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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-23378
THERMADYNE HOLDINGS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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<S> <C>
DELAWARE 74-2482571
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
101 S. HANLEY, SUITE 300
ST. LOUIS, MISSOURI 63105
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (314) 721-5573
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: approximately $118.8 million based on the
closing sales price of the Common Stock, $0.01 par value, on February 18,
1998.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 11,155,235 shares
of Common Stock, $0.01 par value, outstanding at February 2, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
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PART I
ITEM 1. BUSINESS.
Thermadyne Holdings Corporation, a Delaware corporation ("Themadyne" or
the "Company"), 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.
On January 20, 1998, the Company entered into a definitive merger
agreement with Mercury Acquisition Corporation, an affilate of DLJ Merchant
Banking Partners II, L.P. For a description of the definitive merger
agreement and the transactions contemplated thereby, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."
The statements in this Annual Report on Form 10-K that relate to future
plans, events or performance are forward-looking statements. Actual results
could differ materially due to a variety of factors and the other risks
described in this Annual Report and the other documents the Company files
from time to time with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation
to publicly release the result of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or that reflect the occurrence of unanticipated events.
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, metal inert gas ("MIG") and tungsten
inert gas ("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
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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.
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(Registered Trademark). This system generates
temperatures in excess of 7000|SDF and can quickly cut through steel, concrete
and other materials. SLICE(Registered Trademark) 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(Registered Trademark) 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.
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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.
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(Registered Trademark), Alloycraft(Registered
Trademark), Satincrome, Cobalarc(Registered Trademark), Castcraft and
Weldall(Registered Trademark).
For automatic and semi-automatic welding applications, Cigweld
manufactures a significant range of solid and flux-cored wires, principally
under the Autocraft(Registered Trademark), Verti-Cor, Satin-Cor, Metal-Cor
and Cobalarc(Registered Trademark) 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.
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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 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 the welding
division of Prestolite Power Corporation ("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 S.p.A. ("GenSet"),
which was acquired by the Company in January 1997 and is 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. The operations of Woodland
Cryogenics, Inc. ("Woodland"), which was acquired by the Company in November
1997, 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
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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. 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.
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 and brand name, breadth and depth of
product lines, effectiveness of distribution channels, a knowledgeable sales
force capable of solving customer application problems, 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.
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.
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, motors,
engines, pressure gauges, springs, switches, lenses and chemicals. The
Company believes its sources of such products are adequate to meet
foreseeable demand.
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.
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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.
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. The Company does not
believe any single patent or license is material to the operation of its
businesses taken as a whole.
EXECUTIVE OFFICERS
Information regarding executive officers is included in "Item 10.
Directors and Executive Officers of the Registrant" of this Annual Report on
Form 10-K.
ITEM 2. PROPERTIES.
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 its senior credit facility. In addition, the Company's
manufacturing facilities in Melborne, Australia, and Cebu, Philippines,
secure the Company's obligations under its Australian senior bank 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.
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The following table describes the location and general character of the
Company's principal properties:
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SUBSIDIARY/ BUILDING SPACE/
LOCATION OF FACILITY NUMBER OF BUILDINGS PROPERTY SIZE
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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)
38,000 sq. ft.
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)
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.
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ITEM 3. LEGAL PROCEEDINGS.
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 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 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 the Superfund sites will have a material
adverse effect on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the shareholders during the fourth
quarter of 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The common stock, par value $0.01 per share ("Common Stock"), of the
Company is listed and traded on The Nasdaq Stock Market ("NASDAQ") under the
symbol "TDHC." The following table shows, for the periods indicated, the high
and low sale prices of a share of the Common Stock as reported by published
financial sources.
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HIGH LOW
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1996
First Quarter... $ 19 1/4 $ 16 1/8
Second Quarter.. 25 18 5/8
Third Quarter... 22 1/4 20 3/8
Fourth Quarter.. 28 1/2 19
1997
First Quarter... $ 28 1/4 $ 24 3/8
Second Quarter.. 31 7/8 25 1/2
Third Quarter... 31 1/2 27 5/8
Fourth Quarter.. 30 1/2 27 3/4
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As of February 2, 1998, there were approximately 1,550 holders of record
of Common Stock.
The Company has historically not paid any cash dividends on Common Stock
and it does not have any present intention to commence payment of any cash
dividends. The Company intends to retain earnings to provide funds for the
operation and expansion of the Company's business and to repay outstanding
indebtedness. The Company's debt agreements contain certain covenants
restricting the payment of dividends on, or repurchases of, Common Stock. In
addition, the definitive merger agreement entered into by the Company on
January 20, 1998 provides that until the effective time of the merger
contemplated thereby, the Company will not declare, set aside or pay any
dividend or other distribution. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
9
<PAGE>
ITEM 6. 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.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------- ----------------------------------------
FISCAL YEAR
ENDED DECEMBER FISCAL YEARS ENDED DECEMBER 31,
31, ----------------------------------------
1993 1994(1) 1995(2) 1996(2) 1997
-------------- -------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA(3):
Net sales .......................................... $ 248.3 $258.1 $ 316.8 $ 439.7 $ 520.4
Cost of goods sold ................................. 132.2 141.1 176.0 259.8 320.1
Selling, general and administrative expenses ...... 57.8 60.0 74.7 95.9 110.7
Amortization of goodwill(4) ........................ 4.5 83.9 92.9 83.0 1.6
Amortization of intangibles(5) ..................... 8.7 10.7 48.4 12.4 6.8
Net periodic postretirement benefits ............... 3.6 2.1 2.1 2.7 2.8
-------------- -------- --------- --------- ---------
Operating income (loss) ............................ 41.5 (39.7) (77.3) (14.1) 78.5
Interest expense ................................... 66.9 39.1 41.3 45.7 45.3
Other expense, net(6) .............................. 27.4 2.0 4.8 3.7 4.7
Income (loss) from continuing operations available
to common.......................................... (53.4) (85.1) (131.8) (62.9) 15.1
Income (loss) per share from continuing
operations(7):
Basic ............................................. -- (8.51) (12.97) (5.83) 1.36
Diluted ........................................... -- (8.51) (12.97) (5.83) 1.33
CONSOLIDATED BALANCE SHEET DATA:
Working capital(8) ................................. $ 65.8 $ 81.5 $ 52.3 $ 67.6 $ 88.5
Total assets ....................................... 517.5 627.8 416.4 353.4 354.5
Total debt(9) ...................................... 693.3 497.7 456.5 421.3 358.1
Total stockholders' equity (deficit) ............... (307.9) 20.6 (132.2) (185.3) (162.8)
CONSOLIDATED CASH FLOW DATA:
Net cash provided by operating activities ......... $ 36.6 $ 5.4 $ 31.2 $ 21.5 $ 15.0
Net cash provided by (used in) investing activities (7.3) (1.0) (15.7) 18.7 36.8
Net cash (used in) financing activities ............ (22.1) (5.8) (20.9) (40.6) (51.7)
OTHER DATA:
EBITDA(10) ......................................... $ 63.8 $ 62.7 $ 74.6 $ 95.7 $ 102.1
Depreciation........................................ 5.6 5.7 8.5 11.7 12.5
Capital expenditures ............................... 5.0 8.0 7.2 11.4 16.3
</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) In 1996 the Company announced plans to sell, and in 1997 consummated
the sale of, its wear resistance business and in late 1995 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 the Company's Consolidated
Financial Statements.
(3) Certain totals may not add due to rounding.
10
<PAGE>
(4) In conjunction with the Restructuring, the Company's 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.
(5) Includes $33.0 million in 1995 related to the writedown of intangible
assets in accordance with Financial Accounting Standards Board
Statement No. 121.
(6) 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.
(7) Per share amounts for periods prior to the Restructuring are not
meaningful and, therefore, not presented.
(8) Excludes net assets of discontinued operations.
(9) For 1993, includes liabilities subject to compromise of $466.2 million.
(10) "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). EBITDA is also one of the
financial measures by which the Company's compliance with its covenants
is calculated under its debt agreements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
OVERVIEW
Thermadyne, through its subsidiaries, is engaged in the design,
manufacture and distribution of cutting and welding products and accessories.
Since the Restructuring, 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.
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 (the "Merger") with and
into the Company, and, subject to the following sentence, the holders of each
share of Common Stock can elect to receive $34.50 in cash for such share or
to retain such share in the Company as the surviving corporation in the
Merger. In any event, holders will be required to retain 485,010 shares, or
approximately 4.3% of the outstanding Common Stock as of February 2, 1998. In
addition, DLJ has entered into voting agreements with Magten Asset Management
Corp. (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 5,942,708 shares of Common Stock
(approximately 53.3% of the outstanding Common Stock as of February 2, 1998)
owned by them in favor of the Merger.
