus
accrued and unpaid interest and Liquidated Damages,
if any, thereon to the date of repurchase. No
assurance can be given that the Issuer will have
sufficient resources to satisfy its repurchase
obligations with respect to the New Debentures
following a Change of Control. See "Risk
Factors -- Possible Inability to Repurchase New
Debentures upon Change of Control" and "Description
of New Debentures -- Repurchase at the Option of
Holders -- Change of Control."
10
<PAGE> 14
Ranking.................... The New Debentures will be senior obligations of
the Issuer. The New Debentures will rank pari passu
in right of payment with all future senior
indebtedness of the Issuer and will rank senior in
right of payment to all future indebtedness of the
Issuer that is subordinated to the New Debentures.
The New Debentures will be effectively subordinated
to all liabilities of the Issuer's subsidiaries. On
a pro forma basis, after giving effect to the
Merger, including the Merger Financing and the
application of the proceeds therefrom, as of March
31, 1998, the Issuer would have had outstanding
approximately $682.0 million of Indebtedness and
the Issuer's subsidiaries would have had
approximately $733.2 million of liabilities
outstanding, including Indebtedness under the
Senior Subordinated Notes and the New Credit
Facility and including trade payables.
Original Issue Discount.... The Old Debentures were issued at an original issue
discount for United States federal income tax
purposes. Thus, although cash interest will not
accrue on the Debentures prior to June 1, 2003,
original issue discount (i.e., the difference
between the sum of all principal and interest
payable on the Debentures and the issue price of
the Debentures) will accrue from the issue date of
the Debentures and will be included as interest
income periodically (including for periods ending
prior to June 1, 2003) in a holder's gross income
for United States federal income tax purposes in
advance of receipt of the cash payments to which
the income is attributable. See "Certain United
States Federal Income Tax Considerations."
Certain Covenants.......... The indenture pursuant to which the New Debentures
will be issued (the "Indenture") contains certain
covenants that, among other things, limit the
ability of the Issuer and its Restricted
Subsidiaries (as defined therein) to: incur
indebtedness and issue preferred stock, repurchase
Capital Stock (as defined herein) and certain
Indebtedness, engage in transactions with
affiliates, engage in sale and leaseback
transactions, incur or suffer to exist certain
liens, pay dividends or other distributions, make
certain investments, sell assets and engage in
certain mergers and consolidations.
Use of Proceeds............ There will be no cash proceeds to the Issuer from
the exchange pursuant to the Exchange Offer. The
net proceeds from the Original Offering, together
with the initial borrowings under the New Credit
Facility, the DLJMB Equity Investment and the
issuance of the Senior Subordinated Notes, were
used to fund payment of the cash portion of the
Merger Consideration, the Option Cash Proceeds and
the ESPP Cash Proceeds, to refinance outstanding
indebtedness of Thermadyne LLC and to pay the
expenses incurred in connection with the Merger.
See "Use of Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the New Debentures.
11
<PAGE> 15
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The summary historical consolidated financial data for and as of the end of
each of the years in the five-year period ended December 31, 1997 set forth
below have been derived from the audited consolidated financial statements of
the Company and its predecessor. The pro forma financial data for the
three-month period ended March 31, 1998 and the historical financial data for
the three-month period ended March 31, 1997, respectively, are derived from
unaudited financial statements. The unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the pro forma
three-month period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1998. The
data should be read in conjunction with the historical consolidated financial
statements of the Company and its predecessor, and the related notes thereto,
set forth elsewhere herein.
The unaudited summary consolidated pro forma financial data of the Company
set forth below are based on historical consolidated financial statements of
Holdings as adjusted to give effect to certain transactions described below and
the Merger, including the Merger Financing and the application of the proceeds
thereof. The pro forma balance sheet data give effect to the Merger, including
the Merger Financing and the application of the proceeds thereof, as if it had
occurred on March 31, 1998. The pro forma statement of operations data for the
three-month period ended March 31, 1998 gives effect to the Merger and the
Merger Financing and the application of the proceeds thereof as if it had
occurred at the beginning of such period. The pro forma statement of operations
data for the twelve months ended March 31, 1998 give effect to the acquisition
of the welding division of Prestolite Power Corporation ("Arcsys"), which
occurred on September 26, 1997 (the "Arcsys Acquisition"), the acquisition of
certain assets of Woodland Cryogenics, Inc. ("Woodland"), which occurred on
November 25, 1997 (the "Woodland Acquisition"), and the Merger, including the
Merger Financing and the application of the proceeds thereof, as if they all had
occurred on April 1, 1997. The pro forma statement of operations data for the
twelve months ended March 31, 1998 and the three-month period ended March 31,
1998 have been derived as if the balance sheet of the Company at the beginning
of such period was the pro forma balance sheet as of March 31, 1998. The pro
forma adjustments are based upon available information and upon certain
assumptions that management believes are reasonable under the circumstances. The
pro forma financial data do not purport to represent what the Company's actual
results of operations or actual financial position would have been if the Arcsys
Acquisition, the Woodland Acquisition and the Merger, including the Merger
Financing and the application of the proceeds thereof, had occurred on such
dates or to project the Company's results of operations or financial position
for any future period or date.
In 1996, Holdings announced plans to sell, and in 1997 consummated the sale
of, its wear resistance business; in late 1995, Holdings announced its plans to
sell, and in 1996 consummated the sale of, its gas containment and floor
maintenance businesses. These businesses are accounted for as discontinued
operations in Holdings' Consolidated Financial Statements. The following data
should be read in conjunction with "Unaudited Condensed Consolidated Pro Forma
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Holdings' Consolidated Financial Statements and
Notes thereto, in each case included elsewhere herein.
12
<PAGE> 16
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------------------------------------------- ------------
TWELVE MONTHS
ENDED THREE MONTHS ENDED FISCAL YEARS ENDED
MARCH 31, MARCH 31, DECEMBER 31, FISCAL YEAR
------------- ------------------------- ----------------------------------- ENDED
PRO FORMA PRO FORMA DECEMBER 31,
1998 1998 1997 1997 1996 1995 1994(1) 1993
------------- ----------- ----------- ------ ------ ------- ------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA(2):
Net sales................... $ 548.2 $131.8 $ 117.8 $520.4 $439.7 $ 316.8 $258.1 $ 248.3
Cost of goods sold.......... 342.2 81.8 70.3 320.0 259.8 176.0 141.1 132.2
Selling, general and
administrative expenses... 114.1 27.1 26.3 110.7 95.9 74.7 60.0 57.8
Amortization of
goodwill(3)............... 1.6 0.4 0.4 1.6 83.0 92.9 83.9 4.5
Amortization of
intangibles(4)............ 5.8 0.5 1.7 6.8 12.4 48.4 10.7 8.7
Net periodic postretirement
benefits.................. 2.8 0.6 0.6 2.8 2.7 2.1 2.1 3.6
------- ------ ------- ------ ------ ------- ------ -------
Operating income (loss)..... 81.7 21.4 18.5 78.5 (14.1) (77.3) (39.7) 41.5
Interest expense............ 69.0 17.5 11.5 45.3 45.7 41.3 39.1 66.9
Other expense, net(5)....... 5.6 0.4 0.1 4.7 3.7 4.8 2.0 27.4
Income (loss) from
continuing operations
available to common....... (5.7) (0.3) 3.9 15.1 (62.9) (131.8) (85.1) (53.4)
CONSOLIDATED BALANCE SHEET
DATA (AT PERIOD END):
Cash and cash equivalents... $ 0.2 $ 0.2 $ 7.5 $ 1.5 $ 1.4 $ 1.8 $ 7.3 $ 15.0
Working capital(6).......... 123.6 123.6 121.4 88.5 67.6 52.3 81.5 65.8
Total assets......... 402.4 402.4 386.6 354.5 353.4 416.4 627.8 517.5
Total debt(7)........ 682.0 682.0 444.1 358.1 421.3 456.5 497.7 693.3
Redeemable PIK preferred
stock(8).................... 50.0 50.0 -- -- -- -- -- --
Total stockholders'
equity (deficit)... (475.4) (475.4) (184.5) (162.8) (185.3) (132.2) 20.6 (307.9)
OTHER DATA:
Adjusted EBITDA(9).......... $ 105.8 $ 26.5 $ 24.0 $102.1 $ 95.7 $ 74.6 $ 62.7 $ 63.8
Adjusted EBITDA with cost
savings(10)............... 115.5 -- -- -- -- -- -- --
Redeemable PIK preferred
stock dividends(8)........ 6.5 1.6 -- -- -- -- -- --
Depreciation................ 13.6 3.6 2.9 12.5 11.7 8.5 5.7 5.6
Capital expenditures........ 17.8 3.8 2.4 16.3 11.4 7.2 8.0 5.0
CREDIT RATIOS:
Adjusted EBITDA with cost
savings/cash interest
expense(11)............... 2.0x -- -- -- -- -- -- --
Total debt/Adjusted EBITDA
with cost savings(12)..... 5.9 -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Represents the eleven-month period from February 1, 1994, the effective
date of the Company's comprehensive financial restructuring under chapter
11 of the United States Bankruptcy Code (the "Restructuring"), through
December 31, 1994.
(2) See "Business -- Business Strategy" and the discussion under the caption
"Recent Events -- Acquisitions" in Note 2 to Holdings' Consolidated
Financial Statements for information concerning the Company's business
combinations occurring during the periods presented.
(3) In conjunction with the Restructuring, Holdings' assets and liabilities
were revalued at the effective date thereof. The assets and liabilities
were stated at their reorganization value. The portion of the
reorganization value not attributable to specific assets was amortized over
a three year period.
(4) Includes $33.0 million in 1995 related to the writedown of intangible
assets in accordance with Financial Accounting Standards Board Statement
No. 121.
13
<PAGE> 17
(5) During 1993, nonrecurring charges of $18.9 million were recorded resulting
from writing off unamortized debt discount and deferred financing costs and
other costs related to the Restructuring.
(6) Excludes net assets of discontinued operations for 1995 and 1996.
(7) For 1993, includes liabilities subject to compromise of $466.2 million.
(8) In the Merger, Holdings issued two million shares of Holdings Preferred
Stock in exchange for an identical number of shares of Mercury Preferred
Stock. The Holdings Preferred Stock has a liquidation preference of $25 per
share, or $50 million in the aggregate, and a quarterly dividend, payable
for the first 5 years through increases in the liquidation preference of
the Holdings Preferred Stock, at an annual rate of approximately 13%, or
$6.5 million in the aggregate.
(9) "Adjusted EBITDA" is defined as operating income plus depreciation,
amortization of goodwill, amortization of intangibles and net periodic
postretirement benefits expense and is a key financial measure but should
not be construed as an alternative to operating income or cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles). Adjusted EBITDA is also one of the financial
measures by which the Company's compliance with its covenants is calculated
under its debt agreements. The Company believes that Adjusted EBITDA is a
useful supplement to net income (loss) and other consolidated income
statement data in understanding cash flows generated from operations that
are available for taxes, debt service and capital expenditures. However,
the Company's method of computation may or may not be comparable to other
similarly titled measures of other companies. In addition, Adjusted EBITDA
is not necessarily indicative of amounts that may be available for
discretionary uses and does not reflect any legal or contractual
restrictions on the Company's use of funds.
(10) "Adjusted EBITDA with cost savings" represents the pro forma 1997 Adjusted
EBITDA plus $10.2 million of anticipated cost savings and operational
enhancements. The components of these cost savings and operational
enhancements are set forth below.
<TABLE>
<CAPTION>
COST SAVINGS CATEGORY (IN MILLIONS)
--------------------- -------------
<S> <C>
Vendor rationalization and consolidation.................... $ 3.0
Manufacturing process and productivity improvements and
product design changes.................................... 1.8
Personnel rationalization and expense reductions............ 1.6
Advertising and trade show expense reductions............... 0.5
Aircraft, charter and other travel expense reductions....... 2.0
Elimination of annual sales meeting......................... 1.3
-----
$10.2
=====
</TABLE>
(11) Excludes $11.9 million of deferred interest associated with the Debentures.
(12) "Total debt" equals total long-term debt, including current maturities.
14
<PAGE> 18
RISK FACTORS
In addition to the other information set forth herein, prospective
investors should carefully consider the following information in evaluating the
Company and its business before making an investment in the New Debentures.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The information herein contains forward-looking statements that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Company, or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors include,
but are not limited to: the competitive environment in the cutting and welding
industry in general and in the Company's specific market areas; changes in
prevailing interest rates and the availability of and terms of financing to fund
the anticipated growth of the Company's business; inflation; changes in costs of
goods and services; economic conditions in general and in the Company's specific
market areas; changes in or failure to comply with federal, state and/or local
government regulations; liability and other claims asserted against the Company;
changes in operating strategy or development plans; the ability to attract and
retain qualified personnel; the significant indebtedness of the Company; labor
disturbances; changes in the Company's acquisition and capital expenditure
plans; and other factors referenced herein. In addition, such forward-looking
statements are necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown risks uncertainties
and other factors. Accordingly, any forward-looking statements included herein
do not purport to be predictions of future events or circumstances and may not
be realized. Forward-looking statements can be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "pro forma" or "anticipates," "intends" or the
negative of any thereof, or other variations thereon or comparable terminology,
or by discussions of strategy or intentions. Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
SUBSTANTIAL LEVERAGE; LIQUIDITY; STOCKHOLDER'S DEFICIT
In connection with the Merger and the Merger Financing, including the
application of the proceeds therefrom, the Company incurred a significant amount
of indebtedness. As of March 31, 1998, after giving pro forma effect to the
Merger, including the Merger Financing and the application of the proceeds
thereof, the Company would have had (i) total consolidated indebtedness of
approximately $682.0 million, (ii) $66.8 million of additional borrowings
available under the New Credit Facility and (iii) a stockholder's deficit of
$475.4 million. In addition, subject to the restrictions in the Indenture, the
New Credit Facility and the Indenture pursuant to which the Senior Subordinated
Notes are being issued (the "Notes Indenture"), the Company may incur
significant additional indebtedness, which may be secured, from time to time.
The level of the Company's indebtedness could have important consequences
to the Company, including: (i) limiting cash flow available for general
corporate purposes, including acquisitions, because a substantial portion of the
Company's cash flow from operations must be dedicated to debt service; (ii)
limiting the Company's ability to obtain additional debt financing in the future
for working capital, capital expenditures or acquisitions; (iii) limiting the
Company's flexibility in reacting to competitive and other changes in the
industry and economic conditions generally; and (iv) exposing the Company to
risks inherent in interest rate fluctuations because certain of the Company's
borrowings may be at variable rates of interest, which could result in higher
interest expense in the event of increases in interest rates.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance its indebtedness and to satisfy its other debt
obligations will depend upon its future operating performance, which will be
affected by general economic, financial, competitive, legislative, regulatory,
business and other factors beyond its control. The Company anticipates that its
operating cash flow, together with borrowings under the
15
<PAGE> 19
New Credit Facility, will be sufficient to meet its anticipated future operating
expenses, capital expenditures and to service its debt requirements as they
become due. However, if the Company's future operating cash flows are less than
currently anticipated it may be forced, in order to meet its debt service
obligations, to reduce or delay acquisitions or capital expenditures, sell
assets or reduce operating expenses, including, but not limited to, investment
spending such as selling and marketing expenses, expenditures on management
information systems and expenditures on new products. If the Company were unable
to meet its debt service obligations, it could attempt to restructure or
refinance its indebtedness or to seek additional equity capital. There can be no
assurance that the Company will be able to effect any of the foregoing on
satisfactory terms, if at all. In addition, subject to the restrictions and
limitations contained in the agreements relating to the Merger Financing, the
Company may incur significant additional indebtedness to finance future
acquisitions, which could adversely affect the Company's operating cash flows
and its ability to service its indebtedness. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
LIMITATIONS ON ACCESS TO CASH FLOW OF SUBSIDIARIES; HOLDING COMPANY STRUCTURE
The Issuer is a holding company, and its ability to pay interest on the New
Debentures is dependent upon the receipt of dividends from its direct and
indirect subsidiaries. The Issuer does not have, and may not in the future have,
any assets other than ownership interests in Thermadyne LLC. Thermadyne LLC and
certain of its subsidiaries are parties to the New Credit Facility and the Notes
Indenture, each of which imposes substantial restrictions on Thermadyne LLC's
ability to pay dividends to the Issuer. Any payment of dividends will be subject
to the satisfaction of certain financial conditions set forth in the Notes
Indenture and the New Credit Facility. The ability of Thermadyne LLC and its
subsidiaries to comply with such conditions in the Notes Indenture may be
affected by events that are beyond the control of the Issuer. The breach of any
such conditions could result in a default under the Notes Indenture and/or the
New Credit Facility, and in the event of any such default, the holders of the
Senior Subordinated Notes or the lenders under the New Credit Facility could
elect to accelerate the maturity of all the Senior Subordinated Notes or the
loans under such facility. If the maturity of the Senior Subordinated Notes or
the loans under the New Credit Facility were to be accelerated, all such
outstanding debt would be required to be paid in full before Thermadyne LLC or
its subsidiaries would be permitted to distribute any assets or cash to the
Issuer. There can be no assurance that the assets of the Company would be
sufficient to repay all of such outstanding debt and to meet its obligations
under the Indenture. Future borrowings by Thermadyne LLC can be expected to
contain restrictions or prohibitions on the payment of dividends by such
subsidiaries to the Issuer. In addition, under Delaware law, a limited liability
company may not make distributions to its members if, after giving effect
thereto, the liabilities of the limited liability company would exceed the fair
value of its assets. The Issuer cannot predict what the value of its
subsidiaries' assets or the amount of their liabilities will be in the future
and whether such values or amounts will permit the payment of distributions to
the Issuer. Accordingly, there can be no assurance that the Issuer will be able
to pay its debt service obligations on the New Debentures. As a result of the
holding company structure of the Company, the Holders of the New Debentures will
be structurally junior to all creditors of the Issuer's subsidiaries, except to
the extent that the Issuer is itself recognized as a creditor of any such
subsidiary, in which case the claims of the Issuer would still be subordinate to
any security in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Issuer. In the event of insolvency,
liquidation, reorganization, dissolution or other winding-up of the Issuer's
subsidiaries, the Issuer will not receive any funds available to pay to
creditors of the subsidiaries. As of March 31, 1998, on a pro forma basis after
giving effect to the Merger and Merger Financing, including the application of
net proceeds therefrom, the aggregate amount of indebtedness and other
obligations of the Issuer's subsidiaries (including trade payables) would have
been approximately $733.2 million.
POSSIBLE INABILITY TO REPURCHASE NEW DEBENTURES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of New Debentures
will have the right to require the Issuer to repurchase all or any part of such
Holder's New Debentures at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of repurchase. No assurance can be given
that the Issuer will have
16
<PAGE> 20
sufficient resources to satisfy its repurchase obligation with respect to the
New Debentures following a Change of Control. See "Description of New
Debentures -- Repurchase at the Option of Holders -- Change of Control."
The Issuer does not have, and may not in the future have, any assets other
than ownership interests in Thermadyne LLC. As a result, the Issuer's ability to
repurchase all or any part of the New Debentures upon the occurrence of a Change
of Control will be dependent upon the receipt of dividends or other
distributions from its direct and indirect subsidiaries. The New Credit Facility
and the Notes Indenture restrict Thermadyne LLC from paying dividends and making
any other distributions to the Issuer. If the Issuer does not obtain the consent
of the lenders under agreements governing outstanding Indebtedness of its
Subsidiaries, including under the New Credit Facility and the Notes Indenture,
to permit the repurchase of the New Debentures or does not refinance such
Indebtedness, the Issuer will likely not have the financial resources to
purchase New Debentures upon the occurrence of a Change of Control and the
Issuer's subsidiaries will be restricted by the terms of such Indebtedness from
paying dividends to the Issuer or otherwise lending or distributing funds to the
Issuer for the purpose of such purchase. In any event, there can be no assurance
that the Issuer's subsidiaries will have the resources available to pay such
dividend or make any such distribution. Furthermore, the New Credit Facility
provides that certain change of control events will constitute a default
thereunder and the Notes Indenture provides that, in the event of a Change of
Control, Thermadyne LLC and Thermadyne Capital will be required to offer to
repurchase the Senior Subordinated Notes at the price specified therefor. The
Issuer's failure to make a Change of Control offer when required or to purchase
tendered New Debentures when tendered would constitute an Event of Default under
the Indenture. See "Description of New Debentures."
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDERS' CLAIMS
The Debentures were issued at a substantial original issue discount from
their principal amount at maturity. Consequently, participants in the Exchange
Offer will be required to include amounts in gross income for federal income tax
purposes in advance of receipt of the cash payments to which the income is
attributable.
Under the Indenture, in the event of an acceleration of the maturity of the
New Debentures upon the occurrence of an Event of Default, the Holders of the
New Debentures may be entitled to recover only the amount which may be declared
due and payable pursuant to the Indenture, which will be less than the principal
amount at maturity of such New Debentures. See "Description of the New
Debentures -- Events of Default and Remedies."
If a bankruptcy case is commenced by or against the Issuer under the
Bankruptcy Code (as defined herein), the claim of a Holder of New Debentures
with respect to the principal amount thereof may be limited to an amount equal
to the sum of (i) the issue price of the New Debentures and (ii) that portion of
the original issue discount (as determined on the basis of such issue price)
which is not deemed to constitute "unmatured interest" for purposes of the
Bankruptcy Code. Accordingly, Holders of the New Debentures under such
circumstances may, even if sufficient funds are available, receive a lesser
amount than they would be entitled to under the express terms of the Indenture.
In addition, there can be no assurance that a bankruptcy court would compute the
accrual of interest under the same rules as those used for the calculation of
original issue discount under federal income tax law and, accordingly, a Holder
might be required to recognize gain or loss in the event of a distribution
related to such a bankruptcy case.
CONTROL BY THE DLJMB FUNDS
Approximately 80.6% of the outstanding shares of Holdings Common Stock is
held by the DLJMB Funds. As a result of their stock ownership, the DLJMB Funds
control Holdings and have the power to elect a majority of its directors,
appoint new management and approve any action requiring the approval of the
holders of Holdings Common Stock, including adopting certain amendments to
Holdings' certificate of incorporation and approving mergers or sales of all or
substantially all of Holdings' assets. The directors elected by the DLJMB Funds
will have the authority to effect decisions affecting the capital structure of
17
<PAGE> 21
Holdings, including the issuance of additional capital stock, the implementation
of stock repurchase programs and the declaration of dividends. The interests of
the DLJMB Funds may differ from the interests of the holders of the New
Debentures.
The general partners of each of the DLJMB Funds are affiliates or employees
of Donaldson, Lufkin & Jenrette, Inc. ("DLJ, Inc."). DLJ Capital Funding, which
acted as syndication agent for the New Credit Facility in connection with the
Merger, is also an affiliate of DLJ, Inc. DLJSC, which placed the Senior
Subordinated Notes and the Debentures, is also an affiliate of DLJ, Inc.
The existence of a controlling stockholder of the Company is likely to have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from seeking to acquire, a majority of the
outstanding Holdings Common Stock. A third party would be required to negotiate
any such transaction with the DLJMB Funds and the interests of the DLJMB Funds
may be different from the interests of the holders of the New Debentures.
ACQUISITION GROWTH STRATEGY; MANAGEMENT AND FUNDING OF GROWTH
The Company has historically pursued an aggressive acquisition strategy,
completing six acquisitions from September 13, 1994 to December 31, 1997, and
expects to continue to pursue such a strategy to promote its growth. There are
various risks associated with pursuing a growth strategy of this nature. Any
future growth of the Company will require the Company to manage its expanding
domestic and international operations, integrate new businesses and adapt its
operational and financial systems to respond to changes in its business
environment, while maintaining a competitive cost structure. The acquisition
strategy of the Company will continue to place significant demands on the
Company and its management to improve the Company's operational, financial and
management information systems, to develop further the management skills of the
Company's managers and supervisors, and to continue to retain, train, motivate
and effectively manage the Company's employees. The failure of the Company to
manage its prior or any future growth effectively could have a material adverse
effect on the Company. There also can be no assurance that suitable acquisition
candidates will be available or that acquisitions can be completed on reasonable
terms.
Additionally, the Company's ability to maintain and increase its revenue
base and to respond to shifts in customer demand and changes in industry trends
will be partially dependent on its ability to generate sufficient cash flow or
obtain sufficient capital for the purpose of, among other things, financing
acquisitions, satisfying customer contractual requirements and financing
infrastructure growth. There can be no assurance that the Company will be able
to generate sufficient cash flow or that financing will be available on
acceptable terms (or permitted to be incurred under the terms of the Merger
Financing and any future indebtedness) to fund the Company's future growth.
CYCLICALITY AND MATURITY OF THE CUTTING AND WELDING INDUSTRY
The cutting and welding industry in the United States is a mature industry
that is cyclical in nature. The substitution of plastic, concrete and other
materials impacts the use of fabricated metal parts in many products and
structures. Increased offshore manufacturing by United States companies has
contributed to slow growth rates in the domestic manufacturing industry and in
turn has led to slower growth in the United States cutting and welding industry.
During periods of economic expansion the cutting and welding industry has grown
at double digit rates but has experienced contraction during periods of slowing
industrial activity. There can be no assurance that during future periods of
economic expansion the cutting and welding industry will experience the same
growth rates as it has in the past. Although the Company believes that its
exposure to cyclical downturns is moderated by its broad customer base and the
diversity of the industries it serves, cyclical downturns could have an adverse
effect on period-to-period results.
INTERNATIONAL MARKETS
The Company's growth strategy includes increasing the marketing of existing
products into Europe, Asia, Latin America and other developing economies.
However, there can be no assurance that the Company will be successful in its
expansion efforts.
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<PAGE> 22
Approximately 42% of the Company's net sales in 1997 (including its United
States third party export sales) were made to purchasers located in foreign
countries. Because of its foreign operations, the Company's business is subject
to the currency risks of doing business abroad, including exchange rate
fluctuations and limits on repatriation of funds.
Additionally, as a result of the current downturn in the Asian economy,
there may be a decrease in infrastructure development in the Asian region or an
overall worldwide contraction of industrial development. The impact of decreased
development could have a material adverse effect on the Company's business,
financial condition or results of operations.
Further, many developing economies have a significant degree of political
and economic uncertainty. Social unrest, the absence of trained labor pools and
the uncertainty of entering into joint ventures or other partnership
arrangements with local organizations have slowed business activities in some
large developing economies. The political and economic uncertainties present in
these promising growth markets may adversely impact the Company's ability to
implement and achieve its foreign growth objectives.
COMPETITION
The cutting and welding industry is highly competitive. While the Company
believes it is one of only a few worldwide broad line manufacturers of both
cutting and welding equipment and consumable products, the Company competes in
each of its businesses with other broad line manufacturers and numerous smaller
competitors specializing in particular products.
While the Company has historically experienced little direct foreign
competition in the United States market, fluctuations in the value of the United
States dollar against other currencies could make the United States market more
attractive to foreign exporters.
The Company currently experiences substantial competition in the foreign
markets in which it competes.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success depends, to a large extent, upon the
efforts and abilities of key managerial employees, particularly Holdings'
executive officers. See "Management." Although Holdings has employment
agreements with all of its executive officers, there can be no assurance that
such persons will remain in the employ of the Company. Competition for qualified
management personnel in the industry is intense. The loss of the services of
certain of these key employees or the failure to retain qualified employees when
needed could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Executive Compensation -- Employment
Arrangements -- Employment Contracts." The Company does not currently maintain
key man life insurance.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and wastes. As a
result, the Company is involved from time to time in administrative or legal
proceedings relating to environmental matters and has in the past and will
continue to incur capital costs and other expenditures relating to environmental
matters. Liability under environmental laws may be imposed on current and prior
owners and operators of property or businesses without regard to fault or to
knowledge about the condition or action causing the liability. The Company may
be required to incur costs relating to the remediation of properties, including
properties at which the Company disposes of waste, and environmental conditions
could lead to claims for personal injury, property damage or damages to natural
resources. The Company is aware of environmental conditions at certain
properties which it now or previously owned or leased which are undergoing
remediation and the Company has in the past and may in the future be named a
potentially responsible party ("PRP") at off-site disposal sites to which it has
sent waste.
The Company believes, based on current information, that any costs it may
incur relating to environmental matters will not have a material adverse effect
on its business, financial condition or its result of operations.
19
<PAGE> 23
There can be no assurance, however, that the Company will not incur significant
fines, penalties or other liabilities associated with noncompliance or clean-up
liabilities or that future events, such as changes in laws or the interpretation
thereof, the development of new facts or the failure of other PRPs to pay their
share will not cause the Company to incur additional costs that could have a
material adverse effect on its business, financial condition or results of
operations. See "Business -- Legal Proceedings and Environmental Matters."
ABSENCE OF PUBLIC MARKET
The Old Debentures were issued on May 22, 1998, and the Company is not
aware that any active trading market for the Old Debentures has developed. The
Company does not intend to apply for a listing of the New Debentures on a
securities exchange or on any automated dealer quotation system. If any of the
New Debentures are traded after issuance, they may trade at a discount from
their initial offering price, depending upon prevailing interest rates, the
market for similar securities and other factors, including general economic
conditions and the financial condition, performance of, and prospects for, the
Company. There can be no assurance as to the development of any market or
liquidity of any market that may develop for the New Debentures. The liquidity
of, and trading markets for, the New Debentures may also be adversely affected
by declines in the market for high yield securities generally.
YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The Company believes that its
internal systems are Year 2000 compliant or will be upgraded or replaced in
connection with previously planned changes to information systems prior to the
need to comply with Year 2000 requirements. However, the Company is uncertain as
to the extent its customers and vendors may be affected by Year 2000 issues that
require commitment of significant resources and may cause disruptions in the
customers' and vendors' businesses.
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<PAGE> 24
USE OF PROCEEDS
The Company will not receive any cash proceeds from the exchange pursuant
to the Exchange Offer.
The proceeds from the sale of the Old Debentures, after deducting expenses
of the Original Offering, including discounts to the Initial Purchaser, were
approximately $90.8 million. The proceeds from the Original Offering, together
with the borrowings under the New Credit Facility, the DLJMB Equity Investment,
and the issuance of the Senior Subordinated Notes were used to finance the
conversion into cash of approximately 95.7% of the shares of Holdings Common
Stock, to refinance the outstanding indebtedness of the Company, fund payments
of the Option Cash Proceeds and the ESPP Cash Proceeds, and finance the expenses
and fees incurred in connection with the Merger. See "The Merger and Merger
Financing." Approximately $547 million of the proceeds to Thermadyne LLC from
the initial borrowings under the New Credit Facility and the Senior Subordinated
Notes was dividended to Holdings to fund a portion of the Cash Merger
Consideration (as defined herein) and fees and expenses of Holdings in
connection therewith.
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<PAGE> 25
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of March 31, 1998, and on a pro forma basis to give effect to
the Merger, including the Merger Financing and the application of the proceeds
thereof, as if they had occurred on March 31, 1998. See "Use of Proceeds." The
information set forth below should be read in conjunction with the Company's
Unaudited Condensed Consolidated Pro Forma Financial Data, the Company's
Consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------------
HISTORICAL PRO FORMA(1)
---------- ------------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................... $ 0.2 $ 0.2
======= =======
Total debt (including current portion):
New Credit Facility:
Revolving credit facility......................... -- $ 33.2
Term loan facility................................ -- 330.0
Capitalized lease obligations and other debt........... $ 18.8 18.8
Outstanding subordinated notes......................... 179.3 --
Outstanding senior notes............................... 99.3 --
Other existing debt.................................... 73.1 --
Senior Subordinated Notes.............................. -- 205.4
Debentures............................................. -- 94.6
------- -------
Total debt........................................ 370.4 682.0
Redeemable PIK preferred stock.............................. -- 50.0
Shareholders' deficit....................................... (156.8) (475.4)
------- -------
Total capitalization........................................ $ 213.6 $ 256.6
======= =======
</TABLE>
- ---------------
(1) For a description of the pro forma adjustments, see the Notes to Unaudited
Condensed Consolidated Pro Forma Balance Sheet Data.
22
<PAGE> 26
SELECTED FINANCIAL DATA
The selected financial data for and as of each of the years in the
five-year period ended December 31, 1997 set forth below have been derived from
the audited Consolidated Financial Statements of the Company and its
predecessor. The historical financial data for the three-month periods ended
March 31, 1998 and 1997 are derived from unaudited financial statements. The
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the three-month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1998. The data should be read in conjunction with the
historical consolidated financial statements of the Company and its predecessor,
and the related notes thereafter, set forth elsewhere herein. In 1996, Holdings
announced plans to sell, and in 1997 consummated the sale of, its wear
resistance business; in late 1995, Holdings announced its plans to sell, and in
1996 consummated the sale of, its gas containment and floor maintenance
businesses. These businesses are accounted for as discontinued operations in
Holdings' Consolidated Financial Statements. The selected financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Holdings' Consolidated Financial
Statements and Notes thereto, in each case included elsewhere herein.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------------------------------------------------------------- ------------
THREE MONTHS ENDED FISCAL YEAR
MARCH 31, FISCAL YEARS ENDED DECEMBER 31, ENDED
------------------------- ------------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994(1) 1993
----------- ----------- ------- ------- ------- ------- ------------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS, EXCEPT FOR RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA(2):
Net sales...................... $131.8 $117.8 $ 520.4 $ 439.7 $ 316.8 $258.1 $248.3
Cost of goods sold............. 81.8 70.3 320.0 259.8 176.0 141.1 132.2
Selling, general and
administrative expenses...... 27.1 26.3 110.7 95.9 74.7 60.0 57.8
Amortization of goodwill(3).... 0.4 0.4 1.6 83.0 92.9 83.9 4.5
Amortization of
intangibles(4)............... 0.5 1.7 6.8 12.4 48.4 10.7 8.7
Net periodic postretirement
benefits..................... 0.6 0.6 2.8 2.7 2.1 2.1 3.6
------ ------ ------- ------- ------- ------ ------
Operating income (loss)........ 21.4 18.5 78.5 (14.1) (77.3) (39.7) 41.5
Interest expense............... 10.8 11.5 45.3 45.7 41.3 39.1 66.9
Other expense, net(5).......... 0.2 0.1 4.7 3.7 4.8 2.0 27.4
Income (loss) from continuing
operations available to
common....................... 5.8 3.9 15.1 (62.9) (131.8) (85.1) (53.4)
CONSOLIDATED BALANCE SHEET DATA
(AT PERIOD END):
Cash and cash equivalents...... $ 0.2 $ 7.5 $ 1.5 $ 1.4 $ 1.8 $ 7.3 $ 15.0
Working capital(6)............. 104.3 121.4 88.5 67.6 52.3 81.5 65.8
Total assets................... 372.5 386.6 354.5 353.4 416.4 627.8 517.5
Total debt(7).................. 370.4 444.1 358.1 421.3 456.5 497.7 693.3
Total stockholders' equity
(deficit).................... (156.8) (184.5) (162.8) (185.3) (132.2) 20.6 (307.9)
CONSOLIDATED CASH FLOW DATA:
Net cash provided by operating
activities................... $ (9.1) $ 2.9 $ 15.0 $ 21.5 $ 31.2 $ 5.4 $ 36.6
Net cash provided by (used in)
investing activities......... (4.7) (22.2) 36.8 18.7 (15.7) (1.0) (7.3)
Net cash (used in) financing
activities................... 12.6 25.4 (51.7) (40.6) (20.9) (5.8) (22.1)
OTHER DATA:
Adjusted EBITDA(8)............. $ 26.5 $ 24.0 $ 102.1 $ 95.7 $ 74.6 $ 62.7 $ 63.8
Depreciation................... 3.6 2.9 12.5 11.7 8.5 5.7 5.6
Capital expenditures........... 3.8 2.4 16.3 11.4 7.2 8.0 5.0
Ratio of earnings to fixed
charges(9)................... 1.9x 1.5x 1.6x -- -- -- --
</TABLE>
23
<PAGE> 27
- ---------------
(1) Represents the eleven-month period from February 1, 1994, the effective date
of the Restructuring, through December 31, 1994.
(2) See "Business -- Business Strategy" and the discussion under the caption
"Recent Events -- Acquisitions" in Note 2 to Holdings' Consolidated
Financial Statements for information concerning the Company's business
combinations occurring during the periods presented.
(3) In conjunction with the Restructuring, Holdings' assets and liabilities were
revalued at the effective date thereof. The assets and liabilities were
stated at their reorganization value. The portion of the reorganization
value not attributable to specific assets was amortized over a three year
period.
(4) Includes $33.0 million in 1995 related to the writedown of intangible assets
in accordance with Financial Accounting Standards Board Statement No. 121.
(5) During 1993, nonrecurring charges of $18.9 million were recorded resulting
from writing off unamortized debt discount and deferred financing costs and
other costs related to the Restructuring.
(6) Excludes net assets of discontinued operations for 1995 and 1996.
(7) For 1993, includes liabilities subject to compromise of $466.2 million.
(8) "Adjusted EBITDA" is defined as operating income plus depreciation,
amortization of goodwill, amortization of intangibles and net periodic
postretirement benefits expense and is a key financial measure but should
not be construed as an alternative to operating income or cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles). Adjusted EBITDA is also one of the financial
measures by which the Company's compliance with its covenants is calculated
under its debt agreements. The Company believes that Adjusted EBITDA is a
useful supplement to net income (loss) and other consolidated income
statement data in understanding cash flows generated from operations that
are available for taxes, debt service and capital expenditures. However, the
Company's method of computation may or may not be comparable to other
similarly titled measures of other companies. In addition, Adjusted EBITDA
is not necessarily indicative of amounts that may be available for
discretionary uses and does not reflect any legal or contractual
restrictions on the Company's use of funds.
(9) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of deferred financing costs and
one-third of the rent expense from operating leases, which management
believes is a reasonable approximation of the interest component of rent
expense. Earnings were not sufficient to cover fixed charges by $52.8
million, $80.8 million, $123.3 million and $63.5 million for the fiscal
years ended December 31, 1993, 1994, 1995 and 1996, respectively.
24
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Holdings'
Consolidated Financial Statements including the notes thereto.
This discussion contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
Thermadyne, through its subsidiaries, is engaged in the design, manufacture
and distribution of cutting and welding products and accessories. Since 1993,
the Company has embarked on a strategy designed to focus its business
exclusively on the cutting and welding industry and enhance the Company's market
position within that industry.
The Company divested three non-core businesses: the Coyne Cylinder Company
(1996), the Clarke floor maintenance business (1996) and the Deloro Stellite
wear resistance business (1997). In addition, since 1993, the Company acquired
six cutting and welding businesses, which businesses collectively generated
approximately $169 million in annual revenue at the respective times of
acquisition, in order to broaden the Company's product offerings and expand the
Company's worldwide geographic coverage. The acquisitions of Modern Engineering
Company (1994), C&G Systems Inc. (1995), Arcsys (1997), and Woodland (1997) all
added additional or complementary product lines to the Company's product
offering. The acquisition of Cigweld (1996), an Australian based manufacturer of
welding products, provided the Company with new product offerings as well as a
significant market position in Australia and New Zealand and positioned the
Company to effectively compete in the growing Asian market. The acquisition of
GenSet (1997), an Italian manufacturer of engine-driven welders, extended the
Company's product line globally and increased the Company's European presence.
Thermadyne plans to continue its focused acquisition strategy to acquire
businesses that augment its product offering and/or geographic coverage.
The Company's revenue is now generated entirely by the sale of cutting and
welding equipment, accessories and consumables. Consumables include tips,
electrodes, parts and other products that are required to be periodically
replaced. Consumable sales accounted for over 40% of total revenue in 1997 and
are expected to continue generating a significant percentage of revenue in the
future.
As a result of the Merger, the Company incurred various costs in connection
with consummating the transaction. See Note 2 to the Unaudited Condensed
Consolidated Pro Forma Statement of Operations for a more detailed explanation
of these expenses. While the exact timing, nature and amount of these costs have
not yet been fully determined, the Company anticipates that a significant
one-time pretax charge will be recorded in its second fiscal quarter. As a
result of the foregoing, the Company expects to record a significant net loss in
its second fiscal quarter. Because this loss will result directly from the
one-time charge incurred in connection with the Merger, and this charge will be
funded entirely through the proceeds of the Merger Financing, the Company does
not expect this loss to materially impact its liquidity, ongoing operations or
market position.
COST REDUCTION INITIATIVES
Thermadyne strives to continually improve manufacturing efficiencies and
reduce unit costs. In December 1997, the Company implemented a cost reduction
program that includes the following principal elements: (i) vendor
rationalization and consolidation; (ii) manufacturing process and productivity
improvements and product design changes; (iii) personnel rationalization and
expense reductions; (iv) advertising and trade show expense reductions; (v)
aircraft, charter and other travel expense reductions; and (vi) elimination of
the annual sales meeting. These cost reduction initiatives are expected to
generate approximately $10 million in savings on an annualized basis. In
addition, the Company has initiated the implementation of a new global
25
<PAGE> 29
information system that is designed to allow the Company to further integrate
administrative functions and improve information flow across business unit
lines.
RESULTS OF OPERATIONS
The following discussion of results of operations is presented for the
fiscal years ended December 31, 1997, 1996 and 1995 and the three months ended
March 31, 1998 and 1997. The results of operations of the Company include the
operations of C&G, Cigweld, GenSet, Arcsys and Woodland from their respective
dates of acquisition.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Net Sales
Net sales were $131.8 million for the three months ended March 31, 1998
compared to $117.8 million for the three months ended March 31, 1997, an
increase of 12.0%. Domestic sales for the first three months of 1998 were up
20.3% (10.5% excluding acquisitions) over the first three months of 1997.
International sales increased approximately 1.0% overall despite the continuing
economic turmoil in Asia. Europe, Latin America and the Middle East regions all
recorded significant increases over the prior year.
Costs and Expenses
Cost of goods sold as a percentage of sales for the quarter ended March 31,
1998 was 62.0% compared to 59.7% for the quarter ended March 31, 1997. This
increase is the result of (i) recent acquisitions, which generally carry a
somewhat lower average gross margin than the Company's existing businesses, and
(ii) sales mix, as the Company expanded its product offering including items in
more price-competitive markets.
Selling, general and administrative expenses were $27.1 million for the
first three months of 1998, an increase of $0.8 million, or 3.0% over the first
three months of 1997. As a percentage of sales, selling, general and
administrative expenses were 20.5% for the three months ended March 31, 1998 and
22.3% for the three months ended March 31, 1997. This improvement is due in part
to the Company's growth in sales as a portion of its costs are fixed in nature,
as well as the realization of savings from a cost reduction program the Company
initiated in December 1997.
Interest expense decreased from $11.5 million in the first quarter of 1997
to $10.8 million in the first quarter of 1998, a decrease of $0.7 million or
6.1%. This decrease is largely the result of lower debt levels in 1998 compared
to 1997.
Income tax provision was $4.6 million on pre-tax income of $10.4 million
for the three months ended March 31, 1998, compared to an income tax provision
of $3.0 million on pre-tax income of $6.9 million for the three months ended
March 31, 1997.
Adjusted EBITDA
Adjusted EBITDA was $26.5 million for the quarter ended March 31, 1998,
compared to $24.0 million for the quarter ended March 31, 1997, an increase of
$2.5 million or 10.5%.
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales
Net sales from continuing operations for the year ended December 31, 1997
were $520.4 million, compared to net sales of $439.7 million for the year ended
December 31, 1996, an increase of $80.7 million, or 18.4%. Domestic and
international sales increased 12.0% and 28.3%, respectively in 1997. Included in
net sales for the year ended December 31, 1997 are sales of $32.9 million
related to GenSet, which was acquired effective February 1, 1997, $5.6 million
related to Arcsys, which was acquired on September 26, 1997 and $0.2 million
related to Woodland, which was acquired on November 25, 1997. Excluding sales
from these
26
<PAGE> 30
acquired companies, net sales from continuing operations increased $42.0
million, or 9.6%. New product introductions and the addition of products through
acquisition have been the most significant growth factors in domestic sales.
Success with new marketing programs and with sales through alternate channels
have also contributed to this increase. Sales in international markets have
increased as a result of strategic initiatives in Asia and Latin America, and
the addition of sales personnel.
Costs and Expenses
Cost of goods sold from continuing operations as a percentage of sales for
the year ended December 31, 1997 was 61.5% compared to 59.1% for the year ended
December 31, 1996. This change is largely due to the 1997 acquisitions as these
new product lines have lower average gross margins than the blended margin in
the Company's existing businesses. Excluding the effect of the 1997
acquisitions, cost of goods sold as a percentage of sales would have been 59.9%.
Selling, general and administrative expenses from continuing operations
increased 15.4% to $110.7 million for the year ended December 31, 1997 from
$95.9 million for the year ended December 31, 1996. The 1997 acquisitions added
$4.6 million of this $14.8 million increase. The remainder of this increase is
mostly the result of spending in Asia and Latin America related to internal
infrastructure and business development as the Company pursues increased market
share in these regions. As a percentage of sales, selling, general and
administrative expenses from continuing operations decreased to 21.3% for the
year ended December 31, 1997 from 21.8% for the year ended December 31, 1996.
Amortization of goodwill decreased $81.4 million to $1.6 million for the
year ended December 31, 1997 from $83.0 million for the year ended December 31,
1996. Goodwill amortization in 1997 relates to acquisitions since the Company's
1994 financial reorganization. In 1996, goodwill recorded in connection with the
reorganization was reduced, in part, by the initial recognition of certain
deferred tax assets existing on the effective date of the Company's
comprehensive financial restructuring and the remaining amount associated with
the reorganization became fully amortized. Amortization of other intangibles
decreased from $12.4 million to $6.8 million for the years ended December 31,
1996 and 1997, respectively. This $5.6 million, or 45.3%, decrease results from
the initial recognition of the net deferred tax asset as well as adjustments
during 1997 resulting from the recognition of net operating loss carryforward
benefits and the sale of the wear resistance business.
Interest expense was essentially the same for 1997 as in 1996, even though
the Company's overall debt level decreased $63.3 million over the course of the
year. This is due to the acquisition of GenSet in February 1997 which resulted
in a higher overall debt balance the first nine months of the year. Cash
proceeds from the sale of discontinued operations were used to reduce debt at
the end of the third quarter of 1997.
Income tax expense was $13.5 million for the year ended December 31, 1997
compared to an income tax benefit of $0.5 million for the year ended December
31, 1996. The income tax benefit recorded in the fourth quarter of 1996 includes
a $13.8 million income tax benefit resulting from the initial recognition of the
Company's net deferred tax asset. The Company's decision to record the net
deferred tax asset was based on an analysis of actual taxable income in the
available carryback period and taxable income expected to be generated in the
succeeding three years. Based on this analysis, the Company believes that it is
more likely than not that the recorded net deferred tax asset will be realized.
Adjusted EBITDA
Adjusted EBITDA from continuing operations was $102.1 million and $95.7
million for the years ended December 31, 1997 and 1996, respectively. As a
percentage of sales, Adjusted EBITDA was 19.6% for the year ended December 31,
1997 compared to 21.8% for the year ended December 31, 1996. For a description
of the term "Adjusted EBITDA," see Note 9 to "Summary -- Summary Historical and
Unaudited Pro Forma Condensed Consolidated Financial Information."
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<PAGE> 31
Recent Accounting Pronouncements
As of January 1, 1998, the Company adopted FASB Statement 130, "Reporting
Comprehensive Income" ("Statement 130"). Statement 130 establishes new rules for
the reporting and display of comprehensive income and its components; however,
the adoption of this Statement had no impact on the Company's net income or
shareholders' equity. Statement 130 requires foreign currency translation
adjustments, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of Statement
130.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("FASB 131"), which requires
publicly-held companies to report financial and descriptive information about
its operating segments in financial statements issued to shareholders for
interim and annual periods. The statement also requires additional disclosures
with respect to products and services, geographical areas of operations, and
major customers. FASB 131 is effective for fiscal years beginning after December
15, 1997 and requires restatement of earlier periods presented. The Company is
evaluating the impact of adopting this standard.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales
Net sales from continuing operations were $439.7 million for the year ended
December 31, 1996, representing an increase of $123.0 million, or 38.8%, over
comparable net sales for the year ended December 31, 1995. This increase
includes $100.2 million related to Cigweld, which was acquired effective
February 1, 1996. Excluding the effects of Cigweld, net sales from continuing
operations increased $22.8 million, or 7.2%, over 1995. This growth was realized
over all of the Company's key product lines and was the result of emphasis on
new product development, sales force expansion and increasing the Company's
international presence. The Company's overall sales increase came from domestic
growth of 7.5% and an increase in international business of 154.4% including the
effects of Cigweld. Sales have increased in all the Company's major
international markets, particularly Asia and Latin America which are two of the
key geographic areas the Company has targeted for growth.
Costs and Expenses
Cost of goods sold from continuing operations for the year ended December
31, 1996 was 59.1% of sales, which compares to 55.5% of sales for the year ended
December 31, 1995. This increase in percent of sales was expected upon
completion of the acquisition of Cigweld as the average gross margin on Cigweld
products is lower than the Company's existing businesses' blended margin.
Excluding the effect of Cigweld, cost of goods sold would have been 54.6% of
sales with the improvement over 1995 due primarily to a more favorable sales
mix.
Selling, general and administrative expenses from continuing operations
increased $21.2 million, or 28.4%, to $95.9 million for the year ended December
31, 1996. The acquisition of Cigweld accounts for $17.2 million of this
increase. As a percentage of sales, selling, general and administrative expenses
were 21.8% for the 12 months ended December 31, 1996 compared to 23.6% for the
twelve months ended December 31, 1995.
Amortization of other intangibles has decreased from 1995 due to the early
adoption of Financial Accounting Standards Board Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," during the fourth quarter of 1995, which resulted in a writedown of those
assets of approximately $33.0 million.
Interest expense increased $4.4 million to $45.7 million for the year ended
December 31, 1996 from $41.3 million for the year ended December 31, 1995. This
increase results primarily from debt incurred in the acquisition of Cigweld.
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<PAGE> 32
A tax benefit of $0.5 million was reported for the year ended December 31,
1996 compared to tax expense of $8.5 million reported for the year ended
December 31, 1995. In the fourth quarter of 1996, the Company reevaluated the
realizability of its net deferred tax asset, and consequently, recorded a $13.8
million reduction in income tax expense. The Company's decision to record the
net deferred tax asset was based on an analysis of actual taxable income in the
available carryback period and taxable income expected to be generated in the
succeeding three years. Based on this analysis, the Company believes that it is
more likely than not that the recorded net deferred tax asset will be realized.
Adjusted EBITDA
Adjusted EBITDA from continuing operations was $95.7 million for the twelve
months ended December 31, 1996 compared to $74.6 million for the twelve months
ended December 31, 1995. As a percentage of sales, Adjusted EBITDA was 21.8% for
the year ended December 31, 1996, compared to 23.6% for 1995. Excluding Cigweld
the Adjusted EBITDA percentage for 1996 would have been 24.8%.
Discontinued Operations
Excluding the effects of accounting for the wear resistance business as
discontinued operations, net sales and Adjusted EBITDA for the twelve months
ended December 31, 1996, were $546.1 million and $110.5 million, respectively,
increases of 31.9% and 24.4%, respectively, over the twelve months ended
December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flows. Cash used in operating activities was $9.1
million for the first quarter of 1998, a decrease of $12.0 million from the
first quarter of 1997, in which cash flow from operations provided $2.9 million.
This use of cash by operating activities is the result of a net increase in
operating assets and liabilities of $12.9 million. Net cash used in investing
activities decreased from $22.2 million in the first quarter of 1997 to $4.7
million in the first quarter of 1998. Cash used for acquisitions decreased $27.1
million and was offset by an increase in capital expenditures of $1.4 million
and a decrease in cash provided by other assets of $8.9 million. Cash provided
by financing activities decreased $12.9 million to $12.6 million for the quarter
ended March 31, 1998 from $25.4 million for the quarter ended March 31, 1997.
Net borrowings of long-term debt decreased $12.0 million in a comparison of
these same periods. In addition, the accounts receivable securitization program
provided $4.3 million less in the first three months of 1998 compared to 1997,
while financing activities of discontinued operations and other financing
activities used $1.2 million and $2.0 million less in the first quarter of 1998,
respectively.
Cash provided by operating activities was $15.0 million for the year ended
December 31, 1997 compared to $21.5 million for the year ended December 31,
1996. This decrease in cash provided by operating activities is the result of a
net increase in operating assets and liabilities in 1997 compared to 1996 of
$7.3 million, partially offset by an increase in earnings (adjusted for noncash
expenses) of $0.8 million in 1997 over 1996. Net cash provided by investing
activities was $36.8 million in 1997 compared to $18.7 million in 1996. Cash
used for acquisitions decreased $36.1 million and cash proceeds from the sale of
discontinued operations decreased $23.8 million in 1997 compared to 1996. In
addition, cash used for capital expenditures increased $4.9 million and other
assets provided $8.6 million more in 1997. Net cash used in financing activities
was $51.7 million for the year ended December 31, 1997, an increase of $11.1
million over the use of $40.6 million for the year ended December 31, 1996. The
net repayment of long-term obligations was $28.1 million higher in 1997 than in
1996. This was partially offset by an increase in cash provided by the accounts
receivable securitization of $15.6 million and a decrease in cash used by
financing fees of $3.9 million in the year ended December 31, 1997 compared to
the same period of 1996.
Capital Expenditures. The Company had $16.3 million of capital expenditures
related to continuing operations in 1997. The New Credit Facility contains
restrictions on the Company's ability to make capital expenditures. Based on
present estimates, management believes that the amount of capital expenditures
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<PAGE> 33
permitted to be made under the New Credit Facility will be adequate to maintain
the properties and businesses of the Company's continuing operations.
Liquidity. The Company's principal sources of liquidity are cash flow from
operations and borrowings under the New Credit Facility. The Company's principal
uses of cash will be debt service requirements, capital expenditures,
acquisitions and working capital. The Company expects that ongoing requirements
for debt service, capital expenditures and working capital will be funded from
operating cash flow and borrowings under the New Credit Facility. In connection
with future acquisitions, the Company may require additional funding which may
be provided in the form of additional debt, equity financing or a combination
thereof. There can be no assurance that any such additional financing will be
available to the Company on acceptable terms.
The Company incurred substantial indebtedness in connection with the Merger
and the Merger Financing. On a pro forma basis, after giving effect to the
Merger, the Merger Financing and the application of the proceeds thereof, the
Company would have had approximately $682.0 million of indebtedness outstanding
as of March 31, 1998 as compared to $370.4 million of indebtedness outstanding
as of March 31, 1998 on a historical basis. In addition, on the same pro forma
basis, the Company would have a stockholders' deficit of $475.4 million at March
31, 1998 as compared to a stockholders' deficit of $156.8 million as of March
31, 1998 on a historical basis. The Company's significant debt service
obligations following the Merger could, under certain circumstances, have
material consequences to security holders of the Company. See "Risk Factors."
In connection with the Merger, Mercury raised approximately $140 million
through the issuance of approximately 2,608,696 shares of Mercury Common Stock,
2,000,000 shares of Mercury Preferred Stock and the DLJMB Warrants to purchase
353,428 shares of Mercury Common Stock at an exercise price of $0.01 per share,
and approximately $94.6 million aggregate gross proceeds of the Debentures. As a
result of the Merger, the proceeds from the sale of such securities became an
asset of Holdings, each share of Mercury Common Stock became a share of Holdings
Common Stock, each share of Mercury Preferred Stock became a share of Holdings
Preferred Stock, each DLJMB Warrant by its terms became exercisable for an equal
number of shares of Holdings Common Stock and Holdings succeeded to the
obligations of Mercury with respect to the Debentures. In addition, Thermadyne
LLC and Thermadyne Capital raised approximately $205.4 million through the
issuance of the Senior Subordinated Notes and Thermadyne LLC raised
approximately $430 million through the New Credit Facility. In addition, in
connection with the Merger, certain members of senior management purchased
143,192 shares of Holdings Common Stock for approximately $4.9 million through
the Management Share Purchase, of which approximately $3.6 million was provided
through the Management Loans.
The term loan facility under the New Credit Facility consists of (i) a $100
million Term A loan, (ii) a $115 million Term B loan and (iii) a $115 million
Term C loan. The Term A loan will mature six years after the closing date, the
Term B loan will mature seven years after the closing date and the Term C loan
will mature eight years after the closing date. The New Credit Facility also
includes a $100 million revolving credit facility, which is subject to increase
by up to $25 million upon request by Thermadyne LLC and that will terminate six
years after the closing date.
Borrowings under the New Credit Facility generally will bear interest based
on a margin over, at the Company's option, the base rate or LIBOR. The
applicable margin will vary based on the Thermadyne LLC's ratio of consolidated
indebtedness to adjusted EBITDA. Thermadyne LLC's obligations under the New
Credit Facility will be secured by substantially all of the assets of Thermadyne
LLC, including a pledge of the capital stock of all of its subsidiaries, subject
to certain limitations with respect to foreign subsidiaries. In addition,
Holdings has guaranteed the obligations of Thermadyne LLC under the New Credit
Facility. Such guarantee is only recourse to Holdings' pledge of all of the
outstanding capital stock of Thermadyne LLC to secure Thermadyne LLC's
obligations under the New Credit Facility. The New Credit Facility contains
customary covenants and events of default including substantial restrictions on
Thermadyne LLC's ability to make dividends or other distributions to Holdings.
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<PAGE> 34
The Old Debentures were issued by Mercury, became obligations of Holdings
following the Merger and are not guaranteed by Thermadyne LLC or any of its
consolidated subsidiaries. The Debentures will mature in 2008 and will not
require cash interest payments until 2003. The Debentures contain customary
covenants and events of default, including covenants that limit the ability of
the Company and its subsidiaries to incur debt, pay dividends and make certain
investments.
The Senior Subordinated Notes were issued by Thermadyne LLC and Thermadyne
Capital and, are guaranteed by certain of the Company's domestic subsidiaries.
The Senior Subordinated Notes will mature in 2008. Interest on the Senior
Subordinated Notes will be payable semiannually in cash. The Senior Subordinated
Notes contain customary covenants and events of default, including covenants
that limit the ability of Thermadyne LLC and its subsidiaries to incur debt, pay
dividends and make certain investments.
The Holdings Preferred Stock has an initial liquidation preference of $50
million and will accrue dividends at an annual rate of approximately 13%. Prior
to the fifth anniversary of the original date of issuance, such dividends will
be paid through increases in the liquidation preference thereof or through the
issuance of additional shares of Holdings Preferred Stock. The Company is
required to redeem the Holdings Preferred Stock on May 15, 2010 at a redemption
price equal to the liquidation preference per share, plus accrued and unpaid
dividends, if any, to the date of redemption. In addition, in the event of a
"change of control," as defined in the certificate of designation related
thereto, holders of Holdings Preferred Stock will have the right to require the
Company to repurchase its shares at a purchase price equal to 101% of the
liquidation preference thereof plus accrued and unpaid dividends, if any.
The Company anticipates that its operating cash flow, together with
borrowings under the New Credit Facility, will be sufficient to meet its
anticipated future operating expenses, capital expenditures and to service its
debt requirements as they become due. However, the Company's ability to make
scheduled payments of principal of, to pay interest on or to refinance its
indebtedness and to satisfy its other debt obligations will depend upon its
future operating performance, which will be affected by general economic,
financial, competitive, legislative, regulatory, business and other factors
beyond its control. See "Risk Factors."
EFFECT OF INFLATION; SEASONALITY
Inflation has not been a material factor affecting the Company's business.
In recent years, the cost of electronic components has remained relatively
stable due to competitive pressures within the industry, which has enabled the
Company to contain its service costs. The Company's general operating expenses,
such as salaries, employee benefits, and facilities costs, are subject to normal
inflationary pressures.
The operations of the Company are generally not subject to seasonal
fluctuations.
YEAR 2000 COMPLIANCE
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The Company believes that its
internal systems are Year 2000 compliant or will be upgraded or replaced in
connection with previously planned changes to information systems prior to the
need to comply with Year 2000 requirements. However, the Company is uncertain as
to the extent its customers and vendors may be affected by Year 2000 issues that
require commitment of significant resources and may cause disruptions in the
customers' and vendors' businesses.
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<PAGE> 35
BUSINESS
OVERVIEW
Thermadyne is a leading global manufacturer of cutting and welding products
and accessories. The Company manufactures a broad range of gas (oxy-fuel) and
electric arc cutting and welding products that are ultimately sold to end-user
customers principally engaged in the aerospace, automotive, construction, metal
fabrication, mining, mill and foundry, petroleum and shipbuilding industries.
Thermadyne sells its products through a long-established domestic network of
approximately 1,100 independent distributors who market Thermadyne products to
over 10,000 end-user customers. For the twelve months ended March 31, 1998, the
Company's net sales and Adjusted EBITDA, on a pro forma basis, were $548.2
million and $115.5 million, respectively.
The Company's core products enjoy leading brand recognition, a reputation
for quality and strong market positions. In 1994, following the Company's
comprehensive financial restructuring under chapter 11 of the United States
Bankruptcy Code (the "Restructuring"), current management initiated a series of
transactions to focus the Company's business exclusively on the cutting and
welding industry. As part of this strategy, the Company divested three non-core
businesses: the Clarke floor maintenance business (1996); the Coyne Cylinder
Company (1996); and the Deloro Stellite wear resistance business (1997). In
addition, the Company initiated an acquisition strategy, purchasing six cutting
and welding products businesses since the Restructuring, which businesses
collectively generated approximately $169 million in annual revenues at the
respective times of acquisition. The acquisitions of cutting and welding
businesses provided, and will continue to provide, an opportunity for Thermadyne
to expand distribution of existing product lines into new geographic regions and
to sell acquired product lines through Thermadyne's existing distribution
network. As a result of this repositioning strategy, along with ongoing new
product introductions, an extensive distribution network and market leading
brands, the Company has achieved a compound annual growth in net sales and
Adjusted EBITDA of 20.3% and 12.5%, respectively, from 1993 to 1997.
According to the United States Department of Commerce, domestic welding
industry revenues totaled over $3.6 billion in 1997. The domestic industry has
grown at an annual rate of 5.9% since 1989 and is expected to grow 4.2% in 1998.
Global welding industry revenues are estimated to total over $10.0 billion and
management believes that growth in the international market has been faster than
the domestic market, driven, in large part, by infrastructure spending in
developing markets. International markets, including Australia and Italy,
represented approximately 42% of the Company's net sales in 1997, up from
approximately 20% of net sales in 1994. Although the industry has begun to
experience global consolidation, it continues to be very fragmented.
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RECENT ACQUISITIONS
The following table sets forth certain information with respect to the
Company's recent acquisitions:
<TABLE>
<CAPTION>
YEAR
TARGET ACQUIRED
------ -------------
<S> <C>
Modern Engineering Company,
Inc...................... 1994
C&G Systems, Inc........... 1995
Duxtech Pty. Limited
(Cigweld)................ 1996
GenSet S.p.A............... 1997
Prestolite Power
Corporation Welding
Division (Arcsys)........ 1997
Woodland Cryogenics,
Inc...................... 1997
</TABLE>
<TABLE>
<CAPTION>
ANNUAL
PRINCIPAL PRODUCTS REVENUE(1)
------------------ -------------
(IN MILLIONS)
<S> <C>
Oxy-fuel gas apparatus..... $3.0
Cutting tables............. 2.5
Electric arc products,
oxy-fuel products, filler
metals, gas control
products and safety
products................. 100.1
Engine-driven welders and
generators............... 38.1
Arc welders, plasma welders
and wire feeders......... 20.3
Cryogenic pumps, ambient
and electric vaporizers
and automatic cylinder
filling systems.......... 4.6
Total...................... $168.6
======
</TABLE>
- ---------------
(1) Estimated annual revenue at the respective times of acquisition.
COMPETITIVE STRENGTHS
Thermadyne possesses a number of competitive strengths that have allowed it
to develop and maintain a strong position within the cutting and welding
industry, including the following:
Market Leading Brands. Management believes that the strength and longevity
of the numerous Thermadyne brand names create a significant competitive
advantage and position Thermadyne as one of the leaders in the cutting and
welding industry. Each of the Company's major divisions maintains
industry-leading brand names with significant market shares. Management believes
that VICTOR(R), founded in 1913, is the leading brand name in domestic
gas-operated cutting and welding torches and equipment; TWECO(R), founded in
1936, is the leading domestic manufacturer of MIG and manual welding torches;
ARCAIR(R) is the leading domestic brand name of TIG torch and accessory
products; THERMAL DYNAMICS(R), founded in 1957, is a leading domestic
manufacturer of manual plasma cutting products; and CIGWELD(R), founded in 1922,
is the leading brand name in the Australia/New Zealand cutting and welding
products market. Each of the manufacturing operations associated with these
brands is ISO-9000 series certified.
Diverse and Stable Customer Base. The Company's customer base includes
cutting and welding product distributors as well as end-user customers
principally engaged in the aerospace, automotive, construction, metal
fabrication, mining, mill and foundry, petroleum and ship building industries.
No one customer accounted for more than 9% of the Company's 1997 net sales.
Further, the Company's top 20 customers have been associated with the Company
for an average of over 10 years.
Established, Effective Distribution Channels. The Company believes that its
strong, established and long-standing relationships with over 1,100 independent
cutting and welding products distributors in the United States provide a
significant competitive advantage and support the Company's strong market
position. Thermadyne's domestic distributor relationships are maintained by 11
area business managers who oversee the Company's relationships with large
distributors and by separate product-specific sales forces for each of
Thermadyne's business units. Management believes that this unique structure,
which combines relationship managers with technically trained product
specialists, will enable the Company to more effectively maintain and utilize
its distributor networks. Management also believes that this established
distribution network enables the Company to achieve market penetration when
introducing newly developed or acquired products.
Proven and Committed Senior Management Team. Thermadyne's management team
has repositioned the Company over the past four years to focus exclusively in
its core cutting and welding markets. This
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repositioning was accomplished through divestitures of non-core assets and
acquisitions of strategic businesses or product lines. In addition, through
aggressive new product development and acquisition strategies, the management
team has positioned the Company to realize a 20.3% compound annual growth rate
in net sales from 1993 to 1997. In connection with the Merger each member of the
senior management team signed an employment contract with the Company.
Additionally, the Company adopted an incentive plan to tie each member of senior
management's compensation to the Company's financial performance. See "Executive
Compensation."
BUSINESS STRATEGY
Thermadyne has developed a business strategy designed to enhance its strong
market positions and continue to improve its growth and profitability. The
primary elements of the Company's business strategy are as follows:
Continue New Product Development and Enhancement. The foundation for
Thermadyne's strong market positions and leading brand names is the development
and introduction of new products and enhancements of existing products. The
Company believes it is at the forefront of cutting and welding technology with a
proven track-record of continual new product introductions and existing product
enhancements that have resulted in the issuance of more than 262 issued or
pending United States and foreign patents. New products and product enhancements
are designed to add value for customers, including enhanced safety features,
improved productivity and ergonomics and an improved welding environment.
Examples of recent new product introductions include robotic welding systems and
accessories, high-purity instrumentation, automated plasma cutting and safety
products as well as underwater cutting electrodes. During 1997, the Company
introduced over 135 new products or product enhancements, and the Company
expects to continue this effort in the future.
Expand Strategic Acquisitions. The Company has completed six acquisitions
since 1993, which collectively generated approximately $169 million in annual
revenues at the respective times of acquisition, including over $135 million of
revenues in Australia and Italy. The Company believes that numerous acquisition
candidates exist globally, and the Company intends to continue to seek new
acquisition opportunities in its cutting and welding business. Thermadyne
intends to continue its focused acquisition strategy that includes the following
principal elements: (i) entering and expanding in geographic areas where the
Company does not currently have a significant presence through acquisitions of
local cutting and welding businesses and (ii) expanding in geographic areas
where the Company currently maintains a strong presence through the acquisition
of complementary product lines.
Leverage Existing Distribution Network. The Company intends to leverage its
existing distribution network through the acquisition or introduction of new
products and product enhancements. Management believes that when the Company
acquires a local presence in a new geographic area, it can utilize the acquired
distribution network to sell existing Thermadyne brands into that local market.
In addition, the Company believes that significant opportunities exist to
purchase complementary product lines and expand its business by selling the new
product lines through Thermadyne's extensive distribution network. For example,
through recent acquisitions the Company has expanded its offering of filler
metals, conventional arc welding power supplies, safety equipment and
engine-driven welding power sources and began marketing such products through
its established distribution network. The Company intends to continue this
strategy of penetrating new welding product markets by leveraging its extensive
distribution network in conjunction with its new product development and focused
acquisition strategies.
Broaden International Presence. Thermadyne has maintained an international
presence for over 30 years and continues to broaden its presence throughout the
world. International sales accounted for approximately 42% of net sales in 1997
as compared to approximately 20% in 1994. The Company has established a
dedicated international market presence and maintains the leading position in
Australia/New Zealand and significant and growing positions in Europe, Asia and
Latin America. Management intends to continue the expansion of its strong
domestic brand names into the international market and to continue to penetrate
the growing Asian and Latin American cutting and welding markets.
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Continue Cost Reduction Efforts. Thermadyne strives to continually improve
manufacturing efficiencies and reduce unit costs. In December 1997, the Company
implemented a cost reduction program that includes the following principal
elements: (i) vendor rationalization and consolidation; (ii) manufacturing
process and productivity improvements and product design changes; (iii)
personnel rationalization and expense reductions; (iv) advertising and trade
show expense reductions; (v) aircraft, charter and other travel expense
reductions; and (vi) elimination of annual sales meeting. In addition, the
Company has initiated the implementation of a new global information system that
is designed to allow the Company to further integrate administrative functions
and improve information flow across business unit lines.
Continue Dedicated Customer Service. The Company believes that effective
and proactive customer service has enabled the Company to build and maintain its
leading market positions and strong distributor relationships. Management plans
to continue this strategy of enhancing distributor and end-user relationships
through continuous customer service improvements. Each of Thermadyne's divisions
maintains a dedicated, well trained, technically oriented and product-specific
sales and customer service team. Management believes that the dedicated product
teams provide Thermadyne with a significant competitive advantage. In addition,
to further improve customer service, the Company has implemented a national
accounts team of 11 area business managers to support the dedicated product
sales and service teams and further support sales to the Company's key
distributors.
PRINCIPAL PRODUCTS
The Company manufactures a broad range of both gas (oxy-fuel) and arc
cutting and welding equipment (including a line of advanced plasma arc cutting
systems and oxy-fuel apparatus), accessories and consumables, including repair
parts. Over 40% of the Company's 1997 net sales were derived from the sale of
consumables and repair parts. Gas cutting and welding torches burn a mixture of
oxygen and fuel gas, typically acetylene. Arc cutting and welding systems are
powered by electricity. The major arc cutting and welding systems are plasma,
stick, MIG and TIG. Arc technology is more sophisticated than gas technology and
can be used on more types of metals. In addition, arc equipment produces less
distortion in the surrounding metal and it cuts and welds faster, reducing labor
costs. However, gas technology is more portable and generally less expensive
than arc technology and therefore remains important in many industries.
The Company conducts its operations through the following subsidiaries:
Thermal Dynamics -- Plasma Arc Cutting Products. Thermal Dynamics
Corporation ("Thermal Dynamics"), located in West Lebanon, New Hampshire and
founded in 1957, developed many of the early plasma cutting systems and
maintains its position as a leading manufacturer of plasma cutting systems and
replacement parts. Thermal Dynamics' product line ranges from a portable 20 amp
unit to large 1000 amp units. Thermal Dynamics' end-users are engaged primarily
in fabrication and repair of sheet metal and plate products found in fabricated
structural steel and non-ferrous metals, automotive products, appliances, sheet
metal, HVAC, general fabrication, shipbuilding and general maintenance.
Advantages of the plasma cutting process over other methods include faster
cutting speeds, the ability to cut ferrous and non-ferrous alloys and minimum
heat distortion on the material being cut. Plasma cutting also permits metal
cutting using only compressed air and electricity.
Tweco -- Electric Arc Products and Arc Gouging Systems. Tweco Products,
Inc. ("Tweco"), located in Wichita, Kansas and founded in 1936, manufactures a
line of arc welding replacement parts and accessories, including electrode
holders, ground clamps, cable connectors, terminal connectors and lugs and cable
splicers, and a variety of automatic and semi-automatic welding guns and cable
assemblies utilized in the arc welding process. Tweco also manufactures manual
stick electrode holders, ground clamps and accessories. Manual stick welding is
one of the oldest forms of welding and is used primarily by smaller welding
shops which perform general repair, maintenance and fabrication work. Tweco's
end-users are primarily engaged in the manufacture or repair and maintenance of
transportation equipment, including automobiles, trucks, aircraft, trains and
ships; the manufacture of a broad range of machinery; and the production of
fabricated metal products, including structural metal, hand tools and general
hardware.
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<PAGE> 39
Tweco is a leading domestic manufacturer of MIG welding guns. The MIG
process is an arc welding process utilized in the fabrication of steel,
aluminum, stainless steel and other metal products and structures. In the MIG
process, a small diameter consumable electrode wire is continuously fed into the
arc. The welding arc area is protected from the atmosphere by a "shielding" gas.
The welding guns and cable assemblies manufactured by Tweco carry the continuous
wire electrode, welding current and shielding gas to the welding arc. Tweco
manufactures a related line of robotic welding accessory products. This new
accessory line includes, but is not limited to, a robotic torch with patented
consumables, a robotic deflection mount, a robotic cleaning station, robotic
arms and an anti-splatter misting system.
Through its Arcair product line, Tweco manufactures equipment and related
consumable materials for "gouging," a technique that liquefies metal in a narrow
groove and then removes it using compressed air. Gouging products are often used
in joint preparation prior to a welding process. Numerous other applications
exist for these gouging systems, such as removal of defective welds, removal of
trim in foundries and repair of track, switches and freight cars in the railroad
industry. Arcair also manufactures a line of underwater welding and gouging
equipment.
In addition to gouging products, Arcair produces a patented exothermic
cutting system, SLICE(R). This system generates temperatures in excess of 70008F
and can quickly cut through steel, concrete and other materials. SLICE(R) has
many applications, including opening clogged steel furnaces and providing rapid
entry in fire and rescue operations. Arcair has developed an underwater version
of the SLICE(R)cutting system for use in the marine repair and salvage industry.
Arcair also manufactures TIG torches and accessories. The TIG process can
be used to fuse metals of almost all alloys and in thicknesses down to foil
size. TIG welding is used for pressure vessels, such as tanks, valves and pipes
and is relied on heavily in welding nuclear components. Fabrications involving
aluminum, magnesium and other specialty metals for use in aircraft, ships and
weapon systems also utilize the TIG process.
Arcair provides a complete line of chemicals used in the welding industry.
Chemicals are used for weld cleaning and as agents to reduce splatter adherence
on the metal being welded. Chemicals are also used to reduce splatter adherence
in welding nozzles in MIG applications.
Victor -- Oxy-Fuel Gas Products. Victor Equipment Company ("Victor") has
plants in Abilene and Denton, Texas and Gallman, Mississippi and was founded in
1913. Victor is a leading domestic manufacturer of gas operated cutting and
welding torches and gas and flow pressure regulation equipment. Victor's torches
are used to cut ferrous metals and to weld, heat, solder and braze a variety of
metals, and its regulation equipment is used to control pressure and flow of
most industrial and specialty gases. In addition, Victor manufactures a variety
of replacement parts, including welding nozzles and cutting tips of various
types and sizes and a line of specialty gas regulators purchased by end-users in
the process control, electronics and other industries. Victor also manufactures
a wide range of medical regulation equipment serving the oxygen therapy market,
including home health care and hospitals.
The torches produced by Victor are commonly referred to as oxy-fuel
torches. These torches combine a mixture of oxygen and a fuel gas, typically
acetylene, to produce a high temperature flame. These torches are designed for
maximum durability, repair ability and performance utilizing patented built-in
reverse flow check valves and flash arresters in several models. Victor also
manufactures lighter-duty hand-held heating, soldering and brazing torches.
Pressure regulators, which are basically diaphragm valves, serve a broad range
of industrial and specialty gas process control operations.
The principal uses of the Victor torch are cutting steel in metal
fabricating applications such as shipbuilding, construction of oil refineries,
power plants and manufacturing facilities, and welding, heating, brazing and
cutting in connection with maintenance of machinery, equipment and facilities.
Victor sells its lighter-duty products to end-user customers principally engaged
in the plumbing, refrigeration and heating, ventilation and air conditioning
industries. The relative low cost, mobility and ease of use of Victor torches
makes them suitable for a wide variety of uses.
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<PAGE> 40
Cigweld -- Electric Arc Products, Oxy-Fuel Products, Filler Metals, Gas
Control Products and Safety Products. The business now known as Cigweld, located
in Melbourne, Australia and founded in 1922, is the leading Australian
manufacturer of gas equipment and welding products.
Cigweld manufactures arc equipment welding products for both the automatic
arc and manual arc welding markets. The Cigweld range of automatic welding
equipment includes packages specifically designed for particular market
segments. End users of this product range include the rural market and the
vehicle repair, metal fabrication, ship building, general maintenance and heavy
industries. Manual arc equipment products range from small welders designed for
the home handyman to units designed for heavy industry.
Cigweld manufactures a range of consumable products (filler metals) for
manual and automatic arc and gas welding. The range of manual arc electrodes
includes over 50 individual electrodes for different applications. Cigweld
markets its manual arc electrodes under such brand names as Satincraft,
Weldcraft, Ferrocraft(R), Alloycraft(R), Satincrome, Cobalarc(R), Castcraft and
Weldall(R).
For automatic and semi-automatic welding applications, Cigweld manufactures
a significant range of solid and flux-cored wires, principally under the
Autocraft(R), Verti-Cor, Satin-Cor, Metal-Cor and Cobalarc(R) brand names. For
gas and TIG welding, Cigweld manufactures and supplies approximately 40
individual types of wires and solders for use in different applications.
Cigweld's filler metals are manufactured to standards appropriate for their
intended use, with the majority of products approved by agencies, such as
Lloyd's Register of Shipping, American Bureau of Shipping, De Norske Veritas and
U.S. Naval Ships.
Cigweld manufactures a comprehensive range of equipment for gas welding and
cutting and ancillary products such as gas manifolds, gas regulators and
flowmeters. Gas welding and cutting equipment is sold in kit form or as
individual products. Kits are manufactured for various customer groups and their
components include combinations of oxygen and acetylene regulators, blowpipes,
cutting attachments, mixers, welding and heating tips, cutting nozzles, roller
guides, twin welding hoses, goggles, flint lighters and tip cleaners,
combination spanners and cylinder keys. In addition to its kits, Cigweld
manufactures and/or distributes a complete range of gas equipment, including a
range of blowpipes and attachments, regulators (for oxygen, acetylene, argon and
carbon dioxide), flashback arrestors, cutting nozzles, welding and heating tips,
hoses and fittings, gas manifolds and accessories.
Cigweld also manufactures a range of gas control equipment including
specialty regulators (for use with different gases, including oxygen, acetylene,
liquified petroleum gas, argon, carbon dioxide, nitrogen, air, helium, hydrogen,
carbon monoxide, ethylene, ethane and nitrous oxide), manifold systems, cylinder
valves and spares and natural gas regulators. Cigweld's gas control items are
primarily sold to gas companies.
Cigweld manufactures and/or distributes a range of safety products for use
in welding and complementary industries. The product range includes welding
helmets and accessories, respirators and masks, breathing apparatus, earmuffs
and earplugs, safety spectacles, safety goggles and gas welding goggles, safety
helmets, faceshields, flashields (see-through welding curtains and screens) and
welding apparel.
Medical products are also manufactured by Cigweld in its manufacturing
plant in Melbourne, Australia. These products are distributed through a sole
distributor in the Australian market and exported through third party
distributors and related entities. The product range includes regulators,
flowmeters, suction units, oxygen therapy, resuscitation and outlet valves for
medical gas systems.
C&G Systems -- Cutting Tables. C&G Systems Inc. ("C&G"), located in Itasca,
Illinois and founded in 1968, manufactures a line of mechanized cutting tables
for fabricating sheet metal and metal plate. The machines utilize either
oxy-fuel or plasma cutting torches produced by other divisions of the Company.
C&G has a wide range of cutting tables from the relatively inexpensive
cantilever type used in general fabrication and job shops to the large precision
gantry type found in steel service centers and specialty cutting applications.
These metal cutting tables can be used in virtually any metal fabrication plant.
Stoody -- Hardfacing Products. Stoody Company ("Stoody"), located in
Bowling Green, Kentucky and with operations founded in 1921, is a recognized
world leader in the development and manufacture of hardfacing welding wires,
electrodes and rods. While Stoody's primary product line is iron-based welding
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<PAGE> 41
wires, Stoody also participates in the markets for cobalt-based and nickel-based
electrodes, rods and wires, which are essentially protective overlays, deposited
on softer base materials by various welding processes. This procedure, referred
to as "hardfacing" or "surface treatment," adds a more resistant surface,
thereby increasing the component's useful life. Lower initial costs, the ability
to treat large parts, and ease and speed of repairs in the field are some of the
advantages of hardfacing over solid wear resistant components. A variety of
products have been developed for hardfacing applications in industries utilizing
earth moving equipment, agricultural tools, crushing components, and steel mill
rolls, and in virtually all applications where metal is exposed to external wear
factors.
Thermal Arc -- Arc Welders, Plasma Welders and Wire Feeders. In 1997, the
inverter and plasma arc welder business of Thermal Dynamics and Arcsys were
combined to form Thermal Arc, Inc. ("Thermal Arc"). The combined operation is
located in Troy, Ohio and produces a full line of inverter and transformer-
based electric arc welders, plasma welders, engine driven welders and wire
feeders. Thermal Arc products compete in the marketplace for construction,
industrial and automated applications, and serve a large and diverse user base.
The inverter arc welding power machines use high frequency power
transistors to provide welding machines that are extremely portable and power
efficient when compared to conventional welding power sources. Plasma welding
dramatically improves productivity for the end-user. Additionally, conventional
transformer-based machines provide a cost-effective alternative for markets
where low cost and simplicity of maintenance are a high priority.
GenSet -- Engine-Driven Welders and Generators. GenSet, located in Pavia,
Italy, commenced operations in 1976 with the production of small generating
sets. In 1976, it developed its first engine-driven welder and, in 1977,
obtained its first patent for the synchronous alternator designed for welding
purposes. It now offers a full range of technologically advanced generators and
engine-driven welders that are sold throughout the world. These products are
used both where main power is not available and for stand-by power where
continuous power supply is a key requirement.
Woodland Cryogenics -- Cryogenic Pumps, Ambient and Electric Vaporizers and
Automatic Cylinder Filling Systems. Woodland, with manufacturing facilities in
Philadelphia, Pennsylvania and founded in 1986, is a leading manufacturer,
distributor and installer of cryogenic and high pressure gas fill plants,
vaporizers and pumps. Woodland's products are used to control, mix and package
both cryogenic and high pressure gases into containment vessels such as gas
cylinders.
The principal uses of Woodland products are for the filling of cryogenic
and high pressure gases for applications in industrial, medical and specialty
gas markets served by gas distributors and producers. Woodland has developed
computerized filling equipment to maximize productivity while also offering
conventional or manual filling equipment.
INTERNATIONAL BUSINESS
The Company had aggregate international sales from continuing operations of
approximately $220.2 million, $171.6 million and $67.5 million for the fiscal
years ended December 31, 1997, 1996 and 1995, respectively, or approximately
42%, 39% and 21%, respectively, of net sales in each such period. The Company's
international sales are influenced by fluctuations in exchange rates of foreign
currencies, foreign economic conditions and other risks associated with foreign
trade. The Company's international sales consist of: (a) export sales of
Thermadyne products manufactured at domestic manufacturing facilities and, to a
limited extent, products manufactured by third parties, sold through overseas
field representatives of Thermadyne International Corporation ("Thermadyne
International"), a subsidiary of Thermadyne; and (b) sales of Thermadyne
products manufactured at international manufacturing facilities, sold by
Thermadyne's foreign subsidiaries. For further information concerning the
international operations of the Company, see the notes to the Consolidated
Financial Statements of the Company included elsewhere herein.
Thermadyne International was formed in 1980 to coordinate Thermadyne's
efforts to increase international sales and sells cutting and welding products
through independent distributors in more than 80 countries.
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<PAGE> 42
In support of this effort, the Company operates distribution centers in Canada,
Australia, Italy, Mexico, Japan, Singapore, Brazil, the Philippines, Indonesia
and the United Kingdom and employs sales people located in 23 additional
countries.
DISTRIBUTION
The Company's cutting and welding products are distributed through a
domestic network of approximately 1,100 independent welding products
distributors with over 2,800 locations who carry one or more of its product
lines. Relationships with the distributors are maintained by a separate sales
force for each of the Company's principal product lines. In addition, a team of
11 area business managers exists to support the sale of all of the Company's
product lines to its key distributors. The Company's products are distributed
internationally through a direct sales force and independent distributors.
RESEARCH AND DEVELOPMENT
The Company has research and development groups for each of its product
lines that primarily conduct process and product development to meet market
needs. As of December 31, 1997, the Company employed approximately 125 persons
in its research and development groups, most of which are engineers.
PATENTS, LICENSES AND TRADEMARKS
The Company's products are sold under a variety of trademarks and trade
names. The Company owns trademark registrations or has filed trademark
applications for all trademarks and has registered all trade names that the
Company believes are material to the operation of its businesses. The Company
also owns various patents and from time to time acquires licenses from owners of
patents to apply such patents to its operations. As of December 31, 1997, the
Company had 740 registered and pending trademarks and 262 registered and pending
patents. The Company does not believe any single patent or license is material
to the operation of its businesses taken as a whole.
COMPETITION
The Company competes principally with a number of domestic manufacturers of
cutting and welding products, the majority of which compete only in limited
segments of the overall market. Management believes that competition is based
primarily on product quality, brand name, breadth and depth of product lines,
effectiveness of distribution channels, acumen of sales force, price and quality
of customer service. To date, the Company has experienced little direct foreign
competition in its U.S. markets due to the relatively limited size of such
markets, the inability of foreign manufacturers to establish effective
distribution channels and the relatively non-labor intensive nature of the
cutting and welding product manufacturing process. The Company also competes in
certain international markets in which it faces substantial competition from
foreign manufacturers of cutting and welding products.
RAW MATERIALS
The Company has not experienced any difficulties in obtaining raw materials
for its operations because its principal raw materials, copper, brass, steel and
plastic, are widely available and need not be specially manufactured for use by
the Company. Certain of the raw materials used in hardfacing products, such as
cobalt and chromium, are available primarily from sources outside the United
States, some of which are located in countries that may be subject to economic
and political conditions which could affect pricing and disrupt supply. Although
the Company has historically been able to obtain adequate supplies of these
materials at acceptable prices and has been able to recover the costs of any
increases in the price of raw materials in the form of higher unit sales prices,
restrictions in supply or significant fluctuations in the prices of cobalt,
chromium and other raw materials could adversely affect the Company's business.
The Company also purchases certain products which it either uses in its
manufacturing processes or resells. These products include, but are not limited
to, electronic components, circuit boards, semi-conductors,
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<PAGE> 43
motors, engines, pressure gauges, springs, switches, lenses and chemicals. The
Company believes its sources of such products are adequate to meet foreseeable
demand.
EMPLOYEES
As of December 31, 1997, the Company employed 3,563 people, of which
approximately 637 were engaged in sales and marketing activities, 225 were
engaged in administrative activities, 2,584 were engaged in manufacturing
activities and 117 were engaged in engineering activities. Labor unions
represent none of the Company's work force in the United States and virtually
all of the manufacturing employees in its foreign operations. The Company
believes that its employee relations are good. The Company has not experienced
any significant work stoppages.
FACILITIES
The Company operates 12 manufacturing facilities in the United States,
Italy, the Philippines and Australia. All domestic manufacturing facilities,
leases and leasehold interests are encumbered by liens securing the Company's
obligations under the New Credit Facility. The Company considers its plants and
equipment to be modern and well-maintained and believes its plants have
sufficient capacity to meet future anticipated expansion needs.
The Company leases and maintains a 43,600 square foot facility located in
St. Louis, Missouri, which houses the executive offices of the Company and its
operating subsidiaries, as well as all centralized services.
The following table describes the location and general character of the
Company's principal properties:
<TABLE>
<CAPTION>
SUBSIDIARY/ BUILDING SPACE/ PROPERTY
LOCATION OF FACILITY NUMBER OF BUILDINGS SIZE
-------------------- ------------------- ----------
<S> <C> <C>
Thermal Dynamics/West Lebanon, New Hampshire.. 187,000 sq. ft. 8.0 acres
5 buildings (office, manufacturing, sales
training, future expansion)
Tweco/Wichita, Kansas......................... 220,816 sq. ft. 21.7 acres
3 buildings (office, manufacturing,
storage space)
Victor/Denton, Texas.......................... 222,403 sq. ft. 30.0 acres
4 buildings (office, manufacturing,
storage, sales training center)
Victor/Abilene, Texas......................... 123,740 sq. ft. 32.0 acres
1 building (office and manufacturing)
Thermadyne Canada/Oakville, Ontario, Canada... 57,000 sq. ft. 8.3 acres
1 building (office and warehouse)
Modern Engineering Company/ Gallman,
Mississippi................................. 60,000 sq. ft. 60.0 acres
1 building (office and manufacturing)
Thermadyne Australia/Melbourne, Australia..... 588,000 sq. ft. 32.4 acres
8 buildings (office, manufacturing,
storage, research)
Thermadyne Australia/Cebu, Philippines........ 34,600 sq. ft. 1.2 acres
1 building (office and manufacturing)
C&G/Itasca, Illinois.......................... 38,000 sq. ft. 2.0 acres
1 building (office, manufacturing, future
expansion)
Stoody/Bowling Green, Kentucky................ 185,000 sq. ft. 37.0 acres
1 building (office and manufacturing)
</TABLE>
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<TABLE>
<CAPTION>
SUBSIDIARY/ BUILDING SPACE/ PROPERTY
LOCATION OF FACILITY NUMBER OF BUILDINGS SIZE
-------------------- ------------------- ----------
<S> <C> <C>
GenSet/Pavia, Italy........................... 193,000 sq. ft. 7.9 acres
2 buildings (office, manufacturing,
warehouse)
Thermal Arc/Troy, Ohio........................ 120,000 sq. ft. 6.5 acres
1 building (office, manufacturing,
warehouse, sales training)
Woodland/Philadelphia, Pennsylvania........... 25,537 sq. ft. 3.4 acres
1 building (office and manufacturing)
</TABLE>
All of the above facilities are leased, except for the facilities located
in Melbourne, Cebu, Pavia and Gallman, which are owned. The Company also has
additional assembly and warehouse facilities in Canada, the United Kingdom,
Italy, Japan, Singapore, Mexico, the Philippines, Indonesia, Brazil and
Australia.