The Merger is expected to be accounted for as a recapitalization for
accounting purposes. The closing of the Merger is subject to terms and
conditions customary in transactions of the same type, including approval by
the Company's stockholders and expiration of the applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
There can be no assurance that the Merger will be consummated or the
timing thereof if consummated.
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 (pre-tax) in connection with consummating the transaction. These
costs consist primarily of placement fees, bank fees, compensation expense
related to cash out of options, professional fees, registration costs, fees
associated with early retirement of existing indebtedness and other expenses.
While the exact timing, nature and amount of these costs are subject to
change the Company anticipates that a significant one-time pretax charge will
be recorded in the quarter in which the Merger is consummated. As a result of
the foregoing, the Company expects to record a
11
<PAGE>
significant net loss in the quarter in which the Merger is recorded. 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 new financing to be established in connection with the
Merger, the Company does not expect this loss to materially impact its
liquidity, ongoing operations or market position.
RESULTS OF OPERATIONS
The following discussion of results of operations is presented for the
fiscal years ended December 31, 1995, 1996 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.
1997 Compared to 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 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 1997.
12
<PAGE>
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.
EBITDA
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, EBITDA was 19.6% for the year ended December 31, 1997 compared to
21.8% for the year ended December 31, 1996.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income" ("FASB 130"), which
establishes standards for the reporting and display of comprehensive income
and its components in financial statements. Comprehensive income generally
represents all changes in shareholders' equity except those resulting from
investments by or distributions to shareholders. FASB 130 is effective for
fiscal years beginning after December 15, 1997 and requires restatement of
earlier periods presented.
Also 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.
1996 Compared to 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.
13
<PAGE>
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.
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.
EBITDA
EBITDA from continuing operations was $95.7 million for the 12 months
ended December 31, 1996 compared to $74.6 million for the 12 months ended
December 31, 1995. As a percentage of sales, EBITDA was 21.8% for the year
ended December 31, 1996, compared to 23.6% for 1995. Excluding Cigweld the
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 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 12 months ended December
31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flows. 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 Company's credit
agreement contains restrictions on the Company's ability to make capital
expenditures. Based on present estimates, management believes that the amount
of capital expenditures permitted to be made under the credit agreement will
be adequate to maintain the properties and businesses of the Company's
continuing operations.
Liquidity. The major uses of cash in 1998 are expected to be for debt
service requirements of approximately $5 million in mandatory principal
payments and approximately $44 million in interest payments, capital
expenditures of approximately $18 million and tax payments of approximately
$20 million. Management believes that cash from operating activities,
together with available borrowings under its revolving credit facility, if
necessary, will be sufficient to permit the Company to meet these financial
obligations.
14
<PAGE>
The Company will continue from time to time to explore additional
auxiliary financing methods and other means to lower its cost of capital
which could include stock issuances or debt financing and the application of
the proceeds therefrom to the payment of bank debt, or the purchase of senior
or senior subordinated notes.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Not required.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements that are filed as part of this Annual Report on
Form 10-K are set forth in the Index to Consolidated Financial Statements at
page F-1 hereof and are included at pages F-2 to F-23 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information concerning the current
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------- ----- ----------------------------------------------------------
<S> <C> <C>
Randall E. Curran ...... 43 Chairman of the Board, President and Chief Executive
Officer of Thermadyne Holdings Corporation and Thermadyne
Industries, Inc.
James H. Tate .......... 50 Director, Senior Vice President and Chief Financial
Officer of Thermadyne Holdings Corporation
Richard L. Berger ...... 58 Director
Fletcher L. Byrom ...... 79 Director
Henry L. Druker ........ 44 Director
Talton R. Embry ........ 51 Director
Charles F. Moran ....... 68 Director
Stephanie N. Josephson 44 Vice President, General Counsel and Corporate Secretary of
Thermadyne Holdings Corporation
Thomas C. Drury ........ 41 Vice President, Human Resources of Thermadyne Holdings
Corporation
Robert D. Maddox ....... 38 Vice President and Corporate Controller of Thermadyne
Holdings Corporation
</TABLE>
Mr. 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.
Mr. 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.
Mr. Berger has been a Director of the Company since February 1994. Mr.
Berger is a private investor and consultant, having previously served as
President of Cinetropolis, a division of Iwerks Entertainment, from 1992
until July 1993. From 1985 to 1991, Mr. Berger was with MGM/UA Communications
Co. and served as President of the Film Group from 1989 to 1991 and Executive
Vice President of Production from 1985 to 1989. From 1983 to 1985, Mr. Berger
was President of Walt Disney Pictures at Walt Disney Productions. Prior to
1983, Mr. Berger held various executive positions at CBS, Twentieth Century
Fox Television and Twentieth Century Fox Features. Mr. Berger presently
serves on the board of directors of Calypso Ltd.
Mr. Byrom has been a Director of the Company since February 1994. Since
June 1996, Mr. Byrom has served as President and Chief Executive Officer of
Micasu Corporation. From 1982 to 1993, Mr. Byrom was a consultant to, and a
member of the boards of, several multinational corporations. In 1982, Mr.
Byrom retired as Chairman of the Board and Chief Executive Officer of Koppers
Company, Inc., where he had worked since 1967. Mr. Byrom presently serves on
the boards of directors of PureCycle Corporation and Micasu Corporation.
Mr. Druker has been a Director of the Company since February 1994. Mr.
Druker has been a Managing Director of the investment firm of Questor
Management Company since November 1995 and
16
<PAGE>
served as the principal responsible for the New York office of the turnaround
and financial advisory firm Jay Alix & Associates from October 1992 to
October 1995. From 1989 to 1992, Mr. Druker was a partner in the New York
office of the Toronto-based merchant bank Gordon Capital. From 1983 to 1989,
Mr. Druker served as an investment banker at L.F. Rothschild and in 1985 he
became a Managing Director and the head of the Leveraged Buyout Group of that
firm. Mr. Druker began his career in 1980 as a corporate finance associate
with Goldman Sachs & Co. in New York.
Mr. Embry has been a Director of the Company since February 1994. Mr.
Embry has served as Managing Director and Chief Investment Officer of Magten
since 1978. From 1968 to 1978, Mr. Embry was a Vice President of Fiduciary
Trust Company of New York. Mr. Embry presently serves on the boards of
directors of Combined Broadcasting, Inc., BDK Holdings, Inc. and Anacomp Inc.
On September 9, 1993, Mr. Embry and Magten, without admitting or denying the
allegations in a complaint by the Securities and Exchange Commission (the
"Commission"), consented to the entry of judgments enjoining them from
violating (and, in the case of Mr. Embry, aiding and abetting violations of)
anti-fraud and other provisions of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Investment Advisers Act, and the Investment
Company Act. The Commission's complaint alleged principally that Mr. Embry
failed to advise clients of certain personal trades relevant to clients'
holdings, to obtain certain consents required under applicable law in
connection therewith and to comply with certain reporting requirements. The
complaint did not involve the securities of the Company. As part of the
settlement, Mr. Embry made a $1 million payment for the benefit of certain of
Magten's clients.
Mr. Moran has been a Director of the Company since February 1994. Mr.
Moran retired as Senior Vice President, Administration of Sears Roebuck and
Company in December 1993, having served in that capacity since August 1989.
From 1954 to 1989, Mr. Moran served in various executive and managerial
positions with Sears Roebuck and Company, including Senior Vice President and
Chief Information Officer from 1988 to 1989, Senior Executive Vice President
and Chief Administrative Officer, Dean Witter Financial Services from 1986 to
1987, President, Sears World Trade, Inc. from 1984 to 1986, Vice President,
Corporate Planning from 1982 to 1984 and Vice President, Operating from 1980
to 1982. Mr. Moran presently serves on the boards of directors of Donnelley
Enterprise Solutions, Inc., SPS Transaction Services, Inc., Advantica
Restaurant Group, Inc., West Side Affordable Housing, Inc. and Hurley State
Bank.
Ms. Josephson, having previously been elected Corporate Counsel and
Corporate Secretary of the Company in March 1995, was elected Vice President
and General Counsel in April 1995. Prior to joining the Company, 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.
Mr. Drury was elected Vice President -- Human Resources of the Company in
March 1995. Prior to that time, Mr. Drury served as Director of Human
Resources for the Company since November 1991. Prior to joining the Company,
Mr. Drury was Manager -- Human Resources at McDonnell Douglas Systems
Integration Company from 1988 through 1991.
Mr. Maddox was elected Vice President and Corporate Controller of the
Company in April 1996. Prior to that time, Mr. Maddox served as Vice
President and Controller of the Company's operating subsidiaries from April
1995 to April 1996 and Controller from May 1992 to April 1995. Prior to
joining the Company, Mr. Maddox was a senior audit manager with the
accounting firm of Ernst & Young LLP.
17
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth for the years ended December 31, 1997, 1996
and 1995 certain compensation paid by the Company to its Chief Executive
Officer and the four other most highly paid executive officers of the Company
whose cash compensation exceeded $100,000 for the year ended December 31,
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
--------------
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)(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 Chief 1996 241,012 169,114 36,000 7,403
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 Resources(5) 1996 107,115 53,708 6,000 5,982
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 the
Company and contributions made on behalf of the named executive officers
to the Company's 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 $7,495, respectively.
(2) Mr. Curran was elected Chairman of the Board and Chief Executive Officer
of the Company effective as of February 23, 1995, having previously
served as President of the Company from August 1994 and as Executive Vice
President and Chief Operating Officer of the Company from February 1994.
(3) Mr. Tate was elected Senior Vice President and Chief Financial Officer of
the Company effective as of February 23, 1995, having previously served
as Vice President of the Company and as Chief Financial Officer of the
Company's subsidiaries. Mr. Tate was elected as a director of the Company
on October 26, 1995.
(4) Ms. Josephson was elected Corporate Counsel and Corporate Secretary of the
Company on March 7, 1995, and was elected Vice President and General
Counsel of the Company on April 26, 1995.
(5) Mr. Drury was elected Vice President -- Human Resources of the Company on
March 7, 1995.
(6) Mr. Maddox was elected Controller of the Company on June 1, 1992, Vice
President and Controller of Thermadyne Industries, Inc. on April 1, 1995,
and Vice President of the Company on April 18, 1996.
18
<PAGE>
The following table sets forth certain information related to stock
options granted to the named executive officers in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#)(1) FISCAL YEAR (%) ($/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 Common Stock were granted under the Company's
1993 Management Option Plan or the Company's 1996 Employee Stock Option
Plan and become exercisable in five equal annual installments commencing
on the first anniversary of the date of grant. All options become
exercisable upon a change of control (as defined). In addition, such
options continue to vest after any termination of employment for so long
as the optionee is entitled to receive severance benefits under any
employment arrangement with the Company. Replacement options may be
granted, in the Compensation Committee's sole discretion, if a named
executive officer exercises such options using previously owned shares of
Common Stock.
(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%. The actual
value, if any, that an executive officer may realize from the exercise of
the options will be the excess of the fair market value of the Common
Stock on the date of exercise over the exercise price. See "--Fiscal
Year-End Option Values."
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 the Common Stock on NASDAQ was
$291/2. No named executive officer exercised any options during 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END
------------------------------ ------------------------------
NAME EXERCISABLE(#)UNEXERCISABLE(#) EXERCISABLE($)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>
EMPLOYMENT CONTRACTS
Curran and Tate Employment Agreements. On November 1, 1996, Messrs. Curran
and Tate entered into amended and restated employment agreements with the
Company and its subsidiaries. Both employment agreements terminate on
November 1, 1999; however, such agreements automatically renew for an
additional year on each November 1 so that a new three-year term begins upon
each extension (unless the agreements are earlier terminated as provided
therein). Messrs. Curran and Tate serve in their current executive capacities
with the Company as a requirement of their respective employment agreements.
19
<PAGE>
Messrs. Curran and Tate are entitled to annual base salaries (subject to
increase at the Board of Directors' discretion) of $538,400 and $290,175,
respectively. In addition, Messrs. Curran and Tate are eligible to
participate in an annual bonus plan providing for an annual bonus opportunity
of not less than 100% and 75%, respectively, of such executive's base salary.
Each executive also is entitled to such benefits as are customarily provided
to the executives of the Company and its subsidiaries. Both executives are
required to devote all their business time and attention to the business of
the Company and its subsidiaries.
Each employment agreement provides that if the executive's employment
ceases as a result of disability or death, he or his estate, heirs or
beneficiaries, as the case may be, will continue to receive the executive's
then current salary for a period of 18 months from the date of his disability
or death. If the executive's employment is terminated by the Company for any
reason other than death, disability or for cause (as defined in the
employment agreement), or if the executive terminates his employment upon the
failure of the Company to comply with the terms of the employment agreement,
the executive will continue to receive his then current salary and any other
benefits provided by the agreement through the later to occur of the
termination date of the agreement or 18 months from the date of termination
of the executive's employment.
Other Employment Related Contracts. In July 1996, the Company entered into
Change of Control Agreements with certain officers of the Company, including
the named executive officers. The new agreements replaced old agreements that
contained substantially similar terms except that the new agreements contain
updated compensation and benefits information with respect to the executives.
The Change of Control Agreements provide for a payment equal to the greater
of (i) two times such executive's then current annual compensation (as
defined) or (ii) 2.99 times the average of such executive's income as
reported to the Internal Revenue Service for the immediately preceding five
years and the immediate vesting of all of the executive's unvested stock
options upon the termination without cause (as defined) or constructive
termination without cause (as defined) of the executive's employment within
three years of a change of control (as defined). The amounts payable under
the Change of Control Agreements are in lieu of any amounts payable under the
employment agreements described above.
In August 1996, the Company entered into Employment Retention Agreements
with certain officers and other employees of the Company, including the named
executive officers. These agreements contain restrictive covenants that
prohibit the executive from rendering services or advice to, or being
employed by, certain specified competitors of the Company for a period of two
years after the date of such agreements. As compensation for entering into
these agreements and in accordance with the terms thereof, the Company
granted to each of the executives stock options to acquire 1,000 shares of
Common Stock and must pay them 18 months of severance in the event of their
termination by the Company and its subsidiaries during the two-year term of
the agreements for any reason other than cause (as defined). The Employment
Retention Agreements supplement the Change of Control Agreements between the
Company and each of the executives and the executive employment agreements
between the Company and each of Messrs. Curran and Tate, and the payments
required under the Employment Retention Agreements are in addition to, and
not in lieu of, any payments contemplated by such other agreements.
COMPENSATION OF DIRECTORS
Other than Messrs. Curran and Tate, each director of the Company receives
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 Mr. Moran, will receive 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 is expected to receive aggregated
compensation of $60,000 for services to be provided by him in his capacity as
Chairman of the Executive Committee during such period. Directors also are
reimbursed for all reasonable travel and other expenses of attending meetings
of the Board of Directors or committees of the Board of Directors.
20
<PAGE>
On November 1, 1997, the Board of Directors granted options to purchase
1,000 shares of Common Stock to each of Messrs. Byrom, Moran, Berger and
Druker pursuant to the Company's Non-Employee Directors Stock Option Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information as of February 2, 1998
(except as otherwise noted) regarding the ownership of Common Stock (i) by
each person known by the Company to be the beneficial owner of more than five
percent of the outstanding Common Stock, (ii) by each director of the
Company, (iii) by each executive officer of the Company named in the Summary
Compensation Table included elsewhere in this Annual Report on Form 10-K and
(iv) by all current executive officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
COMPANY COMMON STOCK
-------------------------
NAME OF NUMBER PERCENT OF
BENEFICIAL OWNER OF SHARES CLASS (1)
- ---------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Magten Asset Management Corp.
35 East 21st Street
New York, NY 10010(2) .......................................... 3,517,773 31.5 %
FMR Corp.
82 Devonshire Street
Boston, MA 02109(3)............................................. 2,439,020 21.9 %
General Motors Parties
767 Fifth Avenue
New York, NY 10153(4)........................................... 1,701,125 15.2 %
Whippoorwill Associates, Inc.
11 Martine Avenue
White Plains, NY 10606(5)....................................... 1,562,664 14.0 %
Hughes Master Retirement Trust
P. O. Box 2458
Culver City, CA 90231-2458(6)................................... 640,000 5.7 %
Randall E. Curran (7)............................................ 399,976 3.6 %
Richard L. Berger (8)............................................ 12,000 *
Fletcher L. Byrom (9)............................................ 7,000 *
Henry L. Druker (9).............................................. 7,000 *
Talton R. Embry (10)............................................. 60,771 *
Charles F. Moran (11)............................................ 7,000 *
James H. Tate (12)............................................... 129,586 1.1 %
Stephanie N. Josephson (13)...................................... 45,069 *
Thomas C. Drury (14)............................................. 43,026 *
Robert D. Maddox (15)............................................ 25,845 *
All directors and executive officers as a group (10 persons)
(16)............................................................. 737,273 6.3 %
- ------------
* Represents less than 1 percent.
(1) Based on 11,155,235 shares of Common Stock outstanding and calculated
in accordance with Rule 13d-3 under the Exchange Act.