In addition, the Company has subleased 264,000 square feet of its 325,000
square foot facility in City of Industry, California, which formerly was the
manufacturing facility for certain products now manufactured at the Company's
Bowling Green, Kentucky facility.
The leases for the Company's leased and subleased properties will expire
from 1999 through 2010.
LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
The Company is a party to ordinary litigation incidental to its businesses,
including a number of product liability cases seeking substantial damages. The
Company maintains insurance against any product liability claims. Coverage for
most years has a $500,000 self insured retention with $500,000 of primary
insurance per claim. In addition, the Company maintains umbrella policies
providing an aggregate of $50,000,000 in coverage for product liability claims.
Although it is difficult to predict the outcome of litigation with any
certainty, the Company believes that the liabilities which might reasonably
result from such lawsuits, to the extent not covered by insurance, will not have
a material adverse effect on the Company's financial condition or results of
operations.
The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and wastes. The
Company is currently not aware of any citations or claims filed against it by
any local, state, federal and foreign governmental agencies which, if
successful, would have a material adverse effect on the Company's financial
condition or results of operations.
The Company may be required to incur costs relating to remediation of
properties, including properties at which the Company disposes of waste, and
environmental conditions could lead to claims for personal injury, property
damage or damages to natural resources. The Company is aware of environmental
conditions at certain properties which it now or previously owned or leased
which are undergoing remediation. The Company does not believe that the cost of
such remediation will have a material adverse effect on the Company's business,
financial condition or results of operations.
Certain environmental laws, including but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund")
and the equivalent state Superfund laws, provide for strict, joint and several
liability for investigation and remediation of spills or other releases of
hazardous substances. Such laws may apply to conditions at properties presently
or formerly owned or operated by the Company or by its predecessors or
previously owned business entities, as well as to conditions at properties at
which wastes or other contamination attributable to the Company or its
predecessors or previously owned business entities come to be located. The
Company has in the past and may in the future be named a PRP at off-site
disposal sites to which it has sent waste. The Company does not believe that the
ultimate cost relating to Superfund sites will have a material adverse effect on
the Company's financial condition or results of operations. See "Risk
Factors -- Environmental Matters."
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<PAGE> 45
THE MERGER AND MERGER FINANCING
THE MERGER FINANCING
The funding required to pay the cash portion of the Merger Consideration,
the Option Cash Proceeds and the ESPP Cash Proceeds, to refinance and/or retire
outstanding indebtedness of the Company, and to pay expenses incurred in
connection with the Merger was approximately $808 million. These cash
requirements were funded with the proceeds obtained from concurrent equity and
debt financings. Thermadyne LLC and Thermadyne Capital issued the Senior
Subordinated Notes and Thermadyne LLC entered into a syndicated senior secured
loan facility providing for term loan borrowings in the aggregate principal
amount of approximately $330 million and revolving loan borrowings of $100
million (subject to a potential, but uncommitted, increase of up to $25 million
upon the request of Thermadyne LLC). In connection with the Merger, Thermadyne
LLC borrowed all term loans available under the New Credit Facility plus
approximately $25 million of revolving loans. The remaining revolving loans will
be available to fund the working capital requirements of the Company. The
proceeds of such financings were distributed to Holdings in the form of a
dividend. See "Description of New Credit Facility" and "Certain Relationships
and Related Transactions."
Mercury issued approximately $94.6 million aggregate proceeds of the
Debentures. In connection with the Merger, Holdings succeeded to the obligations
of Mercury with respect to the Debentures. The DLJMB Funds also purchased
2,608,696 shares of Mercury Common Stock, 2,000,000 shares of Mercury Preferred
Stock and the DLJMB Warrants for approximately $140 million. As a result of the
Merger, the proceeds of such purchases became an asset of Holdings, each share
of Mercury Common Stock became a share of Holdings Common Stock, each share of
Mercury Preferred Stock became a share of Holdings Preferred Stock and each
DLJMB Warrant to acquire Mercury Common Stock became exercisable for an equal
number of shares of Holdings Common Stock. In addition, in connection with the
Merger, certain members of senior management purchased 143,192 shares of
Holdings Common Stock for approximately $4.9 million through the Management
Share Purchase, of which approximately $3.6 million was provided through the
Management Loans.
THE MERGER
As a result of the Merger, each share of Holdings Common Stock held by
Holdings as treasury stock or owned by Mercury immediately prior to the
effectiveness of the Merger was cancelled, and no payment was made with respect
thereto; each share of Mercury Common Stock outstanding immediately prior to the
effectiveness of the Merger was converted into and became one share of Holdings
Common Stock with the same rights, powers and privileges as the shares so
converted; each share of Mercury Preferred Stock, outstanding immediately prior
to the effectiveness of the Merger was converted into and became one share of
preferred stock of Holdings with the same rights, powers and privileges as the
shares of preferred stock so converted; each outstanding DLJMB Warrant to
purchase Mercury Common Stock became exercisable for an equal number of shares
of Holdings Common Stock on the same terms and conditions as the DLJMB Warrant;
and each share of Holdings Common Stock outstanding immediately prior to the
effectiveness of the Merger was converted into the following (the "Merger
Consideration"): for each such share with respect to which an election to retain
Holdings Common Stock was effectively made and not revoked ("Stock Electing
Shares"), the right to retain approximately one share of Holdings Common Stock,
and for each such share (other than Stock Electing Shares), the right to receive
in cash from Mercury an amount equal to $34.50 (the "Cash Merger
Consideration"). Because the Merger required approximately 4.3% (or 485,010) of
the outstanding shares of Holdings Common Stock prior to the Merger to be
retained by existing stockholders of Holdings, the right to receive the Merger
Consideration was subject to proration. As a result of proration, each Stock
Electing Share was converted into .076 of a share of Holdings Common Stock and
the right to receive $34.50 in cash in lieu of shares not converted into
Holdings Common Stock. As a result of the Merger 10,690,283 shares of Holdings
Common Stock (approximately 95.7% of the presently issued and outstanding
shares) were converted into cash, as described above, and approximately 4.3% (or
485,010) of such shares were retained by existing stockholders. As a result of
the Merger, the shares of Mercury Common Stock were
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<PAGE> 46
converted into Holdings Common Stock representing approximately 80.6% of
Holdings Common Stock (or 75.7% on a fully diluted basis) after the Merger.
As a result of the Merger, the DLJMB Warrants permit the holders thereof to
purchase an additional 353,428 shares of Holdings Common Stock.
As a result of the Merger, each outstanding option to acquire shares of
Holding Common Stock granted to employees and directors, (excluding shares
subject to purchase under the Holding's Employee Stock Purchase Plan (the
"ESPP")), whether vested or not (the "Options"), were canceled. In lieu thereof,
the holders of such Options received, with respect to each Option, a cash
payment in an amount equal to the product of (x) the excess, if any, of $34.50
over the exercise price of such Option and (y) the number of shares of Holding
Common Stock subject to such Option (the "Option Cash Proceeds").
In addition, upon effectiveness of the Merger, rights to purchase shares of
Holding Common Stock under the ESPP were canceled. In lieu thereof, participants
in the ESPP received a cash payment in the amount equal to the product of the
number of shares of Holding Common Stock subject to purchase by such
participants thereunder and $34.50 (the "ESPP Cash Proceeds").
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<PAGE> 47
MANAGEMENT
Board of Directors. The following table sets forth the name, age and
position with Holdings of each director of Holdings:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Randall E. Curran........................................ 43 Chairman of the Board
James H. Tate............................................ 50 Director
Peter T. Grauer.......................................... 52 Director
William F. Dawson, Jr. .................................. 33 Director
John F. Fort III......................................... 56 Director
Harold A. Poling......................................... 72 Director
Lawrence M.v.D. Schloss.................................. 43 Director
</TABLE>
Randall E. Curran has been a Director of the Company since February 1994
and was elected Chairman of the Board and Chief Executive Officer in February
1995, having previously served as President of the Company from August 1994 and
as Executive Vice President and Chief Operating Officer of the Company from
February 1994. He also serves as President of Thermadyne Industries, Inc., a
position he has held since 1992. From 1986 to 1992, Mr. Curran was Chief
Financial Officer of the Company and/or its predecessors. Prior to 1986, Mr.
Curran held various executive positions with Cooper Industries, Inc.
James H. Tate has been a Director of the Company since October 1995. He was
elected Senior Vice President and Chief Financial Officer in February 1995,
having previously served as Vice President of the Company and Vice President and
Chief Financial Officer of the Company's subsidiaries since April 1993. Prior to
joining the Company, Mr. Tate was employed by the accounting firm of Ernst &
Young LLP for eighteen years, the last six of which he was a partner.
Peter T. Grauer has been a Managing Director of DLJ Merchant Banking II,
Inc. ("DLJMB Inc."), and its predecessor, since September 1992. Mr. Grauer is a
director of Doane Products Co., Total Renal Care Holdings, Inc., DecisionOne
Holdings Corp., Nebco Evans Holding Company, Ameriserve Food Distribution, Inc.
and Bloomberg, Inc.
William F. Dawson, Jr. has been a Principal of DLJMB Inc. since August
1997. From December 1995 to August 1997, he was a Senior Vice President in
DLJSC's High Yield Capital Markets Group. Prior thereto, Mr. Dawson was a Vice
President in the Leveraged Finance Group within DLJSC's Investment Banking
Group. Mr. Dawson serves as a Director of Von Hoffmann Corporation.
John F. Fort III retired as Chairman of the Board of Tyco International LTD
in January of 1993. In 1964, after receiving degrees in Aeronautical Engineering
and Industrial Management from Princeton and MIT's Sloan School of Business
respectively, he joined the Simplex Wire & Cable Company (now a subsidiary of
Tyco). Mr. Fort held a broad range of positions throughout his thirty years at
Tyco. He currently holds directorships at Tyco International Ltd., Dover
Corporation, and Roper Industries. He is an active participant on advisory
boards at MIT, Princeton University, Full Circle Investments and the Appalachian
Mountain Club.
Harold A. Poling retired as Chairman of the Board and Chief Executive
Officer of Ford Motor Company on January 1, 1994, a position he held since 1990.
Mr. Poling is a director of Shell Oil Company, LTV Corporation, Flint Ink
Corporation and the Kellogg Company, and is a member of BHP International
Advisory Council, The VIAG International Board and the PGA Tour Policy Board. He
is a director of the Monmouth (Ill.) College Senate and Chairman of the Dean's
Advisory Council for the Indiana University School of Business. He was national
chairman of Indiana University's Annual Fund campaigns from 1986 to 1998.
Lawrence M.v.D. Schloss has been the Managing Partner of DLJ Merchant
Banking II, Inc. since November 1995. Prior to November 1995, he was the Chief
Operating Officer and a Managing Director of DLJ Merchant Banking, Inc. Mr.
Schloss currently serves as Chairman of the Board of McCulloch Corporation and
as a director of Wilson Greatbatch, Inc. and DecisionOne Holdings Corp. Mr.
Schloss has
44
<PAGE> 48
previously served as a director of GTECH Corporation (NYSE:GTK), Krueger
International, Inc., OSi Specialties, Inc. and MPB Corporation.
Executive Officers. The following table sets forth certain information
concerning the executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Randall E. Curran........... 43 President and Chief Executive Officer
James H. Tate............... 50 Senior Vice President and Chief Financial Officer
Stephanie N. Josephson...... 44 Vice President, General Counsel and Corporate Secretary
Thomas C. Drury............. 41 Vice President, Human Resources
Robert D. Maddox............ 38 Vice President and Corporate Controller
</TABLE>
The following are brief biographies of each officer of the Company who is
not also a director.
Stephanie N. Josephson has been Vice President, General Counsel and
Corporate Secretary of the Company since 1995. Prior to joining Holdings, Ms.
Josephson was Corporate Counsel for Mills & Partners, Inc. from 1993 to 1995 and
an Adjunct Professor at St. Louis University School of Business in the MBA
program from 1991 to 1993. Prior thereto, Ms. Josephson was employed in Houston,
Texas as Counsel for Cooper Industries, Inc. and in private practice with the
law firms Andrews & Kurth and Weycer and Kaplan from 1979 to 1991.
Thomas C. Drury has been Vice President -- Human Resources of the Company
since March 1995. Prior to that time, Mr. Drury served as Director of Human
Resources for Holdings since November 1991. Prior to joining Holdings, Mr. Drury
was Manager -- Human Resources at McDonnell Douglas Systems Integration Company
from 1988 through 1991.
Robert D. Maddox has been Vice President and Corporate Controller of the
Company since April 1996. Prior to that time, Mr. Maddox served as Vice
President and Controller of Holdings' operating subsidiaries from April 1995 to
April 1996 and Controller from May 1992 to April 1995. Prior to joining
Holdings, Mr. Maddox was a senior audit manager with the accounting firm of
Ernst & Young LLP.
45
<PAGE> 49
EXECUTIVE COMPENSATION
The following table sets forth for the years ended December 31, 1997, 1996
and 1995 certain compensation paid by Holdings to its Chief Executive Officer
and the four other most highly paid executive officers of Holdings whose cash
compensation exceeded $100,000 for the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
--------------------------- ---- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Randall E. Curran................... 1997 517,847 538,400 30,600 33,807
Chairman of the Board, President
and 1996 498,921 385,050 91,000 8,008
Chief Executive Officer(2) 1995 482,919 409,116 65,000 7,728
James H. Tate....................... 1997 275,093 188,614 27,000 18,039
Director, Senior Vice President
and 1996 241,012 169,114 36,000 7,403
Chief Financial Officer(3) 1995 221,454 158,965 20,000 3,991
Stephanie N. Josephson.............. 1997 168,719 84,625 10,000 10,210
Vice President, General Counsel
and 1996 129,573 70,208 6,000 6,489
Corporate Secretary(4) 1995 100,127 44,760 25,000 3,024
Thomas C. Drury..................... 1997 132,206 66,479 10,000 7,444
Vice President -- Human 1996 107,115 53,708 6,000 5,982
Resources(5) 1995 92,557 32,669 25,000 4,160
Robert D. Maddox.................... 1997 134,254 67,417 5,000 7,749
Vice President and Controller(6) 1996 113,658 60,055 6,000 6,272
1995 98,039 36,556 10,000 4,378
</TABLE>
- ---------------
(1) All other compensation includes group life insurance premiums paid by
Holdings and contributions made on behalf of the named executive officers to
Holdings' 401(k) retirement and profit sharing plan. The amount of insurance
premiums paid and 401(k) contributions made on behalf of the named executive
officers for 1997 are as follows: Mr. Curran, $3,978 and $29,829,
respectively; Mr. Tate, $2,544 and $15,495, respectively; Ms. Josephson,
$1,138 and $9,072, respectively; Mr. Drury, $361 and $7,083, respectively;
and Mr. Maddox, $254 and $7,495, respectively.
(2) Mr. Curran was elected Chairman of the Board and Chief Executive Officer of
Holdings effective as of February 23, 1995, having previously served as
President of Holdings from August 1994 and as Executive Vice President and
Chief Operating Officer of Holdings from February 1994.
(3) Mr. Tate was elected Senior Vice President and Chief Financial Officer of
Holdings effective as of February 23, 1995, having previously served as Vice
President of Holdings and as Chief Financial Officer of Holdings'
subsidiaries. Mr. Tate was elected as a director of Holdings on October 26,
1995.
(4) Ms. Josephson was elected Corporate Counsel and Corporate Secretary of
Holdings on March 7, 1995, and was elected Vice President and General
Counsel of Holdings on April 26, 1995.
(5) Mr. Drury was elected Vice President -- Human Resources of Holdings on March
7, 1995.
(6) Mr. Maddox was elected Controller of Holdings on June 1, 1992, Vice
President and Controller of Thermadyne Industries, Inc. on April 1, 1995,
and Vice President of Holdings on April 18, 1996.
46
<PAGE> 50
The following table sets forth certain information related to stock options
granted to the named executive officers in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#)(1) FISCAL YEAR(%) ($/SH) DATE ($)(2)
---- ------------- -------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Randall E. Curran.............. 30,600 14.1 26.875 02/05/07 491,742
James H. Tate.................. 27,000 12.4 26.875 02/05/07 433,890
Stephanie N. Josephson......... 10,000 4.6 26.875 02/05/07 160,700
Thomas C. Drury................ 10,000 4.6 26.875 02/05/07 160,700
Robert D. Maddox............... 5,000 2.3 26.875 02/05/07 80,350
</TABLE>
- ---------------
(1) The options to purchase Holdings Common Stock were granted under Holdings'
1993 Management Option Plan or the Holdings' 1996 Employee Stock Option Plan
and become exercisable in five equal annual installments commencing on the
first anniversary of the date of grant. As a result of the Merger, all
outstanding Options, whether or not vested, were canceled, and the holders
of such Options received a cash payment in an amount equal to the product of
(x) the excess, if any, of $34.50 over the exercise price of such Option
multiplied by (y) the number of shares of Holdings Common Stock subject to
such Option.
(2) The grant date present value of each option grant was determined using a
variation of the Black-Scholes option pricing model. The estimated values
presented are based on the following assumptions made as of the time of
grant: an expected dividend yield of 0%; an expected option term of 10
years; volatility of .339 (based on historical stock price observations just
prior to each grant); and a risk-free rate of 6.72%. As a result of the
Merger, all outstanding Options, whether or not vested, were canceled, and
the holders of such Options received a cash payment in an amount equal to
the product of (x) the excess, if any, of $34.50 over the exercise price of
such Option multiplied by (y) the number of shares of Holdings Common Stock
subject to such Option.
The following table provides information related to the number and value of
options held by the named executive officers at the end of 1997. On December 31,
1997, the closing sale price of Holdings Common Stock on NASDAQ was $29 1/2. No
named executive officer exercised any options during 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END
---------------------------------- ----------------------------------
NAME EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
---- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Randall E. Curran............... 244,200 142,400 4,139,725 1,574,850
James H. Tate................... 53,700 67,800 893,975 624,275
Stephanie N. Josephson.......... 11,200 29,800 177,975 328,775
Thomas C. Drury................. 11,200 29,800 177,975 328,775
Robert D. Maddox................ 5,200 15,800 81,225 170,525
</TABLE>
As a result of the Merger, all outstanding Options, whether or not vested,
were canceled, and the holders of such Options received a cash payment in an
amount equal to the product of (x) the excess, if any, of $34.50 over the
exercise price of such Option multiplied by (y) the number of shares of Holdings
Common Stock subject to such Option.
47
<PAGE> 51
EMPLOYMENT ARRANGEMENTS
Employment Contracts. In connection with the Merger, Holdings entered into
employment agreements with, among others, the following executive officers:
Randall E. Curran, James H. Tate, Stephanie N. Josephson, Robert D. Maddox and
Thomas C. Drury. The employment agreements terminate on May 22, 2001; however,
such agreements automatically renew on each May 22 for an additional period so
that a new three-year term begins upon each extension (unless the agreements are
earlier terminated as provided herein). Each such employee serves in their
current executive capacities with Holdings as a requirement of their respective
employment agreements.
Messrs. Curran, Tate, Maddox and Drury and Ms. Josephson are entitled to
base salaries (subject to increase at the Board of Directors' discretion) of
$538,400, $290,175, $145,000, $145,000 and $175,000, respectively. In addition,
each employee is entitled to participate in an annual bonus plan providing for
an annual bonus opportunity. Pursuant to such bonus plan, Mr. Curran is entitled
to an annual bonus opportunity of not less than 100% of his base salary, Mr.
Tate is entitled to an annual bonus opportunity of not less than 75% of his base
salary and Ms. Josephson and Messrs. Maddox and Drury are each entitled to an
annual bonus opportunity of not less than 55% of his or her base salary. Each
such executive also is entitled to such benefits as are customarily provided to
the executives of Holdings and its subsidiaries. Each such executive is required
to devote all of his or her business time and attention to the business Holdings
and its subsidiaries.
Each employment agreement provides that upon termination without cause or
constructive termination of such executive's employment (which includes, among
other things, reductions of compensation, title, position or duties), such
executive will be entitled to receive such executive's then current salary and
other benefits through the later to occur of the termination date of the
agreement or 18 months from the date of termination of such executive's
employment.
Management Plans.
Management Incentive Plan. In connection with the Merger, Holdings adopted
the Thermadyne Holdings Corporation Management Incentive Plan (the "Incentive
Plan"), which provides for the granting of up to 500,000 shares of Holdings
Common Stock to certain officers and employees of the Company. In connection
with the Merger options to purchase approximately 322,966 shares of Holdings
Common Stock were granted to certain officers and employees of the Company at an
exercise price of $34.50. Pursuant to the terms of the Incentive Plan, options
granted to certain members of senior management provide for both a "Time Vesting
Option" and a "Cliff Vesting Option." Under the Time Vesting Option, the option
vests and is exercisable with respect to twenty percent of the shares subject to
the option on the day it was granted. Then, on each of the first five
anniversaries from that date the Time Vesting Option was granted, an additional
sixteen percent of the shares subject to the option vests and becomes
exercisable as long as the option recipient is still employed by Holdings or its
subsidiary. The Cliff Vesting Option becomes vested and exercisable with respect
to twenty percent of the shares on the thirtieth day after the availability of
the audited financial statements for each of the fiscal years ended December 31,
1998 through December 31, 2003, provided that the option recipient is still
employed by Holdings or its subsidiary, and further provided, that the targeted
implied common equity value of Holdings was met for each such fiscal year. If
the targeted implied common equity value of Holdings is not attained for any of
the fiscal years ending on or before December 31, 2002, the Cliff Vesting Option
will be treated as vested and exercisable if the target is attained for the
subsequent year as long as the Option recipient is still employed by Holdings or
its subsidiary. If, after eight years from receipt of the Cliff Vesting Option,
all shares subject to such option have not vested, such shares shall become
fully vested and exercisable as long as the option recipient is still employed
by Holdings or its subsidiary.
Direct Investment Program. In connection with the Merger, Holdings adopted
the Thermadyne Holdings Corporation Direct Investment Program (the "Investment
Program"), which provides for the purchase by certain members of management of
143,192 shares of Holdings Common Stock, of which 71,596 shares have been
designated as "Reinvestment Shares" and 71,596 shares have been designated as
"Coinvestment Shares." In connection with the Merger, Holdings issued all shares
available for issuance under the Investment Program. Of the Coinvestment Shares,
20% vest on each of the first five anniversaries of
48
<PAGE> 52
the date of purchase, so long as the participant is employed by the Company or
its subsidiary as of such anniversary. Additionally, upon the occurrence of a
Change of Control (as defined therein), all unvested Coinvestment Shares held by
a participant that is employed by the Company or its subsidiary at such time
shall vest. All Reinvestment Shares became immediately vested at the time of
purchase. A portion of the funds required to purchase the shares under the
Investment Program were provided through the proceeds of loans made by the
Company to participants in the Investment Program. In the event of a
participant's termination for Cause (as defined therein), the Company has the
right to purchase shares of such participant purchased under the Investment
Program at a price equal to (i) the lesser of (A) $34.50 and (B) the fair market
value of such shares on the date of purchase by the Company, with respect to
Coinvestment Shares (whether or not vested), and (ii) the fair market value of
such shares on the date of purchase by the Company, with respect to Reinvestment
Shares. In the event of a participant's termination other than for Cause or the
participant's death, the Company has the right to purchase shares of such
participant purchased under the Investment Program at a price equal to (i) the
lesser of (A) the sum of $34.50 and the Allocable Interest (as defined therein)
and (B) the fair market value of such shares on the date of purchase by the
Company, with respect to unvested Coinvestment Shares, and (ii) the fair market
value of such shares on the date of purchase by the Company, with respect to
Reinvestment Shares.
COMPENSATION OF DIRECTORS
Prior to the Merger, each director of Holdings, other than Messrs. Curran
and Tate, received a $12,000 annual retainer plus a $1,000 fee for each regular
meeting of the Board of Directors attended and a $500 fee for each meeting of a
board committee attended (other than meetings of the Executive Committee, for
which members of the committee other than Charles F. Moran, a former director of
Holdings, received a fee of $750). In addition to those fees, Mr. Moran, as the
Chairman of the Executive Committee, received aggregate compensation of $60,000
for services he provided during the twelve-month period ending February 28,
1997. For the period ending February 28, 1998, Mr. Moran received aggregate
compensation of $60,000 for services provided by him in his capacity as Chairman
of the Executive Committee during such period. Directors were also reimbursed
for all reasonable travel and other expenses of attending meetings of the Board
of Directors or committees of the Board of Directors.
On November 1, 1997, the Board of Directors granted options to purchase
1,000 shares of Holdings Common Stock to the following former directors of
Holdings pursuant to Holdings' Non-Employee Directors Stock Option Plan: Messrs.
Fletcher L. Byrom, Henry L. Druker, Richard L. Berger and Moran.
Compensation arrangements for directors of Holdings for periods following
the Merger have not yet been determined.
49
<PAGE> 53
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Holdings Common Stock as of May 31, 1998 by (i) any
person or group who beneficially owns more than five percent of Holdings Common
Stock, (ii) by each executive officer and director of Holdings and (iii) all
directors and executive officers of Holdings as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER: SHARES BENEFICIALLY OWNED COMMON STOCK
------------------------------------- ------------------------- -------------------------
<S> <C> <C>
DLJ Merchant Banking Partners II, L.P. and
related investors(1)(2)........................ 2,962,124 82.5%
Lawrence M.v.D. Schloss(3)....................... -- --
DLJMB Inc.
277 Park Avenue
New York, NY 10172
Peter T. Grauer(3)............................... -- --
DLJMB Inc.
277 Park Avenue
New York, NY 10172
William F. Dawson, Jr.(3)........................ -- --
DLJMB Inc.
277 Park Avenue
New York, NY 10172
John F. Fort III................................. -- --
Harold A. Poling................................. -- --
Randall E. Curran(4)............................. 59,566 1.8
James H. Tate(5)................................. 19,660 *
Stephanie N. Josephson(6)........................ 12,430 *
Thomas C. Drury(6)............................... 9,860 *
Robert D. Maddox(6).............................. 10,428 *
All directors and officers as a group (10
persons)(3)(7)................................. 111,944 3.4
</TABLE>
- ---------------
* Represents less than 1 percent.
(1) Includes 353,428 shares of Holdings Common Stock issuable upon the exercise
of the DLJMB Warrants. See "The Merger and the Merger Financing."
(2) Consists of shares held directly by the following investors related to
DLJMB: DLJ Offshore Partners II, C.V. ("Offshore"), a Netherlands Antilles
limited partnership, DLJ Diversified Partners, L.P. ("Diversified"), a
Delaware limited partnership, DLJMB Funding II, Inc. ("Funding"), a Delaware
corporation, DLJ Merchant Banking Partners II-A, L.P. ("DLJMBPIIA"), a
Delaware limited partnership, DLJ Diversified Partners-A L.P. ("Diversified
A"), a Delaware limited partnership, DLJ Millennium Partners, L.P.
("Millennium"), a Delaware limited partnership, DLJ Millennium Partners-A,
L.P. ("Millennium A"), a Delaware limited partnership, DLJEAB Partners, L.P.
("EAB"), UK Investment Plan 1997 Partners ("UK Partners"), a Delaware
partnership, DLJ First ESC L.P., a Delaware limited partnership ("DLJ First
ESC"), and DLJ ESC II, L.P., a Delaware limited partnership ("DLJ ESC II").
See "Certain Relationships and Related Transactions." The address of each of
DLJMB, Diversified, Funding, DLJMBPIIA, Diversified A, Millennium,
Millennium A, DLJ First ESC, DLJ ESC II and EAB is 277 Park Avenue, New
York, New York 10172. The address of Offshore is John B. Gorsiraweg 14,
Willemstad, Curacao, Netherlands Antilles. The address of UK Partners is
2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles, California
90067.
50
<PAGE> 54
(3) Messrs. Schloss, Grauer and Dawson are officers of DLJMB Inc., an affiliate
of DLJMB and the Initial Purchaser. Share data shown for such individuals
excludes shares shown as held by the DLJMB Funds, as to which such
individuals disclaim beneficial ownership.
(4) Includes 9,939 shares of Holdings Common Stock issuable upon the exercise of
vested stock options.
(5) Includes 5,168 shares of Holdings Common Stock issuable upon the exercise of
vested stock options.
(6) Includes 1,060 shares of Holdings Common Stock issuable upon the exercise of
vested stock options.
(7) Includes 18,287 shares of Holdings Common Stock issuable upon the exercise
of vested stock options.
51
<PAGE> 55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DLJ Capital Funding received customary fees and reimbursement of expenses
in connection with the arrangement and syndication of the New Credit Facility
and as a lender thereunder. DLJSC also received customary fees in connection
with the distribution of the Senior Subordinated Notes and the Old Debentures,
and the offer to purchase and consent solicitation for the Company's outstanding
Senior Notes and Subordinated Notes. Additionally, DLJ Bridge Finance, Inc.
received customary fees in connection with its commitment to provide bridge
financing in the event that the issuance of the Senior Subordinated Notes and
the Old Debentures did not occur. The aggregate fees received by these DLJ
entities for these services were approximately $20 million.
Pursuant to a letter agreement dated January 16, 1998 (the "Engagement
Letter"), DLJMB engaged DLJSC to act as DLJMB's exclusive financial advisor with
respect to the Merger and, following the Merger, to act as the Company's
exclusive financial advisor for a period of five years (the "Engagement Period")
with respect to the review and analysis of financial and structural alternatives
available to the Company. Upon the consummation of the Merger, DLJMB's
obligations under the Engagement Letter were assumed by the Company.
As compensation for the services to be provided by DLJSC under the
Engagement Letter, DLJSC received a fee of $4,000,000 upon the consummation of
the Merger and will be entitled to receive an annual advisory fee of $300,000,
payable quarterly in equal installments of $75,000. DLJSC will also be entitled
to reimbursement for all of its out-of-pocket expenses incurred in connection
with its engagement.
During the Engagement Period, DLJSC is also entitled to act as the
Company's exclusive financial advisor, sole placement agent, sole initial
purchaser, sole managing underwriter or sole dealer-manager, as the case may be,
with respect to any Transaction (as hereinafter defined) the Company determines
to pursue. The term "Transaction" includes the following: (i) the sale, merger,
consolidation or any other business combination, in one or a series of
transactions, involving any portion of the business, securities or assets of the
Company; (ii) the acquisition (and any related matters such as financings,
divestitures, etc.) in one or a series of transactions, of all or a portion of
the business, securities or assets of another entity or person; (iii) any
recapitalization, refinancing, repurchase or restructuring of the Company's
equity or debt securities or indebtedness or any amendments or modifications to
the Company's debt securities or indentures whether or not in connection
therewith, involving, by or on behalf of the Company, an offer to purchase or
exchange for cash, property, securities, indebtedness or other consideration, or
a solicitation of consents, waivers of authorizations with respect thereto; (iv)
any spin-off, split-off or other extraordinary dividend of cash, securities or
other assets to stockholders of the Company; or (v) any sale of securities of
the Company effected pursuant to a private sale or an underwritten public
offering.
The Company has agreed to indemnify and hold harmless DLJSC and its
affiliates, and the respective directors, officers, agents and employees of
DLJSC and its affiliates (each, an "Indemnified Person") from and against any
losses, claims, damages, judgments, assessments, costs and other liabilities and
will reimburse such Indemnified Persons for all fees and expenses (including the
reasonable fees and expenses of counsel) as they are incurred in investigating,
preparing, pursuing or defending any claim, action, proceeding or investigation
arising out of or in connection with advice or services rendered or to be
rendered by an Indemnified person pursuant to the Engagement Letter, the
transactions contemplated by the Engagement Letter or any Indemnified Person's
action or inactions in connection with any such advice, services or
transactions, other than liabilities or expenses that are determined by a
judgment of a court of competent jurisdiction to have resulted solely from such
Indemnified Person's gross negligence or willful misconduct.
The Engagement Letter makes available the resources of DLJSC concerning a
variety of financial and operational matters. The services that have been and
will continue to be provided by DLJSC could not otherwise be obtained by the
Company without the addition of personnel or the engagement of outside
professional advisors. In the opinion of management, the fees provided for under
the Engagement Letter reasonably reflect the benefits received and to be
received by the Company.
52
<PAGE> 56
The Company has entered into an Investors' Agreement with the DLJMB Funds
and the senior executive officers of the Company (the "Investors' Agreement").
The Investors' Agreement, among other things, contains provisions regarding the
composition of the Board of Directors of the Company, grants the parties thereto
certain registration rights and contains provisions requiring the senior
executive officers parties thereto to sell their shares of Holdings Common Stock
in connection with certain sales of the Holdings Common Stock by the DLJMB Funds
("drag-along rights") and granting the senior executive officers parties thereto
the right to include a portion of their shares of Holdings Common Stock in
certain sales of the Holdings Common Stock by the DLJMB Funds ("tag-along
rights").
In connection with the Merger, a portion of the funds required to purchase
the shares under the Investment Program were provided through the Management
Loans. Messrs. Curran, Tate, Maddox and Drury and Ms. Josephson received
secured, non-recourse loans from the Company in the amount of $1,249,890,
$367,606, $237,630, $223,222 and $288,413, respectively. The loans bear interest
at the rate of 5.69% per annum and are due in full on May 22, 2006. Upon the
termination of a participant's employment with the Company, other than as a
result of the participant's death, any outstanding loan will become due and
payable.
53
<PAGE> 57
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Debentures were sold by the Issuer on May 22, 1998, in the Original
Offering. In connection with that placement, the Issuer entered into the
Registration Rights Agreement, which requires that the Company file the
Registration Statement under the Securities Act with respect to the New
Debentures and, upon the effectiveness of the Registration Statement, offer to
the holders of the Old Debentures the opportunity to exchange their Old
Debentures for a like principal amount of New Debentures, which will be issued
without a restrictive legend and which generally may be reoffered and resold by
the holder without registration under the Securities Act. The Registration
Rights Agreement further provides that the Company must use its best efforts to
(i) cause the Registration Statement with respect to the Exchange Offer to be
declared effective on or before November 30, 1998 and (ii) consummate the
Exchange Offer on or before December 30, 1998. Except as provided below, upon
the completion of the Exchange Offer, the Company's obligations with respect to
the registration of the Old Debentures and the New Debentures will terminate. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and the summary herein
of certain provisions thereof does not purport to be complete and is qualified
in its entirety by reference thereto. As a result of the filing and the
effectiveness of the Registration Statement, certain liquidated damages provided
for in the Registration Rights Agreement will not become payable by the Company.
Following the completion of the Exchange Offer (except as set forth in the
paragraph immediately below), holders of Old Debentures not tendered will not
have any further registration rights and those Old Debentures will continue to
be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for the Old Debentures could be adversely affected upon completion of
the Exchange Offer.
In order to participate in the Exchange Offer, a holder must represent to
the Company, among other things, that (i) the New Debentures acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of business of
the person receiving the New Debentures, (ii) neither the holder nor any such
other person is engaging in or intends to engage in a distribution of the New
Debentures, (iii) neither the holder nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of the New Debentures and (iv) neither the holder nor any such other person is
an "affiliate," as defined under Rule 405 promulgated under the Securities Act,
of the Company. Pursuant to the Registration Rights Agreement, the Company is
required to file a "shelf" registration statement for a continuous offering
pursuant to Rule 415 under the Securities Act in respect of the Old Notes if (a)
it is prohibited from consummating the Exchange Offer because the Exchange Offer
is not permitted by applicable law or Commission policy or (b) any holder of
Transfer Restricted Securities (as defined) notifies the Company in writing
prior to the 20th business day following consummation of the Exchange Offer that
(i) based on an opinion of counsel, it is prohibited by law or Commission policy
from participating in the Exchange Offer or (ii) it is a broker-dealer and owns
Debentures acquired directly from the Issuer. In the event that the Company is
obligated to file a "shelf" registration statement, it will be required to keep
such "shelf" registration statement effective until the later of (a) the date on
which the Initial Purchaser is no longer deemed to be an Affiliate of the Issuer
and (b) the earlier of May 22, 2000 and such earlier date when no Transfer
Restricted Securities covered by such "shelf" registration statement remain
outstanding. Other than as set forth in this paragraph, no holder will have the
right to participate in the "shelf" registration statement nor otherwise to
require that the Company register such holder's shares of Old Notes under the
Securities Act. See "-- Procedures for Tendering."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third-parties unrelated to the Company, the Company believes
that, with the exceptions set forth below, New Debentures issued pursuant to the
Exchange Offer in exchange for Old Debentures may be offered for resale, resold
and otherwise transferred by any person receiving such New Debentures, whether
or not such person is the registered holder (other than any such holder or such
other person which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the New
Debentures are acquired in the ordinary course of business of the holder or such
other person and neither the holder nor such other person has
54
<PAGE> 58
an arrangement or understanding with any person to participate in the
distribution of such New Debentures. Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the New Debentures
cannot rely on this interpretation by the Commission's staff and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction. Each broker-dealer that
receives New Debentures for its own account in exchange for Old Debentures,
where the Old Debentures were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Debentures.
See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth under
"-- Purpose and Effect" above), holders of Old Debentures not tendered will not
have any further registration rights and those Old Debentures will continue to
be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for a holder's Old Debentures could be adversely affected upon
completion of the Exchange Offer if the holder does not participate in the
Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Debentures validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount at
maturity of New Debentures in exchange for each $1,000 principal amount at
maturity of outstanding Old Debentures accepted in the Exchange Offer. Holders
may tender some or all of their Old Debentures pursuant to the Exchange Offer.
However, Old Debentures may be tendered only in integral multiples of $1,000 in
principal amount.
The form and terms of the New Debentures are substantially the same as the
form and terms of the Old Debentures except that the New Debentures have been
registered under the Securities Act and will not bear legends restricting their
transfer. The New Debentures will evidence the same debt as the Old Debentures
and will be issued pursuant to, and entitled to the benefits of, the Indenture
pursuant to which the Old Debentures were issued.
As of May 31, 1998, Old Debentures representing $174,000,000 aggregate
principal amount at maturity were outstanding and there was one registered
holder, a nominee of DTC. This Prospectus, together with the Letter of
Transmittal, is being sent to such registered Holder and to others believed to
have beneficial interests in the Old Debentures. The Company intends to conduct
the Exchange Offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder.
The Company shall be deemed to have accepted validly tendered Old
Debentures when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the New Debentures from the Company. If any
tendered Old Debentures are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
certificates for any such unaccepted Old Debentures will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Old Debentures in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Debentures pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "The Exchange Offer -- Fees and Expenses."
55
<PAGE> 59
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
September 3, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. In order to extend the
Exchange Offer, the Company will issue a notice of any extension by press
release or other public announcement prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date. The
Company reserves the right, in its sole discretion, (i) to delay accepting any
Old Debentures, to extend the Exchange Offer or, if any of the conditions set
forth under "-- Conditions to the Exchange Offer" shall not have been satisfied,
to terminate the Exchange Offer, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend the terms of
the Exchange Offer in any manner.
PROCEDURES FOR TENDERING
Only a registered holder of Old Debentures may tender the Old Debentures in
the Exchange Offer. Except as set forth under "-- Book Entry Transfer," to
tender in the Exchange Offer a holder must complete, sign, and date the Letter
of Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the Letter
of Transmittal or copy to the Exchange Agent prior to the Expiration Date. In
addition, either (i) certificates for such Old Debentures must be received by
the Exchange Agent along with the Letter of Transmittal, prior to the Expiration
Date or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Debentures, if that procedure is available, into the
Exchange Agent's account at DTC (the "Book-Entry Transfer Facility") pursuant to
the procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Letter of Transmittal and other required documents must be
received by the Exchange Agent at the address set forth under "-- Exchange
Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD DEBENTURES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD DEBENTURES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Debentures are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Debentures, either make appropriate arrangements to register ownership of
the Old Debentures in the beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless Old Debentures tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. If signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, the guarantee must be by any eligible guarantor institution that is
a member of or participant in
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<PAGE> 60
the Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Debentures listed therein, the Old Debentures must
be endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old
Debentures.
If the Letter of Transmittal or any Old Debentures or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to the Company of their authority to so act must be submitted with
the Letter of Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Debentures will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Old Debentures not properly tendered or any Old Debentures the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Debentures. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Debentures must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Debentures, neither the
Company, the Exchange Agent, nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Debentures will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Old Debentures received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Debentures that remain outstanding after the
Expiration Date or, as set forth under "-- Conditions to the Exchange Offer," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Debentures in the open market, in privately negotiated
transactions, or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the New Debentures acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Debentures, whether or not such person is the registered holder, (ii) neither
the holder nor any such other person is engaging in or intends to engage in a
distribution of such New Debentures, (iii) neither the holder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Debentures, and (iv) neither the holder nor any such
other person is an "affiliate," as defined under Rule 405 of the Securities Act,
of the Company.
In all cases, issuance of New Debentures for Old Debentures that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Debentures or
a timely Book-Entry Confirmation of such Old Debentures into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal (or, with respect to the DTC and its
participants, electronic instructions in which the tendering holder acknowledges
its receipt of and agreement to be bound by the Letter of Transmittal), and all
other required documents. If any tendered Old Debentures are not accepted for
any reason set forth in the terms and conditions of the Exchange Offer or if Old
Debentures are submitted for a greater principal amount than the holder desires
to exchange, such unaccepted or non-exchanged Old Debentures will be returned
without expense to the tendering Holder thereof (or, in the case of Old
Debentures tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, such
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<PAGE> 61
nonexchanged Old Debentures will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
Each broker-dealer that receives New Debentures for its own account in
exchange for Old Debentures, where the Old Debentures were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Debentures. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Debentures at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Debentures being tendered
by causing the Book-Entry Transfer Facility to transfer such Old Debentures into
the Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Old Debentures may be effected through book-entry transfer
at the Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof,
with any required signature guarantees and any other required documents, must,
in any case other than as set forth in the following paragraph, be transmitted
to and received by the Exchange Agent at the address set forth under
"-- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in lieu of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Debentures through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Debentures desires to tender such Old
Debentures and the Old Debentures are not immediately available, or time will
not permit such holder's Old Debentures or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if (i)
the tender is made through an Eligible Institution, (ii) prior to the Expiration
Date, the Exchange Agent received from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form provided by the Issuer
(by telegram, telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the holder of Old Debentures and the amount of Old
Debentures tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Debentures, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Debentures, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within three NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Debentures may be withdrawn at any time prior to 5:00 pm.,
New York City time, on the Expiration Date.
For a withdrawal of a tender of Old Debentures to be effective, a written
or (for DTC participants) electronic ATOP transmission notice of withdrawal must
be received by the Exchange Agent at its address set
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<PAGE> 62
forth under "-- Exchange Agent" prior to 5:00 pm., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Debentures to be withdrawn (the "Depositor"),
(ii) identify the Old Debentures to be withdrawn (including the certificate
number or numbers and principal amount of such Old Debentures), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Debentures were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee register the transfer of such Old Debentures into the name of
the person withdrawing the tender, and (iv) specify the name in which any such
Old Debentures are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Old Debentures so withdrawn will
be deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Debentures which have been tendered for exchange but
which are not exchanged for any reason will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender, or termination of the Exchange Offer. Properly withdrawn Old
Debentures may be retendered by following one of the procedures under
"-- Procedures for Tendering" at any time on or prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Debentures in
exchange for, any Old Debentures and may terminate or amend the Exchange Offer
if at any time before the acceptance of such Old Debentures for exchange or the
exchange of the New Debentures for such Old Debentures, the Company determines
that the Exchange Offer violates applicable law, any applicable interpretation
of the staff of the Commission or any order of any governmental agency or court
of competent jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Old Debentures
tendered, and no New Debentures will be issued in exchange for any such Old
Debentures, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended (the "TIA"). In any such event the Company is required to use
every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
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<PAGE> 63
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. IBJ Schroder Bank & Trust Company, has been appointed as Exchange Agent
for the Exchange Offer. Questions, requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
Deliver to:
IBJ SCHRODER BANK & TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Registered or Certified By Hand or Overnight Delivery
Mail: Service:
IBJ Schroder Bank & Trust IBJ Schroder Bank & Trust
Company Company
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attention: Securities
Attention: Reorganization Processing Window,
Operations Department Subcellar One (SC-1)
Facsimile Transmission Number:
(For Eligible Institutions
Only)
(212) 858-2103
Confirm Receipt of
Facsimile by Telephone:
(212) 858-2611
</TABLE>
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$155,910.36, which includes fees and expenses of the Exchange Agent, accounting,
legal, printing and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Debentures for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register New Debentures in the name of, or request that
Old Debentures not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax thereon.
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DESCRIPTION OF NEW CREDIT FACILITY
The New Credit Facility has been provided by a syndicate of banks and other
financial institutions led by DLJSC, as arranger (the "Arranger"), DLJ Capital
Funding, Inc., as syndication agent (the "Syndication Agent"), ABN AMRO Bank
N.V., Chicago Branch, as administrative agent (the "Administrative Agent"), and
Societe Generale, as documentation agent. The New Credit Facility includes a
$330 million term loan facility (the "Term Loan Facility") and a $100 million
revolving credit facility (subject to adjustment as provided below), which
provides for revolving loans and up to $50 million of letters of credit (the
"Revolving Credit Facility"). The Term Loan Facility is comprised of a term A
facility of $100 million (the "Term A Facility"), which has a maturity of six
years, a term B facility of $115 million (the "Term B Facility"), which has a
maturity of seven years, and a term C facility of $115 million (the "Term C
Facility"), which has a maturity of eight years. The Revolving Credit Facility
terminates six years after the date of initial funding of the New Credit
Facility and is subject to a potential, but uncommitted, increase of up to $25
million at Thermadyne LLC's request at any time prior to such sixth anniversary.
Such increase is available only if one or more financial institutions agrees, at
the time of Thermadyne LLC's request, to provide it.
The New Credit Facility generally bears interest, at Thermadyne LLC's
option, at the Administrative Agent's alternate base rate or at the
reserve-adjusted London Interbank Offered Rate ("LIBOR") plus, in each case,
applicable margins of (i) in the case of alternate base rate loans, (x) 1.00%
for revolving and Term A loans, (y) 1.25% for Term B loans and (z) 1.50% for
Term C loans and (ii) in the case of LIBOR loans, (x) 2.25% for revolving and
Term A loans, (y) 2.50% for Term B loans and (z) 2.75% for Term C loans.
Thermadyne LLC pays a commitment fee calculated at a rate of 0.50% per
annum on the daily average unused commitment under the Revolving Credit Facility
(whether or not then available). Such fee is payable quarterly in arrears and
upon termination of the Revolving Credit Facility (whether at stated maturity or
otherwise).
Beginning six months after the consummation of the Merger and the Merger
Financing, the applicable margins for the Term A Facility and the Revolving
Credit Facility, as well as the commitment fee and letter of credit fee, is
subject to possible reductions based on the ratio of consolidated Debt to EBITDA
(each as defined in the New Credit Facility).
Thermadyne LLC pays a letter of credit fee calculated (i) in the case of
standby letters of credit, at a rate per annum equal to the then applicable
margin for LIBOR loans under the Revolving Credit Facility minus 0.125% and (ii)
in the case of documentary letters of credit, at a rate per annum equal to 1.25%
plus, in each case, a fronting fee on the stated amount of each letter of
credit. Such fees are payable quarterly in arrears. In addition, Thermadyne LLC
pays customary transaction charges in connection with any letters of credit.
The Term Loan Facility is subject to the following amortization schedule:
<TABLE>
<CAPTION>
YEAR TERM LOAN A TERM LOAN B TERM LOAN C
---- ----------- ----------- -----------
<S> <C> <C> <C>
1............................... 0.0% 1.0% 1.0%
2............................... 5.0% 1.0% 1.0%
3............................... 10.0% 1.0% 1.0%
4............................... 20.0% 1.0% 1.0%
5............................... 25.0% 1.0% 1.0%
6............................... 40.0% 1.0% 1.0%
7............................... -- 94.0% 1.0%
8............................... -- -- 93.0%
----- ----- -----
100.0% 100.0% 100.0%
</TABLE>
The Term Loan Facility is subject to mandatory prepayment: (i) with 100% of
the net cash proceeds from the issuance of debt, subject to certain exceptions,
(ii) with 100% of the net cash proceeds of asset sales and casualty events,
subject to certain exceptions, (iii) with 50% of Thermadyne LLC's excess cash
flow (as defined in the New Credit Facility) to the extent that the Leverage
Ratio (as defined in the New Credit
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<PAGE> 65
Facility) exceeds 3.5 to 1.0, and (iv) with 50% of the net cash proceeds from
the issuance of equity to the extent that the Leverage Ratio exceeds 4.0 to 1.0.
Thermadyne LLC's obligations under the New Credit Facility are secured by a
first-priority perfected lien on: (i) substantially all domestic property and
assets, tangible and intangible (other than accounts receivable sold or to be
sold into the accounts receivable program and short term real estate leases), of
Thermadyne LLC and its domestic subsidiaries (other than the special purpose
subsidiaries involved in the accounts receivable program); (ii) the capital
stock of (a) Thermadyne LLC held by Holdings and (b) all subsidiaries of the
Issuer (provided that no more than 65% of the equity interest in non-U.S.
subsidiaries held by the Issuer and its domestic subsidiaries and no equity
interests in subsidiaries held by foreign subsidiaries are required to be
pledged as a security); and (iii) all intercompany indebtedness. Holdings has
guaranteed the obligations of Thermadyne LLC under the New Credit Facility. In
addition, obligations under the New Credit Facility are guaranteed by all
domestic subsidiaries.
The New Credit Facility contains customary covenants and restrictions on
Thermadyne LLC's ability to engage in certain activities, including, but not
limited to: (i) limitations on the incurrence of liens and indebtedness, (ii)
restrictions on sale lease-back transactions, consolidations, mergers, sale of
assets, capital expenditures, transactions with affiliates and investments, and
(iii) severe restrictions on dividends, and other similar distributions.
The New Credit Facility contains financial covenants requiring Thermadyne
LLC to maintain a minimum level of adjusted EBITDA (as defined in the New Credit
Facility); a minimum Interest Coverage Ratio (as defined in the New Credit
Facility); a minimum Fixed Charge Coverage Ratio (as defined in the New Credit
Facility); and a maximum Leverage Ratio (as defined in the New Credit Facility).
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DESCRIPTION OF SENIOR SUBORDINATED NOTES
Thermadyne LLC and Thermadyne Capital have outstanding $207 aggregate
principal amount of the Senior Subordinated Notes. The Senior Subordinated Notes
were issued pursuant to the Notes Indenture among Thermadyne LLC, Thermadyne
Capital and State Street Bank and Trust Company, as trustee. A copy of the Notes
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part and the summary herein of certain provisions thereof
does not purport to be complete and is qualified in its entirety by reference
thereto, including the definitions therein of certain terms used below.
The Senior Subordinated Notes are general unsecured obligations of
Thermadyne LLC and Thermadyne Capital and will be subordinated in right of
payment to all existing and future Senior Indebtedness of Thermadyne LLC and
Thermadyne Capital (including borrowings under the New Credit Facility). The
Senior Subordinated Notes are unconditionally guaranteed on a senior
subordinated basis by certain of Thermadyne LLC's existing domestic
subsidiaries. The Note Guarantees will be general unsecured obligations of the
Guarantors, will be subordinated in right of payment to all existing and future
Senior Indebtedness of the Guarantors, including indebtedness under the New
Credit Facility, and will rank senior in right of payment to any future
subordinated indebtedness of the Guarantors.
All of Thermadyne LLC's Subsidiaries (other than Thermadyne Capital and
Thermadyne Receivables, Inc.) are Restricted Subsidiaries. However, under
certain circumstances, Thermadyne LLC will be permitted to designate current or
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will
not be subject to the restrictive covenants set forth in the Notes Indenture.
The Senior Subordinated Notes mature on June 1, 2008. Interest on the
Senior Subordinated Notes will accrue at the rate of 9 7/8% per annum and will
be payable semi-annually in arrears on June 1 and December 1, commencing on
December 1, 1998, to Holders of record on the immediately preceding May 15 and
November 15.
The payment of Subordinated Note Obligations will be subordinated in right
of payment, as set forth in the Notes Indenture, to the prior payment in full in
cash or cash equivalents of all Senior Indebtedness, whether outstanding on the
date of the Notes Indenture or thereafter incurred.
Thermadyne LLC's payment obligations under the Senior Subordinated Notes
are jointly and severally guaranteed (the "Note Guarantees") by the Guarantors.
The Note Guarantee of each Guarantor will be subordinated to the prior payment
in full in cash or cash equivalents of all Senior Indebtedness of such Guarantor
(including such Guarantor's guarantee of the New Credit Facility) to the same
extent that the Senior Subordinated Notes are subordinated to Senior
Indebtedness of the Company. The obligations of each Guarantor under its Note
Guarantee will be limited so as not to constitute a fraudulent conveyance under
applicable law.
Except as provided below, the Senior Subordinated Notes are not redeemable
at the option of Thermadyne LLC and Thermadyne Capital prior to June 1, 2003.
Thereafter, the Senior Subordinated Notes are subject to redemption at any time
at the option of Thermadyne LLC and Thermadyne Capital, in whole or in part, in
cash at a redemption price declining from 104.938% of the principal amount
thereof during the 12-month period beginning June 1, 2003 to 100% of the
principal amount thereof on or after June 1, 2006, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date.
Notwithstanding the foregoing, on or prior to June 1, 2001, Thermadyne LLC
and Thermadyne Capital may redeem up to 35% of the aggregate principal amount of
Senior Subordinated Notes ever issued under the Notes Indenture in cash at a
redemption price of 109.875% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the redemption date,
with the net cash proceeds of one or more Public Equity Offerings; provided that
at least 65% of the aggregate principal amount of Senior Subordinated Notes ever
issued under the Notes Indenture remains outstanding immediately after the
occurrence of any such redemption; and provided further that such redemption
shall occur within 90 days of the date of the closing of any such Public Equity
Offering.
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In addition, at any time prior to June 1, 2003, Thermadyne LLC and
Thermadyne Capital may, at their option upon the occurrence of a Change of
Control, redeem the Senior Subordinated Notes, in whole but not in part, upon
not less than 30 nor more than 60 days' prior notice (but in no event may any
such redemption occur more than 60 days after the occurrence of such Change of
Control), in cash at a redemption price equal to (i) the present value of the
sum of all the remaining interest (excluding accrued and unpaid interest, if
any), premium and principal payments that would become due on the Senior
Subordinated Notes as if the Senior Subordinated Notes were to remain
outstanding and be redeemed on June 1, 2003, computed using a discount rate
equal to the Treasury Rate plus 50 basis points, plus (ii) accrued and unpaid
interest and Liquidated Damages, if any, to the date of redemption.
Upon the occurrence of a Change of Control, each Holder of Senior
Subordinated Notes will have the right to require Thermadyne LLC and Thermadyne
Capital to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Senior Subordinated Notes at an offer price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of repurchase.
The Notes Indenture contains certain covenants that, among other things,
limit the ability of Thermadyne LLC and Thermadyne Capital and their Restricted
Subsidiaries to: incur indebtedness and issue preferred stock, repurchase
Capital Stock and Indebtedness subordinated to the Senior Subordinated Notes,
engage in transactions with affiliates, engage in sale and leaseback
transactions, incur or suffer to exist certain liens, pay dividends or other
distributions, make investments, sell assets and engage in certain mergers and
consolidations.
The Notes Indenture provides that each of the following constitutes an
Event of Default: (a) default for 30 days in the payment when due of interest
on, or Liquidated Damages with respect to, the Senior Subordinated Notes
(whether or not prohibited by the subordination provisions of the Indenture);
(b) default in payment when due of the principal of or premium, if any, on the
Senior Subordinated Notes (whether or not prohibited by the subordination
provisions of the Notes Indenture); (c) failure by Thermadyne LLC or any of its
Restricted Subsidiaries for 30 days after receipt of notice from the Trustee or
Holders of at least 25% in principal amount of the Senior Subordinated Notes
then outstanding to comply with certain covenants contained in the Notes
Indenture; (d) failure by Thermadyne LLC for 60 days after notice from the
Trustee or the Holders of at least 25% in principal amount of the Senior
Subordinated Notes then outstanding to comply with any of its other agreements
in the Notes Indenture or the Senior Subordinated Notes; (e) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by
Thermadyne LLC or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by Thermadyne LLC or any of its Restricted Subsidiaries), whether
such Indebtedness or guarantee now exists, or is created after the date of the
Notes Indenture, which default (i) is caused by a failure to pay Indebtedness at
its stated final maturity (after giving effect to any applicable grace period
provided in such Indebtedness) (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its stated final maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$10.0 million or more; (f) failure by Thermadyne LLC or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $10.0 million (net
of any amounts with respect to which a reputable and creditworthy insurance
company has acknowledged liability in writing), which judgments are not paid,
discharged or stayed for a period of 60 days; (g) except as permitted by the
Notes Indenture, any Note Guarantee shall be held in any judicial proceeding to
be unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Guarantor, or any Person acting of behalf of any Guarantor,
shall deny or disaffirm its obligations under its Note Guarantee; and (h)
certain events of bankruptcy or insolvency with respect to Thermadyne LLC or any
of its Restricted Subsidiaries that is a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Senior
Subordinated Notes may declare all the Senior Subordinated Notes to be due and
payable immediately; provided that, so long as any Indebtedness permitted to be
incurred pursuant to the New Credit Facility shall be outstanding, such
acceleration shall not be effective until the earlier of
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(a) an acceleration of any such Indebtedness under the New Credit Facility or
(b) five business days after receipt by Thermadyne LLC. and Thermadyne Capital
and the administrative agent under the New Credit Facility of written notice of
such acceleration. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency with respect to
Thermadyne LLC. or any Significant Subsidiary, all outstanding Senior
Subordinated Notes will become due and payable without further action or notice.
Holders of the Senior Subordinated Notes may not enforce the Notes Indenture or
the Senior Subordinated Notes except as provided in the Notes Indenture. In the
event of a declaration of acceleration of the Senior Subordinated Notes because
an Event of Default has occurred and is continuing as a result of the
acceleration of any Indebtedness described in clause (e) of the preceding
paragraph, the declaration of acceleration of the Senior Subordinated Notes
shall be automatically annulled if the holders of any Indebtedness described in
clause (e) have rescinded the declaration of acceleration in respect of such
Indebtedness within 30 days of the date of such declaration and if (i) the
annulment of the acceleration of the Senior Subordinated Notes would not
conflict with any judgment or decree of a court of competent jurisdiction and
(ii) all existing Events of Default, except non-payment of principal or interest
on the Senior Subordinated Notes that became due solely because of the
acceleration of the Senior Subordinated Notes, have been cured or waived.
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DESCRIPTION OF NEW DEBENTURES
GENERAL
The New Debentures will be issued pursuant to an Indenture (the
"Indenture") among the Issuer and IBJ Schroder Bank & Trust Company, as trustee
(the "Trustee"). The terms of the New Debentures include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The New
Debentures are subject to all such terms, and Holders of New Debentures are
referred to the Indenture and the Trust Indenture Act for a statement thereof. A
copy of the Indenture has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part and the summary herein of certain provisions
thereof does not purport to be complete and is qualified in its entirety by
reference thereto. The definitions of certain terms used in the following
summary are set forth below under "-- Certain Definitions."
The New Debentures are general unsecured obligations of the Issuer and are
senior in right of payment to all future Indebtedness of the Issuer that is
subordinated to the New Debentures and pari passu in right of payment with all
future Indebtedness of the Issuer that is not subordinated to the New
Debentures. The Issuer is the sole obligor with respect to the Debentures;
moreover, the operations of the Issuer are conducted entirely through its
Subsidiaries and, therefore, the Issuer is completely dependent upon the
operations and cash flow of its Subsidiaries to meet its obligations, including
its obligations under the New Debentures. The New Credit Facility and the Senior
Subordinated Notes restrict Thermadyne LLC from paying any dividends or making
any other distributions to the Issuer. The ability of Thermadyne LLC to comply
with the conditions in the Senior Subordinated Notes may be affected by certain
events that are beyond the Issuer's control. The Debentures are effectively
subordinated to all Indebtedness and other liabilities (including, without
limitation, trade payables and lease obligations) of the Issuer's Subsidiaries,
including, without limitation, to Thermadyne LLC's obligations under the New
Credit Facility and the Senior Subordinated Notes. Any right of the Issuer to
receive assets of any of its Subsidiaries upon such Subsidiary's liquidation or
reorganization (and the consequent right of Holders of the Senior Subordinated
Notes to participate in those assets) is effectively subordinated to the claims
of that Subsidiary's creditors except to the extent that the Issuer itself is
recognized as a creditor of such Subsidiary, in which case the claims of the
Issuer would still be subordinate to the claims of such creditors who hold
security in the assets of such Subsidiary and to the claims of such creditors
who hold Indebtedness of such Subsidiary senior to that held by the Issuer. On a
pro forma basis giving effect to the Merger, including the Merger Financing and
the application of the proceeds therefrom, as of March 31, 1998, the Issuer
would have had outstanding approximately $682.0 million of Indebtedness and the
Issuer's Subsidiaries would have had approximately $733.2 million of liabilities
outstanding, including Indebtedness under the Senior Subordinated Notes and the
New Credit Facility and including trade payables. The Indenture permits the
incurrence of certain additional Indebtedness of the Issuer and the Issuer's
Subsidiaries in the future. See "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock."
Substantially all of the Issuer's Subsidiaries (other than Thermadyne
Receivables, Inc.) are Restricted Subsidiaries. However, under certain
circumstances, the Issuer will be permitted to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to the restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The New Debentures initially will be limited in aggregate principal amount
at maturity to $174 million and will mature on June 1, 2008. The New Debentures
will be issued at a substantial discount from their principal amount at
maturity. Until June 1, 2003, no interest will accrue on the New Debentures, but
the Accreted Value will increase (representing amortization of original issue
discount) between the date of original issuance and June 1, 2003, on a
semi-annual bond equivalent basis using a 360-day year comprised of twelve
30-day months, such that the Accreted Value shall be equal to the full principal
amount at maturity of the New Debentures on June 1, 2003. Beginning on June 1,
2003, interest on the New Debentures will accrue at the rate of 12 1/2% per
annum and will be payable in cash semi-annually in arrears on June 1 and
December 1, commencing on December 1, 2003, to Holders of record on the
immediately preceding May 15
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and November 15. Interest on the New Debentures will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from June
1, 2003. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal of, premium, if any, and interest and Liquidated
Damages, if any, on the New Debentures will be payable at the office or agency
of the Issuer maintained for such purpose within the City and State of New York
or, at the option of the Issuer, payment of interest and Liquidated Damages may
be made by check mailed to the Holders of the New Debentures at their respective
addresses set forth in the register of Holders of New Debentures; provided that
all payments of principal, premium, interest and Liquidated Damages with respect
to New Debentures represented by one or more permanent global New Debentures
will be paid by wire transfer of immediately available funds to the account of
The Depository Trust Company or any successor thereto. Until otherwise
designated by the Issuer, the Issuer's office or agency in New York will be the
office of the Trustee maintained for such purpose. The New Debentures will be
issued in denominations of $1,000 and integral multiples thereof.
Subject to the covenants described below, the Issuer may issue additional
notes under the Indenture having the same terms in all respects as the New
Debentures (or in all respects except for the payment of interest on the New
Debentures (i) scheduled and paid prior to the date of issuance of such notes or
(ii) payable on the first Interest Payment Date following such date of
issuance). The New Debentures and any such additional notes would be treated as
a single class for all purposes under the Indenture.
OPTIONAL REDEMPTION
Except as provided below, the New Debentures will not be redeemable at the
Issuer's option prior to June 1, 2003. Thereafter, the New Debentures will be
subject to redemption at any time at the option of the Issuer, in whole or in
part, upon not less than 30 nor more than 60 days' notice, in cash at the
redemption prices (expressed as percentages of principal amount at maturity) set
forth below, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on June 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003...................................................... 106.250%
2004...................................................... 104.167%
2005...................................................... 102.083%
2006 and thereafter....................................... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to June 1, 2001, the Issuer may
redeem up to 100% of the aggregate principal amount at maturity of Debentures
ever issued under the Indenture in cash at a redemption price of 112.50% of the
Accreted Value thereof, plus Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that, in the event that the Issuer redeems less than 100% of
the then outstanding Debentures, at least 60% of the aggregate principal amount
at maturity of Debentures ever issued under the Indenture remains outstanding
immediately after the occurrence of any such redemption; and provided further
that such redemption shall occur within 90 days of the date of the closing of
any such Public Equity Offering.
In addition, at any time prior to June 1, 2003, the Issuer may, at its
option upon the occurrence of a Change of Control, redeem the New Debentures, in
whole but not in part, upon not less than 30 nor more than 60 days' prior notice
(but in no event may any such redemption occur more than 60 days after the
occurrence of such Change of Control), in cash at a redemption price equal to
(i) the present value of the sum of all the remaining premium and principal
payments that would become due on the New Debentures as if the New Debentures
were to remain outstanding and be redeemed on June 1, 2003, computed using a
discount rate equal to the Treasury Rate plus 50 basis points, plus (ii)
Liquidated Damages, if any, to the date of redemption.
"Treasury Rate" means, as of any redemption date, the yield to maturity as
of such redemption date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to the redemption date (or, if such Statistical Release is
no longer published, any publicly available
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source of similar market data)) most nearly equal to the period from the
redemption date to June 1, 2003; provided that if the period from the redemption
date to June 1, 2003 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one
year shall be used.
SELECTION AND NOTICE
If less than all of the Debentures are to be redeemed at any time,
selection of New Debentures for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the New Debentures are listed, or, if the New Debentures are
not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided that no New Debentures having a
principal amount at maturity of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder of New Debentures to
be redeemed at its registered address. Notices of redemption may not be
conditional. If any New Debenture is to be redeemed in part only, the notice of
redemption that relates to such New Debenture shall state the portion of the
principal amount at maturity thereof to be redeemed. A new New Debenture in
principal amount at maturity equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original New
Debenture. New Debentures called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on New
Debentures or portions of them called for redemption.
MANDATORY REDEMPTION
The Issuer is not required to make mandatory redemption of, or sinking fund
payments with respect to, the New Debentures.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of New Debentures
will have the right to require the Issuer to repurchase all or any part (equal
to $1,000 principal amount at maturity or an integral multiple thereof) of such
Holder's New Debentures pursuant to the offer described below (the "Change of
Control Offer") at an offer price in cash equal to 101% of the aggregate
principal amount at maturity thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of repurchase (or, in the case
of repurchases of New Debentures prior to June 1, 2003, at a purchase price
equal to 101% of the Accreted Value thereof, plus Liquidated Damages, if any,
thereon as of the date of redemption) (the "Change of Control Payment"). Within
65 days following any Change of Control, the Issuer will (or will cause the
Trustee to) mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
New Debentures, pursuant to the procedures required by the Indenture and
described in such notice. The Issuer will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the New Debentures as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of the Indenture relating to such Change of Control Offer,
the Issuer will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in the Indenture
by virtue thereof.
On the Change of Control Payment Date, the Issuer will, to the extent
lawful, (a) accept for payment all New Debentures or portions thereof properly
tendered pursuant to the Change of Control Offer, (b) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all New
Debentures or portions thereof so tendered and (c) deliver or cause to be
delivered to the Trustee the New Debentures so accepted together with an
Officers' Certificate stating the aggregate principal amount at maturity of
Debentures or portions thereof being purchased by the Issuer. The Paying Agent
will promptly mail to each Holder of New Debentures so tendered the Change of
Control Payment for such New Debentures, and the
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Trustee will promptly authenticate and mail (or cause to be transferred by
book-entry) to each Holder a new New Debenture equal in principal amount at
maturity to any unpurchased portion of the New Debentures surrendered, if any;
provided that each such new New Debenture will be in a principal amount at
maturity of $1,000 or an integral multiple thereof. The Issuer will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The Indenture provides that, the Issuer will fix the Change of Control
Payment Date no earlier than 30 but no more than 60 days after the Change of
Control Offer is mailed as set forth above. Prior to complying with the
provisions of the preceding sentence, but in any event within 60 days following
a Change of Control, the Issuer will either repay all outstanding Indebtedness
of its Subsidiaries or obtain the requisite consents, if any, under all
agreements governing all such outstanding Indebtedness of its Subsidiaries to
permit the repurchase of the Debentures required by this covenant. The New
Credit Facility and the Senior Subordinated Notes restrict Thermadyne LLC from
paying any dividends or making any other distributions to the Issuer. If the
Issuer does not obtain the consent of the lenders under agreements governing
outstanding Indebtedness of its Subsidiaries, including under the New Credit
Facility and the Senior Subordinated Notes, to permit the repurchase of the
Debentures or does not refinance such Indebtedness, the Issuer will likely not
have the financial resources to purchase Debentures and the Issuer's
Subsidiaries will be restricted by the terms of such Indebtedness from paying
dividends to the Issuer or otherwise lending or distributing funds to the Issuer
for the purpose of such purchase. In any event, there can be no assurance that
the Issuer's Subsidiaries will have the resources available to pay any such
dividend or make any such distribution. The Issuer's failure to make a Change of
Control Offer when required or to purchase tendered Debentures when tendered
would constitute an Event of Default under the Indenture. See "Risk Factors."
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the New Debentures to require that the
Issuer repurchase or redeem the New Debentures in the event of a takeover,
recapitalization or similar transaction.
The Issuer will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Issuer and
purchases all New Debentures validly tendered and not withdrawn under such
Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (a) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Issuer and its Subsidiaries, taken as a
whole, to any "person" or "group" (as such terms are used in Section 13(d) of
the Exchange Act), other than the Principals and their Related Parties; (b) the
adoption of a plan for the liquidation or dissolution of the Issuer, (c) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" or "group" (as such
terms are used in Section 13(d) of the Exchange Act), other than the Principals
and their Related Parties, becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly through one or more intermediaries, of 50% or more of the voting
power of the outstanding voting stock of the Issuer; or (d) the first day on
which a majority of the members of the Board of Directors of the Issuer are not
Continuing Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Issuer and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of New Debentures to require the
Issuer to repurchase such New Debentures as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Issuer and
its Subsidiaries taken as a whole to another Person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Issuer who (a) was a member of such Board of
Directors immediately after consummation of the Merger
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or (b) was nominated for election or elected to such Board of Directors with the
approval of, or whose election to the Board of Directors was ratified by, at
least a majority of the Continuing Directors who were members of such Board of
Directors at the time of such nomination or election.
ASSET SALES
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (a) the Issuer
or such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (b) at least 75% of the consideration therefor
received by the Issuer or such Restricted Subsidiary is in the form of (i) cash
or Cash Equivalents or (ii) property or assets that are used or useful in a
Permitted Business, or the Capital Stock of any Person engaged in a Permitted
Business if, as a result of the acquisition by the Issuer or any Restricted
Subsidiary thereof, such Person becomes a Restricted Subsidiary; provided that
the amount of (x) any liabilities (as shown on the Issuer's or such Restricted
Subsidiary's most recent balance sheet), of the Issuer or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Debentures or any guarantee thereof) that are assumed
by the transferee of any such assets pursuant to a customary novation agreement
that releases the Issuer or such Restricted Subsidiary from further liability,
(y) any securities, notes or other obligations received by the Issuer or any
such Restricted Subsidiary from such transferee that are contemporaneously
(subject to ordinary settlement periods) converted by the Issuer or such
Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash
or Cash Equivalents received), and (z) any Designated Noncash Consideration
received by the Issuer or any of its Restricted Subsidiaries in such Asset Sale
having an aggregate fair market value, taken together with all other Designated
Noncash Consideration received pursuant to this clause (z) that is at that time
outstanding, not to exceed 15% of Total Assets at the time of the receipt of
such Designated Noncash Consideration (with the fair market value of each item
of Designated Noncash Consideration being measured at the time received and
without giving effect to subsequent changes in value), shall be deemed to be
cash for purposes of this provision; and provided further that the 75%
limitation referred to in clause (b) above will not apply to any Asset Sale in
which the cash or Cash Equivalents portion of the consideration received
therefrom, determined in accordance with the foregoing proviso, is equal to or
greater than what the after-tax proceeds would have been had such Asset Sale
complied with the aforementioned 75% limitation.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Issuer or any such Restricted Subsidiary shall apply such Net Proceeds, at
its option, to (a) repay or purchase Pari Passu Indebtedness of the Issuer or
any Indebtedness of any Restricted Subsidiary, provided that, if the Issuer
shall so repay or purchase Pari Passu Indebtedness of the Issuer, it will
equally and ratably reduce Indebtedness under the Debentures if the Debentures
are then redeemable, or, if the Debentures may not then be redeemed, the Issuer
shall make an offer (in accordance with the procedures set forth below for an
Asset Sale Offer) to all Holders of Debentures to purchase at a purchase price
equal to 100% of the principal amount at maturity of the Debentures (or, in the
case of purchases of Debentures prior to June 1, 2003, at a purchase price equal
to 100% of the Accreted Value thereof), plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase, the Debentures that
would otherwise be redeemed, or (b) an investment in property, the making of a
capital expenditure or the acquisition of assets that are used or useful in a
Permitted Business, or Capital Stock of any Person primarily engaged in a
Permitted Business if (i) as a result of the acquisition by the Issuer or any
Restricted Subsidiary thereof, such Person becomes a Restricted Subsidiary or
(ii) the Investment in such Capital Stock is permitted by clause (f) of the
definition of Permitted Investments. Pending the final application of any such
Net Proceeds, the Issuer may temporarily reduce Indebtedness or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $15.0 million, the Issuer
will be required to make an offer to all Holders of Debentures (an "Asset Sale
Offer") to purchase the maximum principal amount at maturity of Debentures that
may be purchased out of the Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the principal amount at
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maturity thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the date of purchase (or, in the case of repurchases of
Debentures prior to June 1, 2003, at a purchase price equal to 100% of the
Accreted Value, plus Liquidated Damages, if any, thereon as of the date of
repurchase), in accordance with the procedures set forth in the Indenture. To
the extent that any Excess Proceeds remain after consummation of an Asset Sale
Offer, the Issuer may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount at maturity or
Accreted Value (as applicable) of Debentures surrendered by Holders thereof in
connection with an Asset Sale Offer exceeds the amount of Excess Proceeds, the
Trustee shall select the Debentures to be purchased as set forth under
"-- Selection and Notice." Upon completion of such offer to purchase, the amount
of Excess Proceeds shall be reset at zero.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Debentures pursuant to an Asset Sale Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of the Indenture relating to such Asset Sale Offer, the Issuer will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in the Indenture by virtue
thereof.
The New Credit Facility and the Senior Subordinated Notes restrict
Thermadyne LLC from paying any dividends or making any other distributions to
the Issuer. If the Issuer does not obtain the consent of the lenders under
agreements governing outstanding Indebtedness of its Subsidiaries, including
under the New Credit Facility and the Senior Subordinated Notes, to permit the
repurchase of the New Debentures or does not refinance such Indebtedness, the
Issuer will likely not have the financial resources to purchase New Debentures
and the Issuer's Subsidiaries will be restricted by the terms of such
Indebtedness from paying dividends to the Issuer or otherwise lending or
distributing funds to the Issuer for the purpose of such purchase. In any event,
there can be no assurance that the Issuer's Subsidiaries will have the resources
available to pay any such dividend or make any such distribution. The Issuer's
failure to make an Asset Sale Offer when required or to purchase tendered New
Debentures when tendered would constitute an Event of Default under the
Indenture. See "Risk Factors."
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any
dividend or make any other payment or distribution on account of the Issuer's or
any of its Restricted Subsidiaries' Equity Interests (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Issuer or dividends or distributions payable to the Issuer or any Wholly Owned
Restricted Subsidiary of the Issuer); (b) purchase, redeem or otherwise acquire
or retire for value any Equity Interests of the Issuer, any of its Restricted
Subsidiaries or any other Affiliate of the Issuer (other than any such Equity
Interests owned by the Issuer or any Restricted Subsidiary of the Issuer); (c)
make any principal payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value, any Indebtedness of the Issuer (other
than the Debentures) that is pari passu or subordinated in right of payment to
the Debentures, except in accordance with the mandatory redemption or repayment
provisions set forth in the original documentation governing such Indebtedness
or in accordance with the covenant described under the caption entitled
"-- Repurchase at the Option of Holders -- Asset Sales" (but not pursuant to any
mandatory offer to repurchase upon the occurrence of any event); or (d) make any
Restricted Investment (all such payments and other actions set forth in clauses
(a) through (d) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(ii) the Issuer would, immediately after giving pro forma effect
thereto as if such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to
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incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described under caption "-- Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
(iii) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Issuer and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (a) (to the extent that the declaration of any
dividend referred to therein reduces amounts available for Restricted
Payments pursuant to this clause (iii)), (b), (c), (e) through (g), (j),
and (m) through (p) of the next succeeding paragraph), is less than the
sum, without duplication, of (A) 50% of the Consolidated Net Income of the
Issuer for the period (taken as one accounting period) commencing July 1,
1998 to the end of the Issuer's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (B) 100% of the Qualified
Proceeds received by the Issuer on or after the date of the Indenture from
contributions to the Issuer's capital or from the issue or sale on or after
the date of the Indenture of Equity Interests of the Issuer or of
Disqualified Stock or convertible debt securities of the Issuer to the
extent that they have been converted into such Equity Interests (other than
Equity Interests, Disqualified Stock or convertible debt securities sold to
a Subsidiary of the Issuer and other than Disqualified Stock or convertible
debt securities that have been converted into Disqualified Stock), plus (C)
the amount equal to the net reduction in Investments in Persons after the
date of the Indenture who are not Restricted Subsidiaries (other than
Permitted Investments) resulting from (x) Qualified Proceeds received as a
dividend, repayment of a loan or advance or other transfer of assets
(valued at the fair market value thereof) to the Issuer or any Restricted
Subsidiary from such Persons, (y) Qualified Proceeds received upon the sale
or liquidation of such Investment and (z) the redesignation of Unrestricted
Subsidiaries (other than any Unrestricted Subsidiary designated as such
pursuant to clause (n) of the following paragraph) whose assets are used or
useful in, or which is engaged in, one or more Permitted Business as
Restricted Subsidiaries (valued (proportionate to the Issuer's equity
interest in such Subsidiary) at the fair market value of the net assets of
such Subsidiary at the time of such redesignation).
The foregoing provisions will not prohibit:
(a) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(b)(i) the redemption, repurchase, retirement, defeasance or other
acquisition of any Pari Passu Indebtedness, Subordinated Indebtedness or Equity
Interests of the Issuer (the "Retired Capital Stock") in exchange for, or out of
the net cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Issuer) of, other Equity Interests of the Issuer (other than
any Disqualified Stock) (the "Refunding Capital Stock"), provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (iii)(B) of the preceding paragraph and (ii) if immediately prior to the
retirement of Retired Capital Stock, the declaration and payment of dividends
thereon was permitted under clause (f) of this paragraph, the declaration and
payment of dividends on the Refunding Capital Stock in an aggregate amount per
year no greater than the aggregate amount of dividends per annum that was
declarable and payable on such Retired Capital Stock immediately prior to such
retirement; provided that, at the time of the declaration of any such dividends,
no Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof;
(c) the defeasance, redemption, repurchase, retirement or other acquisition
of Pari Passu Indebtedness or Subordinated Indebtedness with the net cash
proceeds from an incurrence of, or in exchange for, Permitted Refinancing
Indebtedness;
(d) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of the Issuer or Thermadyne LLC held by any member of
Thermadyne LLC's or the Issuer's (or any of its Restricted Subsidiaries')
management pursuant to any management equity subscription agreement or stock
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option agreement, provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed (x)
$7.5 million in any calendar year (with unused amounts in any calendar year
being carried over to succeeding calendar years subject to a maximum (without
giving effect to the following clause (y)) of $15.0 million in any calendar
year), plus (y) the aggregate cash proceeds received by the Issuer during such
calendar year from any reissuance of Equity Interests by the Issuer or
Thermadyne LLC to members of management of the Issuer and its Restricted
Subsidiaries and (ii) no Default or Event of Default shall have occurred and be
continuing immediately after such transaction;
(e) payments and transactions in connection with the Recapitalization, the
New Credit Facility (including commitment, syndication and arrangement fees
payable thereunder) and the application of the proceeds thereof, and the payment
of fees and expenses with respect thereto;
(f) the declaration and payment of dividends to holders of any class or
series of preferred stock (other than Disqualified Stock), provided that, at the
time of such issuance, after giving effect to such issuance on a pro forma
basis, the Fixed Charge Coverage Ratio for the Issuer for the most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date of such issuance would have been no
less than 1.5 to 1;
(g) the payment of dividends or distributions by a Restricted Subsidiary on
any class of common stock or membership interests of such Restricted Subsidiary
if (i) such dividend or distribution is paid pro rata to all holders of such
class of common stock or membership interests and (ii) at least 51% of such
class of common stock or membership interests is held by the Issuer or one or
more of its Restricted Subsidiaries;
(h) the repurchase of any class of common stock or membership interests of
a Restricted Subsidiary if (i) such repurchase is made pro rata with respect to
such class of common stock or membership interests and (ii) at least 51% of such
class of common stock or membership interests is held by the Issuer or one or
more of its Restricted Subsidiaries;
(i) any other Restricted Investment made in a Permitted Business which,
together with all other Restricted Investments made pursuant to this clause (i)
since the date of the Indenture, does not exceed $25.0 million (in each case,
after giving effect to all subsequent reductions in the amount of any Restricted
Investment made pursuant to this clause (i), either as a result of (A) the
repayment or disposition thereof for cash or (B) the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary (valued proportionate to the
Issuer's equity interest in such Subsidiary at the time of such redesignation)
at the fair market value of the net assets of such Subsidiary at the time of
such redesignation), in the case of clause (A) and (B), not to exceed the amount
of such Restricted Investment previously made pursuant to this clause (i);
provided that no Default or Event of Default shall have occurred and be
continuing immediately after making such Restricted Investment;
(j) the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of the Issuer or any Restricted Subsidiary issued
on or after the date of the Indenture in accordance with the covenant described
under the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock"; provided that no Default or Event of Default shall have occurred and be
continuing immediately after making such Restricted Payment;
(k) repurchases of Equity Interests deemed to occur upon exercise of stock
options if such Equity Interests represent a portion of the exercise price of
such options;
(l) the payment of dividends or distributions on the Issuer's common stock
or Thermadyne LLC's membership interests, following the first public offering of
the Issuer's common stock or Thermadyne LLC's membership interests after the
date of the Indenture, of up to 6.0% per annum of the net proceeds received by
the Issuer or Thermadyne LLC from such public offering, other than, in each
case, with respect to public offerings with respect to the Issuer's common stock
or Thermadyne LLC's membership interests registered on Form S-8; provided that
no Default or Event of Default shall have occurred and be continuing immediately
after any such payment of dividends or distributions;
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(m) any other Restricted Payment which, together with all other Restricted
Payments made pursuant to this clause (m) since the date of the Indenture, does
not exceed $25.0 million (in each case, after giving effect to all subsequent
reductions in the amount of any Restricted Investment made pursuant to this
clause (m) either as a result of (i) the repayment or disposition thereof for
cash or (ii) the redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary (valued proportionate to the Issuer's equity interest in such
Subsidiary at the time of such redesignation) at the fair market value of the
net assets of such Subsidiary at the time of such redesignation), in the case of
clause (i) and (ii), not to exceed the amount of such Restricted Investment
previously made pursuant to this clause (m); provided that no Default or Event
of Default shall have occurred and be continuing immediately after making such
Restricted Payment;
(n) the pledge by the Issuer of the Capital Stock of an Unrestricted
Subsidiary of the Issuer to secure Non-Recourse Debt of such Unrestricted
Subsidiary;
(o) the purchase, redemption or other acquisition or retirement for value
of any Equity Interests of any Restricted Subsidiary issued after the date of
the Indenture, provided that the aggregate price paid for any such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed the sum of (i)
the amount of cash and Cash Equivalents received by such Restricted Subsidiary
from the issue or sale thereof and (ii) any accrued dividends thereon the
payment of which would be permitted pursuant to clause (j) above;
(p) distributions or payments of Receivables Fees; and
(q) the purchase, redemption or other acquisition or retirement for value
of rights issued pursuant to the Issuer's Rights Plan as in effect on the date
of the Indenture.
The Board of Directors may designate any Restricted Subsidiary (other than
Thermadyne LLC and Thermadyne Capital) to be an Unrestricted Subsidiary if such
designation would not cause a Default. For purposes of making such designation,
all outstanding Investments by the Issuer and its Restricted Subsidiaries
(except to the extent repaid in cash) in the Subsidiary so designated will be
deemed to be Restricted Payments at the time of such designation and will reduce
the amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Restricted Investments in an amount equal to the greater of (i) the net book
value of such Investments at the time of such designation and (ii) the fair
market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Investment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of (i) all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Issuer or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment and (ii)
Qualified Proceeds (other than cash) shall be the fair market value on the date
of receipt thereof by the Issuer of such Qualified Proceeds. The fair market
value of any non-cash Restricted Payment shall be determined by the Board of
Directors whose resolution with respect thereto shall be delivered to the
Trustee. Not later than the date of making any Restricted Payment, the Issuer
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that (a) the Issuer will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Indebtedness), (b) the Issuer will not, and
will not permit any of its Restricted Subsidiaries to, issue any shares of
Disqualified Stock and (c) the Issuer will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock; provided that the Issuer or
any Restricted Subsidiary may incur Indebtedness (including Acquired
Indebtedness) or issue shares of Disqualified Stock if the Fixed Charge Coverage
Ratio for the Issuer's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such
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Disqualified Stock is issued would have been at least 1.5 to 1, determined on a
consolidated pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The Indenture also provides that the Issuer will not incur any Indebtedness
that is contractually subordinated in right of payment to any other Indebtedness
of the Issuer unless such Indebtedness is also contractually subordinated in
right of payment to the Debentures on substantially identical terms; provided
that no Indebtedness of the Issuer shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the Issuer solely
by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):
(i) the incurrence by the Issuer and its Restricted Subsidiaries of
Indebtedness under the New Credit Facility; provided that the aggregate
principal amount of all Indebtedness (with letters of credit being deemed
to have a principal amount equal to the maximum potential liability of the
Issuer and such Restricted Subsidiaries thereunder) then classified as
having been incurred in reliance upon this clause (i) that remains
outstanding under the New Credit Facility after giving effect to such
incurrence does not exceed an amount equal to $430.0 million;
(ii) the incurrence by the Issuer and its Restricted Subsidiaries of
Existing Indebtedness;
(iii) the incurrence by (A) the Issuer and the Issuer's Restricted
Subsidiaries of Indebtedness represented by the Debentures and the
Indenture and (B) Thermadyne LLC and Thermadyne Capital of Indebtedness
represented by the Senior Subordinated Notes and the Subordinated Note
Indenture;
(iv) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Expenditure
Indebtedness, Capital Lease Obligations or purchase money obligations, in
each case, incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property, plant or
equipment used in the business of the Issuer or such Restricted Subsidiary,
in an aggregate principal amount (or accreted value, as applicable) not to
exceed $40.0 million outstanding after giving effect to such incurrence;
(v) Indebtedness arising from agreements of the Issuer or any
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or Restricted Subsidiary for the
purpose of financing such acquisition; provided that (A) such Indebtedness
is not reflected on the balance sheet of the Issuer or any Restricted
Subsidiary (contingent obligations referred to in a footnote or footnotes
to financial statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for purposes of
this clause (A)) and (B) the maximum assumable liability in respect of such
Indebtedness shall at no time exceed the gross proceeds including non-cash
proceeds (the fair market value of such non-cash proceeds being measured at
the time received and without giving effect to any subsequent changes in
value) actually received by the Issuer and/or such Restricted Subsidiary in
connection with such disposition;
(vi) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the Indenture
to be incurred;
(vii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Issuer
and/or any of its Restricted Subsidiaries; provided that (i) if the Issuer
is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Debentures and (ii)(A) any subsequent issuance or transfer
of Equity Interests that results in any such Indebtedness being held by a
Person other than the
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Issuer or a Restricted Subsidiary thereof and (B) any sale or other
transfer of any such Indebtedness to a Person that is not either the Issuer
or a Restricted Subsidiary thereof shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Issuer or such
Restricted Subsidiary, as the case may be, that was not permitted by this
clause (vii);
(viii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging (A) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding and (B) exchange rate risk with respect to agreements or
Indebtedness of such Person payable denominated in a currency other than
U.S. dollars, provided that such agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a result
of fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder;
(ix) the guarantee by the Issuer or any of its Restricted Subsidiaries
of Indebtedness of the Issuer or a Restricted Subsidiary of the Issuer that
was permitted to be incurred by another provision of this covenant;
(x) the incurrence by the Issuer or any of its Restricted Subsidiaries
of Acquired Indebtedness in an aggregate principal amount (or accreted
value, as applicable) not to exceed $25.0 million outstanding after giving
effect to such incurrence;
(xi) obligations in respect of performance and surety bonds and
completion guarantees provided by the Issuer or any Restricted Subsidiary
in the ordinary course of business; and
(xii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) outstanding after giving effect to such
incurrence, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (xii), not to exceed $50.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (i) through (xii)
above or is entitled to be incurred pursuant to the first paragraph of this
covenant, the Issuer shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. In addition, the Issuer
may, at any time, change the classification of an item of Indebtedness (or any
portion thereof) to any other clause or to the first paragraph hereof, provided
that the Issuer would be permitted to incur such item of Indebtedness (or such
portion thereof) pursuant to such other clause or the first paragraph hereof, as
the case may be, at such time of reclassification. Accrual of interest,
accretion or amortization of original issue discount will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
All Indebtedness under the New Credit Facility outstanding on the date on
which Debentures are first issued and authenticated under the Indenture shall be
deemed to have been incurred on such date in reliance on the first paragraph of
the covenant described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock." As a result, the Issuer will be
permitted to incur significant additional secured indebtedness under clause (i)
of the definition of "Permitted Indebtedness." See "Risk Factors."