(2) The following information is based on a Schedule 13D, dated July 25,
1996, as amended on September 25, 1996, and as further amended on
February 12, 1998, filed with the Commission by Magten Asset
Management Corp., an investment adviser registered under the
Investment Advisers Act of 1940, as amended (the "Investment Advisers
Act"). Magten Asset Management Corp. has sole voting power over none
of the shares, shared voting power over 2,998,773 of the shares, sole
21
<PAGE>
investment power over none of the shares and shared investment power
over all of the shares deemed to be beneficially owned by it. Magten
Asset Management Corp.'s investment advisory clients have the right
to receive dividends on the Common Stock beneficially owned by Magten
Asset Management Corp., and each of two clients, General Motors
Employees Domestic Group Pension Trust and Bankers Trust as Trustee
for the Hughes Master Retirement Trust, has such an interest with
respect to more than 5% of the outstanding shares of Common Stock.
(3) The following information is based on a Schedule 13G, dated February
14, 1998, filed with the Commission by FMR Corp., Edward C. Johnson
3d and Abigail P. Johnson . Fidelity Management & Research Company
("Fidelity"), a wholly owned subsidiary of FMR Corp., is an
investment adviser registered under the Investment Advisers Act,
provides investment advisory services to several registered
investment companies and, accordingly, may be deemed to beneficially
own 2,439,020 shares of Common Stock held by those investment
companies (the "Fidelity Funds"). One of these investment companies,
Fidelity Capital & Income Fund, beneficially owns 2,424,935 shares of
Common Stock. Because Fidelity is a wholly owned subsidiary of FMR
Corp., FMR Corp. may be deemed to be the beneficial owner of the
shares beneficially owned by Fidelity. Edward C. Johnson 3d, Chairman
of FMR Corp., Abigail P. Johnson and various of their family members
and their trusts control FMR Corp. and, therefore, may be deemed to
be the beneficial owners of the shares shown in the table above. Each
of Mr. Johnson, FMR Corp., through its control of Fidelity, and the
Fidelity Funds has sole power to dispose of the 2,439,020 shares
owned by the Fidelity Funds. Voting power with respect to such shares
resides with the Boards of Trustees of the various Fidelity Funds.
Fidelity votes the shares under written guidelines established by
these Boards.
(4) The following information is based on a Schedule 13G, dated February
9, 1996, filed with the Commission by General Motors Employees
Domestic Group Pension Trust (the "GM Trust") and General Motors
Investment Management Corporation ("GMIMCo" and, together with the GM
Trust, the "General Motors Parties"), and information provided by
Magten. The GM Trust is a trust formed under and for the benefit of
certain employee benefit plans ("Plans") of General Motors
Corporation ("GM") and its subsidiaries. GMIMCo is registered as an
investment adviser under the Investment Advisers Act. GMIMCo's
principal business is providing investment advice and investment
management services with respect to the assets of the Plans and of
certain direct and indirect subsidiaries of GM and associated
entities. Subject to certain limitations, GMIMCo has the
responsibility to select and terminate investment managers with
respect to the Plans. Two investment managers acting with respect to
the Plans are Magten Asset Management Corp. and Fidelity Management
Trust Company (the "External Managers"). The External Managers have
discretionary authority over the assets of the Plans which they
manage including voting and investment power with respect to the
shares of Common Stock included among such assets. Each of the
General Motors Parties has shared power to vote and shared investment
power over 1,701,125 shares of Common Stock.
(5) The following information is as of December 31, 1997 and based on a
Schedule 13G filed with the Commission on February 17, 1998 by
Whippoorwill Associates, Inc. ("Whippoorwill"). Whippoorwill is an
investment adviser registered under the Investment Advisers Act and
holds the shares of Common Stock in discretionary accounts. Clients
of Whippoorwill have the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, the
shares of Common Stock beneficially owned by Whippoorwill.
(6) The following information has been obtained from Magten Asset
Management Corp., as External Manager of shares held by the Hughes
Master Retirement Trust. Bankers Trust, as Trustee of the Hughes
Master Retirement Trust, has shared power to vote and shared
investment power over 640,000 shares of Common Stock.
(7) Includes 386,600 shares of Common Stock issuable to Mr. Curran upon
the exercise of vested stock options or stock options which will vest
as a consequence of the Merger.
(8) Includes 7,000 shares of Common Stock issuable to Mr. Berger upon the
exercise of vested stock options.
(9) Represents shares of Common Stock issuable upon the exercise of
vested stock options.
22
<PAGE>
(10) Mr. Embry possesses sole voting and investment power with respect to
800 shares he directly owns. He also exercises voting and/or
investment control with respect to 2,216 shares owned by his minor
children, 265 shares owned by a trust for the benefit of a family
member of which Mr. Embry serves as trustee, and 850 shares owned by
his wife (collectively, the "Relative Shares"). Mr. Embry, as trustee
of four pension trusts for the benefit of current and former
employees (the "Employee Benefit Plans") of Magten Asset Management
Corp., exercises voting and/or investment power with respect to
56,640 shares owned by the Employee Benefit Plans (collectively, the
"Magten Shares"). Also, as disclosed above, Magten Asset Management
Corp. and Mr. Embry may be deemed to beneficially own 3,517,773
shares of Common Stock which are owned by investment advisory clients
of Magten Asset Management Corp. (the "Investment Advisory Shares").
Although Mr. Embry may be deemed to beneficially own the Relative
Shares, the Magten Shares and the Investment Advisory Shares, Mr.
Embry disclaims beneficial ownership of such shares.
(11) Includes 2,000 shares of Common Stock issuable to Mr. Moran upon the
exercise of vested stock options.
(12) Includes 121,500 shares of Common Stock issuable to Mr. Tate upon the
exercise of vested stock options or stock options which will vest as
a consequence of the Merger.
(13) Includes 41,000 shares of Common Stock issuable to Ms. Josephson upon
the exercise of vested stock options or stock options which will vest
as a consequence of the Merger.
(14) Includes 41,000 shares of Common Stock issuable to Mr. Drury upon the
exercise of vested stock options or stock options which will vest as
a consequence of the Merger.
(15) Includes 21,000 shares of Common Stock issuable to Mr. Maddox upon
the exercise of vested stock options or stock options which will vest
as a consequence of the Merger.
(16) Includes 634,100 shares of Common Stock issuable upon the exercise of
vested stock options or stock options which will vest as a
consequence of the Merger.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
FINANCIAL STATEMENTS
The financial statements that are filed as part of this Annual Report on
Form 10-K are set forth in the Index to Consolidated Financial Statements at
page F-1 hereof and are included at pages F-2 to F-23 hereof.
FINANCIAL STATEMENT SCHEDULES
Report of Ernst & Young LLP, Independent Auditors is included at page S-1
hereof.
Schedule II -- Valuation and Qualifying Accounts is included at page S-2
hereof.
All other schedules for which provision is made in the applicable accounting
regulation of the Commission are not required under the related instructions
or are inapplicable and therefore have been omitted.