LIENS
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien, other than a Permitted Lien, that secures obligations
under any Pari Passu Indebtedness or Subordinated Indebtedness of the Issuer on
any asset or property now owned or hereafter acquired by the Issuer or any of
its Restricted Subsidiaries, or any income or profits therefrom or assign or
convey any right to receive income therefrom, unless the Debentures
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are equally and ratably secured with the obligations so secured until such time
as such obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (a)(i) pay dividends or make any
other distributions to the Issuer or any of its Restricted Subsidiaries (A) on
its Capital Stock or (B) with respect to any other interest or participation in,
or measured by, its profits, or (ii) pay any Indebtedness owed to the Issuer or
any of its Restricted Subsidiaries, (b) make loans or advances to the Issuer or
any of its Restricted Subsidiaries or (c) transfer any of its properties or
assets to the Issuer or any of its Restricted Subsidiaries. However, the
foregoing restrictions will not apply to encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the terms of any Indebtedness permitted by the Indenture to be
incurred by any Restricted Subsidiary of the Issuer, (c) the Indenture and the
Debentures, (d) applicable law and any applicable rule, regulation or order, (e)
any agreement or instrument of a Person acquired by the Issuer or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent created in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (g) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (e) above on the property so acquired, (h)
contracts for the sale of assets, including, without limitation, customary
restrictions with respect to a Subsidiary pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary, (i) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are, in the good faith
judgment of the Issuer's Board of Directors, not materially less favorable,
taken as a whole, to the Holders of the Debentures than those contained in the
agreements governing the Indebtedness being refinanced, (j) secured Indebtedness
otherwise permitted to be incurred pursuant to the covenants described under
"--Incurrence of Indebtedness and Issuance of Preferred Stock" and "--Liens"
that limit the right of the debtor to dispose of the assets securing such
Indebtedness, (k) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business, (l)
other Indebtedness or Disqualified Stock of Restricted Subsidiaries permitted to
be incurred subsequent to the Issuance Date pursuant to the provisions of the
covenant described under "--Incurrence of Indebtedness and Issuance of Preferred
Stock", (m) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business, and (n) restrictions
created in connection with any Receivables Facility that, in the good faith
determination of the Board of Directors of the Issuer, are necessary or
advisable to effect such Receivables Facility.
The New Credit Facility and the Senior Subordinated Notes restrict
Thermadyne LLC from paying any dividends or making any other distributions to
the Issuer. The existence of such restrictions could have an adverse effect on
the Issuer's ability to pay interest and principal on the Debentures. See "Risk
Factors."
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Issuer may not consolidate or merge with or
into (whether or not the Issuer is the surviving corporation), or sell, assign,
transfer, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another Person
unless (a) the Issuer is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Issuer) or to
which such sale, assignment, transfer, conveyance or other disposition shall
have been made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia, (b) the Person
formed by or surviving any such consolidation or merger (if other than the
Issuer) or the Person to which such sale, assignment, transfer, conveyance or
other disposition shall have been made
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assumes all the obligations of the Issuer under the Registration Rights
Agreement, the Debentures and the Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee, (c) immediately after such
transaction no Default or Event of Default exists and (d) the Issuer or the
Person formed by or surviving any such consolidation or merger (if other than
the Issuer), or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made (i) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock" or (ii)
would (together with its Restricted Subsidiaries) have a higher Fixed Charge
Coverage Ratio immediately after such transaction (after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period) than the Fixed Charge Coverage Ratio of the Issuer and its
Restricted Subsidiaries immediately prior to such transaction. The foregoing
clause (d) will not prohibit (a) a merger between the Issuer and an Affiliate of
the Issuer created for the purpose of holding the Capital Stock of the Issuer,
(b) a merger between the Issuer and a Wholly Owned Restricted Subsidiary or (c)
a merger between the Issuer and an Affiliate incorporated solely for the purpose
of reincorporating the Issuer in another State of the United States so long as,
in each case, the amount of Indebtedness of the Issuer and its Restricted
Subsidiaries is not increased thereby. The Indenture provides that the Issuer
shall not lease all or substantially all of its assets to any Person.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate of the Issuer (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction is on terms that are no
less favorable to the Issuer or such Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Issuer or such Restricted
Subsidiary with an unrelated Person and (b) the Issuer delivers to the Trustee,
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $7.5 million, either
(i) a resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (a) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors or (ii) an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing.
Notwithstanding the foregoing, the following items shall not be deemed to
be Affiliate Transactions: (a) customary directors' fees, indemnification or
similar arrangements or any employment agreement or other compensation plan or
arrangement entered into by the Issuer or any of its Restricted Subsidiaries in
the ordinary course of business (including ordinary course loans to employees
not to exceed (i) $5.0 million outstanding in the aggregate at any time and (ii)
$2.0 million to any one employee) and consistent with the past practice of the
Issuer or such Restricted Subsidiary; (b) transactions between or among the
Issuer and/or its Restricted Subsidiaries; (c) payments of customary fees by the
Issuer or any of its Restricted Subsidiaries to DLJMB and its Affiliates made
for any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures which are approved by a majority
of the Board of Directors in good faith; (d) any agreement as in effect on the
date of the Indenture or any amendment thereto (so long as such amendment is not
disadvantageous to the Holders of the Debentures in any material respect) or any
transaction contemplated thereby; (e) payments and transactions in connection
with the Merger, the New Credit Facility (including commitment, syndication and
arrangement fees payable thereunder) and the Original Offerings (including
underwriting discounts and commissions in connection therewith) and the
application of the proceeds thereof, and the payment of the fees and expenses
with respect thereto; (f) Restricted Payments that are permitted by the
provisions of the Indenture described under the caption "--Restricted Payments";
(g) sales of accounts receivable, or participations therein, in connection with
any Receivables Facility; and (h) transactions pursuant to the Management Loans.
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SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Issuer or any Restricted Subsidiary may enter into a sale and
leaseback transaction if (a) the Issuer or such Restricted Subsidiary, as the
case may be, could have (i) incurred Indebtedness in an amount equal to the
Attributable Indebtedness relating to such sale and leaseback transaction
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock" and (ii) incurred a Lien to secure
such Indebtedness pursuant to the covenant described under the caption
"-- Liens," (b) the gross cash proceeds of such sale and leaseback transaction
are at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (c) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Issuer applies the proceeds of such
transaction in compliance with, the covenant described under the caption
"Repurchase at the Option of Holders -- Asset Sales."
ACCOUNTS RECEIVABLE FACILITY
The Indenture provides that no Accounts Receivable Subsidiary will incur
any Indebtedness if immediately after giving effect to such incurrence the
aggregate outstanding Indebtedness of all Accounts Receivable Subsidiaries
(excluding any Indebtedness owed to the Issuer or any Restricted Subsidiary)
would exceed $60.0 million.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Debentures are outstanding, the Issuer will furnish to the Holders
of Debentures (a) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Issuer were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Issuer's
certified independent accountants and (b) all current reports that would be
required to be filed with the Commission on Form 8-K if the Issuer were required
to file such reports, in each case, within the time periods specified in the
Commission's rules and regulations. In addition, following the consummation of
the Exchange Offer, whether or not required by the rules and regulations of the
Commission, the Issuer will file a copy of all such information and reports with
the Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Issuer has agreed that, for
so long as any Debentures remain outstanding, it will furnish to the Holders and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (a) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Debentures; (b) default in payment when
due of the principal of or premium, if any, on the Debentures at maturity, upon
redemption or otherwise; (c) failure by the Issuer or any of its Restricted
Subsidiaries for 30 days after receipt of notice from the Trustee or Holders of
at least 25% in principal amount at maturity of the Debentures then outstanding
to comply with the provisions described under the captions "Repurchase at the
Option of Holders -- Change of Control," "-- Asset Sales," "Certain
Covenants -- Restricted Payments," "-- Incurrence of Indebtedness and Issuance
of Preferred Stock" or "Merger, Consolidation or Sale of Assets"; (d) failure by
the Issuer for 60 days after notice from the Trustee or the Holders of at least
25% in principal amount at maturity of the Debentures then outstanding to comply
with any of its other agreements in the Indenture or the Debentures; (e) default
under any mortgage, indenture or instrument under which there may
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be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Issuer or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Issuer or any of its Restricted
Subsidiaries), whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (i) is caused by a failure to pay
Indebtedness at its stated final maturity (after giving effect to any applicable
grace period provided in such Indebtedness) (a "Payment Default") or (ii)
results in the acceleration of such Indebtedness prior to its stated final
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more; (f) failure by the Issuer or any
of its Restricted Subsidiaries to pay final judgments aggregating in excess of
$10.0 million (net of any amounts with respect to which a reputable and
creditworthy insurance Company has acknowledged liability in writing), which
judgments are not paid, discharged or stayed for a period of 60 days; and (g)
certain events of bankruptcy or insolvency with respect to the Issuer or any of
its Restricted Subsidiaries that is a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount at maturity of the then outstanding
Debentures may declare all the Debentures to be due and payable immediately;
provided that, so long as any Indebtedness permitted to be incurred pursuant to
the New Credit Facility shall be outstanding, such acceleration shall not be
effective until the earlier of (a) an acceleration of any such Indebtedness
under the New Credit Facility or (b) five business days after receipt by the
Issuer and the administrative agent under the New Credit Facility of written
notice of such acceleration. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or insolvency with
respect to the Issuer or any Significant Subsidiary, all outstanding Debentures
will become due and payable without further action or notice. Upon any
acceleration of maturity of the Debentures, all principal of and accrued
interest on (if on or after June 1, 2003) or Accreted Value of (if prior to June
1, 2003) the Debentures shall be due and payable immediately. Holders of the
Debentures may not enforce the Indenture or the Debentures except as provided in
the Indenture. In the event of a declaration of acceleration of the Debentures
because an Event of Default has occurred and is continuing as a result of the
acceleration of any Indebtedness described in clause (e) of the preceding
paragraph, the declaration of acceleration of the Debentures shall be
automatically annulled if the holders of any Indebtedness described in clause
(e) have rescinded the declaration of acceleration in respect of such
Indebtedness within 30 days of the date of such declaration and if (i) the
annulment of the acceleration of the Debentures would not conflict with any
judgment or decree of a court of competent jurisdiction and (ii) all existing
Events of Default, except non-payment of principal or interest on the Debentures
that became due solely because of the acceleration of the Debentures, have been
cured or waived.
Subject to certain limitations, Holders of a majority in principal amount
at maturity of the then outstanding Debentures may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Debentures notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount at maturity of the
Debentures then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Debentures waive any existing Default or Event of Default
and its consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Debentures.
The Issuer is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuer is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Issuer,
as such, shall have any liability for any obligations of the Issuer under the
Debentures or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Debentures by
accepting a Debenture
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waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Debentures. Such waiver may not be effective
to waive liabilities under the federal securities laws, and it is the view of
the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuer may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Debentures ("Legal
Defeasance") except for (a) the rights of Holders of outstanding Debentures to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages, if any, on such Debentures when such payments are due
from the trust referred to below, (b) the Issuer's obligations with respect to
the Debentures concerning issuing temporary Debentures, registration of
Debentures, mutilated, destroyed, lost or stolen Debentures and the maintenance
of an office or agency for payment and money for security payments held in
trust, (c) the rights, powers, trusts, duties and immunities of the Trustee, and
the Issuer's obligations in connection therewith and (d) the Legal Defeasance
provisions of the Indenture. In addition, the Issuer may, at its option and at
any time, elect to have the obligations of the Issuer released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Debentures. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default and Remedies" will no longer constitute an Event of Default
with respect to the Debentures.
In order to exercise either Legal Defeasance or Covenant Defeasance, (a)
the Issuer must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Debentures, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages,
if any, on the outstanding Debentures on the stated maturity or on the
applicable redemption date, as the case may be, and the Issuer must specify
whether the Debentures are being defeased to maturity or to a particular
redemption date, (b) in the case of Legal Defeasance, the Issuer shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (i) the Issuer has received from, or
there has been published by, the Internal Revenue Service a ruling or (ii) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, subject to customary assumptions and
exclusions, the Holders of the outstanding Debentures will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred, (c) in the case of Covenant Defeasance, the Issuer
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Debentures will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred, (d) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or, insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 123rd day after
the date of deposit, (e) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than the Indenture) to which the Issuer or any of
its Subsidiaries is a party or by which the Issuer or any of its Subsidiaries is
bound, (f) the Issuer must have delivered to the Trustee an opinion of counsel
to the effect that, subject to customary assumptions and exclusions, after the
123rd day following the deposit, the trust funds will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or any analogous New
York State law provision or any other applicable federal or New York bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (g) the Issuer must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Issuer with the intent of
preferring the Holders of Debentures over the other
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creditors of the Issuer with the intent of defeating, hindering, delaying or
defrauding creditors of the Issuer or others, and (h) the Issuer must deliver to
the Trustee an Officers' Certificate and an opinion of counsel (which opinion
may be subject to customary assumptions and exclusions), each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Debentures in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuer may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuer is not required to transfer or exchange
any New Debenture selected for redemption. Also, the Issuer is not required to
transfer or exchange any New Debenture for a period of 15 days before a
selection of New Debentures to be redeemed. The registered Holder of a New
Debenture will be treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture and
the Debentures may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount at maturity of the Debentures then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, Debentures), and any
existing default or compliance with any provision of the Indenture or the
Debentures may be waived with the consent of the Holders of a majority in
principal amount at maturity of the then outstanding Debentures (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Debentures).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Debentures held by a non-consenting Holder) (a) reduce the
principal amount at maturity of Debentures whose Holders must consent to an
amendment, supplement or waiver, (b) reduce the principal of or change the fixed
maturity of any Debenture or alter the provisions with respect to the redemption
of the Debentures (other than the provisions described under the caption
"-- Repurchase at the Option of Holders") or amend or modify the calculation of
the Accreted Value so as to reduce the amount of the Accreted Value of the
Debentures, (c) reduce the rate of or change the time for payment of interest on
any Debenture, (d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest or Liquidated Damages, if any, on
the Debentures (except a rescission of acceleration of the Debentures by the
Holders of at least a majority in aggregate principal amount at maturity of the
Debentures and a waiver of the payment default that resulted from such
acceleration), (e) make any Debenture payable in money other than that stated in
the Debentures, (f) make any change in the provisions of the Indenture relating
to waivers of past Defaults, (g) waive a redemption payment with respect to any
Debenture (other than the provisions described under the caption "-- Repurchase
at the Option of Holders"), (h) make any change in the foregoing amendment and
waiver provisions, (i) modify any provision of the Indenture with respect to the
priority of the Debentures in right of payment or (j) make any change to the
right of Holders to waive an existing Default or Event of Default or the right
of Holders to receive payments of principal, premium, if any, and interest and
Liquidated Damages, if any, on the Debentures.
Notwithstanding the foregoing, any amendment to or waiver of the covenant
described under the caption "-- Repurchase at the Option of Holders -- Change of
Control" will require the consent of the Holders of at least two-thirds in
aggregate principal amount at maturity of the Debentures then outstanding if
such amendment would materially adversely affect the rights of Holders of
Debentures. Notwithstanding the foregoing, without the consent of any Holder of
Debentures, the Issuer and the Trustee may amend or supplement the Indenture or
the Debentures to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Debentures in addition to or in place of certificated Debentures,
to provide for the assumption of the Issuer's obligations to Holders of
Debentures in the case of a merger or consolidation or sale of all or
substantially all of the Issuer's assets, to make any change that would provide
any additional rights or benefits to the Holders of Debentures or that does not
materially adversely affect the legal rights under the Indenture
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of any such Holder, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act or to provide for guarantees of the Debentures.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuer, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount at maturity of the then
outstanding Debentures will have the right to direct the time, method and place
of conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Debentures, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accounts Receivable Subsidiary" means an Unrestricted Subsidiary of the
Issuer or any of its Restricted Subsidiaries to which the Issuer or any of its
Restricted Subsidiaries sells any of its accounts receivable pursuant to a
Receivables Facility.
"Accreted Value" means, as of any date of determination prior to June 1,
2003, with respect to any Debenture, the sum of (a) the initial offering price
(which shall be calculated by discounting the aggregate principal amount at
maturity of such Debenture at a rate of 12 1/2% per annum, compounded
semi-annually on each June 1 and December 1 from June 1, 2003 to the date of
issuance) of such Debenture and (b) the portion of the excess of the principal
amount at maturity of such Debenture over such initial offering price which
shall have been accreted thereon through such date, such amount to be so
accreted on a daily basis at a rate of 12 1/2% per annum of the initial offering
price of such Debenture, compounded semi-annually on each December 1 and June 1
from the date of issuance of the Debentures through the date of determination,
computed on the basis of a 360-day year of twelve 30-day months.
"Acquired Indebtedness" means, with respect to any specified Person, (a)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (b) Indebtedness secured by a Lien
encumbering an asset acquired by such specified Person at the time such asset is
acquired by such specified Person.
"Acquisition" means the acquisition of the Issuer by the Principals.
"Affiliate" of any specified Person means any other Person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with, such specified Person. For purposes of this definition, "control,"
when used with respect to any Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Sale" means (a) the sale, lease, conveyance, disposition or other
transfer (a "disposition") of any properties, assets or rights (including,
without limitation, by way of a sale and leaseback) (provided that the
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sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Issuer and its Subsidiaries taken as a whole will be governed by
the provisions of the Indenture described under the caption "-- Change of
Control" and/or the provisions described under the caption "-- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (b) the issuance, sale or transfer by the Issuer or any of its
Restricted Subsidiaries of Equity Interests of any of the Issuer's Restricted
Subsidiaries, in the case of either clause (a) or (b), whether in a single
transaction or a series of related transactions (i) that have a fair market
value in excess of $5.0 million or (ii) for net proceeds in excess of $5.0
million. Notwithstanding the foregoing, the following items shall not be deemed
to be Asset Sales: (a) dispositions in the ordinary course of business; (b) a
disposition of assets by the Issuer to a Restricted Subsidiary or by a
Restricted Subsidiary to the Issuer or to another Restricted Subsidiary; (c) a
disposition of Equity Interests by a Restricted Subsidiary to the Issuer or to
another Restricted Subsidiary; (d) the sale and leaseback of any assets within
90 days of the acquisition thereof; (e) foreclosures on assets; (f) any exchange
of like property pursuant to Section 1031 of the Internal Revenue Code of 1986,
as amended, for use in a Permitted Business; (g) any sale of Equity Interests
in, or Indebtedness or other securities of, an Unrestricted Subsidiary; (h) a
Permitted Investment or a Restricted Payment that is permitted by the covenant
described under the caption "-- Restricted Payments"; and (i) sales of accounts
receivable, or participations therein, in connection with any Receivables
Facility.
"Attributable Indebtedness" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Expenditure Indebtedness" means Indebtedness incurred by any
Person to finance the purchase or construction or any property or assets
acquired or constructed by such Person which have a useful life or more than one
year so long as (a) the purchase or construction price for such property or
assets is included in "addition to property, plant or equipment" in accordance
with GAAP, (b) the acquisition or construction of such property or assets is not
part of any acquisition of a Person or line of business and (c) such
Indebtedness is incurred within 90 days of the acquisition or completion of
construction of such property or assets.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (a) in the case of a corporation, corporate stock,
(b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and (d) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.
"Cash Equivalents" means (i) Government Securities, (ii) any certificate of
deposit maturing not more than 365 days after the date of acquisition issued by,
or time deposit of, an Eligible Institution or any lender under the New Credit
Facility, (iii) commercial paper maturing not more than 365 days after the date
of acquisition of an issuer (other than an Affiliate of the Issuer) with a
rating, at the time as of which any investment therein is made, of "A-3" (or
higher) according to S&P or "P-2" (or higher) according to Moody's or carrying
an equivalent rating by a nationally recognized rating agency if both of the two
named rating agencies cease publishing ratings of investments, (iv) any bankers
acceptances of money market deposit accounts issued by an Eligible Institution
and (v) any fund investing exclusively in investments of the types described in
clauses (i) through (iv) above.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period plus, to the extent deducted in computing Consolidated Net Income,
(a) an amount equal to any extraordinary or non-recurring loss plus any net loss
realized in connection with an Asset Sale, (b) provision for taxes based on
income or profits of such Person and its Restricted Subsidiaries for such
period, (c) Fixed Charges of such Person for such period,
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(d) depreciation, amortization (including amortization of goodwill and other
intangibles) and all other non-cash charges (excluding any such non-cash charge
to the extent that it represents an accrual of or reserve for cash expenses in
any future period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Restricted Subsidiaries for such period,
(e) net periodic post-retirement benefits, (f) other income or expense net as
set forth on the face of such Person's statement of operations, (g) expenses and
charges of the Issuer and Thermadyne LLC related to the Recapitalization, the
New Credit Facility and the application of the proceeds thereof which are paid,
taken or otherwise accounted for within 90 days of the consummation of the
Merger, and (h) any non-capitalized transaction costs incurred in connection
with actual or proposed financings, acquisition or divestitures (including, but
not limited to, financing and refinancing fees and costs incurred in connection
with the Recapitalization), in each case, on a consolidated basis and determined
in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, the Fixed Charges of, and the depreciation
and amortization and other non-cash charges of, a Restricted Subsidiary of a
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income of
such Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication, (a) the interest expense of such Person
and its Restricted Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP (including amortization of original issue
discount, non-cash interest payments, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments,
if any, pursuant to Hedging Obligations; provided that in no event shall any
amortization of deferred financing costs be included in Consolidated Interest
Expense); and (b) the consolidated capitalized interest of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued; provided,
however, that Receivables Fees shall be deemed not to constitute Consolidated
Interest Expense. Notwithstanding the foregoing, the Consolidated Interest
Expense with respect to any Restricted Subsidiary that is not a Wholly Owned
Restricted Subsidiary shall be included only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (a) the Net Income (or loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (b) the Net Income (or loss) of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (c) the cumulative effect of a change in accounting principles
shall be excluded.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Noncash Consideration" means the fair market value of non-cash
consideration received by the Issuer or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of the Issuer, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable), or upon the happening of any event (other than any event solely
within the control of the issuer thereof), matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, is exchangeable for
Indebtedness (except to the extent exchangeable at the option of such Person
subject to the terms of any debt instrument to which such Person is a party) or
redeemable at the option of the Holder thereof, in whole or in part, on or prior
to the date on which the
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Debentures mature; provided that any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
the Issuer to repurchase such Capital Stock upon the occurrence of a Change of
Control or an Asset Sale shall not constitute Disqualified Stock if the terms of
such Capital Stock provide that the Issuer may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described under the caption "-- Certain
Covenants -- Restricted Payments," and provided further that, if such Capital
Stock is issued to any plan for the benefit of employees of the Issuer or its
Subsidiaries or by any such plan to such employees, such Capital Stock shall not
constitute Disqualified Stock solely because it may be required to be
repurchased by the Issuer in order to satisfy applicable statutory or regulatory
obligations.
"DLJMB" means DLJ Merchant Banking Partners II, L.P. and its Affiliates.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus not less than $100.0 million or its equivalent in
foreign currency, whose short-term debt is rated "A-3" or higher according to
Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to Moody's
Investor Services, Inc. ("Moody's") or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Issuer and its Restricted
Subsidiaries (other than Indebtedness under the New Credit Facility or the
Senior Subordinated Notes) in existence on the date of the Indenture, until such
amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (a) the Consolidated Interest Expense of such Person for
such period and (b) all dividend payments on any series of preferred stock of
such Person (other than dividends payable solely in Equity Interests that are
not Disqualified Stock), in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
(exclusive of amounts attributable to discontinued operations, as determined in
accordance with GAAP, or operations and businesses disposed of prior to the
Calculation Date (as defined)) to the Fixed Charges of such Person for such
period (exclusive of amounts attributable to discontinued operations, as
determined in accordance with GAAP, or operations and businesses disposed of
prior to the Calculation Date). In the event that the referrent Person or any of
its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other
than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, acquisitions that have
been made by the Issuer or any of its Subsidiaries, including all mergers or
consolidations and any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be calculated to include the Consolidated Cash Flow of
the acquired entities on a pro forma basis after giving effect to cost savings
resulting from employee terminations, facilities consolidations and closings,
standardization of employee benefits and compensation practices, consolidation
of property, casualty and other insurance coverage and policies, standardization
of sales and distribution methods, reductions in taxes other than income taxes
and other cost savings reasonably expected to be realized from such acquisition,
as determined in good faith by an officer of the Issuer (regardless of whether
such cost savings could then be reflected in pro forma financial statements
under GAAP, Regulation S-X promulgated by the Commission or any other regulation
or policy of the Commission) and without giving effect to clause (c) of the
proviso set forth in the definition of Consolidated Net Income, and shall be
deemed to have occurred on the first day of the four-quarter reference period
and Consolidated Cash Flow for such reference period shall be calculated.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit or
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (b) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or foreign exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person in respect of borrowed money or evidenced by bonds, notes, debentures or
similar instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
Indebtedness (other than letters of credit and Hedging Obligations) would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, as well as all Indebtedness of others secured by a Lien on any asset of
such Person (whether or not such Indebtedness is assumed by such Person) and, to
the extent not otherwise included, the guarantee by such Person of any
Indebtedness of any other Person, provided that Indebtedness shall not include
the pledge by the Issuer of the Capital Stock of an Unrestricted Subsidiary of
the Issuer to secure Non-Recourse Debt of such Unrestricted Subsidiary. The
amount of any Indebtedness outstanding as of any date shall be (a) the accreted
value thereof (together with any interest thereon that is more than 30 days past
due), in the case of any Indebtedness that does not require current payments of
interest, and (b) the principal amount thereof, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees by the referent Person of, and Liens on any
assets of the referent Person securing, Indebtedness or other obligations of
other Persons), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP, provided that an investment by the Issuer for consideration consisting of
common equity securities of the Issuer shall not be deemed to be an Investment.
If the Issuer or any Restricted Subsidiary of the Issuer sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Issuer such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Issuer, the Issuer shall be deemed
to have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Restricted Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described under the caption "-- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Management Loans" means one or more loans by the Issuer or Thermadyne LLC
to officers and/or directors of the Issuer and any of its Restricted
Subsidiaries to finance the purchase by such officers and
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directors of common stock of the Issuer; provided, however, that the aggregate
principal amount of all such Management Loans outstanding at any time shall not
exceed $5.0 million.
"Merger" means the merger of the Issuer with and into Thermadyne Holdings
Corporation on or prior to the date of issuance of the Debentures.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (a) any gain (or
loss), together with any related provision for taxes on such gain (or loss),
realized in connection with (i) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or (ii) the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (b) any extraordinary or nonrecurring gain (or loss), together
with any related provision for taxes on such extraordinary or nonrecurring gain
(or loss).
"Net Proceeds" means the aggregate cash proceeds received by the Issuer or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of, without duplication,
(a) the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions, recording
fees, title transfer fees and appraiser fees and cost of preparation of assets
for sale) and any relocation expenses incurred as a result thereof, (b) taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), (c) amounts required to
be applied to the repayment of Indebtedness (other than as required by clause
(a) of the second paragraph of the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales") secured by a Lien on
the asset or assets that were the subject of such Asset Sale and (d) any reserve
established in accordance with GAAP or any amount placed in escrow, in either
case for adjustment in respect of the sale price of such asset or assets until
such time as such reserve is reversed or such escrow arrangement is terminated,
in which case Net Proceeds shall include only the amount of the reserve so
reversed or the amount returned to the Issuer or its Restricted Subsidiaries
from such escrow arrangement, as the case may be.
"New Credit Facility" means that certain Credit Agreement dated as of May
22, 1998, by and among Thermadyne Mfg. LLC and certain of its foreign
subsidiaries, Donaldson, Lufkin & Jenrette Securities Corporation, as arranger,
DLJ Capital Funding, Inc., as syndication agent, and ABN AMRO Bank N.V., Chicago
Branch, as administrative agent, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and, in each case, as amended, modified, renewed, refunded, replaced
or refinanced from time to time, including, without limitation, any agreement
(i) extending or shortening the maturity of any Indebtedness incurred thereunder
or contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder, (iii) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder, provided that on the date such Indebtedness
is incurred it would not be prohibited by clause (i) of Section 4.09 of the
Indenture or (iv) otherwise altering the terms and conditions thereof.
Indebtedness under the New Credit Facility outstanding on the date on which
Debentures are first issued and authenticated under the Indenture shall be
deemed to have been incurred on such date in reliance on the first paragraph of
Section 4.09.
"Non-Recourse Debt" means Indebtedness (i) no default with respect to,
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Issuer or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (ii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock (other than the stock
of an Unrestricted Subsidiary pledged by the Issuer to secure debt of such
Unrestricted Subsidiary) or assets of the Issuer or any of its Restricted
Subsidiaries; provided that in no event shall Indebtedness of any Unrestricted
Subsidiary fail to be Non-Recourse Debt solely as a result of any default
provisions contained in a guarantee thereof by the Issuer or any of its
Restricted Subsidiaries if the Issuer or such Restricted Subsidiary was
otherwise permitted to incur such guarantee pursuant to the Indenture.
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"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Original Offerings" means the offering of the Debentures by the Issuer and
the concurrent offering of the Senior Subordinated Notes by Thermadyne LLC and
Thermadyne Capital.
"Pari Passu Indebtedness" means Indebtedness of the Issuer that ranks pari
passu in right of payment to the Debentures.
"Permitted Business" means any business in which the Issuer and its
Restricted Subsidiaries are engaged on the date of the Indenture or any business
reasonably related, incidental or ancillary thereto.
"Permitted Investments" means (a) any Investment in the Issuer or in a
Restricted Subsidiary of the Issuer, (b) any Investment in cash or Cash
Equivalents, (c) any Investment by the Issuer or any Restricted Subsidiary of
the Issuer in a Person, if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary of the Issuer or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Issuer or a Wholly Owned
Restricted Subsidiary of the Issuer, (d) any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described under the caption "-- Repurchase
at the Option of Holders -- Asset Sales," (e) any Investment acquired solely in
exchange for Equity Interests (other than Disqualified Stock) of the Issuer, (f)
any Investment in a Person engaged in a Permitted Business (other than an
Investment in an Unrestricted Subsidiary) having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (f) that
are at that time outstanding, not to exceed 15% of Total Assets at the time of
such Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value), (g)
Investments relating to any special purpose Wholly Owned Subsidiary of the
Issuer organized in connection with a Receivables Facility that, in the good
faith determination of the Board of Directors of the Issuer, are necessary or
advisable to effect such Receivables Facility, and (h) the Management Loans.
"Permitted Liens" means: (i) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Issuer or any
Restricted Subsidiary, provided that such Liens were not incurred in
contemplation of such merger or consolidation and do not secure any property or
assets of the Issuer or any Restricted Subsidiary other than the property or
assets subject to the Liens prior to such merger or consolidation; (ii) Liens
existing on the date of the Indenture; (iii) Liens securing Indebtedness
consisting of Capitalized Lease Obligations, purchase money Indebtedness,
mortgage financings, industrial revenue bonds or other monetary obligations, in
each case incurred solely for the purpose of financing all or any part of the
purchase price or cost of construction or installation of assets used in the
business of the Issuer or its Restricted Subsidiaries, or repairs, additions or
improvements to such assets, provided that (A) such Liens secure Indebtedness in
an amount not in excess of the original purchase price or the original cost of
any such assets or repair, additional or improvement thereto (plus an amount
equal to the reasonable fees and expenses in connection with the incurrence of
such Indebtedness), (B) such Liens do not extend to any other assets of the
Issuer or its Restricted Subsidiaries (and, in the case of repair, addition or
improvements to any such assets, such Lien extends only to the assets (and
improvements thereto or thereon) repaired, added to or improved), (C) the
Incurrence of such Indebtedness is permitted by "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" and (D)
such Liens attach within 365 days of such purchase, construction, installation,
repair, addition or improvement; (iv) Liens to secure any refinancings,
renewals, extensions, modification or replacements (collectively, "refinancing")
(or successive refinancings), in whole or in part, of any Indebtedness secured
by Liens referred to in the clauses above so long as such Lien does not extend
to any other property (other than improvements thereto); (v) Liens securing
letters of credit entered into in the ordinary course of business and consistent
with past business practice; (vi) Liens on and pledges of the capital stock of
any Unrestricted Subsidiary securing Non-Recourse Debt of such Unrestricted
Subsidiary; (vii) Liens securing Indebtedness (including all Obligations) under
the New Credit Facility; and (viii) other Liens securing Indebtedness that is
permitted by the terms of the Indenture to be outstanding having an aggregate
principal amount at any one time outstanding not to exceed $50.0 million.
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"Permitted Refinancing Indebtedness" means any Indebtedness of the Issuer
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Issuer or any of its Restricted Subsidiaries;
provided that (a) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus premium, if any, and accrued interest
on the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith), (b) such Permitted Refinancing Indebtedness has a final maturity
date no earlier than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded, and (c) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Debentures, such Permitted Refinancing Indebtedness is subordinated in right of
payment to, the Debentures on terms at least as favorable, taken as a whole, to
the Holders of Debentures as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Principals" means DLJMB.
"Public Equity Offering" means any issuance of common stock or preferred
stock by the Issuer (other than Disqualified Stock) or membership interests by
Thermadyne LLC (other than to the Issuer and other than Disqualified Stock) that
is registered pursuant to the Securities Act, other than issuances registered on
Form S-8 and issuances registered on Form S-4, excluding issuances of common
stock or membership interests pursuant to employee benefit plans of the Issuer
or its Restricted Subsidiaries or otherwise as compensation to employees of the
Issuer or its Restricted Subsidiaries.
"Qualified Proceeds" means any of the following or any combination of the
following: (i) cash; (ii) Cash Equivalents; (iii) assets that are used or useful
in a Permitted Business; and (iv) the Capital Stock of any Person engaged in a
Permitted Business if, in connection with the receipt by the Issuer or any
Restricted Subsidiary of the Issuer of such Capital Stock, (A) such Person
becomes a Restricted Subsidiary of the Issuer or any Restricted Subsidiary of
the Issuer or (B) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Issuer or any Restricted Subsidiary of the Issuer.
"Recapitalization" means the Acquisition, the Merger and the Original
Offerings.
"Receivables Facility" means one or more receivables financing facilities,
as amended from time to time, pursuant to which the Issuer or any of its
Restricted Subsidiaries sells its accounts receivable to an Accounts Receivable
Subsidiary.
"Receivables Fees" means distributions or payments made directly or by
means of discounts with respect to any participation interests issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"Related Party" means, with respect to any Principal, (i) any controlling
stockholder or partner of such Principal on the date of the Indenture, or (ii)
any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding (directly or
through one or more Subsidiaries) a 51% or more controlling interest of which
consist of the Principals and/or such other Persons referred to in the
immediately preceding clauses (i) or (ii).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Subordinated Notes" means the 9 7/8% Senior Subordinated Notes due
2008 of Thermadyne LLC and Thermadyne Capital, issued in connection with the
Refinancing.
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"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Specified Agreements" means the Investors' Agreement and the Tax Sharing
Agreement.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means all Obligations with respect to
Indebtedness of the Issuer if the instrument creating or evidencing the same, or
pursuant to which the same is outstanding, designates such Obligations as
subordinated or junior in right of payment to the Debentures.
"Subordinated Note Indenture" means the indenture relating to the Senior
Subordinated Notes.
"Subsidiary" means, with respect to any Person, (a) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (b) any partnership or limited liability company (i) the sole
general partner or the managing general partner or managing member of which is
such Person or a Subsidiary of such Person or (ii) the only general partners or
managing members of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"Tax Sharing Agreement" means any tax sharing agreement or arrangement
between the Issuer and its Subsidiaries, as the same may be amended from time to
time; provided that in no event shall the amount permitted to be paid pursuant
to all such agreements and/or arrangements exceed the amount the Issuer would be
required to pay for income taxes were it to file a consolidated tax return for
itself and its consolidated Restricted Subsidiaries.
"Thermadyne LLC" means Thermadyne Mfg. LLC, a Delaware limited liability
company, the sole member of which is the Issuer.
"Thermadyne Capital" means Thermadyne Capital Corp., a Delaware corporation
wholly owned by Thermadyne LLC.
"Total Assets" means the total consolidated assets of the Issuer and its
Restricted Subsidiaries, as shown on the most recent balance sheet (excluding
the footnotes thereto) of the Issuer.
"Unrestricted Subsidiary" means any Subsidiary (other than Thermadyne LLC
and Thermadyne Capital) that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a board resolution, but only to the extent
that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b)
is not party to any agreement, contract, arrangement or understanding with the
Issuer or any Restricted Subsidiary of the Issuer unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Issuer or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Issuer; (c) is a Person with
respect to which neither the Issuer nor any of its Restricted Subsidiaries has
any direct or indirect obligation (i) to subscribe for additional Equity
Interests (other than Investments described in clause (g) of the definition of
Permitted Investments) or (ii) to maintain or preserve such Person's financial
condition or to cause such Person to achieve any specified levels, of operating
results; and (d) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Issuer or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the board
resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described under the caption entitled "-- Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
91
<PAGE> 95
would fail to meet the foregoing requirements as a Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Issuer as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption entitled "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," the Issuer shall be in default of
such covenant). The Board of Directors of the Issuer may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Issuer of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the covenant described under the caption entitled "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance Preferred of Stock" and
(ii) no Default or Event of Default would be in existence following such
designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly Owned Subsidiaries of such
Person.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the New Debentures initially
will be represented by one or more permanent global certificates in definitive,
duly registered form (the "Global Debentures"). The Global Debentures will be
deposited on the Issue Date with, or on behalf of, DTC and registered in the
name of a nominee of DTC.
The Global Debentures. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Debentures, DTC or its
custodian will credit, on its internal system, the principal amount of New
Debentures of the individual beneficial interests represented by such Global
Debentures to the respective accounts of persons who have accounts with such
depositary and (ii) ownership of beneficial interests in the Global Debentures
will be shown on, and the transfer of such ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
persons who have accounts with DTC ("participants")) and the records of
participants (with respect to interests of persons other than participants).
Qualified Institutional Buyers ("QIB's") and institutional Accredited Investors
who are not QIB's may hold their interests in the Global Debentures directly
through DTC if they are participants in such system, or indirectly through
organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
New Debentures, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the New Debentures represented by such Global Debentures
for all purposes under the Indenture. No beneficial owner of an interest in the
Global Debentures will be able to transfer that interest except in accordance
with DTC's procedures.
Payments of the principal of, premium (if any) and interest on, the Global
Debentures will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee or any Paying Agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Debentures or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any and interest on the Global Debentures, will credit
participants' accounts with payments in amount proportionate to their respective
beneficial interests in the principal amount of the Global Debentures as
92
<PAGE> 96
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in the Global
Debentures held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell New Debentures to
persons in states which require physical delivery of the New Debentures, or to
pledge such securities, such holder must transfer its interest in a Global Note,
in accordance with the normal procedures of DTC.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of New Debentures (including the presentation of New
Debentures for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global Debentures are
credited and only in respect of such portion of the aggregate principal amount
of New Debentures as to which such participant or participants has or have given
such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Debentures among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Debentures and a successor depositary is
not appointed by the Issuer within 90 days, Certificated Securities will be
issued in exchange for the Global Debentures.
93
<PAGE> 97
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Debentures for New Debentures,
but does not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended, Treasury
regulations, Internal Revenue Service rulings and pronouncements, and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the New
Debentures. The description does not consider the effect of any applicable
foreign, state, local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD DEBENTURES FOR NEW DEBENTURES, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD DEBENTURES FOR NEW DEBENTURES
The exchange of Old Debentures for New Debentures pursuant to the Exchange
Offer should not constitute a sale or exchange for federal income tax purposes.
Accordingly, such exchange should have no federal income tax consequences to
holders of Old Debentures.
94
<PAGE> 98
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Debentures for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Debentures. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Debentures received in
exchange for Old Debentures where such Old Debentures were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until December 2, 1998, all
dealers effecting transactions in the New Debentures may be required to deliver
a Prospectus.
The Company will not receive any proceeds from any sale of New Debentures
by broker-dealers. New Debentures received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Debentures or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Debentures. Any broker-dealer
that resells New Debentures that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Debentures may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of New
Debentures and any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer other than commissions or concessions of any
broker-dealers and will indemnify holders of the Old Debentures (including any
broker-dealers) against certain liabilities, including certain liabilities under
the Securities Act.
LEGAL MATTERS
The validity of the New Debentures offered hereby will be passed upon for
the Company by Weil, Gotshal & Manges LLP, Dallas, Texas and New York, New York.
EXPERTS
The Consolidated Financial Statements of Holdings at December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997, and
the related financial statement schedule appearing in this Registration
Statement and related Prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports of such firm given upon
their authority as experts in accounting and auditing.
95
<PAGE> 99
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL DATA
The following unaudited condensed consolidated pro forma financial data
(the "Pro Forma Financial Data") of the Company are based on historical
consolidated financial statements of the Company as adjusted to give effect to
certain transactions described below and to the Merger, including the Merger
Financing and the application of the proceeds thereof. For additional
information regarding the Merger, see "The Merger and the Merger Financing." The
unaudited condensed consolidated pro forma statement of operations for the
quarter ended March 31, 1998 gives effect to the Merger and the Merger Financing
and the application of the proceeds thereof as if it had occurred at the
beginning of such period. The unaudited condensed consolidated pro forma
statement of operations for the twelve months ended March 31, 1998 and the year
ended December 31, 1997 give effect to the Arcsys Acquisition and the Woodland
Acquisition and, in the case of the year ended December 31, 1997, the GenSet
Acquisition, and the Merger, including the Merger Financing and the application
of the proceeds thereof, as if they all had occurred at the beginning of the
respective period. The pro forma statement of operations data have been derived
as if the balance sheet of the Company at the beginning of the respective period
was the pro forma balance sheet as of March 31, 1998. For additional information
regarding the GenSet Acquisition, the Arcsys Acquisition and the Woodland
Acquisition, see the discussion under the caption "Recent
Events -- Acquisitions" in Note 2 to the Company's Consolidated Financial
Statements. The unaudited condensed consolidated pro forma balance sheet gives
effect to the Merger, including the Merger Financing and the application of the
proceeds thereof, as if it had occurred on March 31, 1998. The pro forma
adjustments are based upon available information and upon certain assumptions
that management believes are reasonable under the circumstances. The Pro Forma
Financial Data and accompanying notes should be read in conjunction with the
historical consolidated financial statements of the Company, including the notes
thereto, and other financial information pertaining to the Company. The Pro
Forma Financial Data do not purport to represent what the Company's actual
results of operations or actual financial position would have been if the
Merger, including the Merger Financing and the application of the proceeds
thereof, and the GenSet Acquisition, the Arcsys Acquisition and the Woodland
Acquisition in fact occurred on such dates or to project the Company's results
of operations or financial position for any future period or date. The Pro Forma
Financial Data do not give effect to any transactions other than the GenSet
Acquisition, the Arcsys Acquisition, the Woodland Acquisition and the Merger,
including the Merger Financing and the application of the proceeds thereof,
discussed in the notes to the Pro Forma Financial Data included elsewhere
herein.
As a result of the Merger, the Company incurred various expenses in
connection with consummating the transaction. See Note 2 to the Unaudited
Condensed Consolidated Pro Forma Statement of Operations for a more detailed
explanation of these expenses. While the exact timing, nature and amount of
these costs have not yet been fully determined, the Company anticipates that a
significant one-time pretax charge will be recorded in its second fiscal
quarter. As a result of the foregoing, the Company expects to record a
significant net loss in its second fiscal quarter. Because this loss will result
directly from the one-time charge incurred in connection with the Merger, and
this charge will be funded entirely through the proceeds of the Merger
Financing, the Company does not expect this loss to materially impact its
liquidity, ongoing operations or market position. For a discussion of the
consequences of the incurrence of indebtedness in connection with the Merger
Financing, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
The pro forma adjustments were applied to the respective historical
consolidated financial statements of the Company to reflect and account for the
Merger as a recapitalization; accordingly, the historical basis of the Company's
assets and liabilities has not been impacted thereby.
P-1
<PAGE> 100
THERMADYNE HOLDINGS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------
MERGER
HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 0.2 $ -- $ 0.2
Accounts receivable................................... 82.2 -- 82.2
Inventories........................................... 119.0 -- 119.0
Prepaid expenses and other............................ 8.3 -- 8.3
------- ------ -------
Total current assets.......................... 209.7 -- 209.7
Property, plant and equipment, net...................... 86.0 -- 86.0
Deferred financing costs................................ 5.6 18.7(2) 18.7
(5.6)(3)
Intangibles, net........................................ 33.8 -- 33.8
Deferred income taxes................................... 35.5 16.8(4) 52.3
Other assets............................................ 1.9 -- 1.9
------- ------ -------
Total assets.................................. $ 372.5 $ 29.9 $ 402.4
======= ====== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable...................................... $ 49.9 $ -- $ 49.9
Accrued and other liabilities......................... 26.5 -- 26.5
Accrued interest...................................... 13.0 (13.0)(1) --
Income taxes payable.................................. 9.7 -- 9.7
Current maturities of long-term obligations........... 6.3 (6.3)(1) --
------- ------ -------
Total current liabilities..................... 105.4 (19.3) 86.1
New Credit Facility:
Revolving credit facility............................. -- 33.2(1) 33.2
Term loans............................................ -- 330.0(1) 330.0
Senior Subordinated Notes............................... -- 205.4(1) 205.4
Debentures.............................................. -- 94.6(1) 94.6
Outstanding Senior Notes................................ 99.3 (99.3)(1) --
Outstanding Subordinated Notes.......................... 179.3 (179.3)(1) --
Other existing long-term debt, less current
maturities............................................ 85.6 (66.8)(1) 18.8
Other long-term liabilities........................... 59.7 -- 59.7
Redeemable PIK preferred stock.......................... -- 50.0(1) 50.0
Stockholders' deficit................................... (156.8) (318.6)(5) (475.4)
------- ------ -------
Total liabilities and stockholders' deficit... $ 372.5 $ 29.9 $ 402.4
======= ====== =======
</TABLE>
See accompanying notes to Unaudited Condensed Consolidated Pro Forma Balance
Sheet.
P-2
<PAGE> 101
THERMADYNE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
(IN MILLIONS)
(1) Sources and uses of cash and cash equivalents in the Merger, including the
Merger Financing and the application of the proceeds thereof as of March 31,
1998, are as follows:
<TABLE>
<S> <C>
TOTAL USES:
Cash to purchase shares..................................... $368.8
Option cash proceeds........................................ 18.1
Management Loans............................................ 3.6
Repayment of Outstanding Subordinated Notes(a).............. 179.3
Repayment of Outstanding Senior Notes(a).................... 99.3
Repayment of outstanding U.S., Australian and Italian bank
facilities................................................ 73.1
Payment of accrued interest................................. 13.0
Estimated transaction fees and expenses..................... 52.9
------
Total cash uses................................... $808.1
======
TOTAL SOURCES:
New Credit Facility
Revolving credit facility(a).............................. $ 33.2
Term loans................................................ 330.0
Senior Subordinated Notes(b)................................ 205.4
Debentures.................................................. 94.6
Redeemable PIK preferred stock and warrants purchased by
DLJMB..................................................... 50.0
Management Share Purchase................................... 4.9
Common stock purchased by DLJMB............................. 90.0
------
Total cash sources................................ $808.1
======
</TABLE>
- ---------------
(a) Assumes that all of the Outstanding Subordinated Notes and Outstanding
Senior Notes are purchased by Holdings. The purchase by Holdings of
less than 100% of each of such notes would result in a reduction in the
amount of borrowings under the New Credit Facility; however, management
does not believe that such changes would have a material effect on the
information presented herein.
(b) Represents the issuance of $207 million aggregate principal amount of
Senior Subordinated Notes at a discount.
(2) Represents the portion of estimated transaction fees and expenses
attributable to the New Credit Facility, the Senior Subordinated Notes, the
Debentures and related interim financing commitments. See Note 6 to the
Company's Unaudited Condensed Consolidated Pro Forma Statement of
Operations.
(3) The adjustment reflects the $5.6 million write-off of deferred debt issuance
costs associated with retiring the existing indebtedness. See Notes 2 and 6
to the Company's Unaudited Condensed Consolidated Pro Forma Statement of
Operations for an explanation of the pro forma income statement impact.
P-3
<PAGE> 102
THERMADYNE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET -- (CONTINUED)
(4) Reflects tax benefit of expense adjustments at a 35.0% rate as shown below:
<TABLE>
<S> <C> <C>
Option cash proceeds........................................ $18.1
Non-capitalized transaction fees and expenses............. 34.2
Less: estimated non-deductible portion.................... (10.0)
-----
Deductible non-capitalized transaction fees and expenses.... 24.2
Write-off of deferred debt issuance costs................... 5.6
-----
Total deductible expenses................................... 47.9
-----
Tax rate.................................................... 35.0%
-----
Tax benefit................................................. $16.8
=====
</TABLE>
(5) Represents the change in the stockholders' deficit as a result of the
Merger, including the Merger Financing and the application of the proceeds
thereof:
<TABLE>
<S> <C>
Cash to purchase shares(a).................................. $(368.8)
Management Share Purchase(b)................................ 4.9
Receivable related to Management Loans(c)................... (3.6)
Common stock purchased by DLJMB............................. 90.0
Non-capitalized transaction fees and expenses(d)............ (34.2)
Write-off of deferred debt issuance costs................... (5.6)
Option cash proceeds(e)..................................... (18.1)
Tax benefit of expense adjustments.......................... 16.8
-------
Total change in stockholders' deficit............. $(318.6)
=======
</TABLE>
- ---------------
(a) Assumes 10,690,283 shares are purchased for $34.50 per share. See "The
Merger and Merger Financing."
(b) Represents the Management Share Purchase (certain members of senior
management's anticipated purchase of 141,002 shares of the common stock
of the surviving corporation or $34.50 per share). See "Executive
Compensation -- Employment Contracts -- Employment Arrangements
Following the Merger."
(c) Represents loans provided to certain members of senior management by
the Company to facilitate the Management Shares Purchase.
(d) Represents all non-capitalized transaction fees and expenses and
includes estimated legal, accounting, advisory and consulting fees of
$17.4 million and estimated debt prepayment fees of $16.8 million. The
tax benefit of these expenses is included separately in the table
above.
(e) Represents the purchase of 1,033,668 options at an average purchase
price of $17.47 (the difference between $34.50 and $17.03, the average
exercise price of the Options). See "The Merger and Merger Financing."
P-4
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THERMADYNE HOLDINGS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------------------------
1997 ACQUISITIONS(1)
COMPANY ------------------------------- MERGER
HISTORICAL ARCSYS WOODLAND ADJUSTMENTS ADJUSTMENTS PRO FORMA(2)
---------- ------ -------- ----------- ----------- ------------
(IN MILLIONS, EXCEPT FOR RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... $534.5 $11.2 $ 2.5 -- -- $548.2
Operating expenses:
Cost of goods sold............... 331.6 9.0 1.6 -- -- 342.2
Selling, general and
administrative expenses....... 111.5 1.7 .9 -- -- 114.1
Amortization of goodwill......... 1.6 -- -- -- -- 1.6
Amortization of other
intangibles................... 5.6 0.2 -- -- -- 5.8
Net periodic postretirement
benefits...................... 2.8 -- -- -- -- 2.8
------ ----- ----- ----- ------ ------
Income from operations............. 81.4 0.3 -- -- -- 81.7
Other (income) expense:
Interest expense................. 44.6 -- 0.2 0.2(3) 61.9(4) 69.0
(37.9)(5)
Amortization of deferred
financing costs............... 1.5 -- -- -- 2.3(6) 2.3
(1.5)(6)
Other............................ 3.3 -- -- -- -- 3.3
------ ----- ----- ----- ------ ------
Income (loss) from continuing
operations before taxes.......... 32.0 0.3 (0.2) (0.2) (24.8) 7.1
Income tax provision (benefit)..... 15.1 -- -- (0.1)(3) (8.7)(7) 6.3
------ ----- ----- ----- ------ ------
Income (loss) from continuing
operations....................... 16.9 0.3 (0.2) (0.1) (16.1) 0.8
Redeemable preferred stock
dividends........................ -- -- -- -- 6.5(8) 6.5
------ ----- ----- ----- ------ ------
Income (loss) from continuing
operations available to common... $ 16.9 $ 0.3 $(0.2) $(0.1) $(22.6) $ (5.7)(9)
OTHER DATA:
Adjusted EBITDA(10)................ $104.6 $ 0.8 $ 0.4 $ -- $ -- $105.8
Depreciation....................... 13.1 0.3 0.2 -- -- 13.6
Capital expenditures............... 17.7 0.1 -- -- -- 17.8
Ratio of earnings to fixed
charges(11)...................... 1.6x -- -- -- -- 1.1x
</TABLE>
See accompanying notes to Unaudited Condensed Consolidated Pro Forma Statement
of Operations.
P-5
<PAGE> 104
THERMADYNE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA STATEMENT OF OPERATIONS
(IN MILLIONS)
(1) Represents the financial results for the companies acquired during 1997 for
the periods not included in the Company Historical column as follows:
Arcsys (4/1/97-9/25/97) and Woodland (4/1/97-11/24/97).
(2) The pro forma balance sheet reflects non-recurring charges aggregating
$58.1 million (comprised of $18.1 million related to employee stock options
and related plans; $17.4 million of non-capitalizable transaction fees;
$16.8 million of debt pre-payment penalties and the write-off of $5.6
million of related deferred issuance costs) and estimated tax benefits of
$16.8 million. The amounts related to debt prepayment penalties and debt
issuance costs will be reflected net of tax benefits as an extraordinary
item. These amounts have not been reflected in the unaudited pro forma
consolidated statements of operations.
(3) Reflects the additional interest expense and associated tax benefit
attributable to the acquisitions, all of which were financed with
borrowings under the Company's revolving credit facility.
<TABLE>
<CAPTION>
ARCSYS WOODLAND TOTAL
------ -------- -----
<S> <C> <C> <C>
Acquisition......................................... $ 7.5 $ 2.6 $10.1
Average interest rate............................... 7.80% 7.80%
Annual interest..................................... $ 0.6 $ 0.2 $ 0.8
Months to include in pro forma...................... 6 8
Incremental pro forma interest...................... $ 0.3 $ 0.1 $ 0.4
Less historical interest included in reported
results........................................... (0.2)
-----
Adjustment.......................................... $ 0.2
=====
TAXES:
Tax benefit on incremental interest at assumed rate
of 35.0%.......................................... $ 0.1
=====
</TABLE>
(4) Reflects the additional interest expense attributable to the Merger
Financing, as follows:
<TABLE>
<CAPTION>
RATE AMOUNT INTEREST
---------------- ------ --------
<S> <C> <C> <C>
New Credit Facility:(a)
Revolving Credit Facility............. LIBOR(b) +2.25% $ 33.2 $ 2.7
TERM LOANS:
Term A............................. LIBOR(b) +2.25% $100.0 7.9
Term B............................. LIBOR(b) +2.50% 115.0 9.3
Term C............................. LIBOR(b) +2.75% 115.0 9.6
------ -----
Total Term Loans................. 330.0 26.8
Senior Subordinated Notes.............. 9.88% 207.0 20.4
Debentures............................. 12.50% 94.6 11.9
-----
61.8
Amortization of Issuance Discount for
Senior Subordinated Notes............ 10 yrs 1.6 0.1
-----
$61.9
=====
</TABLE>
- ---------------
(a) A one-eighth of one percent change in interest rates would impact
interest expense for borrowings under the New Credit Facility, the
Senior Subordinated Notes and the Debentures, collectively, in the
amount of approximately $0.8 million.
P-6
<PAGE> 105
THERMADYNE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
(b) Calculations based on LIBOR at 5.63%.
The borrowings under the New Credit Facility assume that all of the
Outstanding Subordinated Notes and Outstanding Senior Notes are purchased
by Holdings. The purchase by Holdings of less than 100% of each of such
notes would result in a reduction in the amount of borrowings under the New
Credit Facility; however, management does not believe that such changes
would have a material effect on the information presented herein.
(5) Reflects the elimination of interest expense attributable to indebtedness
to be paid in connection with the Merger, as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
MARCH 31, 1998
--------------
<S> <C>
Outstanding U.S., Australian and Italian bank facilities.... $ 8.4
Outstanding Senior Notes.................................... 10.2
Outstanding Subordinated Notes.............................. 19.3
-----
$37.9
=====
</TABLE>
See Note 8 to Holding's Consolidated Financial Statements for a description
of interest rates applicable to outstanding indebtedness.
(6) Reflects the net change in amortization of capitalized financing costs, as
follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
MARCH 31,
FEES YEARS 1998
----- ----- -------------
<S> <C> <C> <C>
Elimination of existing amortization of capitalized
financing costs...................................... $(1.5)
Amortization of capitalized financing costs for new
debt:
Revolving Credit Facility............................ $ 2.3 6 0.4
Term A............................................... 2.3 6 0.4
Term B............................................... 2.6 7 0.4
Term C............................................... 2.6 8 0.3
Senior Subordinated Notes............................ 5.7 10 0.5
Debentures........................................... 3.2 10 0.3
----- -----
Total new capitalized financing costs........ $18.7 2.3
===== -----
$ 0.8
=====
</TABLE>
Financing costs are amortized using the effective interest method.
(7) Adjustment reflects the income tax effect of all pro forma entries above at
a rate of 35.0%.
(8) Reflects dividends on preferred stock issued in the Merger ($50 million
liquidation preference multiplied by a 13% dividend rate).
(9) Assuming the warrants to purchase shares of common stock to be issued in
connection with the Merger Financing had been issued as of April 1, 1997
with an exercise price of $0.01 per share, the pro forma twelve months
ended March 31, 1998 income (loss) from continuing operations available to
common would have been $(17.9) million.
P-7
<PAGE> 106
THERMADYNE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
(10) "Adjusted EBITDA" is defined as operating income plus depreciation,
amortization of goodwill, amortization of intangibles and net periodic
postretirement benefits expense and is a key financial measure but should
not be construed as an alternative to operating income or cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles). Adjusted EBITDA is also one of the financial
measures by which the Company's compliance with its covenants is calculated
under its debt agreements. The Company believes that Adjusted EBITDA is a
useful supplement to net income (loss) and other consolidated income
statement data in understanding cash flows generated from operations that
are available for taxes, debt service and capital expenditures. However,
the Company's method of computation may or may not be comparable to other
similarly titled measures of other companies. In addition, Adjusted EBITDA
is not necessarily indicative of amounts that may be available for
discretionary uses and does not reflect any legal or contractual
restrictions on the Company's use of funds.
(11) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense, amortization of deferred financing
costs and one-third of the rent expense from operating leases, which
management believes is a reasonable approximation of the interest component
of rent expense.
P-8
<PAGE> 107
THERMADYNE HOLDINGS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
COMPANY MERGER
HISTORICAL ADJUSTMENTS PRO FORMA(2)
---------- ----------- ------------
(IN MILLIONS, EXCEPT FOR RATIO DATA)
<S> <C> <C> <C>
Net sales............................................ $131.8 $ -- $131.8
Operating expenses:
Cost of goods sold................................. 81.8 -- 81.8
Selling, general and administrative expenses....... 27.1 -- 27.1
Amortization of goodwill........................... 0.4 -- 0.4
Amortization of other intangibles.................. 0.5 -- 0.5
Net periodic postretirement benefits............... 0.6 -- 0.6
------ ----- ------
Income from operations............................... 21.4 -- 21.4
Other (income) expense:
Interest expense................................... 10.8 15.5(4) 17.5
(8.8)(5)
Amortization of deferred financing costs........... 0.4 0.6(6) 0.6
(0.4)(6)
Other.............................................. (0.2) -- (0.2)
------ ----- ------
Income (loss) from continuing operations before
taxes.............................................. 10.4 (6.9) 3.5
Income tax provision (benefit)....................... 4.6 (2.4)(7) 2.2
------ ----- ------
Income (loss) from continuing operations............. 5.8 (4.5) 1.3
Redeemable preferred stock dividends................. -- 1.6(8) 1.6
------ ----- ------
Income (loss) from continuing operations available to
common............................................. $ 5.8 $(6.1) $ (0.3)(9)
OTHER DATA:
Adjusted EBITDA(10).................................. $ 26.5 $ -- $ 26.5
Depreciation......................................... 3.6 -- 3.6
Capital expenditures................................. 3.8 -- 3.8
Ratio of earnings to fixed charges(11)............... 1.9x -- 1.2x
</TABLE>
See accompanying notes to Unaudited Condensed Consolidated Pro Forma Statement
of Operations.
P-9
<PAGE> 108
THERMADYNE HOLDINGS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------------------
1997 ACQUISITIONS(1)
COMPANY ---------------------------------------------- MERGER
HISTORICAL GENSET ARCSYS WOODLAND ADJUSTMENTS ADJUSTMENTS PRO FORMA(2)
---------- ------ -------- ---------- ------------- ----------- ------------
(IN MILLIONS, EXCEPT FOR RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $520.4 $ 2.4 $17.4 $ 4.0 -- -- $544.2
Operating expenses:
Cost of goods sold.............. 320.0 2.1 14.2 2.6 -- -- 338.9
Selling, general and
administrative expenses...... 110.7 0.4 2.7 1.2 -- -- 115.0
Amortization of goodwill.......... 1.6 0.1 -- -- -- -- 1.7
Amortization of other
intangibles.................. 6.8 -- 0.2 -- -- -- 7.0
Net periodic postretirement
benefits........................ 2.8 -- -- -- -- -- 2.8
------ ----- ----- ----- ----- ------ ------
Income from operations............ 78.5 (0.2) 0.3 0.2 -- -- 78.8
Other (income) expense:
Interest expense................ 45.3 0.2 -- 0.3 0.4(3) 61.9(4) 68.9
(39.2)(5)
Amortization of deferred
financing costs.............. 1.6 -- -- -- -- 2.3(6) 2.3
(1.6)(6)
Other........................... 3.1 (0.1) -- -- -- -- 3.0
------ ----- ----- ----- ----- ------ ------
Income (loss) from continuing
operations before taxes......... 28.5 (0.3) 0.3 (0.1) (0.4) (23.4) 4.6
Income tax provision (benefit).... 13.4 0.1 -- 0.1 (0.2)(3) (8.2)(7) 5.2
------ ----- ----- ----- ----- ------ ------
Income (loss) from continuing
operations...................... 15.1 (0.4) 0.3 (0.2) (0.2) (15.2) (0.6)
Redeemable preferred stock
dividends....................... -- -- -- -- -- 6.5(8) 6.5
------ ----- ----- ----- ----- ------ ------
Income (loss) from continuing
operations available to
common.......................... $ 15.1 $(0.4) $ 0.3 $(0.2) $(0.2) $(21.7) $ (7.1)(9)
OTHER DATA:
Adjusted EBITDA(10)............... $102.1 $ -- $ 0.9 $ 0.4 $ -- $ -- $103.4
Depreciation...................... 12.5 0.1 0.4 0.2 -- -- 13.2
Capital expenditures.............. 16.3 -- 0.2 -- -- -- 16.5
Ratio of earnings to fixed
charges(11)..................... 1.6x -- -- -- -- -- 1.1x
</TABLE>
See accompanying notes to Unaudited Condensed Consolidated Pro Forma Statement
of Operations.
P-10
<PAGE> 109
THERMADYNE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA STATEMENTS OF OPERATIONS
(IN MILLIONS)
(1) Represents the financial results for the companies acquired during 1997 for
the periods not included in the Company Historical column as follows:
GenSet (1/1/97-1/31/97), Arcsys (1/1/97-9/25/97) and Woodland
(1/1/97-11/24/97).
(2) The pro forma balance sheet reflects non-recurring charges aggregating
$58.1 million (comprised of $18.1 million related to employee stock options
and related plans; $17.4 million of non-capitalizable transaction fees;
$16.8 million of debt pre-payment penalties and the write-off of $5.6
million of related deferred issuance costs) and estimated tax benefits of
$16.8 million. The amounts related to debt prepayment penalties and debt
issuance costs will be reflected net of tax benefits as an extraordinary
item. These amounts have not been reflected in the unaudited pro forma
consolidated statements of operations.
(3) Reflects the additional interest expense and associated tax benefit
attributable to the acquisitions, all of which were financed with
borrowings under the Company's revolving credit facility.
<TABLE>
<CAPTION>
GENSET ARCSYS WOODLAND TOTAL
------ ------ -------- -----
<S> <C> <C> <C> <C>
Acquisition............................................ $27.8 $7.5 $2.6 $37.9
Average interest rate.................................. 8.04% 7.80% 7.80%
Annual interest........................................ $ 2.2 $0.6 $0.2 $ 3.0
Months to include in pro forma......................... 1 9 11
Incremental pro forma interest......................... $ 0.2 $0.4 $0.2 $ 0.8
Less historical interest included in reported
results.............................................. (0.4)
-----
Adjustment............................................. $ 0.4
=====
Taxes:
Tax benefit on incremental interest at assumed rate of
35.0%................................................ $ 0.2
=====
</TABLE>
P-11
<PAGE> 110
THERMADYNE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA STATEMENTS OF OPERATIONS -- (CONTINUED)
(4) Reflects the additional interest expense attributable to the Merger
Financing, as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED
1998 DECEMBER 31, 1997
------------ -----------------
RATE AMOUNT INTEREST INTEREST
--------------- ------ ------------ -----------------
<S> <C> <C> <C> <C>
New Credit Facility:(a)
Revolving Credit
Facility............... LIBOR(b)+2.25% $ 33.2 $ 0.7 $ 2.7
Term Loans:
Term A................. LIBOR(b) +2.25% 100.0 2.0 7.9
Term B................. LIBOR(b) +2.50% 115.0 2.3 9.3
Term C................. LIBOR(b) +2.75% 115.0 2.4 9.6
------ ----- -----
Total Term
Loans........... 330.0 6.7 26.8
Senior Subordinated Notes... 9.88% 207.0 5.1 20.4
Debentures.................. 12.50% 94.6 2.9 11.9
------ -----
15.4 61.8
Amortization of Issuance
Discount for Senior
Subordinated Notes........ 10 yrs. 1.6 0.1 0.1
------ -----
$15.5 $61.9
====== ===== =====
</TABLE>
--------------------
(a) A one-eighth of one percent change in interest rates would impact
interest expense for borrowings under the New Credit Facility, the
Senior Subordinated Notes and the Debentures, collectively, in the
amount of approximately $0.2 million and $0.8 million for the three
months ended March 31, 1998 and the year ended December 31, 1997,
respectively.
(b) Calculations based on LIBOR at 5.63%.
The borrowings under the New Credit Facility assume that all of the
Outstanding Subordinated Notes and Outstanding Senior Notes are purchased
by Holdings. The purchase by Holdings of less than 100% of each of such
notes would result in a reduction in the amount of borrowings under the New
Credit Facility; however, management does not believe that such changes
would have a material effect on the information presented herein.
(5) Reflects the elimination of interest expense attributable to indebtedness
to be paid in connection with the Merger, as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Outstanding U.S., Australian and Italian bank
facilities.......................................... $1.5 $ 9.7
Outstanding Senior Notes.............................. 2.5 10.2
Outstanding Subordinated Notes........................ 4.8 19.3
---- -----
$8.8 $39.2
==== =====
</TABLE>
See Note 8 to Holding's Consolidated Financial Statements for a description
of interest rates applicable to outstanding indebtedness.
P-12
<PAGE> 111
THERMADYNE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA STATEMENTS OF OPERATIONS -- (CONTINUED)
(6) Reflects the net change in amortization of capitalized financing costs, as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
FEES YEARS MARCH 31, 1998 DECEMBER 31, 1997
----- ----- -------------- -----------------
<S> <C> <C> <C> <C>
Elimination of existing amortization of
capitalized financing costs............ $(0.4) $(1.6)
Amortization of capitalized financing
costs for new debt:
Revolving Credit Facility................ $ 2.3 6 0.1 0.4
Term A................................... 2.3 6 0.1 0.4
Term B................................... 2.6 7 0.1 0.4
Term C................................... 2.6 8 0.1 0.3
Senior Subordinated Notes................ 5.7 10 0.1 0.5
Debentures............................... 3.2 10 0.1 0.3
----- ----- -----
Total new capitalized financing costs.... $18.7 0.6 2.3
===== ----- -----
$ 0.2 $ 0.7
===== =====
</TABLE>
Financing costs are amortized using the effective interest method.
(7) Adjustment reflects the income tax effect of all pro forma entries above at
a rate of 35.0%.
(8) Reflects dividends on preferred stock issued in the Merger ($50 million
liquidation preference multiplied by a 13% dividend rate).
(9) Assuming the warrants to purchase shares of common stock to be issued in
connection with the Merger Financing had been issued as of January 1, 1997
and January 1, 1998 with an exercise price of $0.01 per share, the pro
forma 1997 income (loss) and pro forma first quarter 1998 income (loss)
from continuing operations available to common would have been ($19.3)
million and ($12.5) million, respectively.
(10) "EBITDA" is defined as operating income plus depreciation, amortization of
goodwill, amortization of intangibles and net periodic postretirement
benefits expenses and is a key financial measure but should not be
construed as an alternative to operating income or cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles). EBITDA is also one of the financial measures by
which the Company's compliance with its covenants is calculated under its
debt agreements. The Company believes that EBITDA is a useful supplement to
net income (loss) and other consolidated income statement data in
understanding cash flows generated from operations that are available for
taxes, debt service and capital expenditures. However, the Company's method
of computation may or may not be comparable to other similarly titled
measures of other companies.
(11) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense, amortization of deferred financing
costs and one-third of the rent expense from operating leases, which
management believes is a reasonable approximation of the interest component
of rent expense.
P-13
<PAGE> 112
THERMADYNE HOLDINGS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets at December 31, 1997 and 1996
(audited) and March 31, 1998 (unaudited).................. F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996, and 1995 (audited) and the three
months ended March 31, 1998 and 1997 (unaudited).......... F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1997, 1996, and 1995
(audited) and the three months ended March 31, 1998
(unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995 (audited) and the three
months ended March 31, 1998 and 1997 (unaudited).......... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 113
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Thermadyne Holdings Corporation
We have audited the accompanying consolidated balance sheets of Thermadyne
Holdings Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Thermadyne Holdings Corporation and subsidiaries at December 31, 1997 and 1996,
and the consolidated results of its operations and cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Orange County, California
February 5, 1998
F-2
<PAGE> 114
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 173 $ 1,481 $ 1,420
Accounts receivable, less allowance for doubtful
accounts of $2,278, $2,217 and $1,649,
respectively........................................ 82,171 76,847 54,286
Inventories............................................ 118,966 105,135 79,542
Prepaid expenses and other............................. 8,316 8,534 9,763
Net assets of discontinued operations.................. -- -- 29,455
-------- -------- --------
Total current assets........................... 209,626 191,997 174,466
Property, plant and equipment, at cost, net.............. 86,025 85,257 75,624
Deferred financing costs, net............................ 5,550 5,754 7,508
Intangibles, at cost, net................................ 33,797 33,970 62,645
Deferred income taxes.................................... 35,551 35,552 23,206
Other assets............................................. 1,893 1,997 9,956
-------- -------- --------
Total assets................................... $372,442 $354,527 $353,405
======== ======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable....................................... $ 49,906 $ 55,390 $ 28,266
Accrued and other liabilities.......................... 26,478 32,697 29,257
Accrued interest....................................... 12,976 5,680 6,461
Income taxes payable................................... 9,725 4,769 7,948
Deferred income taxes.................................. -- -- 1,324
Current maturities of long-term obligations............ 6,256 4,912 4,205
-------- -------- --------
Total current liabilities...................... 105,341 103,448 77,461
Long-term obligations, less current maturities........... 364,160 353,175 417,135
Other long-term liabilities.............................. 59,718 60,751 44,078
Shareholders' equity (deficit):
Common stock, $.01 par value, 25,000,000 shares
authorized, 11,217,233, 11,189,675 and 11,020,311
shares issued and outstanding, at March 31, 1998,
December 31, 1997 and 1996, respectively............ 112 112 110
Additional paid-in capital............................. 149,358 149,023 143,237
Accumulated deficit.................................... (293,399) (299,208) (333,465)
Accumulated other comprehensive income................. (12,848) (12,774) 4,849
-------- -------- --------
Total shareholders' deficit.................... (156,777) (162,847) (185,269)
-------- -------- --------
Total liabilities and shareholders' deficit............ $372,442 $354,527 $353,405
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 115
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales......................... $131,829 $117,751 $520,440 $439,744 $ 316,778
Operating expenses:
Cost of goods sold.............. 81,784 70,342 320,120 259,835 175,945
Selling, general and
administrative expenses...... 27,064 26,270 110,696 95,907 74,681
Amortization of goodwill........ 382 357 1,591 83,033 92,931
Amortization of other
intangibles.................. 518 1,692 6,776 12,377 48,401
Net periodic postretirement
benefits..................... 650 585 2,750 2,731 2,124
-------- -------- -------- -------- ---------
Operating income (loss)........... 21,431 18,505 78,507 (14,139) (77,304)
Other income (expense):
Interest expense................ (10,834) (11,538) (45,325) (45,655) (41,269)
Amortization of deferred
financing costs.............. (370) (460) (1,587) (2,711) (4,860)
Other........................... 166 406 (3,051) (968) 103
-------- -------- -------- -------- ---------
Income (loss) from continuing
operations before income taxes
and extraordinary item.......... 10,393 6,913 28,544 (63,473) (123,330)
Income tax provision (benefit).... 4,584 2,981 13,475 (534) 8,518
-------- -------- -------- -------- ---------
Income (loss) from continuing
operations before extraordinary
item............................ 5,809 3,932 15,069 (62,939) (131,848)
Discontinued operations:
Gain on sale of discontinued
operations, net of income taxes
of $12,623 and $14,732,
respectively.................... -- -- 16,015 8,480 --
Income (loss) from discontinued
operations, net of income
taxes........................... -- 1,036 3,173 (5,463) (28,952)
-------- -------- -------- -------- ---------
Income (loss) before extraordinary
item............................ 5,809 4,968 34,257 (59,922) (160,800)
Extraordinary item -- loss on
early
extinguishment of long-term
debt,
net of income tax benefit
of $2,001....................... -- -- -- (3,715) --
-------- -------- -------- -------- ---------
Net income (loss)................. $ 5,809 $ 4,968 $ 34,257 $(63,637) $(160,800)
======== ======== ======== ======== =========
Basic earnings per share amounts:
Income (loss) from continuing
operations................... $ 0.52 $ 0.36 $ 1.36 $ (5.83) $ (12.97)
Net income (loss)............... $ 0.52 $ 0.45 $ 3.09 $ (5.89) $ (15.81)
Diluted earnings per share
amounts:
Income (loss) from continuing
operations................... $ 0.50 $ 0.35 $ 1.33 $ (5.83) $ (12.97)
Net income (loss)............... $ 0.50 $ 0.44 $ 3.01 $ (5.89) $ (15.81)
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 116
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND THE THREE MONTHS ENDED
MARCH 31, 1998
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN ACCUMULATED COMPREHENSIVE
STOCK CAPITAL DEFICIT INCOME TOTAL
------ ---------- ----------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
January 1, 1995................... $100 $129,900 $(109,028) $ (350) $ 20,622
Comprehensive income:
Net loss.......................... -- -- (160,800) -- (160,800)
Other comprehensive income--
Foreign currency translation... -- -- -- (758) (758)
---------
Comprehensive income................ (161,558)
---------
Exercise of stock options........... 5 6,261 -- -- 6,266
Stock issued under employee stock
purchase plan..................... 2 2,422 -- -- 2,424
---- -------- --------- -------- ---------
December 31, 1995................. 107 138,583 (269,828) (1,108) (132,246)
Comprehensive income:
Net loss.......................... -- -- (63,637) -- (63,637)
Other comprehensive income--
Foreign currency translation... -- -- -- 5,957 5,957
---------
Comprehensive income................ (57,680)
---------
Exercise of stock options........... 2 2,424 -- -- 2,426
Stock issued under employee stock
purchase plan..................... 1 2,230 -- -- 2,231
---- -------- --------- -------- ---------
December 31, 1996................. 110 143,237 (333,465) 4,849 (185,269)
Comprehensive income:
Net income........................ -- -- 34,257 -- 34,257
Other comprehensive income--
Foreign currency translation... -- -- -- (17,623) (17,623)
---------
Comprehensive income................ 16,634
---------
Exercise of stock options........... 1 1,498 -- -- 1,499
Stock issued under employee stock
purchase plan..................... 1 1,993 -- -- 1,994
Recognition of net operating loss
carryforwards..................... -- 2,295 -- -- 2,295
---- -------- --------- -------- ---------
December 31, 1997................. 112 149,023 (299,208) (12,774) (162,847)
Comprehensive income:
Net income........................ -- -- 5,809 -- 5,809
Other comprehensive income--
Foreign currency translation... -- -- -- (74) (74)
---------
Comprehensive income................ 5,735
---------
Exercise of stock options........... -- 335 -- -- 335
---- -------- --------- -------- ---------
March 31, 1998.................... $112 $149,358 $(293,399) $(12,848) $(156,777)
==== ======== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 117
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in) operating
activities:
Net income (loss)............................ $ 5,809 $ 4,968 $ 34,257 $(63,637) $(160,800)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Net periodic postretirement benefits....... 650 585 2,750 2,731 2,206
Depreciation............................... 3,556 2,876 12,448 11,651 10,689
Amortization of goodwill................... 382 357 1,591 83,033 102,985
Amortization of other intangibles.......... 518 1,692 6,776 12,377 48,517
Amortization of deferred financing costs... 370 460 1,587 2,711 4,860
Recognition of net operating loss
carryforwards............................ -- 586 2,343 8,534 4,491
Deferred income taxes...................... -- (586) (1,836) (21,882) --
Noncash charges for discontinued
operations............................... -- 565 1,621 13,949 30,328
Gain on sale of discontinued operations.... -- -- (16,015) (8,480) --
Extraordinary item......................... -- -- -- 3,715 --
Changes in operating assets and liabilities:
Accounts receivable........................ (6,179) (2,577) (19,905) (10,166) (5,942)
Inventories................................ (13,502) (4,625) (17,228) (10,107) (7,541)
Prepaid expenses and other................. (52) (334) (1,628) (1,957) (291)
Accounts payable........................... (5,347) 358 20,605 3,498 2,818
Accrued and other liabilities.............. (6,246) (7,762) (5,757) (4,510) 2,963
Accrued interest........................... 7,370 7,249 (258) 643 (658)
Income taxes payable....................... 5,098 (1,513) (3,498) 1,379 (2,363)
Other long-term liabilities................ (1,562) (321) (3,152) (2,124) (2,519)
Discontinued operations.................... -- 903 285 97 1,465
-------- -------- --------- -------- ---------
Total adjustments................... (14,944) (2,087) (19,271) 85,092 192,008
-------- -------- --------- -------- ---------
Net cash provided by operating
activities........................ (9,135) 2,881 14,986 21,455 31,208
-------- -------- --------- -------- ---------
Cash flows provided by (used in) investing
activities:
Capital expenditures, net.................. (3,756) (2,395) (16,339) (11,447) (7,154)
Change in other assets..................... (349) 8,512 4,162 (4,399) (64)
Acquisitions, net of cash.................. (640) (27,755) (37,895) (74,011) (3,370)
Investing activities of discontinued
operations............................... -- (570) (1,680) (3,766) (5,133)
Proceeds from sale of discontinued
operations............................... -- -- 88,543 112,359 --
-------- -------- --------- -------- ---------
Net cash provided by (used in) investing
activities............................... (4,745) (22,208) 36,791 18,736 (15,721)
-------- -------- --------- -------- ---------
Cash flows provided by (used in) financing
activities:
Change in long-term receivables............ 263 17 170 (283) 47
Repayment of long-term obligations......... (10,592) (9,928) (131,486) (150,384) (26,263)
Borrowing of long-term obligations......... 22,370 33,683 72,855 119,854 505
Issuance of common stock................... 335 436 3,069 4,146 7,761
Change in accounts receivable
securitization........................... 376 4,631 5,676 (9,994) 731
Financing fees............................. -- -- -- (3,855) (189)
Financing activities of discontinued
operations............................... -- (1,227) (2,808) (1,732) (11)
Other...................................... (180) (2,168) 808 1,639 (3,516)
-------- -------- --------- -------- ---------
Net cash used in financing activities...... 12,572 25,444 (51,716) (40,609) (20,935)
-------- -------- --------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................ (1,308) 6,117 61 (418) (5,448)
Cash and cash equivalents at beginning of
year....................................... 1,481 1,420 1,420 1,838 7,286
-------- -------- --------- -------- ---------
Cash and cash equivalents at end of year..... $ 173 $ 7,537 $ 1,481 $ 1,420 $ 1,838
======== ======== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 118
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
Thermadyne Holdings Corporation ("Thermadyne" or "the Company"), a Delaware
corporation, is a global manufacturer of cutting and welding products and
accessories. Thermadyne's year end is December 31.
2. RECENT EVENTS
MERGER WITH MERCURY ACQUISITION CORPORATION
On January 20, 1998, the Company and Mercury Acquisition Corporation
("Mercury"), an affiliate of DLJ Merchant Banking Partners II, L.P. ("DLJ"),
entered into a definitive merger agreement (the "Merger Agreement"). Under the
terms of the Merger Agreement, Mercury will merge with and into the Company,
and, subject to the following sentence, the holders of each share of the
Company's common stock can elect to receive $34.50 in cash for such share or to
retain such share in the merged Company. In any event, holders will be required
to retain 485,010 shares, or 4.3%, of the Company's common stock outstanding
immediately prior to the merger. In addition, DLJ has entered into voting
agreements with Magten Asset Management (on behalf of itself and certain of its
clients) and Fidelity Capital and Income Fund, pursuant to which these current
shareholders, subject to certain conditions, have agreed to vote in favor of the
merger 5,942,708 shares of the Company's common stock owned by them. These
shares represent approximately 53% of the Company's common stock outstanding on
December 31, 1997.
The proposed merger, which will be recorded as a recapitalization for
accounting purposes, is subject to a number of conditions, including regulatory
approvals and approval by Company stockholders. The transaction is estimated to
have an aggregate value of approximately $790 million, including refinancing of
the Company's existing revolving credit facility and senior and subordinated
notes. The Company expects the merger to close by June 30, 1998.
As a result of the proposed merger, the Company and Mercury will incur
various costs, currently estimated to range between $50 million and $60 million,
on a pretax basis, in connection with consummating the transaction. These costs
consist primarily of professional fees, registration costs, compensation costs
and other expenses. Although the exact timing, nature and amount of these merger
transaction costs are subject to change, the Company expects that a one-time
charge for these costs will be recorded in the quarter during which the merger
is consummated.
ACQUISITIONS
On November 25, 1997, the Company acquired substantially all of the assets
of Woodland Cryogenics, Incorporated, a manufacturer of cryogenic pumps, ambient
and electric vaporizers and automatic cylinder filling systems located in
Philadelphia, Pennsylvania. The aggregate consideration paid was approximately
$2,500 and was financed through bank facilities. The transaction was accounted
for as a purchase.
On September 26, 1997, the Company acquired substantially all of the assets
of the welding division of Prestolite Power Corporation, a manufacturer of arc
welders, plasma welders and wire feeders, located in Troy, Ohio. The aggregate
consideration paid was approximately $7,500 and was financed through bank
facilities. The transaction was accounted for as a purchase.
On January 31, 1997, the Company acquired all of the issued and outstanding
capital stock of GenSet S.p.A., a leading manufacturer of engine-driven welders
and generators in Italy. The aggregate consideration paid was approximately
$28,000 and was financed through bank facilities. The transaction was accounted
for as a purchase.
F-7
<PAGE> 119
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 18, 1996, the Company acquired all of the issued and outstanding
capital stock of Duxtech Pty. Ltd., an Australian holding company that operates
Cigweld, the leading manufacturer of welding products in Australia and New
Zealand. The aggregate consideration paid was approximately $74,000 of which
approximately $21,500 was the assumption of existing debt. The remaining balance
was paid in cash which was financed through cash on hand and borrowing under the
Company's existing credit agreement. This transaction was accounted for as a
purchase.
<TABLE>
<S> <C>
Net working capital......................................... $21,220
Excess of cost over fair value of net assets acquired....... 31,002
Property, plant and equipment, at cost, net................. 29,083
Other long-term liabilities, net............................ (7,294)
-------
$74,011
=======
</TABLE>
The operating results of the acquired companies have been included in the
Consolidated Statements of Operations from their respective dates of
acquisition. The pro forma unaudited results of operations for the twelve months
ended December 31, 1997 and 1996, respectively, assuming consummation of the
purchases as of the beginning of each period, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales................................................... $544,140 $484,005
Income (loss) from from continuing operations............... 14,569 (63,804)
Net income (loss)........................................... 33,857 (64,502)
Basic per share amounts:
Income (loss) from continuing operations.................. 1.32 (5.91)
Net income (loss)......................................... 3.06 (5.97)
Diluted per share amounts:
Income (loss) from continuing operations.................. 1.28 (5.91)
Net income (loss)......................................... 2.97 (5.97)
</TABLE>
Such pro forma amounts are not necessarily indicative of what the actual
consolidated results of operations might have been if the acquisitions had been
effective at the beginning of each period above.
SALE OF DISCONTINUED OPERATIONS
On September 30, 1997, the Company completed the sale of its Wear
Resistance business for $96,000 which consisted of $88,500 in cash and $7,500 in
the assumption of long-term liabilities. The net proceeds were used to reduce
debt. The net assets of the Wear Resistance operations were classified as a
current asset on the Consolidated Balance Sheets at December 31, 1996, and their
financial results were reported separately as discontinued operations in the
Consolidated Statements of Operations. The Company realized a net gain of
$16,015 on this transaction, net of income taxes of $12,623.
F-8
<PAGE> 120
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net assets of discontinued operations included in the
Consolidated Balance Sheet at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Accounts receivable, net.................................... $17,819
Inventories................................................. 16,660
Prepaid expenses and other.................................. 327
Property, plant and equipment, at cost, net................. 14,323
Other noncurrent assets..................................... 2,732
Accounts payable and accrued liabilities.................... (13,235)
Long-term obligations....................................... (8,518)
Other long-term liabilities................................. (653)
-------
$29,455
=======
</TABLE>
On April 26, 1996, the Company completed the sale of substantially all of
the assets of Coyne Cylinder Company ("Coyne"), and on June 27, 1996, the
Company completed the sale of its Floor Maintenance business. Consideration
received from these two transactions totaled $137,000 and consisted of $112,359
in cash and $24,641 in the assumption or elimination of certain liabilities. The
Company realized a net gain of $8,480 on these two transactions, net of income
taxes of $14,732. The net proceeds were used to reduce debt. The financial
results of the Coyne and Floor Maintenance operations were reported separately
as discontinued operations in the Consolidated Statements of Operations.
Sales from the discontinued businesses totaled $76,163, $183,440 and
$259,772 for the years ended December 31, 1997, 1996 and 1995, respectively.
Certain expenses have been allocated to discontinued operations including
interest expense, which was allocated on a ratio of earnings before interest,
taxes, depreciation and amortization for the years presented. Interest expense
allocated to discontinued operations was $2,048, $7,630 and $11,413 for the
years ended December 31, 1997, 1996 and 1995, respectively. Income (loss) from
discontinued operations included in the accompanying Consolidated Statements of
Operations include immaterial amounts of income taxes (see Note 11).
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Thermadyne
and its wholly owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation. Certain amounts from prior
years have been reclassified to conform to current year presentation.
Preparation of financial statements in conformity with generally accepted
accounting principles requires certain estimates and assumptions be made that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Inventories -- Inventories are valued at the lower of cost or market. Cost
is determined using the last-in, first-out ("LIFO") method for domestic
subsidiaries and the first-in, first-out ("FIFO") method for foreign
subsidiaries. Inventories at foreign subsidiaries amounted to approximately
$46,798 and $33,567 at December 31, 1997 and 1996, respectively.
Property, Plant and Equipment -- Property, plant and equipment is carried
at cost and is depreciated using the straight-line method. The average estimated
lives utilized in calculating depreciation are as follows: buildings - 25 years;
and machinery and equipment -two to ten years.
Deferred Financing Costs -- The Company capitalizes loan origination fees
and other costs incurred arranging long-term financing. These costs are
amortized over the respective lives of the obligations using the effective
interest method.
F-9
<PAGE> 121
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangibles -- The excess of costs over the net tangible assets of
businesses acquired consists of assembled work forces, customer and distributor
relationships, patented and unpatented technology, and goodwill. In conjunction
with the 1993 financial reorganization of the Company, assets and liabilities
were revalued as of February 1, 1994. The assets were stated at their
reorganization value which is defined as the fair value of the reorganized
company (see Note 7). The portion of the reorganization value not attributable
to specific assets was amortized over a three-year period. Identified intangible
assets are amortized on a straight-line basis over the various estimated useful
lives of such assets, which generally range from three to 25 years. Goodwill
related to acquisitions subsequent to the financial reorganization is amortized
over 40 years.
Income Taxes -- The Company accounts for income taxes using the liability
method required by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under the liability method, deferred tax assets
and liabilities are recognized for the estimated future tax consequences
attributable to temporary differences between the carrying value of assets and
liabilities for financial reporting purposes and their tax bases and
carryforward items. The measurement of current and deferred tax assets and
liabilities is based on provisions of the enacted tax law; the effects of future
changes in tax laws or rates are not anticipated. The measurement of deferred
tax assets is reduced, if necessary, by the amount of any tax benefits that,
based on available evidence, are not expected to be realized.
Revenue Recognition -- Revenue from the sale of cutting and welding
products is recognized upon shipment to the customer. Costs and related expenses
to manufacture cutting and welding products are recorded as cost of sales when
the related revenue is recognized.
Earnings Per Share -- In 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share" ("FASB 128"). FASB 128 replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented to conform to the Statement 128 requirements.