EXHIBITS
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ----------- ----- -------------------------------------------------------------------------------------------
<S> <C> <C>
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 -- Voting Agreement, dated January 20, 1998, among Thermadyne Holdings Corporation, Mercury
Acquisition Corporation and Fidelity Capital & Income Fund. (2)
2.4 -- Voting Agreement, dated January 20, 1998, among Thermadyne Holdings Corporation, Mercury
Acquisition Corporation and Magten Asset Management Corp. (2)
2.5 -- Amendment to Voting Agreement, dated February 20, 1998, among Thermadyne Holdings
Corporation, Mercury Acquisition Corporation and Magten Asset Management Corp.*
3.1 -- Restated Certificate of Incorporation of Thermadyne Holdings Corporation. (1)
3.2 -- Amended and Restated Bylaws of Thermadyne Holdings Corporation. (1)
4.1 -- Indenture, dated as of February 1, 1994, between Thermadyne Holdings Corporation and IBJ
Schroder Bank and Trust Company, as Trustee, with respect to $129,288,000 principal amount
of 10.75% Senior Notes Due May 1, 2002. (1)
4.2 -- Form of Senior Note (included in Exhibit 4.1). (1)
4.3 -- Indenture, dated as of February 1, 1994, between Thermadyne Holdings Corporation and
Chemical Bank, as Trustee, with respect to $179,321,000 principal amount of the Senior
Subordinated Notes Due November 1, 2003. (1)
4.4 -- Form of Senior Subordinated Note (included in Exhibit 4.3). (1)
10.1+ -- 1993 Management Option Plan, dated as of February 1, 1994, executed by Thermadyne Holdings
Corporation. (1)
10.2 -- Registration Rights Agreement, dated as of January 18, 1994, among Thermadyne Holdings
Corporation and the holders listed on the signature pages thereto. (1)
24
<PAGE>
EXHIBIT
NO. EXHIBIT
- ----------- ----- -------------------------------------------------------------------------------------------
10.3 -- Omnibus Agreement, dated as of June 3, 1988, among Palco Acquisition Company (now
Thermadyne Holdings Corporation) and its subsidiaries and National Warehouse Investment
Company. (3)
10.4 -- 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. (3)
10.5 -- 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. (3)
10.6 -- Schedule of substantially identical lease agreements. (3)
10.7 -- 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. (3)
10.8 -- Schedule of substantially identical lease guaranties. (3)
10.9 -- Lease Agreement, dated as of October 10, 1990, between Stoody Deloro Stellite and Bowling
Green-Warren County Industrial Park Authority, Inc. (3)
10.10 -- Lease Agreement, dated as of February 15, 1985, as amended, between Stoody Deloro Stellite,
Inc. and Corporate Property Associates 6. (3)
10.11+ -- Third Amended and Restated Thermadyne Holdings Corporation 1994 Employee Stock Purchase
Plan.*
10.12+ -- First Amendment to Third Amended and Restated Thermadyne Holdings Corporation 1994 Employee
Stock Purchase Plan.*
10.13 -- Receivables Purchase Agreement, dated as of December 28, 1994, among Thermadyne
Receivables, Inc., as Transferor, and NationsBank of Virginia, N.A., as Trustee. (4)
10.14 -- Purchase Agreement, dated as of August 2, 1994, between Coyne Cylinder Company and BA
Credit Corporation. (4)
10.15 -- Sublease Agreement, dated as of April 7, 1994, between Stoody Deloro Stellite, Inc., and
Swat, Inc. (4)
10.16 -- 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. (5)
10.17 -- Sublease Agreement, dated March 15, 1993, by and between Stoody Deloro Stellite, Inc. and
Lima Transportation. (6)
10.18 -- First Amendment to Standard Industrial Lease, dated June 27, 1995, by and between Stoody
Deloro Stellite, Inc. and Lima Transportation. (6)
10.19+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and R.
Dozier Maddox. (7)
10.20+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and John D.
McCulloch. (7)
10.21+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and Michael
E. Mahoney. (7)
25
<PAGE>
EXHIBIT
NO. EXHIBIT
- ----------- ----- -------------------------------------------------------------------------------------------
10.22+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and Gerald
A. Nicholson. (7)
10.23+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and Thomas
C. Drury. (7)
10.24+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and
Stephanie N. Josephson. (7)
10.25+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and James H.
Tate. (7)
10.26+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and Randall
E. Curran. (7)
10.27+ -- Executive Employment Agreement, dated as of November 1, 1996, by and among Thermadyne
Holdings Corporation, the companies listed on the signature pages thereof and James H.
Tate. (7)
10.28+ -- Executive Employment Agreement, dated as of November 1, 1996, by and among Thermadyne
Holdings Corporation, the companies listed on the signature pages thereof and Randall E.
Curran. (7)
10.29+ -- Amendment to Executive Employment Agreement dated April 24, 1997, by and between Thermadyne
Holdings Corporation and Randall E. Curran.*
10.30+ -- 1996 Employee Stock Option Plan. (8)
10.31+ -- Amendment to 1996 Employee Stock Option Plan. (9)
10.32+ -- Non-Employee Directors Stock Option Plan. (8)
10.33 -- Amended and Restated Credit Agreement, dated as of June 25, 1996, by and among Thermadyne
Holdings Corporation, various lending institutions and Bankers Trust Company, as Agent.
(10)
10.34 -- First Amendment, dated July 17, 1996, to the Amended and Restated Credit Agreement, dated
as of June 25, 1996, by and among Thermadyne Holdings Corporation, various lending
institutions and Bankers Trust Company, as Agent. (7)
10.35 -- Sixth Variation Agreement, Syndicated Credit Agreement, dated January 18, 1996, between
Comweld Group Pty. Ltd., Duxtech Pty. Limited, Quetack Pty. Limited, Quetala Pty. Limited,
Thermadyne Australia Pty. Limited, various financial institutions and BT Management
Services Pty. Ltd. (7)
10.36 -- Rights Agreement dated as of May 1, 1997, between Thermadyne Holdings Corporation and
BankBoston, N.A., as Rights Agent. (11)
10.37 -- First Amendment to Rights Agreement, dated January 20, 1998, between Thermadyne Holdings
Corporation and BankBoston, N.A. (2)
10.38+ -- Agreement, dated September 22, 1997, by and between Thermadyne Holdings Corporation and
James R. Delaney.*
21.1 -- Subsidiaries of Thermadyne Holdings Corporation.*
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.*
27.1 -- Financial Data Schedule.*
</TABLE>
- ------------
+ Indicates a management contract or compensatory plan or arrangement.
* Filed herewith.
26
<PAGE>
(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 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.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
(5) 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.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
(8) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File No. 333-04083) filed under Section 6 of the Securities
Act of 1933, as amended, on May 20, 1996.
(9) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File No. 333-30877) filed under Section 6 of the Securities
Act of 1933, as amended, on July 8, 1997.
(10) 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
June 25, 1996.
(11) 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.
REPORTS ON FORM 8-K
On October 8, 1997, the Company filed a Current Report on Form 8-K
reporting a material disposition of its wear resistance division pursuant to
Item 2 of Form 8-K.
27
<PAGE>
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..................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1997, 1996, and 1995 .. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31,
1997, 1996, and 1995......................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995 .. F-6
Notes to Consolidated Financial Statements.................................................... F-7
</TABLE>
F-1
<PAGE>
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>
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 1,481 $ 1,420
Accounts receivable, less allowance for doubtful accounts of
$2,217 and $1,649, respectively.................................. 76,847 54,286
Inventories....................................................... 105,135 79,542
Prepaid expenses and other........................................ 8,534 9,763
Net assets of discontinued operations............................. -- 29,455
-------------- --------------
Total current assets............................................. 191,997 174,466
Property, plant and equipment, at cost, net........................ 85,257 75,624
Deferred financing costs, net...................................... 5,754 7,508
Intangibles, at cost, net.......................................... 33,970 62,645
Deferred income taxes.............................................. 35,552 23,206
Other assets....................................................... 1,997 9,956
-------------- --------------
Total assets..................................................... $ 354,527 $ 353,405
============== ==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................................. $ 55,390 $ 28,266
Accrued and other liabilities..................................... 32,697 29,257
Accrued interest.................................................. 5,680 6,461
Income taxes payable.............................................. 4,769 7,948
Deferred income taxes............................................. -- 1,324
Current maturities of long-term obligations....................... 4,912 4,205
-------------- --------------
Total current liabilities........................................ 103,448 77,461
Long-term obligations, less current maturities..................... 353,175 417,135
Other long-term liabilities........................................ 60,751 44,078
Shareholders' equity (deficit):
Common stock, $.01 par value, 25,000,000 shares authorized,
11,189,675 and 11,020,311 shares issued and outstanding, at
December 31, 1997 and 1996, respectively......................... 112 110
Additional paid-in capital........................................ 149,023 143,237
Accumulated deficit............................................... (299,208) (333,465)
Foreign currency translation...................................... (12,774) 4,849
-------------- --------------
Total shareholders' deficit...................................... (162,847) (185,269)
-------------- --------------
Total liabilities and shareholders' deficit ...................... $ 354,527 $ 353,405
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales................................. $520,440 $439,744 $ 316,778
Operating expenses:
Cost of goods sold....................... 320,120 259,835 175,945