The effects of options, warrants and convertible securities have not been
considered for the years ended December 31, 1996 and 1995 because the result
would be antidilutive. All exchange arrangements contemplated by the Company's
1994 financial restructuring are assumed to have been completed.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic earnings per share
amounts:
Income (loss) from continuing
operations before
extraordinary item......... $ 0.52 $ 0.36 $ 1.36 $ (5.83) $ (12.97)
Discontinued operations....... -- 0.09 1.73 0.28 (2.84)
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item......... 0.52 0.45 3.09 (5.55) (15.81)
Extraordinary item -- loss on
early extinguishment of
long-term debt............. -- -- -- (0.34) --
----------- ----------- ----------- ----------- -----------
Net income (loss)............. $ 0.52 $ 0.45 $ 3.09 $ (5.89) $ (15.81)
=========== =========== =========== =========== ===========
</TABLE>
F-10
<PAGE> 122
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Diluted earnings per share
amounts:
Income (loss) from continuing
operations before
extraordinary item......... $ 0.50 $ 0.35 $ 1.33 $ (5.83) $ (12.97)
Discontinued operations....... -- 0.09 1.68 0.28 (2.84)
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item......... 0.50 0.44 3.01 (5.55) (15.81)
Extraordinary item -- loss on
early extinguishment of
long-term debt............. -- -- -- (0.34) --
----------- ----------- ----------- ----------- -----------
Net income (loss)............. $ 0.50 $ 0.44 $ 3.01 $ (5.89) $ (15.81)
=========== =========== =========== =========== ===========
Weighted average shares -- basic
earnings per share............ 11,208,536 11,028,126 11,072,088 10,797,261 10,168,817
Effect of dilutive securities:
Employee stock options........ 328,064 287,571 296,109 -- --
----------- ----------- ----------- ----------- -----------
Weighted average
shares -- diluted earnings per
share......................... 11,536,600 11,315,697 11,368,197 10,797,261 10,168,817
=========== =========== =========== =========== ===========
</TABLE>
Stock Based Compensation -- The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant, and also through its Employee Stock Purchase
Plan enables substantially all employees to purchase shares of common stock at a
purchase price of 85% of the fair market value at specified dates. The Company
accounts for these stock option grants in accordance with Accounting Principles
Board Opinion No. 25 -- "Accounting for Stock Issued to Employees" ("APB 25"),
and, accordingly, recognizes no compensation expense for the stock option
grants.
Statement of Cash Flows -- For purposes of the statement of cash flows,
Thermadyne considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. The carrying value of cash and cash
equivalents approximates fair value because of the short maturity of these
investments.
The following table shows the interest and taxes paid during the periods
presented in the accompanying Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
THREE MONTHS ENDED
ENDED MARCH 31, YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1998 1997 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
-------------- -------------- ----------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest............. $3,538 $4,561 $48,683 $48,581 $46,148
Taxes................ (624) 3,801 12,276 11,409 8,527
</TABLE>
Foreign Currency Translation -- Local currencies have been designated as
the functional currencies for all subsidiaries. Accordingly, assets and
liabilities of foreign subsidiaries are translated at the rates of exchange at
the balance sheet date. Income and expense items of these subsidiaries are
translated at average monthly rates of exchange. The resultant translation gains
or losses are included in the component of shareholders' equity designated
"Foreign currency translation." The Company's foreign operations are discussed
in Note 13.
F-11
<PAGE> 123
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Recent Accounting Pronouncements -- As of January 1, 1998, the Company
adopted Statement 130, Reporting Comprehensive Income. Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. Statement 130 requires foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to the
requirements of Statement 130.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("FASB 131"), which requires
publicly-held companies to report financial and descriptive information about
its operating segments in financial statements issued to shareholders for
interim and annual periods. The statement also requires additional disclosures
with respect to products and services, geographical areas of operations, and
major customers. FASB 131 is effective for fiscal years beginning after December
15, 1997 and requires restatement of earlier periods presented.
4. ACCOUNTS RECEIVABLE
The Company has entered into a trade accounts receivable securitization
agreement whereby it will sell on an ongoing basis, through December 28, 1999,
participation interests in up to $50,000 of designated accounts receivable. The
amount of participation interests sold under this financing arrangement is
subject to change based on the level of eligible receivables and restrictions on
concentrations of receivables, and was approximately $28,305 and $22,629 at
December 31, 1997 and 1996, respectively. The sold accounts receivable are
reflected as a reduction of accounts receivable on the Consolidated Balance
Sheets. Interest expense is incurred on participation interests at the rate of
one-month LIBOR plus 50 basis points, per annum (approximately 6.48% at December
31, 1997). The fair value of accounts receivable approximates the carrying
value.
During the year ended December 31, 1997, the Company adopted FASB Statement
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("FASB 125"). FASB 125 is required to be applied
to transfers of assets occurring after January 1, 1997. The effect of adopting
FASB 125 was immaterial.
5. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------
1998 1997 1996
----------- -------- -------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials......................................... $ 20,612 $ 19,903 $14,128
Work-in-process....................................... 25,874 30,743 21,248
Finished goods........................................ 73,240 56,087 46,519
LIFO reserve.......................................... (760) (1,598) (2,353)
-------- -------- -------
$118,966 $105,135 $79,542
======== ======== =======
</TABLE>
F-12
<PAGE> 124
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment at December 31 is as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land........................................................ $ 14,071 $ 16,320
Building.................................................... 33,748 22,048
Machinery and equipment..................................... 68,008 59,749
Less: accumulated depreciation.............................. (30,570) (22,493)
-------- --------
$ 85,257 $ 75,624
======== ========
</TABLE>
Assets recorded under capitalized leases were $17,663 ($14,432 net of
accumulated depreciation) and $17,688 ($15,145 net of accumulated depreciation)
at December 31, 1997 and 1996, respectively.
7. INTANGIBLES
The composition of intangibles at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Goodwill.................................................... $39,532 $ 36,322
Patented and unpatented technology.......................... 279 17,311
Customer and distributor relationships...................... -- 18,182
Other....................................................... 2,759 9,958
------- --------
42,570 81,773
Less: accumulated amortization.............................. (8,600) (19,128)
------- --------
$33,970 $ 62,645
======= ========
</TABLE>
Prior to 1995, the Company assessed the recoverability of its identifiable
intangible assets primarily based on its current and anticipated future
undiscounted cash flows, which included disbursements for interest expense. In
the fourth quarter of 1995, the Company early adopted Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," ("FASB 121") and
consequently revalued amounts capitalized for customer and distributor
relationships and for patented and unpatented technology given recent
fundamental changes in its core businesses. Based on this revaluation, the
Company determined that assets with a carrying amount of $67,923 were impaired
and wrote them down by $32,972 to their estimated fair value. Fair value was
based on the estimated future cash flows to be generated by these assets,
discounted at a market rate of interest. The writedown is included in the
amortization of other intangibles line item on the Consolidated Statements of
Operations. In the fourth quarter of 1996, the carrying value of intangible
assets recorded in connection with the Company's financial reorganization was
reduced by approximately $2,400 resulting from the initial recognition of the
Company's net deferred tax asset. The carrying value of these intangibles was
further reduced during 1997 by approximately $26,000 upon the recognition of net
operating loss carryforward benefits and the sale of the Wear Resistance
business.
F-13
<PAGE> 125
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM OBLIGATIONS
The composition of long-term obligations at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Domestic credit agreement................................... $ 41,500 $101,000
Australian credit agreement................................. 18,057 22,666
Senior notes, due May 1, 2002, 10.25% interest payable
semiannually on May 1 and November 1...................... 99,288 99,288
Subordinated notes, due November 1, 2003, 10.75% interest
payable semiannually on May 1 and November 1.............. 179,321 179,321
Capital leases.............................................. 17,630 17,405
Other....................................................... 2,291 1,660
-------- --------
358,087 421,340
Less: Current maturities.................................... (4,912) (4,205)
-------- --------
$353,175 $417,135
======== ========
</TABLE>
At December 31, 1997, the schedule of principal payments on long-term debt,
excluding capital lease obligations, is as follows:
<TABLE>
<S> <C>
1998........................................................ $ 4,708
1999........................................................ 2,705
2000........................................................ 2,685
2001........................................................ 41,544
2002........................................................ 99,300
Thereafter.................................................. 189,515
</TABLE>
On June 25, 1996 the Company amended and restated its domestic credit
agreement (the "Domestic Facility") to a $250,000 revolving credit and letters
of credit facility with a consortium of 22 banks. The term is five years and the
banks' commitment reduces by $25,000 at the end of year three and by an
additional $75,000 at the end of year four. At the Company's option, interest
accrues at (i) the prime rate plus an applicable margin in the range of
0.5% -- 1.25% or, (ii) LIBOR plus an applicable margin in the range of
1.5% -- 2.25%. The applicable margin percentage is dependent upon the Company
meeting certain financial conditions. At December 31, 1997 the prime rate was
8.5%. The facility contains financial covenants which, among other things,
require the Company to maintain certain financial ratios and restrict the
Company's ability to incur indebtedness, make capital expenditures, and pay
dividends. The facility is secured by the capital stock, personal and real
property of the Company and a significant portion of its subsidiaries' capital
stock and personal and real property. At December 31, 1997 the Company had
$10,349 of standby letters of credit outstanding under its Domestic Facility.
Unused borrowing capacity under the Domestic Facility was $198,151.
The Australian credit agreement (the "Australian Facility") is denominated
in Australian dollars ("A$") and expires on December 31, 2000. The Australian
Facility consists of an A$15,000 term commitment and an A$22,000 revolving
credit commitment. The Australian Facility bears interest at the Bank Bill Rate
(as defined) plus a margin of 1.5% for the term commitment and 0.75% for the
revolving credit commitment. At December 31, 1997 the Company's average
applicable Bank Bill Rate (as defined) was 4.987%. Interest payment dates vary
depending on the funding period selected by the Company. Total mandatory
principal reductions under the term commitment for the remainder of its term are
as follows: 1998 -- A$3,000; 1999 -- A$4,000; and 2000 -- A$4,000. The facility
requires the Company's Australian subsidiary to comply with various financial
covenants. The facility is secured by personal and real property of
F-14
<PAGE> 126
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company's Australian subsidiary. At December 31, 1997 the Company had A$383
of letters of credit outstanding under the Australian Facility. Unused borrowing
capacity under the Australian Facility was A$1,500.
The indentures governing the senior notes and the subordinated notes
restrict, subject to certain exceptions, the Company and its subsidiaries from
incurring additional debt, paying dividends or making other distributions on or
redeeming or repurchasing capital stock, making investments, loans or advances,
disposing of assets, creating liens on assets and engaging in transactions with
affiliates.
The estimated fair value amounts of the Company's long-term obligations
have been determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgment is required to
develop the estimates of fair value; thus, the estimates provided herein are not
necessarily indicative of the amounts that could be realized in a current market
exchange. The use of different market assumptions or valuation methodologies may
have a material effect on the estimated fair value amounts. The fair value of
the senior notes and the subordinated notes was based on the most recent market
information available, and is estimated to be 104.25% and 107.0% of their
current carrying values at December 31, 1997, or $103,508 and $191,873,
respectively. The fair values of the credit agreement and the Company's other
long-term obligations are estimated at their current carrying values since these
obligations are fully secured and have varying interest charges based on current
market rates.
9. STOCK OPTIONS
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation"
("FASB 123"), requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FASB 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1997,
1996 and 1995, respectively: risk-free interest rates of 6.1%, 5.5% and 6.4%; a
dividend yield of 0.0% for each year presented; volatility factors of the
expected market price of the Company's common stock of 0.38, 0.39 and 0.42; and
a weighted-average expected life of the options of six years for each year
presented.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-15
<PAGE> 127
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Pro forma net income (loss).................. $32,239 $(64,574) $(161,588)
Pro forma net income (loss) per share:
Basic...................................... 2.91 (5.98) (15.89)
Diluted.................................... 2.84 (5.98) (15.89)
</TABLE>
Because FASB 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until future
periods.
The Company has three option plans for the grant of options to its
employees and directors. The 1993 Management Option Plan (the "1993 Management
Plan") provides for the grant of options to acquire up to 1,428,570 shares of
common stock to key officers and employees of the Company or its affiliates.
Grants under the 1993 Management Plan are exercisable in installments ranging
from immediately on the date of grant to not later than five years from the date
of grant. The Non-Employee Directors Plan (the "1995 Directors Plan") provides
for the grant of options to acquire up to 50,000 shares of common stock to
non-employee directors of the Company. Grants under the 1995 Directors Plan vest
immediately on the date of grant. The 1996 Employee Stock Option Plan (the "1996
Employee Plan") initially provided for the grant of options to acquire up to
300,000 shares of common stock to employees of the Company. This plan was
amended in 1996 to provide for the grant of options to acquire up to an
additional 500,000 shares of common stock. Grants under the 1996 Employee Plan
vest ratably over five years. All options granted under the three plans
described above are non-qualified stock options granted at 100% of the fair
market value on the grant dates.
Information regarding stock options is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year............................ 963,055 $14.27 913,000 $12.30 1,275,142 $12.00
Granted........................... 217,200 27.00 340,000 17.85 203,000 13.39
Exercised......................... (87,255) 12.38 (169,054) 12.01 (452,840) 12.00
Forfeited......................... (31,783) 18.32 (120,891) 12.62 (112,302) 12.10
--------- -------- ---------
Outstanding -- end of year........ 1,061,217 16.91 963,055 14.27 913,000 12.30
========= ======== =========
Exercisable at end of year:
1993 Management Plan............ 430,399 359,329 262,666
1995 Directors Plan............. 23,000 24,000 --
1996 Employee Plan.............. 39,355 -- --
Reserved for future grants:
1993 Management Plan............ 15,704 70,621 82,730
1995 Directors Plan............. 22,000 26,000 30,000
1996 Employee Plan.............. 470,500 97,000 300,000
Weighted-average fair value of
options granted during.......... $ 13.14 $ 8.49 $ 6.88
</TABLE>
F-16
<PAGE> 128
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LEASES
Future minimum lease payments related to continuing operations under leases
with initial or remaining noncancelable lease terms in excess of one year at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1998........................................................ $ 3,470 $ 8,855
1999........................................................ 3,644 8,209
2000........................................................ 3,627 7,131
2001........................................................ 3,614 5,955
2002........................................................ 3,608 4,725
Thereafter.................................................. 49,735 31,111
--------
Total minimum lease payments................................ 67,698
Less: amount representing interest.......................... (50,068)
--------
Present value of net minimum lease payments, including
current obligations of $204............................... $ 17,630
========
</TABLE>
Rent expense under operating leases from continuing operations amounted to
$9,358, $7,562 and $6,559 for the years ended December 31, 1997, 1996 and 1995,
respectively.
11. INCOME TAXES
Pre-tax income (losses) from continuing operations were taxed under the
following jurisdictions:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Domestic.............................. $31,104 $(69,694) $(123,954)
Foreign............................... (2,560) 6,221 624
------- -------- ---------
Income (loss) before income
taxes..................... $28,544 $(63,473) $(123,330)
======= ======== =========
</TABLE>
The provision (benefit) for income taxes charged to continuing operations
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current:
Federal............................. $11,014 $ 8,091 $6,010
Foreign............................. 1,064 1,785 1,147
State and local..................... 927 1,050 1,361
------- -------- ------
Total current............... 13,005 10,926 8,518
------- -------- ------
Deferred.............................. 470 (11,460) --
------- -------- ------
$13,475 $ (534) $8,518
======= ======== ======
</TABLE>
F-17
<PAGE> 129
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The composition of deferred tax assets and liabilities attributable to
continuing operations at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Post-employment benefits.................................. $ 9,214 $ 8,915
Accrued liabilities....................................... 3,316 5,054
Intangibles............................................... 14,408 6,025
Other..................................................... -- 476
Fixed assets.............................................. 6,992 --
Net operating loss carryforwards.......................... 29,761 31,504
------- -------
Total deferred tax assets......................... 63,691 51,974
Valuation allowance for deferred tax assets............... (22,731) (24,474)
------- -------
Net deferred tax assets........................... 40,960 27,500
------- -------
Deferred tax liabilities:
Inventories............................................... 4,562 4,923
Other..................................................... 846 --
Property, plant and equipment............................. -- 695
------- -------
Total deferred tax liabilities.................... 5,408 5,618
------- -------
Net deferred tax asset............................ $35,552 $21,882
======= =======
</TABLE>
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax rate
to pretax income from continuing operations as a result of the following
differences:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Tax at U.S. statutory rates....... $ 9,991 $(22,216) $(43,166)
Nondeductible goodwill
amortization and other
nondeductible expenses.......... 2,048 28,877 37,500
Change in valuation allowance,
recognition of net operating
loss carryforward benefits and
other........................... -- 6,318 12,370
Foreign tax rate differences and
recognition of foreign tax loss
benefits........................ 833 (393) 929
State income taxes, net of federal
tax benefit..................... 603 683 885
Initial recognition of net
deferred tax asset.............. -- (13,803) --
------- -------- --------
$13,475 $ (534) $ 8,518
======= ======== ========
</TABLE>
In the fourth quarter of 1996, the Company re-evaluated the realizability
of the net deferred tax asset. As a result, a net deferred tax asset of
approximately $22,000 was recorded on December 31, 1996. Of the total amount
recorded, approximately $8,000 was reported as an adjustment to the carrying
value of goodwill and other intangible assets. The balance was reported as a
reduction to income tax expense. A portion of the net adjustment for deferred
taxes has been allocated to discontinued operations. The valuation allowance
relates to
F-18
<PAGE> 130
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
net operating loss carryforwards existing on February 1, 1994, the effective
date of the Company's financial reorganization.
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $85,000 for U.S. income tax purposes that begin to expire in the
year 2001. The consummation of the financial reorganization resulted in an
ownership change under Section 382 of the Internal Revenue Code. As a result,
the Company's utilization of these losses to offset future U.S. taxable income
is limited to approximately $7,000 per year. Pursuant to the requirements of the
American Institute of Certified Public Accountants Statement of Position No.
90-7, entitled "Financial Entities in Reorganization Under the Bankruptcy Code",
to the extent net operating losses that existed on the effective date of the
Company's financial reorganization are recognized, the resulting tax benefit
will be reported as a direct addition to paid-in capital.
The Company's foreign subsidiaries have undistributed earnings at December
31, 1997. Those earnings are considered to be indefinitely reinvested and,
accordingly, no provision for U.S. federal and state income taxes has been
provided thereon. Upon distribution of those earnings in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes (subject to
an adjustment for foreign tax credits) and withholding taxes payable to the
various foreign countries. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable because of the complexities
associated with its hypothetical calculation.
12. EMPLOYEE BENEFIT PLANS
401(k) Retirement Plan -- The 401(k) Retirement Plan covers the majority of
the Company's domestic employees. The Company, at its discretion, can make a
base contribution of 1% of each employee's compensation and an additional
contribution equal to as much as 4% of the employee's compensation. At the
employee's discretion, an additional 1% to 15% voluntary employee contribution
can be made. The plan requires the Company to make a matching contribution of
50% of the first 6% of the voluntary employee contribution. Total expense for
this plan related to continuing operations was approximately $2,628, $2,585, and
$1,897 for the years ended December 31, 1997, 1996 and 1995, respectively.
Employee Stock Purchase Plan -- The Employee Stock Purchase Plan enables
substantially all employees of the Company to purchase shares of common stock at
a purchase price of 85% of the fair market value at specified dates. For plan
year 1997, the plan was amended to change the plan year to a calendar year
basis. For the plan year ended December 31, 1997, 1,098 employee participants
purchased 82,085 shares at an aggregate purchase price of $1,989. For the plan
year ended October 31, 1996, 1,090 employee participants purchased 145,584
shares at an aggregate purchase price of $2,119. In the initial plan year ended
October 31, 1995, 1,502 employee participants purchased 252,925 shares at an
aggregate purchase price of $2,327. A maximum of 1,000,000 shares is authorized
for purchase under the plan.
Other Postretirement Benefits -- The Company has several retirement plans
covering both salaried and nonsalaried retired employees, which provide
postretirement health care benefits (medical and dental) and life insurance
benefits. The postretirement health care plan is contributory, with retiree
contributions adjusted annually as determined by the Company based on claim
costs. The postretirement life insurance plan is noncontributory. The Company
recognizes the cost of postretirement benefits on the accrual basis as employees
render service to earn the benefit. The Company continues to fund the cost of
health care and life insurance benefits in the year incurred.
F-19
<PAGE> 131
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The postretirement benefit plans' combined benefit obligations related to
continuing operations at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees and surviving beneficiaries...................... $ 3,838 $ 5,156
Active employees eligible to retire....................... 720 1,420
Active employees not yet eligible to retire............... 7,452 9,411
Unrecognized gain......................................... 9,428 6,237
Unrecognized prior service cost........................... 1,927 64
------- -------
Unfunded accumulated postretirement benefit obligation and
accrued postretirement benefit cost.................... $23,365 $22,288
======= =======
</TABLE>
Net periodic postretirement benefit cost from continuing operations
included the following components:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Service cost-benefits attributed to service
during the period............................. $1,255 $1,365 $1,161
Interest cost on accumulated postretirement
benefit obligation............................ 1,496 1,564 1,094
Loss (gain) from past experience different from
that assumed and changes in assumptions....... (1) (198) (131)
------ ------ ------
Net periodic postretirement benefit cost........ $2,750 $2,731 $2,124
====== ====== ======
</TABLE>
In addition, for actuarial measurements purposes, the following assumptions
and methods were used: annual discount rate of 7% (7% at January 1, 1997),
medical claim cost trends with annual increases starting at 10.5% in 1996 and
decreasing incrementally to 6% in 2011 and thereafter. The medical cost trend
rate assumption has a significant effect on the amounts reported. To illustrate,
increasing the medical cost trend rate by 1% in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1997 by
approximately $1,900 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 1997, by approximately $307. The Company uses the amortization
method for recording gains or losses resulting from past experience different
from that assumed and changes in assumptions.
F-20
<PAGE> 132
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension Plans -- The Company's subsidiaries have had various
noncontributory defined benefit pension plans which covered substantially all
U.S. employees. The Company froze its three noncontributory defined benefit
pension plans through amendments to such plans effective December 31, 1989. All
former participants of these plans became eligible to participate in the 401(k)
Retirement Plan effective January 1, 1990. The following table sets forth the
funded status of the defined benefit plans and the amounts recognized in the
Company's consolidated financial statements:
Actuarial present value of benefit obligations at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Vested benefit obligation................................... $13,911 $13,476
Accumulated benefit obligation.............................. 14,356 13,975
Projected benefit obligation................................ 14,356 13,975
Plan assets at fair value................................... 12,126 11,667
------- -------
Projected benefit obligation in excess of plan
assets............................................... (2,230) (2,308)
Unrecognized net loss....................................... (54) 358
Unrecognized prior service cost............................. 122 145
Unrecognized net obligation at transition................... 2 5
Adjustment required to recognize minimum liability.......... -- (508)
------- -------
Accrued pension cost................................... $(2,160) $(2,308)
======= =======
</TABLE>
Pension cost related to the defined benefit plans included the following
components:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Service cost-benefits earned during the
period............................... $ -- $ -- $ --
Interest cost on projected benefit
obligation........................... 954 930 930
Actual return on plan assets........... (977) (1,135) (1,025)
Net amortization and deferral.......... 93 369 313
----- ------- -------
Net pension expense.................... $ 70 $ 164 $ 218
===== ======= =======
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligations ranged from 7% to 8%. The
assumed rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligations was 0%. The
expected long-term rate of return on assets ranged from 7% to 8%. Plan assets
consist principally of marketable equity securities and restricted and
unrestricted debt securities. The Company's funding policy is to contribute
annually an amount equal to meet the minimum funding standards of the Employee
Retirement Income Security Act of 1974 as determined by the plans' actuary.
F-21
<PAGE> 133
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. FOREIGN OPERATIONS
The Company's continuing operations are primarily in the United States,
Australia/Asia, Canada and Europe. Sales among geographic areas have been
eliminated in consolidation. Financial data by geographic area is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
United States............................... $333,871 $293,549 $273,106
Australia/Asia.............................. 109,984 105,337 4,989
Other foreign operations.................... 76,585 40,858 38,683
-------- -------- --------
$520,440 $439,744 $316,778
======== ======== ========
Sales from United States to foreign
operations.................................. $ 35,576 $ 30,932 $ 22,518
======== ======== ========
Export sales from United States............... $ 33,668 $ 25,402 $ 23,782
======== ======== ========
Operating income (loss):
United States............................... $ 71,639 $(22,899) $(80,103)
Australia/Asia.............................. 2,304 5,689 143
Other foreign operations.................... 4,564 3,071 2,656
$ 78,507 $(14,139) $(77,304)
======== ======== ========
Identifiable assets:
United States............................... $194,216 $189,153 $280,146
Australia/Asia.............................. 102,342 113,588 4,314
Other foreign operations.................... 57,969 21,209 59,077
Discontinued operations..................... -- 29,455 72,829
-------- -------- --------
$354,527 $353,405 $416,366
======== ======== ========
</TABLE>
14. CONTINGENCIES
Thermadyne and certain of its wholly owned subsidiaries are defendants in
various legal actions, primarily in the products liability area. While there is
uncertainty relating to any litigation, management is of the opinion that the
outcome of such litigation will not have a material adverse effect on the
Company's financial condition or results of operations.
The Company is party to an agreement with a financial institution to sell
at face value up to a total of $25,000 of its long-term receivables. The product
line that generated these long-term receivables has been divested, and
consequently, no further sales will occur. Under the terms of this agreement,
the Company is liable for a total of 20% of the aggregate receivables sold and
this liability approximates $4,000. The Company has further retained collection
and administrative responsibilities on behalf of the financial institution. The
Company has a secured interest in the inventory sold under these long-term
receivables which has been assigned to the financial institution. At December
31, 1997, approximately $3,666 in contracts subject to this agreement are
outstanding. Management believes the allowance for doubtful accounts at December
31, 1997 will be adequate for all uncollectible receivables.
F-22
<PAGE> 134
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUPPLEMENTARY UNAUDITED QUARTERLY DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Net sales............................ $117,751 $135,175 $131,902 $135,612 $520,440
Gross profit......................... 47,409 52,630 51,007 49,274 200,320
Income from continuing operations.... 3,932 5,581 4,045 1,511 15,069
Net income (loss).................... 4,968 6,783 22,995 (489) 34,257
Basic per share amounts:
Income from continuing
operations...................... 0.36 0.50 0.36 0.14 1.36
Net income (loss)................. 0.45 0.61 2.07 (0.04) 3.09
Diluted per share amounts:
Income from continuing
operations...................... 0.35 0.49 0.35 0.13 1.33
Net income (loss)................. 0.44 0.60 2.02 (0.04) 3.01
Year ended December 31, 1996:
Net sales............................ $102,233 $116,120 $110,820 $110,571 $439,744
Gross profit......................... 42,604 47,236 45,478 44,591 179,909
Loss from continuing operations...... (20,667) (20,657) (17,152) (4,463) (62,939)
Net loss............................. (21,867) (16,386) (19,616) (5,768)(1) (63,637)
Basic per share amounts:
Loss from continuing operations... (1.93) (1.92) (1.59) (0.41) (5.83)
Net loss.......................... (2.04) (1.53) (1.82) (0.53) (5.89)
Diluted per share amounts:
Loss from continuing operations... (1.93) (1.92) (1.59) (0.41) (5.83)
Net loss.......................... (2.04) (1.53) (1.82) (0.53) (5.89)
</TABLE>
- ---------------
(1) Reflects recognition of net deferred tax assets (see Note 11).
F-23
<PAGE> 135
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER
OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information.................. 2
Summary................................ 3
Risk Factors........................... 15
Use of Proceeds........................ 21
Capitalization......................... 22
Selected Financial Data................ 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 25
Business............................... 32
The Merger and Merger Financing........ 42
Management............................. 44
Executive Compensation................. 46
Security Ownership of Certain
Beneficial Owners and Management..... 50
Certain Relationships and Related
Transactions......................... 52
The Exchange Offer..................... 54
Description of New Credit Facility..... 61
Description of Senior Subordinated
Notes................................ 63
Description of New Debentures.......... 66
Certain United States Federal Income
Tax Consequences..................... 94
Plan of Distribution................... 95
Legal Matters.......................... 95
Experts................................ 95
Unaudited Condensed Consolidated Pro
Forma Financial Data................. P-1
Index to Financial Statements.......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
OFFER TO EXCHANGE
ALL OUTSTANDING
12 1/2% SENIOR DISCOUNT DEBENTURES
DUE 2008 FOR
12 1/2% SENIOR DISCOUNT DEBENTURES
DUE 2008
THERMADYNE HOLDINGS CORPORATION
--------------------
PROSPECTUS
--------------------
AUGUST , 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 136
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.
[ALTERNATE COVER FOR MARKET-MAKING PROSPECTUS]
SUBJECT TO COMPLETION, DATED AUGUST 4, 1998
PROSPECTUS
THERMADYNE HOLDINGS CORPORATION
12 1/2% SENIOR DISCOUNT DEBENTURES DUE 2008
The 12 1/2% Senior Discount Debentures due 2008 (the "New Debentures") were
issued by Thermadyne Holdings Corporation (the "Company") in exchange for the
12 1/2% Senior Discount Debentures due 2008 (the "Old Debentures") issued by the
Company. The form and terms of the New Debentures are identical to the form and
terms of the Old Debentures except that the New Debentures have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and do not
bear any legends restricting their transfer. The New Debentures evidence the
same debt as the Old Debentures and were issued pursuant to, and entitled to the
benefits of, the Indenture (as defined) governing the Old Debentures. See
"Description of New Debentures." The New Debentures and the Old Debentures are
sometimes collectively referred to herein as the "Debentures."
The New Debentures mature on June 1, 2008. The New Debentures accrete at a rate
of 12 1/2%, compounded semiannually, to an aggregate principal amount at
maturity of $174 million on June 1, 2003. Cash interest will not accrue on the
New Debentures prior to June 1, 2003. Commencing on June 1, 2003, cash interest
on the New Debentures will be payable, at a rate of 12 1/2% per annum, semi-
annually in arrears on each June 1 and December 1, commencing December 1, 2003.
See "Description of New Debentures."
The New Debentures are subject to redemption at any time on or after June 1,
2003 at the option of the Company, in whole or in part, in cash at the
redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined herein), if any, thereon to the applicable
redemption date. Notwithstanding the foregoing, on or prior to June 1, 2001, the
Company may redeem up to 100% of the aggregate principal amount at maturity of
Debentures ever issued under the Indenture in cash at a redemption price of
112.50% of the Accreted Value (as defined herein) thereof, plus Liquidated
Damages, if any, thereon to the redemption date, with the net cash proceeds of
one or more Public Equity Offerings (as defined herein); provided that, in the
event that the Company redeems less than 100% of the then outstanding
Debentures, at least 60% of the aggregate principal amount at maturity of
Debentures ever issued under the Indenture remains outstanding immediately after
the occurrence of any such redemption. In addition, at any time prior to June 1,
2003, the Issuer may, at its option upon the occurrence of a Change of Control
(as defined herein), redeem the New Debentures, in whole but not in part, in
cash at a redemption price equal to (i) the present value of the sum of all the
remaining premium and principal payments that would become due on the New
Debentures as if the New Debentures were to remain outstanding and be redeemed
on June 1, 2003, computed using a discount rate equal to the Treasury Rate (as
defined herein) plus 50 basis points, plus (ii) Liquidated Damages, if any, to
the date of redemption. Upon the occurrence of a Change of Control, each Holder
of New Debentures will have the right to require the Company to repurchase all
or any part of such Holder's New Debentures at an offer price in cash equal to
101% of the Accreted Value thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of repurchase. See "Description
of New Debentures."
The New Debentures are senior obligations of the Company. The New Debentures
rank pari passu in right of payment with all future senior indebtedness of the
Company and rank senior in right of payment to all future indebtedness of the
Company that is subordinated to the New Debentures. The New Debentures are
effectively subordinated to all liabilities of the Company's subsidiaries. On a
pro forma basis after giving effect to the Merger (as defined herein), including
the Merger Financing (as defined herein) and the application of the proceeds
therefrom, as of March 31, 1998, the Company (as defined herein) would have had
outstanding approximately $682.0 million of Indebtedness (as defined herein) and
the Company's subsidiaries would have had approximately $733.2 million of
liabilities outstanding, including Indebtedness under the Senior Subordinated
Notes (as defined herein) and the New Credit Facility (as defined herein) and
including trade payables.
- --------------------------------------------------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW DEBENTURES.
- --------------------------------------------------------------------------------
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 CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is to be used by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJSC") in connection with offers and sales in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale. The Company does not intend to list the New Debentures on any
securities exchange or to seek admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. DLJSC has advised
the Company that it intends to make a market in the New Debentures; however, it
is not obligated to do so and any market-making may be discontinued at any time.
The Company will receive no portion of the proceeds of the sale of the New
Debentures and will bear expenses incident to the registration thereof.
DONALDSON, LUFKIN & JENRETTE
THE DATE OF THIS PROSPECTUS IS AUGUST , 1998.
A-1
<PAGE> 137
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
TRADING MARKET FOR THE NEW DEBENTURES
There is no existing trading market for the New Debentures, and there can
be no assurance regarding the future development of a market for the New
Debentures or the ability of the Holders of the New Debentures to sell their New
Debentures or the price at which such Holders may be able to sell their New
Debentures. If such market were to develop, the New Debentures could trade at
prices that may be higher or lower than their initial offering price depending
on many factors, including prevailing interest rates, the Company's operating
results and the market for similar securities. Although it is not obligated to
do so, DLJSC intends to make a market in the New Debentures. Any such
market-making activity may be discontinued at any time, for any reason, without
notice at the sole discretion of DLJSC. No assurance can be given as to the
liquidity of or the trading market for the New Debentures.
DLJSC may be deemed to be an affiliate of the Company and, as such, may be
required to deliver a prospectus in connection with its market-making activities
in the New Debentures. Pursuant to the Registration Rights Agreement, the
Company agreed to use its best efforts to file and maintain a registration
statement that would allow DLJSC to engage in market-making transactions in the
New Debentures for up to 90 days from the date on which the Exchange Offer is
consummated. The Company has agreed to bear substantially all the costs and
expenses related to such registration statement.
A-2
<PAGE> 138
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the New
Debentures by DLJSC in market-making transactions. The Company will not receive
any of the proceeds from such transactions.
A-3
<PAGE> 139
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This Prospectus is to be used by DLJSC in connection with offers and sales
of the New Debentures in market-making transactions effected from time to time.
DLJSC may act as a principal or agent in such transactions, including as agent
for the counterparty when acting as principal or as agent for both
counterparties, and may receive compensation in the form of discounts and
commissions, including from both counterparties when it acts as agent for both.
Such sales will be made at prevailing market prices at the time of sale, at
prices related thereto or at negotiated prices.
DLJMB, an affiliate of DLJSC, and certain of its affiliates beneficially
own approximately 82.5% of the common stock of the Company. Peter T. Grauer, a
principal of DLJMB, is a member of the Board of Directors of Thermadyne LLC,
Thermadyne Capital and the Company; William F. Dawson, Jr., a principal of
DLJMB, is a member of the Board of Directors of Thermadyne LLC, Thermadyne
Capital and the Company; and Lawrence M.v.D. Schloss, a principal of DLJMB, is a
member of the Board of Directors of the Company. Further, DLJ Capital Funding,
Inc., an affiliate of DLJSC, acted as documentation agent in connection with the
New Credit Facility for which it received certain customary fees and expenses.
In addition, DLJSC received a merger advisory fee of $4.0 million in cash from
the Company after the consummation of the Merger. DLJSC has informed the Company
that it does not intend to confirm sales of the New Debentures to any accounts
over which it exercises discretionary authority without the prior specific
written approval of such transactions by the customer.
The Company has been advised by DLJSC that, subject to applicable laws and
regulations, the Initial Purchaser currently intends to make a market in the New
Debentures following completion of the Exchange Offer. However, DLJSC is not
obligated to do so and any such market-making may be interrupted or discontinued
at any time without notice. In addition, such market-making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act. There
can be no assurance that an active trading market will develop or be sustained.
See "Risk Factors -- Trading Market for the New Debentures."
DLJSC has, from time to time, provided investment banking and other
financial advisory services to the Company in the past for which they have
received customary compensation, including fees received in connection with the
offering of the Debentures, and may provide such services and financial advisory
services to the Company in the future. DLJSC acted as purchasers in connection
with the initial sale of the Debentures and the Senior Subordinated Notes and
received an underwriting discount of approximately $9 million in connection
therewith. See "Certain Relationships and Related Transactions."
DLJSC and the Company have entered into the Registration Rights Agreement
with respect to the use by the Initial Purchaser of this Prospectus. Pursuant to
such agreement, the Company agreed to bear all registration expenses incurred
under such agreement, and the Company agreed to indemnify DLJSC against certain
liabilities, including liabilities under the Securities Act.
A-4
<PAGE> 140
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER
OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information.................. 2
Summary................................ 3
Risk Factors........................... 15
Use of Proceeds........................ 21
Capitalization......................... 22
Selected Financial Data................ 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 25
Business............................... 32
The Merger and Merger Financing........ 42
Management............................. 44
Executive Compensation................. 46
Security Ownership of Certain
Beneficial Owners and Management..... 50
Certain Relationships and Related
Transactions......................... 52
Description of New Credit Facility..... 54
Description of Senior Subordinated
Notes................................ 56
Description of New Debentures.......... 59
Plan of Distribution................... 87
Legal Matters.......................... 87
Experts................................ 87
Unaudited Condensed Consolidated Pro
Forma Financial Data................. P-1
Index to Financial Statements.......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
12 1/2% SENIOR DISCOUNT DEBENTURES
DUE 2008
THERMADYNE HOLDINGS CORPORATION
--------------------
PROSPECTUS
--------------------
AUGUST , 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 141
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the issuance and distribution of the securities
being registered are estimated (other than with respect to the SEC registration
fee) to be as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 27,910.36
Printing and Engraving Expenses............................. 95,000.00
Accounting Fees and Expenses................................ 2,500.00
Legal Fees and Expenses..................................... 25,000.00
Miscellaneous............................................... 5,500.00
-----------
Total............................................. $155,910.36
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") permits a corporation to indemnify any of its directors or officers who
was or is a party, or is threatened to be made a party to any third party
proceeding by reason of the fact that such person is or was a director or
officer of the corporation, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, if such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reason to believe that such person's
conduct was unlawful. In a derivative action, i.e., one by or in the right of
the corporation, the corporation is permitted to indemnify directors and
officers against expenses (including attorneys' fees) actually and reasonably
incurred by them in connection with the defense or settlement of an action or
suit if they acted in good faith and in a manner that they reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made if such person shall have been adjudged liable to
the corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the defendant
directors or officers are fairly and reasonably entitled to indemnity for such
expenses despite such adjudication of liability.
Article Eighth of the Company's Amended and Restated Certificate of
Incorporation makes mandatory indemnification expressly authorized under the
DGCL for directors of the Company. With respect to officers of the Company,
Article Eighth of the Company's Amended and Restated Certificate of
Incorporation provides indemnification to such extent and to such effect as the
Board of Directors shall determine to be appropriate and authorized by Delaware
law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person thereof in the successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the Company 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 of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-1
<PAGE> 142
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the merger of Mercury Acquisition Corporation
("Mercury") with and into the Registrant, Mercury issued 2,608,696 shares of its
common stock, 2,000,000 shares of its preferred stock and warrants to purchase
353,428 shares of its common stock for approximately $140 million. As a result
of the merger, each share of common stock of Mercury became a share of common
stock of the Registrant, each share of preferred stock of Mercury became a share
of preferred stock of the Registrant and each warrant to purchase common stock
of Mercury became exercisable for an equal number of shares of common stock of
the Registrant.
On May 22, 1998, the Registrant sold $174,000,000 aggregate principal
amount at maturity of its 12 1/2% Senior Discount Debentures due 2008 (the "Old
Debentures") to Donaldson, Lufkin & Jenrette Securities Corporation (the
"Initial Purchaser") in a private placement in reliance on Section 4(2) under
the Securities Act, at a price equal to 54.374% of the stated principal amount
of such Old Debentures. The Old Debentures were immediately resold by the
Initial Purchasers in reliance on Rule 144A promulgated under the Securities
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
2.1 -- First Amended and Restated Plan of Reorganization of TDII
Company under Chapter 11 of the Bankruptcy Code,
confirmed by the United States Bankruptcy Court, District
of Delaware, on January 18, 1994.(1)
2.2 -- Agreement and Plan of Merger, dated as of January 20,
1998, between Thermadyne Holdings Corporation and Mercury
Acquisition Corporation.(2)
2.3 -- Amendment No. 1 to Agreement and Plan of Merger between
Thermadyne Holdings Corporation and Mercury Acquisition
Corporation.**
2.4 -- Certificate of Merger of Mercury Acquisition Corporation
with and into Thermadyne Holdings Corporation.**
3.1 -- Certificate of Incorporation of Thermadyne Holdings
Corporation(included in Exhibit 2.4).
3.2 -- Bylaws of Thermadyne Holdings Corporation.**
4.1 -- Indenture, dated as of May 22, 1998, between Mercury
Acquisition Corporation and IBJ Schroder Bank & Trust
Company, as Trustee.**
4.2 -- First Supplemental Indenture, dated as of May 22, 1998,
between Thermadyne Holdings Corporation and IBJ Schroder
Bank & Trust Company, as Trustee.**
4.3 -- Form of 12 1/2% Senior Discount Debenture.**
4.4 -- A/B Exchange Registration Rights Agreement dated as of
May 22, 1998, among Mercury Acquisition Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation.**
4.5 -- Amendment to Registration Rights Agreement dated May 22,
1998, among Thermadyne Holdings Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation.**
5.1 -- Opinion of Weil, Gotshal & Manges LLP.*
10.1 -- Omnibus Agreement, dated as of June 3, 1988, among Palco
Acquisition Company (now Thermadyne Holdings Corporation)
and its subsidiaries and National Warehouse Investment
Company.(4)
10.2 -- Escrow Agreement, dated as of August 11, 1988, among
National Warehouse Investment Company, Palco Acquisition
Company (now Thermadyne Holdings Corporation) and Title
Guaranty Escrow Services, Inc.(4)
</TABLE>
II-2
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
10.3 -- Amended and Restated Industrial Real Property Lease dated
as of August 11, 1988, between National Warehouse
Investment Company and Tweco Products, Inc., as amended
by First Amendment to Amended and Restated Industrial
Real Property Lease dated as of January 20, 1989.(4)
10.4 -- Schedule of substantially identical lease agreements.(4)
10.5 -- Amended and Restated Continuing Lease Guaranty, made as
of August 11, 1988, by Palco Acquisition Company (now
Thermadyne Holdings Corporation) for the benefit of
National Warehouse Investment Company.(4)
10.6 -- Schedule of substantially identical lease guaranties.(4)
10.7 -- Lease Agreement, dated as of October 10, 1990, between
Stoody Deloro Stellite and Bowling Green-Warren County
Industrial Park Authority, Inc.(4)
10.8 -- Lease Agreement, dated as of February 15, 1985, as
amended, between Stoody Deloro Stellite, Inc. and
Corporate Property Associates 6.(4)
10.9 -- Receivables Purchase Agreement, dated as of December 28,
1994, among Thermadyne Receivables, Inc., as Transferor,
and NationsBank of Virginia, N.A., as Trustee.(5)
10.10 -- Purchase Agreement, dated as of August 2, 1994, between
Coyne Cylinder Company and BA Credit Corporation.(5)
10.11 -- Sublease Agreement, dated as of April 7, 1994, between
Stoody Deloro Stellite, Inc., and Swat, Inc.(5)
10.12 -- Share Sale Agreement dated as of November 18, 1995, among
certain scheduled persons and companies, Rosny Pty
Limited, Byron Holdings Limited, Thermadyne Holdings
Corporation, and Thermadyne Australia Pty Limited
relating to the sale of the Cigweld Business.(6)
10.13 -- Sublease Agreement, dated March 15, 1993, by and between
Stoody Deloro Stellite, Inc. and Lima Transportation.(7)
10.14 -- First Amendment to Standard Industrial Lease, dated June
27, 1995, by and between Stoody Deloro Stellite, Inc. and
Lima Transportation.(7)
10.15 -- Rights Agreement dated as of May 1, 1997, between
Thermadyne Holdings Corporation and BankBoston, N.A., as
Rights Agent.(8)
10.16 -- First Amendment to Rights Agreement, dated January 20,
1998, between Thermadyne Holdings Corporation and
BankBoston, N.A.(2)
10.17 -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Randall E.
Curran.**
10.18 -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and James H.
Tate.**
10.19 -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Stephanie N.
Josephson.**
10.20 -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Thomas C.
Drury.**
10.21 -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Robert D.
Maddox.**
10.22 -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Randall E. Curran.**
10.23 -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and James H. Tate.**
10.24 -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Stephanie N. Josephson.**
10.25 -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Thomas C. Drury.**
</TABLE>
II-3
<PAGE> 144
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
10.26 -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Robert D. Maddox.**
10.27 -- Thermadyne Holdings Corporation Management Incentive
Plan.**
10.28 -- Thermadyne Holdings Corporation Direct Investment Plan.**
10.29 -- Investors' Agreement dated as of May 22, 1998, between
Thermadyne Holdings Corporation, the DLJ Entities (as
defined therein) and the Management Stockholders (as
defined therein).**
10.30 -- Indenture, dated May 22, 1998, between Thermadyne Mfg.