Selling, general and administrative
expenses................................ 110,696 95,907 74,681
Amortization of goodwill................. 1,591 83,033 92,931
Amortization of other intangibles ....... 6,776 12,377 48,401
Net periodic postretirement benefits .... 2,750 2,731 2,124
----------------- ----------------- -----------------
Operating income (loss)................... 78,507 (14,139) (77,304)
Other income (expense):
Interest expense......................... (45,325) (45,655) (41,269)
Amortization of deferred financing
costs................................... (1,587) (2,711) (4,860)
Other.................................... (3,051) (968) 103
----------------- ----------------- -----------------
Income (loss) from continuing operations
before income taxes and extraordinary
item..................................... 28,544 (63,473) (123,330)
Income tax provision (benefit)............ 13,475 (534) 8,518
----------------- ----------------- -----------------
Income (loss) from continuing operations
before extraordinary item................ 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......... 3,173 (5,463) (28,952)
----------------- ----------------- -----------------
Income (loss) before extraordinary item .. 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)......................... $ 34,257 $ (63,637) $ (160,800)
================= ================= =================
Basic earnings per share amounts:
Income (loss) from continuing
operations.............................. $ 1.36 $ (5.83) $ (12.97)
Net income (loss)........................ $ 3.09 $ (5.89) $ (15.81)
Diluted earnings per share amounts:
Income (loss) from continuing
operations.............................. $ 1.33 $ (5.83) $ (12.97)
Net income (loss)........................ $ 3.01 $ (5.89) $ (15.81)
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL FOREIGN
COMMON PAID-IN ACCUMULATED CURRENCY
STOCK CAPITAL DEFICIT TRANSLATION TOTAL
-------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
January 1, 1995................. $100 $129,900 $(109,028) $ (350) $ 20,622
Net loss.......................... -- -- (160,800) -- (160,800)
Foreign currency translation ..... -- -- -- (758) (758)
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)
Net loss.......................... -- -- (63,637) -- (63,637)
Foreign currency translation ..... -- -- -- 5,957 5,957
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)
Net income........................ -- -- 34,257 -- 34,257
Foreign currency translation ..... -- -- -- (17,623) (17,623)
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)
======== ============ ============= ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- ----------------- --
<S> <C> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss).................................... $ 34,257 $ (63,637) $(160,800)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Net periodic postretirement benefits................. 2,750 2,731 2,206
Depreciation......................................... 12,448 11,651 10,689
Amortization of goodwill............................. 1,591 83,033 102,985
Amortization of other intangibles.................... 6,776 12,377 48,517
Amortization of deferred financing costs............. 1,587 2,711 4,860
Recognition of net operating loss carryforwards ..... 2,343 8,534 4,491
Deferred income taxes................................ (1,836) (21,882) --
Noncash charges for discontinued operations ......... 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.................................. (19,905) (10,166) (5,942)
Inventories.......................................... (17,228) (10,107) (7,541)
Prepaid expenses and other........................... (1,628) (1,957) (291)
Accounts payable..................................... 20,605 3,498 2,818
Accrued and other liabilities........................ (5,757) (4,510) 2,963
Accrued interest..................................... (258) 643 (658)
Income taxes payable................................. (3,498) 1,379 (2,363)
Other long-term liabilities.......................... (3,152) (2,124) (2,519)
Discontinued operations.............................. 285 97 1,465
----------------- ----------------- -----------------
Total adjustments................................... (19,271) 85,092 192,008
----------------- ----------------- -----------------
Net cash provided by operating activities .......... 14,986 21,455 31,208
----------------- ----------------- -----------------
Cash flows provided by (used in) investing activities:
Capital expenditures, net............................ (16,339) (11,447) (7,154)
Change in other assets............................... 4,162 (4,399) (64)
Acquisitions, net of cash............................ (37,895) (74,011) (3,370)
Investing activities of discontinued operations ..... (1,680) (3,766) (5,133)
Proceeds from sale of discontinued operations ....... 88,543 112,359 ---
----------------- ----------------- -----------------
Net cash provided by (used in) investing
activities......................................... 36,791 18,736 (15,721)
----------------- ----------------- -----------------
Cash flows provided by (used in) financing activities:
Change in long-term receivables...................... 170 (283) 47
Repayment of long-term obligations................... (131,486) (150,384) (26,263)
Borrowing of long-term obligations................... 72,855 119,854 505
Issuance of common stock............................. 3,069 4,146 7,761
Change in accounts receivable securitization ........ 5,676 (9,994) 731
Financing fees....................................... --- (3,855) (189)
Financing activities of discontinued operations ..... (2,808) (1,732) (11)
Other................................................ 808 1,639 (3,516)
----------------- ----------------- -----------------
Net cash used in financing activities............... (51,716) (40,609) (20,935)
----------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents .. 61 (418) (5,448)
Cash and cash equivalents at beginning of year ........ 1,420 1,838 7,286
----------------- ----------------- -----------------
Cash and cash equivalents at end of year .............. $ 1,481 $ 1,420 $ 1,838
================= ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
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>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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>
<CAPTION>
<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>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The components of net assets of discontinued operations included in the
Consolidated Balance Sheet at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<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>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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 Account 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.
F-10
<PAGE>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Basic earnings per share amounts:
Income (loss) from continuing operations before
extraordinary item.................................. $1.36 $(5.83) $(12.97)
Discontinued operations ............................. 1.73 0.28 (2.84)
Income (loss) before extraordinary item.............. 3.09 (5.55) (15.81)
Extraordinary item--loss on early extinguishment of
long-term debt...................................... -- (0.34) --
------------ ------------ ------------
Net income (loss).................................... $3.09 $(5.89) $(15.81)
============ ============ ============
Diluted earnings per share amounts:
Income (loss) from continuing operations before
extraordinary item.................................. $1.33 $(5.83) $(12.97)
Discontinued operations.............................. 1.68 0.28 (2.84)
Income (loss) before extraordinary item.............. 3.01 (5.55) (15.81)
Extraordinary item--loss on early extinguishment of
long-term debt...................................... -- (0.34) --
------------ ------------ ------------
Net income (loss).................................... $3.01 $(5.89) $(15.81)
============ ============ ============
Weighted average shares--basic earnings per share .. 11,072,088 10,797,261 10,168,817
Effect of dilutive securities:
Employee stock options............................. 296,109 -- --
------------ ------------ ------------
Weighted average shares--diluted earnings per share . 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>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Interest .. $48,683 $48,581 $46,148
Taxes...... 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>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Recent Accounting Pronouncements -- In June 1997, the Financial
Accounting Standards Board ("FASB") issued Statement No. 130, "Reporting
Comprehensive Income" ("FASB 130"), which establishes standards for the
reporting and display of comprehensive income and its components in financial
statements. Comprehensive income generally represents all changes in
shareholders' equity except those resulting from investments by or
distributions to shareholders. FASB 130 is effective for fiscal years
beginning after December 15, 1997 and requires restatement of earlier periods
presented.
Also 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 at December 31, is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Raw materials .. $ 19,903 $14,128
Work-in-process 30,743 21,248
Finished goods . 56,087 46,519
LIFO reserve ... (1,598) (2,353)
---------- ---------
$105,135 $79,542
========== =========
</TABLE>
F-12
<PAGE>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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>
<CAPTION>
<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
F-14
<PAGE>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
subsidiary to comply with various financial covenants. The facility is
secured by personal and real property of 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>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE 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 the
year.......................... $ 13.14 $ 8.49 $ 6.88
</TABLE>
F-16
<PAGE>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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
LEASE LEASE
---------- -----------
<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>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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
F-18
<PAGE>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
portion of the net adjustment for deferred taxes has been allocated to
discontinued operations. The valuation allowance relates to 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>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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, 1997 DECEMBER 31, 1996 DECEMBER 31, 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>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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, 1995
----------------- ----------------- -----------------
<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>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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, 1997 DECEMBER 31, 1996 DECEMBER 31, 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>
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: February 20, 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 Exchange Act of 1934, this
report 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
- -------------------------- ------------------------------------- ---------------------
<S> <C> <C>
/s/RANDALL E. CURRAN Chairman of the Board, President, and February 20, 1998
-------------------------- Chief Executive Officer (principal
Randall E. Curran executive officer)
/s/ JAMES H. TATE Director, Senior Vice President and February 20, 1998
-------------------------- Chief Financial Officer (principal
James H. Tate financial and accounting officer)
/s/RICHARD L. BERGER Director February 20, 1998
--------------------------
Richard L. Berger
/s/FLETCHER L. BYROM Director February 20, 1998
--------------------------
Fletcher L. Byrom
/s/HENRY L. DRUKER Director February 20, 1998
--------------------------
Henry L. Druker
/s/TALTON R. EMBRY Director February 20, 1998
--------------------------
Talton R. Embry
/s/CHARLES F. MORAN Director February 20, 1998
--------------------------
Charles F. Moran
</TABLE>
<PAGE>
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>
SCHEDULE II
THERMADYNE HOLDING CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLLECTION
BALANCE AT OF PREVIOUSLY EFFECT OF BALANCE AT
BEGINNING OF WRITTEN OFF DISCONTINUED END OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS PERIOD PROVISION WRITEOFFS ACCOUNTS OPERATIONS 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>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ----------- ----- -------------------------------------------------------------------------------------------
<S> <C> <C>
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 -- Voting Agreement, dated January 20, 1998, among Thermadyne Holdings Corporation, Mercury
Acquisition Corporation and Fidelity Capital & Income Fund. (2)
2.4 -- Voting Agreement, dated January 20, 1998, among Thermadyne Holdings Corporation, Mercury
Acquisition Corporation and Magten Asset Management Corp. (2)
2.5 -- Amendment to Voting Agreement, dated February 20, 1998, among Thermadyne Holdings
Corporation, Mercury Acquisition Corporation and Magten Asset Management Corp.*
3.1 -- Restated Certificate of Incorporation of Thermadyne Holdings Corporation. (1)
3.2 -- Amended and Restated Bylaws of Thermadyne Holdings Corporation. (1)
4.1 -- Indenture, dated as of February 1, 1994, between Thermadyne Holdings Corporation and IBJ
Schroder Bank and Trust Company, as Trustee, with respect to $129,288,000 principal amount
of 10.75% Senior Notes Due May 1, 2002. (1)
4.2 -- Form of Senior Note (included in Exhibit 4.1). (1)
4.3 -- Indenture, dated as of February 1, 1994, between Thermadyne Holdings Corporation and
Chemical Bank, as Trustee, with respect to $179,321,000 principal amount of the Senior
Subordinated Notes Due November 1, 2003. (1)
4.4 -- Form of Senior Subordinated Note (included in Exhibit 4.3). (1)
10.1+ -- 1993 Management Option Plan, dated as of February 1, 1994, executed by Thermadyne Holdings
Corporation. (1)
10.2 -- Registration Rights Agreement, dated as of January 18, 1994, among Thermadyne Holdings
Corporation and the holders listed on the signature pages thereto. (1)
10.3 -- Omnibus Agreement, dated as of June 3, 1988, among Palco Acquisition Company (now
Thermadyne Holdings Corporation) and its subsidiaries and National Warehouse Investment
Company. (3)
10.4 -- 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. (3)
10.5 -- 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. (3)
10.6 -- Schedule of substantially identical lease agreements. (3)
10.7 -- 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. (3)
10.8 -- Schedule of substantially identical lease guaranties. (3)
<PAGE>
EXHIBIT
NO. EXHIBIT
- ----------- ----- -------------------------------------------------------------------------------------------
10.9 -- Lease Agreement, dated as of October 10, 1990, between Stoody Deloro Stellite and Bowling
Green-Warren County Industrial Park Authority, Inc. (3)
10.10 -- Lease Agreement, dated as of February 15, 1985, as amended, between Stoody Deloro Stellite,
Inc. and Corporate Property Associates 6. (3)
10.11+ -- Third Amended and Restated Thermadyne Holdings Corporation 1994 Employee Stock Purchase
Plan.*
10.12+ -- First Amendment to Third Amended and Restated Thermadyne Holdings Corporation 1994 Employee
Stock Purchase Plan.*
10.13 -- Receivables Purchase Agreement, dated as of December 28, 1994, among Thermadyne
Receivables, Inc., as Transferor, and NationsBank of Virginia, N.A., as Trustee. (4)
10.14 -- Purchase Agreement, dated as of August 2, 1994, between Coyne Cylinder Company and BA
Credit Corporation. (4)
10.15 -- Sublease Agreement, dated as of April 7, 1994, between Stoody Deloro Stellite, Inc., and
Swat, Inc. (4)
10.16 -- 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. (5)
10.17 -- Sublease Agreement, dated March 15, 1993, by and between Stoody Deloro Stellite, Inc. and
Lima Transportation. (6)
10.18 -- First Amendment to Standard Industrial Lease, dated June 27, 1995, by and between Stoody
Deloro Stellite, Inc. and Lima Transportation. (6)
10.19+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and R.
Dozier Maddox. (7)
10.20+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and John D.
McCulloch. (7)
10.21+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and Michael
E. Mahoney. (7)
10.22+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and Gerald
A. Nicholson. (7)
10.23+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and Thomas
C. Drury. (7)
10.24+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and
Stephanie N. Josephson. (7)
10.25+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and James H.
Tate. (7)
10.26+ -- Agreement, dated July 19, 1996, by and between Thermadyne Holdings Corporation and Randall
E. Curran. (7)
10.27+ -- Executive Employment Agreement, dated as of November 1, 1996, by and among Thermadyne
Holdings Corporation, the companies listed on the signature pages thereof and James H.
Tate. (7)
10.28+ -- Executive Employment Agreement, dated as of November 1, 1996, by and among Thermadyne
Holdings Corporation, the companies listed on the signature pages thereof and Randall E.
Curran. (7)
<PAGE>
EXHIBIT
NO. EXHIBIT
- ----------- ----- -------------------------------------------------------------------------------------------
10.29+ -- Amendment to Executive Employment Agreement dated April 24, 1997, by and between Thermadyne
Holdings Corporation and Randall E. Curran.*
10.30+ -- 1996 Employee Stock Option Plan. (8)
10.31+ -- Amendment to 1996 Employee Stock Option Plan. (9)
10.32+ -- Non-Employee Directors Stock Option Plan. (8)
10.33 -- Amended and Restated Credit Agreement, dated as of June 25, 1996, by and among Thermadyne
Holdings Corporation, various lending institutions and Bankers Trust Company, as Agent.
(10)
10.34 -- First Amendment, dated July 17, 1996, to the Amended and Restated Credit Agreement, dated
as of June 25, 1996, by and among Thermadyne Holdings Corporation, various lending
institutions and Bankers Trust Company, as Agent. (7)
10.35 -- Sixth Variation Agreement, Syndicated Credit Agreement, dated January 18, 1996, between
Comweld Group Pty. Ltd., Duxtech Pty. Limited, Quetack Pty. Limited, Quetala Pty. Limited,
Thermadyne Australia Pty. Limited, various financial institutions and BT Management
Services Pty. Ltd. (7)
10.36 -- Rights Agreement dated as of May 1, 1997, between Thermadyne Holdings Corporation and
BankBoston, N.A., as Rights Agent. (11)
10.37 -- First Amendment to Rights Agreement, dated January 20, 1998, between Thermadyne Holdings
Corporation and BankBoston, N.A. (2)
10.38+ -- Agreement, dated September 22, 1997, by and between Thermadyne Holdings Corporation and
James R. Delaney.*
21.1 -- Subsidiaries of Thermadyne Holdings Corporation.*
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.*
27.1 -- Financial Data Schedule.*
</TABLE>
- ------------
+ Indicates a management contract or compensatory plan or arrangement.
* Filed herewith.
<PAGE>
EXHIBIT 2.5
AMENDMENT NO. 1 TO VOTING AGREEMENT
AMENDMENT NO. 1 TO VOTING AGREEMENT (this "Amendment"), dated
February 20, 1998, by and between Mercury Acquisition Corporation, a Delaware
corporation ("MergerSub"), Thermadyne Holdings Corporation, a Delaware
corporation (the "Company"), and the undersigned holders (each, a
"Stockholder") of shares of Company Common Stock.
WHEREAS, MergerSub, the Company and the Stockholders are parties to a
Voting Agreement dated as of January 20, 1998 (the "Voting Agreement"); and
WHEREAS, the parties desire to amend a certain schedule of the Voting
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein and in the Voting Agreement, the parties hereto
agree as follows:
1. Schedule A of the Voting agreement is hereby amended to read in its
entirety as follows:
SCHEDULE A
SHARES OF COMPANY
STOCKHOLDER COMMON STOCK
----------- -----------------
Magten Asset Management Corp. 107,047
General Motors Employees 1,701,125
Domestic Group Pension Trust
City of Los Angeles Fire and 519,000
Police Pension Systems
Hughes Retirement Plans Trust 640,000
Navy Exchange Service Command 300,000
Retirement Trust
Western Union Telegraph
Company Pension Plan 250,601
---------
3,517,773
2. Except as specifically amended by this Amendment, the Voting
Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment No. 1 to the Voting agreement as of this 20th day of February, 1998.
MERCURY ACQUISITION
CORPORATION
By /s/ WILLIAM F. DAWSON, JR.
-----------------------------
Name: William F. Dawson, Jr.
Title: Vice President and
Secretary
THERMADYNE HOLDINGS
CORPORATION
By /s/ JAMES H. TATE
-----------------------
Name: James H. Tate
Title: Senior Vice President
and Chief Financial
Officer
GENERAL MOTORS EMPLOYEES
DOMESTIC GROUP PENSION TRUST
By: Mellon Bank, N.A., solely in
its capacity as Trustee for General
Motors Employees Domestic Group
Pension Trust as directed by
Magten Asset Management Corp.,
and not in its individual capacity
By /s/ BERNADETTE RIST
-----------------------
Name: Bernadette Rist
Title: Authorized Signatory
MAGTEN ASSET MANAGEMENT
CORP.