LLC, Thermadyne Capital Corp., the guarantors named
therein and State Street Bank and Trust Company, as
Trustee.**
10.31 -- Form of 9 7/8% Senior Subordinated Note.**
10.32 -- A/B Exchange Registration Rights Agreement dated as of
May 22, 1998, between Thermadyne Mfg. LLC, Thermadyne
Capital Corp., the guarantors named therein, and
Donaldson, Lufkin & Jenrette Securities Corporation.**
10.33 -- Credit Agreement dated as of May 22, 1998, among
Thermadyne Mfg. LLC, Comweld Group Pty. Ltd., Genset
S.p.A. and Thermadyne Welding Products Canada Limited, as
Borrowers, Various Financial Institutions, as Lenders,
DLJ Capital Funding, Inc., as Syndication Agent, Societe
Generale, as Documentation Agent, and ABN Amro Bank N.V.,
as Administrative Agent.**
10.34 -- Letter Agreement dated as of January 16, 1998, between
Donaldson, Lufkin & Jenrette Securities Corporation and
DLJ Merchant Banking II, Inc.**
10.35 -- Assignment and Assumption Agreement dated as of May 22,
1998, between DLJ Merchant Banking II, Inc. and
Thermadyne Holdings Corporation.**
12.1 -- Computation of Ratio of Earnings to Fixed Charges.(9)
21.1 -- Subsidiaries of Thermadyne Holdings Corporation.**
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.*
23.2 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5.1 to the Registration
Statement).
24.1 -- Powers of Attorney.**
25.1 -- Statement of Eligibility and Qualification of IBJ
Schroder Bank & Trust Company, as trustee, under the
Indenture listed as Exhibit 4.1 hereto on Form T-1.*
99.2 -- Form of Letter of Transmittal.*
99.3 -- Form of Notice of Guaranteed Delivery.*
99.4 -- Form of Exchange Agency Agreement.*
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
(1) Incorporated by reference to the Company's Registration Statement on Form
10 (File No. 0-23378) filed under Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), on February 7, 1994.
(2) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23378) filed under Section 12(g) of the Exchange Act on January 21,
1998.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
(4) Incorporated by reference to the Company's Registration Statement on Form
10/A, Amendment No. 2 (File No. 0-23378) filed under Section 12(g) of the
Exchange Act, on April 28, 1994.
II-4
<PAGE> 145
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(6) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23378) filed under Section 12(g) of the Exchange Act on January 18,
1996.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(8) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23378) filed under Section 12(g) of the Exchange Act on May 12, 1997.
(9) Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-46631).
(b) Financial Statement Schedules
Financial Statement Schedules of Thermadyne Holdings Corporation and
subsidiaries for the years ended December 31, 1995, 1996 and 1997:
Schedule II Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) See Item 14.
II-5
<PAGE> 146
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized on August 4, 1998.
THERMADYNE HOLDINGS CORPORATION
By: /s/ JAMES H. TATE
------------------------------------
James H. Tate
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Chairman of the Board, President August 4, 1998
- ----------------------------------------------------- and Chief Executive Officer
Randall E. Curran (principal executive officer)
/s/ JAMES H. TATE Director, Senior Vice President August 4, 1998
- ----------------------------------------------------- and Chief Financial Officer
James H. Tate (principal financial and
accounting officer)
* Director August 4, 1998
- -----------------------------------------------------
Peter T. Grauer
* Director August 4, 1998
- -----------------------------------------------------
William F. Dawson, Jr.
* Director August 4, 1998
- -----------------------------------------------------
John F. Fort III
* Director August 4, 1998
- -----------------------------------------------------
Harold A. Poling
* Director August 4, 1998
- -----------------------------------------------------
Lawrence M.v.D. Schloss
By: /s/ JAMES H. TATE
-------------------------------------------------
James H. Tate
Attorney-in-fact
</TABLE>
II-6
<PAGE> 147
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Thermadyne Holdings Corporation
We have audited the consolidated financial statements of Thermadyne
Holdings Corporation as of December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997 and have issued our report thereon
dated February 5, 1998. Our audits also included the accompanying financial
statement schedule. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Orange County, California
February 5, 1998
S-1
<PAGE> 148
SCHEDULE II
THERMADYNE HOLDINGS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLLECTION
BALANCE AT OF PREVIOUSLY EFFECT OF BALANCE
BEGINNING WRITTEN OFF DISCONTINUED AT END
ALLOWANCE FOR DOUBTFUL ACCOUNTS OF PERIOD PROVISION WRITEOFFS ACCOUNTS OPERATIONS OF PERIOD
- ------------------------------- ---------- --------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997... $1,649 $ 875 $315 $ 8 $ 0 $2,217
Year ended December 31, 1996... 1,888 975 785 57 486 1,649
Year ended December 31, 1995... 2,565 1,205 621 21 1,282 1,888
</TABLE>
S-2
<PAGE> 149
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- First Amended and Restated Plan of Reorganization of TDII
Company under Chapter 11 of the Bankruptcy Code,
confirmed by the United States Bankruptcy Court, District
of Delaware, on January 18, 1994.(1)
2.2 -- Agreement and Plan of Merger, dated as of January 20,
1998, between Thermadyne Holdings Corporation and Mercury
Acquisition Corporation.(2)
2.3 -- Amendment No. 1 to Agreement and Plan of Merger between
Thermadyne Holdings Corporation and Mercury Acquisition
Corporation.**
2.4 -- Certificate of Merger of Mercury Acquisition Corporation
with and into Thermadyne Holdings Corporation.**
3.1 -- Certificate of Incorporation of Thermadyne Holdings
Corporation(included in Exhibit 2.4).
3.2 -- Bylaws of Thermadyne Holdings Corporation.**
4.1 -- Indenture, dated as of May 22, 1998, between Mercury
Acquisition Corporation and IBJ Schroder Bank & Trust
Company, as Trustee.**
4.2 -- First Supplemental Indenture, dated as of May 22, 1998,
between Thermadyne Holdings Corporation and IBJ Schroder
Bank & Trust Company, as Trustee.**
4.3 -- Form of 12 1/2% Senior Discount Debenture.**
4.4 -- A/B Exchange Registration Rights Agreement dated as of
May 22, 1998, among Mercury Acquisition Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation.**
4.5 -- Amendment to Registration Rights Agreement dated May 22,
1998, among Thermadyne Holdings Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation.**
5.1 -- Opinion of Weil, Gotshal & Manges LLP.*
10.1 -- Omnibus Agreement, dated as of June 3, 1988, among Palco
Acquisition Company (now Thermadyne Holdings Corporation)
and its subsidiaries and National Warehouse Investment
Company.(4)
10.2 -- Escrow Agreement, dated as of August 11, 1988, among
National Warehouse Investment Company, Palco Acquisition
Company (now Thermadyne Holdings Corporation) and Title
Guaranty Escrow Services, Inc.(4)
10.3 -- Amended and Restated Industrial Real Property Lease dated
as of August 11, 1988, between National Warehouse
Investment Company and Tweco Products, Inc., as amended
by First Amendment to Amended and Restated Industrial
Real Property Lease dated as of January 20, 1989.(4)
10.4 -- Schedule of substantially identical lease agreements.(4)
10.5 -- Amended and Restated Continuing Lease Guaranty, made as
of August 11, 1988, by Palco Acquisition Company (now
Thermadyne Holdings Corporation) for the benefit of
National Warehouse Investment Company.(4)
10.6 -- Schedule of substantially identical lease guaranties.(4)
10.7 -- Lease Agreement, dated as of October 10, 1990, between
Stoody Deloro Stellite and Bowling Green-Warren County
Industrial Park Authority, Inc.(4)
10.8 -- Lease Agreement, dated as of February 15, 1985, as
amended, between Stoody Deloro Stellite, Inc. and
Corporate Property Associates 6.(4)
10.9 -- Receivables Purchase Agreement, dated as of December 28,
1994, among Thermadyne Receivables, Inc., as Transferor,
and NationsBank of Virginia, N.A., as Trustee.(5)
</TABLE>
<PAGE> 150
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.10 -- Purchase Agreement, dated as of August 2, 1994, between
Coyne Cylinder Company and BA Credit Corporation.(5)
10.11 -- Sublease Agreement, dated as of April 7, 1994, between
Stoody Deloro Stellite, Inc., and Swat, Inc.(5)
10.12 -- Share Sale Agreement dated as of November 18, 1995, among
certain scheduled persons and companies, Rosny Pty
Limited, Byron Holdings Limited, Thermadyne Holdings
Corporation, and Thermadyne Australia Pty Limited
relating to the sale of the Cigweld Business.(6)
10.13 -- Sublease Agreement, dated March 15, 1993, by and between
Stoody Deloro Stellite, Inc. and Lima Transportation.(7)
10.14 -- First Amendment to Standard Industrial Lease, dated June
27, 1995, by and between Stoody Deloro Stellite, Inc. and
Lima Transportation.(7)
10.15 -- Rights Agreement dated as of May 1, 1997, between
Thermadyne Holdings Corporation and BankBoston, N.A., as
Rights Agent.(8)
10.16 -- First Amendment to Rights Agreement, dated January 20,
1998, between Thermadyne Holdings Corporation and
BankBoston, N.A.(2)
10.17 -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Randall E.
Curran.**
10.18 -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and James H.
Tate.**
10.19 -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Stephanie N.
Josephson.**
10.20 -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Thomas C.
Drury.**
10.21 -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Robert D.
Maddox.**
10.22 -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Randall E. Curran.**
10.23 -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and James H. Tate.**
10.24 -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Stephanie N. Josephson.**
10.25 -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Thomas C. Drury.**
10.26 -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Robert D. Maddox.**
10.27 -- Thermadyne Holdings Corporation Management Incentive
Plan.**
10.28 -- Thermadyne Holdings Corporation Direct Investment Plan.**
10.29 -- Investors' Agreement dated as of May 22, 1998, between
Thermadyne Holdings Corporation, the DLJ Entities (as
defined therein) and the Management Stockholders (as
defined therein).**
10.30 -- Indenture, dated May 22, 1998, between Thermadyne Mfg.
LLC, Thermadyne Capital Corp., the guarantors named
therein and State Street Bank and Trust Company, as
Trustee.**
10.31 -- Form of 9 7/8% Senior Subordinated Note.**
</TABLE>
<PAGE> 151
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.32 -- A/B Exchange Registration Rights Agreement dated as of
May 22, 1998, between Thermadyne Mfg. LLC, Thermadyne
Capital Corp., the guarantors named therein, and
Donaldson, Lufkin & Jenrette Securities Corporation.**
10.33 -- Credit Agreement dated as of May 22, 1998, among
Thermadyne Mfg. LLC, Comweld Group Pty. Ltd., Genset
S.p.A. and Thermadyne Welding Products Canada Limited, as
Borrowers, Various Financial Institutions, as Lenders,
DLJ Capital Funding, Inc., as Syndication Agent, Societe
Generale, as Documentation Agent, and ABN Amro Bank N.V.,
as Administrative Agent.**
10.34 -- Letter Agreement dated as of January 16, 1998, between
Donaldson, Lufkin & Jenrette Securities Corporation and
DLJ Merchant Banking II, Inc.**
10.35 -- Assignment and Assumption Agreement dated as of May 22,
1998, between DLJ Merchant Banking II, Inc. and
Thermadyne Holdings Corporation.**
12.1 -- Computation of Ratio of Earnings to Fixed Charges.(9)
21.1 -- Subsidiaries of Thermadyne Holdings Corporation.**
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.*
23.2 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5.1 to the Registration
Statement).
24.1 -- Powers of Attorney.**
25.1 -- Statement of Eligibility and Qualification of IBJ
Schroder Bank & Trust Company, as trustee, under the
Indenture listed as Exhibit 4.1 hereto on Form T-1.*
99.2 -- Form of Letter of Transmittal.*
99.3 -- Form of Notice of Guaranteed Delivery.*
99.4 -- Form of Exchange Agency Agreement.*
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
(1) Incorporated by reference to the Company's Registration Statement on Form
10 (File No. 0-23378) filed under Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), on February 7, 1994.
(2) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23378) filed under Section 12(g) of the Exchange Act on January 21,
1998.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
(4) Incorporated by reference to the Company's Registration Statement on Form
10/A, Amendment No. 2 (File No. 0-23378) filed under Section 12(g) of the
Exchange Act, on April 28, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(6) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23378) filed under Section 12(g) of the Exchange Act on January 18,
1996.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(8) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23378) filed under Section 12(g) of the Exchange Act on May 12, 1997.
(9) Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-46631).
<PAGE> 1
EXHIBIT 5.1
[WEIL, GOTSHAL & MANGES LLP LETTERHEAD]
August 4, 1998
Thermadyne Holdings Corporation
101 South Hanley Road, Suite 300
St. Louis, Missouri 63105
Ladies and Gentlemen:
We have acted as counsel to Thermadyne Holdings Corporation, a
Delaware corporation (the "Company"), in connection with the preparation and
filing by the Company of a Registration Statement on Form S-1 (Registration No.
333- 57455) (the "Registration Statement"), filed with the Securities and
Exchange Commission on June 23, 1998 under the Securities Act of 1933, as
amended, relating to $174,000,000 aggregate principal amount at maturity of 12
1/2% Senior Discount Debentures due 2008 (the "New Debentures") of the Company.
The Company proposes to offer (the "Exchange Offer"), upon the terms set forth
in the Prospectus contained in the Registration Statement, to exchange $1,000
principal amount at maturity of New Debentures for each $1,000 principal amount
at maturity of issued and outstanding 12 1/2% Senior Discount Debentures due
2008 (the "Old Debentures") of the Company. The New Debentures will be issued
under the Indenture, dated May 22, 1998, by and between the Company and IBJ
Schroder Bank & Trust Company (the "Trustee") (as amended or supplemented to
the date hereof, the "Indenture").
In so acting, we have examined originals or copies, certified
or otherwise identified to our satisfaction, of the Indenture, the form of New
Debentures set forth in the Indenture and such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of the Company, and
have made such inquiries of such officers and representatives as we have deemed
relevant and necessary as a basis for the opinion hereinafter set forth.
<PAGE> 2
Thermadyne Holdings Corporation
August 4, 1998
Page 2
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. As to all
questions of fact material to this opinion that have not been independently
established, we have relied upon certificates or comparable documents of
officers and representatives of the Company.
Based on the foregoing, and subject to the qualifications
stated herein, we are of the opinion that, assuming that the Indenture has been
duly authorized, executed and delivered by the Trustee, when (i) the New
Debentures issuable upon consummation of the Exchange Offer have been duly
executed by the Company and authenticated by the Trustee in accordance with the
terms of the Indenture and (ii) the New Debentures issuable upon consummation
of the Exchange Offer have been duly delivered against receipt of Old
Debentures surrendered in exchange therefor, the New Debentures issuable upon
consummation of the Exchange Offer will constitute the legal, valid and binding
obligations of the Company, enforceable against it in accordance with their
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
The opinion expressed herein is limited to the laws of the
State of New York, the corporate laws of the State of Delaware and the federal
laws of the United States, and we express no opinion as to the effect on the
matters covered by this letter of the laws of any other jurisdiction.
The opinion expressed herein is rendered solely for your
benefit in connection with the transactions described herein. The opinion may
not be used or relied upon by any other person, nor may this letter or any
copies thereof be furnished to a third party, filed with a governmental agency,
quoted, cited or otherwise referred to without our prior written consent.
<PAGE> 3
Thermadyne Holdings Corporation
August 4, 1998
Page 3
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 5, 1998, in the Form S-1 Registration
Statement and related Prospectus of Thermadyne Holdings Corporation, to be filed
with the Securities and Exchange Commission on or about August 4, 1998.
/s/ ERNST & YOUNG LLP
Orange County, California
August 4, 1998
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)_
-------------------------
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-5375195
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
(212) 858-2000
(Name, address and telephone number of agent for service)
THERMADYNE HOLDINGS CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 74-2482571
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South Hanley Road, Suite 300
St. Louis, Missouri 63105
(Address of principal executive offices) (Zip code)
-------------------------
12 1/2% SENIOR DISCOUNT DEBENTURES DUE 2008
(Title of indenture securities)
----------------------------------------
<PAGE> 2
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department Two Rector Street, New York,
New York
Federal Deposit Insurance Corporation, Washington, D.C.
Federal Reserve Bank of New York Second District 33 Liberty
Street, New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 4. Trusteeships under other indentures.
If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or
participation in any other securities of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such other
indenture.
None
(b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of Section
(310)(b)(1) of the Act arises as a result of the trusteeship
under any such other indenture, including a statement as to how
the indenture securities will rank as compared with the
securities issued under such other indentures.
Not applicable
<PAGE> 3
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such
default.
None
(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, or is trustee for more than one outstanding series
of securities under the indenture, state whether there has been
a default under any such indenture or series, identify the
indenture or series affected, and explain the nature of any such
default.
Not applicable
<PAGE> 4
Item 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust
Company as amended to date. (See Exhibit 1A to Form T-1,
Securities and Exchange Commission File No. 22-18460).
*2. A copy of the Certificate of Authority of the trustee to
Commence Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise
corporate trust powers, as amended to date (See Exhibit
4 to Form T-1, Securities and Exchange Commission File
No. 22-19146).
*4. A copy of the existing By-Laws of the trustee, as
amended to date (See Exhibit 4 to Form T-1, Securities
and Exchange Commission File No. 22-19146).
5. Not Applicable
6. The consent of United States institutional trustee
required by Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a
reference to the copy of the Exhibit heretofore filed with the
Securities and Exchange Commission, to which there have been no
amendments or changes.
<PAGE> 5
NOTE
In answering any item in this Statement of Eligibility which relates to matters
peculiarly within the knowledge of the obligor and its directors or officers,
the trustee has relied upon information furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of
all facts on which to base responsive answers to Item 2, the answer to said Item
are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an amendment to
this Form T-1.
<PAGE> 6
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
IBJ Schroder Bank & Trust Company, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York, and State of New York, on the 13th day of July, 1998.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Stephen J. Giurlando
----------------------------
Stephen J. Giurlando
Assistant Vice President
<PAGE> 7
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939, as amended, in connection with the issuance by Thermadyne Holdings
Corporation of its 12 1/2% Senior Discount Debentures due 2008, we hereby
consent that reports of examinations by Federal, State, Territorial, or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Stephen J. Giurlando
---------------------------------
Stephen J. Giurlando
Assistant Vice President
Dated: July 13, 1998
<PAGE> 8
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
OF NEW YORK, NEW YORK
AND FOREIGN AND DOMESTIC SUBSIDIARIES
REPORT AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
------------
ASSETS
------
<CAPTION>
<S> <C> <C>
1. Cash and balance due from depository institutions:
a. Noninterest-bearing balances and currency and coin .......................................$ 29,353
b. Interest-bearing balances...................................................................$ 15,329
2. Securities:
a. Held-to-maturity securities.................................................................$ 186,942
b. Available-for-sale securities...............................................................$ 102,403
3. Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement subsidiaries and
in IBFs:
Federal Funds sold and Securities purchased under agreements to resell..........................$ 176,231
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income......................................$ 1,673,749
b. LESS: Allowance for loan and lease losses.....................................$ 63,611
c. LESS: Allocated transfer risk reserve.........................................$ -0-
d. Loans and leases, net of unearned income, allowance, and reserve............................$ 1,610,138
5. Trading assets held in trading accounts.........................................................$ 584
6. Premises and fixed assets (including capitalized leases)........................................$ 2,575
7. Other real estate owned.........................................................................$ 819
8. Investments in unconsolidated subsidiaries and associated companies.............................$ -0-
9. Customers' liability to this bank on acceptances outstanding....................................$ 503
10. Intangible assets...............................................................................$ -0-
11. Other assets....................................................................................$ 61,923
12. TOTAL ASSETS....................................................................................$ 2,186,800
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
LIABILITIES
-----------
<S> <C>
13. Deposits: <C> <C>
a. In domestic offices.......................................................................$ 659,051
(1) Noninterest-bearing ....................................................$ 288,134
(2) Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 370,917
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs.............................$ 1,141,113
(1) Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,428
(2) Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 1,121,685
14. Federal funds purchased and securities sold under agreements to repurchase
in domestic offices of the bank and of its Edge and Agreement subsidiaries,
and in IBFs:
Federal Funds purchased and Securities sold under agreements to repurchase....................$ -0-
15. a. Demand notes issued to the U.S. Treasury..................................................$ 5,000
b. Trading Liabilities.......................................................................$ 344
16. Other borrowed money:
a. With a remaining maturity of one year or less.............................................$ 61,953
b. With a remaining maturity of more than one year...........................................$ 1,763
c. With a remaining maturity of more than three years........................................$ 2,242
17. Not applicable.
18. Bank's liability on acceptances executed and outstanding......................................$ 503
19. Subordinated notes and debentures.............................................................$ -0-
20. Other liabilities.............................................................................$ 70,344
21. TOTAL LIABILITIES.............................................................................$ 1,942,313
22. Limited-life preferred stock and related surplus..............................................$ N/A
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.................................................$ -0-
24. Common stock..................................................................................$ 29,649
25. Surplus (exclude all surplus related to preferred stock)......................................$ 217,008
26. a. Undivided profits and capital reserves....................................................$ (2,291)
b. Net unrealized gains (losses) on available-for-sale securities............................$ 121
27. Cumulative foreign currency translation adjustments...........................................$ -0-
28. TOTAL EQUITY CAPITAL..........................................................................$ 244,487
29. TOTAL LIABILITIES AND EQUITY CAPITAL..........................................................$ 2,186,800
</TABLE>
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER
UNREGISTERED 12 1/2% SENIOR DISCOUNT DEBENTURES DUE 2008
OF
THERMADYNE HOLDINGS CORPORATION
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED AUGUST 4, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER 3, 1998 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS
EXTENDED BY THE COMPANY.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
IBJ SCHRODER BANK & TRUST COMPANY
Deliver to
IBJ Schroder Bank & Trust Company, Exchange Agent
<TABLE>
<S> <C> <C>
By Registered or Certified By Overnight Courier: By Hand Delivery:
Mail: IBJ Schroder Bank & Trust IBJ Schroder Bank & Trust
IBJ Schroder Bank & Trust Company Company
Company One State Street One State Street
P.O. Box 84 New York, New York 10004 New York, New York 10004
Bowling Green Station Attn: Securities Processing Attn: Securities Processing
New York, New York 10274-0084 Window, Subcellar One, (SC-1) Window, Subcellar One, (SC-1)
Attn: Reorganization Operations Facsimile Transmission Number:
Department (For Eligible Institutions
Only)
(212) 858-2103
Confirm Receipt of Facsimile by
Telephone:
(212) 858-2611
</TABLE>
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
IF YOU WISH TO EXCHANGE UNREGISTERED 12 1/2% SENIOR DISCOUNT DEBENTURES DUE
2008, FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF REGISTERED 12 1/2% SENIOR
DISCOUNT DEBENTURES DUE 2008, PURSUANT TO THE EXCHANGE OFFER, YOU MUST VALIDLY
TENDER (AND NOT WITHDRAW) OLD DEBENTURES TO THE EXCHANGE AGENT PRIOR TO THE
EXPIRATION DATE.
SIGNATURES MUST BE PROVIDED.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
<PAGE> 2
DESCRIPTION OF TENDERED OLD DEBENTURES
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) CERTIFICATE AGGREGATE
AS IT APPEARS ON THE 12 1/2% SENIOR DISCOUNT DEBENTURES DUE NUMBER(S) PRINCIPAL AMOUNT
2008 OF OLD OF OLD DEBENTURES
(PLEASE FILL IN, IF BLANK) DEBENTURES TENDERED
- ------------------------------------------------------------------------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
TOTAL PRINCIPAL
AMOUNT OF OLD
DEBENTURES
TENDERED
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
LADIES AND GENTLEMEN:
1. The undersigned hereby tenders to Thermadyne Holdings Corporation, a
Delaware corporation (the "Company"), the 12 1/2% Senior Discount Debentures due
2008 (the "Old Debentures"), described above pursuant to the Company's offer of
$1,000 principal amount of 12 1/2% Senior Discount Debentures due 2008 (the "New
Debentures"), in exchange for each $1,000 principal amount of the Old
Debentures, upon the terms and subject to the conditions contained in the
Prospectus dated August 4, 1998 (the "Prospectus"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which together constitute the
"Exchange Offer").
2. The undersigned hereby represents and warrants that it has full
authority to tender the Old Debentures described above. The undersigned will,
upon request, execute and deliver any additional documents deemed by the Company
to be necessary or desirable to complete the tender of Old Debentures.
3. The undersigned understands that the tender of the Old Debentures
pursuant to all of the procedures set forth in the Prospectus will constitute an
agreement between the undersigned and the Company as to the terms and conditions
set forth in the Prospectus.
4. Unless the box under the heading "Special Registration Instructions" is
checked, the undersigned hereby represents and warrants that:
(i) the New Debentures acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the undersigned,
whether or not the undersigned is the holder;
(ii) neither the undersigned nor any such other person is engaging in
or intends to engage in a distribution of such New Debentures;
(iii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such New Debentures; and
(iv) neither the holder nor any such other person is an "affiliate,"
as such term is defined under Rule 405 promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), of the Company.
5. The undersigned may, if, and only if, unable to make all of the
representations and warranties contained in Item 4 above, elect to have its Old
Debentures registered in the shelf registration described in the Exchange and
Registration Rights Agreement, dated as of May 22, 1998, between the Company and
the Initial Purchaser in the form filed as an exhibit to the Registration
Statement (the "Registration Agreement") (all terms used in this Item 5 with
their initial letters capitalized, unless otherwise defined herein, shall have
the meanings given them in the Registration Agreement). Such election may be
made by checking the box under "Special Registration Instructions" on page 5. By
making such election, the undersigned agrees, as a holder of Transfer Restricted
Securities participating in a shelf registration, to indemnify and hold harmless
the Company, its directors and officers and each person, if any, who controls
the Company within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages, liabilities and
judgments (including, without limitation, any legal or other expenses incurred
in connection with defending or investigating any matter), joint or several, or
any action in respect thereof, to which the Company or any such director,
officer or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Shelf Registration Statement or the Prospectus or
in any amendment or supplement thereto, (ii) or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but only with reference to such
information relating to the undersigned furnished in writing by or on behalf of
the undersigned expressly for use in the Shelf Registration Statement, the
Prospectus or any amendments or supplements thereto. Any such indemnification
shall be governed by the terms and subject to the conditions set forth in the
Registration Agreement, including, without limitation, the provisions regarding
notice, retention of counsel, contribution and payment of expenses set forth
therein. The above summary of the
<PAGE> 4
indemnification provision of the Registration Agreement is not intended to be
exhaustive and is qualified in its entirety by the Registration Agreement.
6. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Debentures. If the undersigned is a broker-dealer that will receive New
Debentures for its own account in exchange for Old Debentures that were acquired
as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Debentures; however, by so acknowledging and delivering a prospectus,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. If the undersigned is a broker-dealer and Old
Debentures held for its own account were not acquired as a result of
market-making or other trading activities, such Old Debentures cannot be
exchanged pursuant to the Exchange Offer.
7. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and legal
and personal representatives of the undersigned.
8. Unless otherwise indicated herein under "Special Delivery Instructions,"
the certificates for the New Debentures will be issued in the name of the
undersigned.
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the New Debentures are to be issued or sent to
someone other than the undersigned or to the undersigned at an address other
than that provided above.
Mail [ ] Issue [ ] (check appropriate boxes) certificates to:
Name:
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address:
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(INCLUDING ZIP CODE)
SPECIAL REGISTRATION INSTRUCTIONS
(See Item 5)
To be completed ONLY IF (i) the undersigned satisfies the conditions set
forth in Item 5 above, (ii) the undersigned elects to register its Old
Debentures in the shelf registration described in the Registration Agreement,
and (iii) the undersigned agrees to indemnify certain entities and individuals
as set forth in the Registration Agreement and summarized in Item 5 above.
[ ] By checking this box the undersigned hereby (i) represents that it is
unable to make all of the representations and warranties set forth in Item 4
above, (ii) elects to have its Old Debentures registered pursuant to the shelf
registration described in the Registration Agreement, and (iii) agrees to
indemnify certain entities and individuals identified in, and to the extent
provided in, the Registration Agreement and summarized in Item 5 above.
<PAGE> 5
SPECIAL BROKER-DEALER INSTRUCTIONS
(See Item 6)
[ ] Check here if you are a broker-dealer and wish to receive 10 additional
copies of the Prospectus and 10 copies of any amendments or supplements thereto.
Name:
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address:
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(INCLUDING ZIP CODE)
<PAGE> 6
- --------------------------------------------------------------------------------
SIGNATURE
To be completed by all exchanging debentureholders. Must be signed by
registered holder exactly as name appears on Old Debentures. If signature
is by trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 3.
X
--------------------------------------------------------------------------
X
--------------------------------------------------------------------------
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATURE
Dated:
--------------------------------------------------------------------------
Name(s):
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
--------------------------------------------------------------------------
Address:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Telephone No.:
-------------------------------------------------------------------------------
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1)
Certain Signatures Must be Guaranteed by an Eligible Institution
--------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
--------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE)
OF FIRM)
--------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
--------------------------------------------------------------------------
(PRINTED NAME)
--------------------------------------------------------------------------
(TITLE)
Dated:
--------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE READ THE INSTRUCTIONS BELOW,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL.
<PAGE> 7
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must
be guaranteed by an eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or by an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 promulgated under the Exchange
Act (an "Eligible Institution") unless the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" above has not been completed or
the Old Debentures described above are tendered for the account of an Eligible
Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD DEBENTURES. The Old
Debentures, together with a properly completed and duly executed Letter of
Transmittal (or copy thereof), should be mailed or delivered to the Exchange
Agent at the address set forth above.
THE METHOD OF DELIVERY OF OLD DEBENTURES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD DEBENTURES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by a person other than a registered holder
of any Old Debentures, such Old Debentures must be endorsed or accompanied by
appropriate bond powers, signed by such registered holder exactly as such
registered holder's name appears on such Old Debentures.
If this Letter of Transmittal or any Old Debentures or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted with this Letter of Transmittal.
4. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and withdrawal of tendered Old
Debentures will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
absolute right to reject any or all Old Debentures not properly tendered or any
Old Debentures the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities, or conditions of tender as to particular Old
Debentures. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in this Letter of Transmittal) will
be final and binding. Unless waived, any defects or irregularities in connection
with tenders of Old Debentures must be cured within such time as the Company
shall determine. Neither the Company, the Exchange Agent, nor any other person
shall be under any duty to give notification of defects in such tenders or shall
incur any liability for failure to give such notification. Tenders of Old
Debentures will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Debentures received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holder thereof as soon as practicable following the
Expiration Date.
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
TO TENDER
UNREGISTERED 12 1/2% SENIOR DISCOUNT DEBENTURES DUE 2008
OF
THERMADYNE HOLDINGS CORPORATION
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED AUGUST 4, 1998
As set forth in the Prospectus (as defined below), this form or one
substantially equivalent hereto must be used to accept the Exchange Offer if
certificates for unregistered 12 1/2% Senior Discount Debentures due 2008 (the
"Old Debentures"), of Thermadyne Holdings Corporation, are not immediately
available or time will not permit a holder's Old Debentures or other required
documents to reach the Exchange Agent on or prior to the Expiration Date (as
defined below), or the procedure for book-entry transfer cannot be completed on
a timely basis. This form may be delivered by facsimile transmission, by
registered or certified mail, by hand, or by overnight delivery service to the
Exchange Agent. See "The Exchange Offer -- Procedures for Tendering" in the
Prospectus.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER 3, 1998 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS
EXTENDED BY THE COMPANY.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Registered or Certified By Overnight Courier: By Hand Delivery:
Mail:
IBJ Schroder Bank & Trust IBJ Schroder Bank & Trust IBJ Schroder Bank & Trust
Company Company Company
P.O. Box 84 One State Street One State Street
Bowling Green Station New York, New York 10004 New York, New York 10004
New York, New York 10274-0084 Attn: Securities Processing Attn: Securities Processing
Attn: Reorganization Operations Window, Subcellar One, (SC-1) Window, Subcellar One, (SC-1)
Department Facsimile Transmission Number:
(For Eligible Institutions
Only)
(212) 858-2103
Confirm Receipt of Facsimile
by Telephone:
(212) 858-2611
</TABLE>
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail,
by hand, or by overnight delivery service.)
DELIVERY OF THIS NOTICE TO AN ADDRESS OR TRANSMISSION OF INSTRUCTIONS VIA
FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Thermadyne Holdings Corporation, a
Delaware corporation (the "Company"), in accordance with the Company's offer,
upon the terms and subject to the conditions set forth in the Prospectus dated
August 4, 1998 (the "Prospectus"), and in the accompanying Letter of
Transmittal, receipt of which is hereby acknowledged, $ in aggregate
principal amount of Old Debentures pursuant to the guaranteed delivery
procedures described in the Prospectus.
Name(s) of Registered Holder(s):
- ---------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code & Telephone No.:
- ---------------------------------------------------------------------------
Certificate Number(s) for
Old Debentures (if available):
- --------------------------------------------------------------------------
Total Principal Amount
Tendered and Represented
by Certificate(s): $
- --------------------------------------------------------------------------------
Signature of Registered Holder(s):
- ---------------------------------------------------------------------
Dated:
- --------------------------------------------------------------------------------
[ ] The Depository Trust Company
(Check if Old Debentures will be tendered
by book-entry transfer)
Account Number:
- --------------------------------------------------------------------------------
THE GUARANTEE ON THE NEXT PAGE MUST BE COMPLETED
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, being a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office in the United States, hereby
guarantees (a) that the above named person(s) "own(s)" the Old Debentures
tendered hereby within the meaning of Rule 14e-4 ("Rule 14e-4") under the
Securities Exchange Act of 1934, as amended, (b) that such tender of such Old
Debentures complies with Rule 14e-4, and (c) to deliver to the Exchange Agent
the certificates representing the Old Debentures tendered hereby or confirmation
of book-entry transfer of such Old Debentures into the Exchange Agent's account
at The Depository Trust Company, in proper form for transfer, together with the
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees and any other required
documents, within three New York Stock Exchange trading days after the
Expiration Date.
Name of Firm:
--------------------------------------------------------------------------
Address:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Area Code and Telephone No.:
-------------------------------------------------------------------------------
Authorized Signature:
--------------------------------------------------------------------------
Name:
--------------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
Dated:
--------------------------------------------------------------------------
NOTE: DO NOT SEND CERTIFICATES OF OLD DEBENTURES WITH THIS FORM. CERTIFICATES OF
OLD DEBENTURES SHOULD BE SENT ONLY WITH A LETTER OF TRANSMITTAL.
<PAGE> 1
EXCHANGE AGENCY AGREEMENT
This Exchange Agency Agreement (this "Agreement") is entered into as
of August 4, 1998, between IBJ Schroder Bank & Trust Company, a New York
banking corporation, as Exchange Agent (the "Agent"), and Thermadyne Holdings
Corporation, a Delaware corporation (the "Company").
The Company proposes to exchange $1,000 principal amount of the
Company's 12 1/2% Senior Discount Debentures due 2008 (the "Exchange
Debentures") in exchange (the "Exchange Offer") for an equal aggregate
principal amount of the Company's outstanding 12 1/2% Senior Discount
Debentures due 2008 (the "Old Debentures") to the holders thereof (the
"Holders"), pursuant to the Prospectus dated as of August 4, 1998 (the
"Prospectus") and the accompanying Letter of Transmittal. The Exchange Offer
will terminate at 5:00 p.m. New York City time on September 3, 1998, unless
extended by the Company in its sole discretion (the "Expiration Date"). The
New Debentures are to be issued by the Company pursuant to the terms of an
Indenture dated as of May 22, 1998 (the "Indenture"), between the Company and
IBJ Schroder Bank & Trust Company, as trustee (the "Trustee").
Subject to the provisions hereof, the Company hereby appoints and the
Agent hereby accepts the appointment as Agent for the purposes of receiving,
accepting for delivery and otherwise acting upon tenders of the Old Debentures
in accordance with the form of Letter of Transmittal attached hereto (the "LT")
and with the terms and conditions set forth herein and under the caption "The
Exchange Offer" in the Prospectus.
1. The Agent has received the following documents in connection
with its appointment:
(a) the LT;
(b) a form of Notice of Guaranteed Delivery; and
(c) the Prospectus.
2. The Agent is authorized and hereby agrees to act as follows:
(a) to address, and deliver by hand or next day courier,
a complete set of the exchange offer documents
including, but not limited to, the Prospectus, the
LT, the Notice of Guaranteed Delivery and a
self-addressed envelope prepared by the Agent, to
each person who, prior to the Expiration Date,
becomes a registered holder of Old Debentures
promptly after such person becomes a registered
holder of Old Debentures;
<PAGE> 2
(b) to receive all tenders of Old Debentures made
pursuant to the Exchange Offer and stamp the LT with
the day, month and approximate time of receipt;
(c) to examine each LT and Old Debenture received to
determine that all requirements necessary to
constitute a valid tender have been met. The Agent
shall be entitled to rely on the electronic messages
sent by the Depository Trust Company ("DTC") in
accordance with DTC's Automated Tender Offer Program
to the Agent's account at DTC from the DTC
participants listed on the DTC position listing
provided to the Agent;
(d) to take such actions necessary and appropriate to
correct any irregularity or deficiency associated
with any tender not in proper order;
(e) to follow instructions give by Randall E. Curran,
James H. Tate and Stephanie N. Josephson, each an
officer of the Company, or such other person or
persons as may be designated by the Company in
writing, with respect to the waiver of any
irregularities or deficiencies associated with any
tender;
(f) to hold all valid tenders subject to further
instructions from Randall E. Curran, James H. Tate or
Stephanie N. Josephson, each an officer of the
Company;
(g) to render a written report to the Company and Weil,
Gotshal & Manges LLP, in the form of Exhibit A
attached hereto, on each business day during the
Exchange Offer and promptly confirm, by telephone,
the information contained therein to Stephanie N.
Josephson at the Company at (314) 746-2139 and
Michael S. Colvin at Weil, Gotshal & Manges LLP at
(214) 746-7790.
(h) to follow and act upon any written amendments,
modifications or supplements to these instructions,
any of which may be given to the Agent by Randall E.
Curran, James H. Tate or Stephanie N. Josephson, each
an officer of the Company, or such other person or
persons as they shall designate in writing;
(i) to return to the presenters, in accordance with the
provisions of the LT, any Old Debentures that were
not received in proper order and as to which the
irregularities or deficiencies were not cured or
waived;
(j) in the event the Exchange Offer is consummated, to
deliver authenticated Exchange Debentures to
tendering Holders, in accordance with the
instructions of such Holders specified in the
respective LT's, as soon as practicable after receipt
thereof;
<PAGE> 3
(k) to determine that all endorsements, guarantees,
signatures, authorities, stock transfer taxes (if
any) and such other requirements are fulfilled in
connection with any request for issuance of the
Exchange Debentures in a name other than that of the
registered owner of the Old Debentures;
(l) to deliver to, or upon the order of, the Company all
Old Debentures received under the Exchange Offer,
together with any related assignment forms and other
documents; and
(m) subject to other terms and conditions set forth in
this Agreement to take all other actions reasonable
and necessary in the good faith judgment of the
Agent, to effect the foregoing matters.
3. The Agent shall:
(a) have no duties or obligations other than those
specifically set forth herein;
(b) not be required to refer to any documents for the
performance of its obligations hereunder other than
this Agreement, the LT and the documents required to
be submitted with the LT; other than such documents,
the Agent will not be responsible or liable for any
terms, directions or information in the Prospectus or
any other document or agreement unless the Agent
specifically agrees thereto in writing;
(c) not be required to act on the directions of any
person, including the persons named above, unless the
Company provides a corporate resolution to the Agent
or other evidence satisfactory to the Agent of the
authority of such person;
(d) not be required to and shall make no representations
and have no responsibilities as to the validity,
accuracy, value or genuineness of (i) the Exchange
Offer, (ii) any certificates, LT's or documents
prepared by the Company in connection with the
Exchange Offer or (iii) any signatures or
endorsements, other than its own;
(e) not be obligated to take any legal action hereunder
that might, in its judgment, involve any expense or
liability, unless it has been furnished with
reasonable indemnity by the Company;
3
<PAGE> 4
(f) be able to rely on and shall be protected in acting
on the written or oral instructions with respect to
any matter relating to its actions as Agent
specifically covered by this Agreement, of any
officer of the Company authorized to give
instructions under paragraphs 2(e) or 2(h) above;
(g) be able to rely on and shall be protected in acting
upon any certificate, instrument, opinion, notice,
letter, telegram or any other document or security
delivered to it and believed by it reasonably and in
good faith to be genuine and to have been signed by
the proper party or parties;
(h) not be responsible for or liable in any respect on
account of the identity, authority or rights of any
person executing or delivering or purporting to
execute or deliver any document or property under
this Agreement and shall have no responsibility with
respect to the use or application of any property
delivered by it pursuant to the provisions hereof;
(i) be able to consult with counsel satisfactory to it
(including counsel for the Company or staff counsel
of the Agent) and the advice or opinion of such
counsel shall be full and complete authorization and
protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in
accordance with advice or opinion of such counsel;
(j) not be called on at any time to advise, and shall not
advise, any person delivering an LT pursuant to the
Exchange Offer as to the value of the consideration
to be received;
(k) not be liable for anything which it may do or refrain
from doing in connection with this Agreement except
for its own gross negligence, willful misconduct or
bad faith;
(l) not be bound by any notice or demand, or any waiver
or modification of this Agreement or any of the terms
hereof, unless evidenced by a writing delivered to
the Agent signed by the proper authority or
authorities and, if the Agent's duties or rights are
affected, unless the Agent shall give its prior
written consent thereto;
(m) have no duty to enforce any obligation of any person
to make delivery, or to direct or cause any delivery
to be made, or to enforce any obligation of any
person to perform any other act; and
4
<PAGE> 5
(n) have the right to assume, in the absence of written
notice to the contrary from the proper person or
persons, that a fact or an event by reason of which
an action would or might be taken by the Agent does
not exist or has not occurred without incurring
liability for any action taken or omitted, or any
action suffered by the Agent to be taken or omitted,
in good faith or in the exercise of the Agent's best
judgment, in reliance upon such assumption.
4. The Agent shall be entitled to compensation as set forth in
Exhibit B attached hereto.
5. The Company covenants and agrees to reimburse the Agent for,
indemnify it against, and hold it harmless from any and all reasonable costs
and expenses (including reasonable fees and expenses of counsel and allocated
cost of staff counsel) that may be paid or incurred or suffered by it or to
which it may become subject without gross negligence, willful misconduct or bad
faith on its part by reason of or as a result of its compliance with the
instructions set forth herein or with any additional or supplemental written or
oral instructions delivered to it pursuant hereto, or which may arise out of or
in connection with the administration and performance of its duties under this
Agreement. The Company agrees to promptly notify the Agent of any extension of
the Expiration Date.
6. This Agreement shall be construed and enforced in accordance
with the laws of the State of New York and shall inure to the benefit of, and
the obligations created hereby shall be binding upon, the successors and
assigns of the parties thereto. The parties agree to submit to the exclusive
jurisdiction of the federal or state courts located in the State of New York,
New York County.
7. Unless otherwise expressly provided herein, all notices,
requests, demands and other communications hereunder shall be in writing, shall
be delivered by hand, facsimile or by first class mail, postage prepaid, shall
be deemed given when received and shall be addressed to the Agent and the
Company at the respective addresses listed below or to such other addresses as
they shall designate from time to time in writing, forwarded in like manner.
If to the Agent, to: IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Attention: Reorganization Operations Dept.
Telephone: (212) 858-2103
Facsimile: (212) 858-2611
5
<PAGE> 6
with copies to: IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Attention: Corporate Finance Trust Services
Telephone: (212) 858-2176
Facsimile: (212) 858-2952
To the Company: Thermadyne Holdings Corporation
101 South Hanley Road, Suite 300
St. Louis, Missouri 63105
Attention: Stephanie N. Josephson
Telephone: (314) 746-2139
Facsimile: (314) 746-2327
with copies to: Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Attention: R. Scott Cohen
Telephone: (214) 746-7738
Facsimile: (214) 746-7777
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on their behalf by their officers thereunto duly
authorized, all as of the day and year first written above.
IBJ SCHRODER BANK & TRUST COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THERMADYNE HOLDINGS CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
7
<PAGE> 8
EXHIBIT A
SAMPLE REPORT
<TABLE>
<S> <C>
Date:
---------------------------------------
Report Number:
------------------------------
As of Date:
---------------------------------
Ladies & Gentlemen:
As Exchange Agent for the Exchange Offer dated ____________, 1998, we hereby render the following report:
Principal Amount previously received:
-----------------------------------------------------
Principal Amount received today:
-----------------------------------------------------
Principal Amount received against Guaranteed Deliveries:
-----------------------------------------------------
Principal Amount withdrawn today:
-----------------------------------------------------
TOTAL PRINCIPAL AMOUNT RECEIVED TO DATE:
-------------------------------------------------------------
RECAP OF PRINCIPAL AMOUNT REPRESENTED BY GUARANTEES
Guarantees previously outstanding:
-----------------------------------------------------
Guarantees received today:
-----------------------------------------------------
Guarantees settled today:
-----------------------------------------------------
Guarantees withdrawn today:
-----------------------------------------------------
Guarantees outstanding:
-----------------------------------------------------
TOTAL PRINCIPAL AMOUNT AND GUARANTEES OUTSTANDING:
=====================================================
Very truly yours,
Reorganization Operations Dept.
</TABLE>
8
<PAGE> 9
EXHIBIT B
AGENT'S FEES AND EXPENSES
9