By /s/ TALTON R. EMBRY
-----------------------
Name: Talton R. Embry
Title: Chairman
<PAGE>
CITY OF LOS ANGELES FIRE
AND POLICE PENSION
SYSTEMS
HUGHES RETIREMENT PLANS TRUST
NAVY EXCHANGE SERVICE
COMMAND RETIREMENT
TRUST
WESTERN UNION TELEGRAPH
COMPANY PENSION PLAN
By Magten Asset Management Corp., as
Attorney-in-Fact
By /s/ TALTON R. EMBRY
-----------------------
Name: Talton R. Embry
Title: Chairman
<PAGE>
THIRD AMENDED AND RESTATED
THERMADYNE HOLDINGS CORPORATION
1994 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose
The purpose of the Thermadyne Holdings Corporation 1994 Employee Stock
Purchase Plan (the "Plan") is to encourage and assist employees of Thermadyne
Holdings Corporation and the Subsidiaries to acquire an equity interest in
Thermadyne Holdings Corporation by the purchase of the Common Stock through
payroll deductions. It is the intention of the Corporation that the Plan
qualify as an "employee stock purchase plan" under Section 423 of the Code.
The provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code and the regulations promulgated thereunder.
2. Definitions
Whenever used in the Plan:
A. "Account" means a bookkeeping entry maintained by or on
behalf of the Corporation showing the aggregate payroll deductions
pursuant to the Plan with respect to an Eligible Employee.
B. "Adjusted Compensation" means Compensation, minus required
withholding for taxes and other employee benefits deducted by the
Corporation (or any Subsidiary) from Compensation of an Eligible
Employee.
C. "Alternative Purchase Price" means eighty-five percent
(85%) of the Fair Market Value of the Common Stock on the date of
purchase.
D. "Board" means the Board of Directors of the Corporation.
E. "Business Day" means a day on which Common Stock is
publicly traded, or, if the Common Stock ceases to be publicly traded,
a day on which the Corporation is open for business
F. "Code" means the Internal Revenue Code of 1986, as
amended.
G. "Committee" means the committee appointed by the Board to
administer the Plan pursuant to paragraph 10 hereof.
H. "Common Stock" means the common stock, par value $0.01 per
share, of the Corporation.
<PAGE>
I. "Compensation" means regular straight time earnings or
draw, but excludes compensation for overtime, commissions, bonuses,
amounts paid as reimbursement of expenses and other additional
compensation.
J. "Corporation" means Thermadyne Holdings Corporation.
K. "Eligible Employee" means an employee (within the meaning
of Treasury Regulation Section 1.421.7(h)) of the Corporation or any
of the Subsidiaries on the Option Grant Date (1) who would not,
immediately after an Option is granted, own stock (as defined by
Sections 423(b)(3) and 424(d) of the Code) possessing five percent or
more of the total combined voting power or value of all classes of
stock of the Corporation or of a Parent or any Subsidiary of the
Corporation (a "Five Percent Shareholder"); (2) whose customary
employment is not 20 hours or less per week; and (3) whose customary
employment is for more than five months in any calendar year.
L. "Fair Market Value" means:
(a) if the security is listed on a national securities
exchange or the Nasdaq National Market, the closing price, regular
way, of the security on such exchange or the Nasdaq National
Market, as the case may be, or if no such reported sale of the
security shall have occurred on such date, on the latest preceding
date on which there was such a reported sale, or
(b) if the security is listed on The Nasdaq SmallCap Market,
the average of the closing bid and asked prices on The Nasdaq SmallCap
Market or, if no such prices shall have been so reported for such
date, on the latest preceding date for which such prices were so
reported, or
(c) if the security is not listed for trading on a national
securities exchange, The Nasdaq National Market, or The Nasdaq
SmallCap Market, the fair market value of the security as determined
in good faith by the Board.
M. "Five Percent Shareholder" has the meaning set forth in
the definition of "Eligible Employee."
N. "Option" means an option to purchase Common Stock granted
to an Eligible Employee under the Plan.
O. "Option Grant Date" means January 1, 1998.
P. "Parent" of the Corporation means any corporation, other
than the Corporation, in an unbroken chain of corporations ending with
the Corporation if, at the time of the granting of the Option, each of
the corporations other than the Corporation owns stock possessing 50%
or more of the total combined voting power of all classes of stock in
one of the other corporations in the chain.
-2-
<PAGE>
Q. "Plan" means the Thermadyne Holdings Corporation Third
Amended and Restated 1994 Employee Stock Purchase Plan, as set forth
in this instrument and as amended from time to time.
R. "Purchase date" means the last Business Day of the Payroll
Deduction Period, or, if earlier, the date the Plan is terminated at
the discretion of the Board.
S. "Payroll Deduction Period" means the period beginning on
January 1, 1998 and ending on December 31, 1998.
T. "Purchase Price" means eighty-five percent (85%) of the
Fair Market Value of the Common Stock on the Option Grant Date.
U. "Subsidiary" means any corporation other than the
Corporation in an unbroken chain of corporations beginning with the
Corporation if, at the time of the granting of an Option to purchase
shares of Common Stock, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the
other corporations in such chain.
3. Common Stock Subject to the Plan
Subject to the provisions of paragraph 11 (relating to adjustment upon
changes in the Common Stock), the number of shares of Common Stock which may be
sold upon exercise of the Options granted under the Plan shall not exceed in
the aggregate 1,000,000 shares. The shares of Common Stock delivered by the
Corporation pursuant to the Plan may be treasury shares, newly issued shares or
both.
4. Participation
A. An Eligible Employee of the Corporation or a Subsidiary
may participate in the Plan by completing an enrollment agreement
("Enrollment Agreement") and any other necessary documents supplied by
the Corporation authorizing payroll deductions to cover the aggregate
purchase price of those shares of Common Stock which he intends to
purchase pursuant to the terms of the Plan and filing such Enrollment
Agreement with the designated officer of the Corporation prior to the
start of the Payroll Deduction Period. Such election and authorization
shall continue in effect for the entire Payroll Deduction Period;
provided, however, that an Eligible Employee shall have the option to
increase or decrease his payroll deduction once during the Payroll
Deduction Period by filing a new Enrollment Agreement (the "Amended
Enrollment Agreement"). The Amended Enrollment Agreement shall become
effective on the beginning of the first calendar quarter following the
date of filing the Amended Enrollment Agreement with the designated
officer of the Corporation.
-3-
<PAGE>
B. An Eligible Employee's Option will lapse when the Eligible
Employee ceases to be an employee of the Corporation or any
Subsidiary, and the Corporation shall refund in cash, without
interest, all amounts credited to the Account of such former Employee.
Notwithstanding the foregoing, if an Eligible Employee's employment is
terminated by reason of retirement, death or disability not more than
ninety days prior to the Purchase Date, such Eligible Employee (or, in
the event of the Eligible Employee's death, the legal representative
or beneficiary of such Eligible Employee) shall have the right, on or
before the Purchase Date, to elect that the Option be exercised as of
the Purchase Date or that any amount remaining in the Account of the
Eligible Employee be refunded to the estate or beneficiary, without
interest.
C. Each Eligible Employee who does not wish to accept an
Option to purchase shares of Common Stock granted under this Plan shall
so signify on the Enrollment Agreement. Such election not to
participate in the Plan for the Payroll Deduction Period shall be
irrevocable for the Payroll Deduction Period. The failure of an
Eligible Employee to file an Enrollment Agreement with the designated
corporate officer prior to the start of the Payroll Deduction Period
shall constitute an irrevocable election not to participate in the
Plan.
D. Subject to the provisions of the Plan, effective on the
Option Grant Date each Eligible Employee who is employed by the
Corporation or a Subsidiary on the Option Grant Date shall be
granted an option to purchase that number of whole shares of Common
Stock equal to the quotient of (i) the lesser of the Eligible
Employee's annual Adjusted Compensation in effect on the Option Grant
Date or $25,000 (ii) divided by the Fair Market Value of the Common
Stock on the Option Grant Date. In the event such an Option would
involve the purchase of a fractional share, the number of shares which
may be purchased shall be decreased to the next whole number.
E. No Eligible Employee may be granted an Option to purchase
shares of Common Stock which would permit his total rights to purchase
shares of stock under all employee stock purchase plans of the
Corporation and its Parent and Subsidiaries to accrue at a rate which
exceeds $25,000 of fair market value of such stock (determined as of
the date of grant of such Option) for each calendar year during which
any such Option granted to such individual is outstanding at any time.
No person may be granted an Option under the Plan other than an
Eligible Employee. No Options may be granted under the Plan to any Five
Percent Shareholder.
F. In the case of any Eligible Employee receiving payment of
Compensation in a currency other than United States dollars, (i) for
purposes of determining the number of shares of Common Stock subject
to an Option under paragraph 4(D), such Eligible Employee's Adjusted
Compensation shall be converted into United States dollars based upon
the foreign exchange rate at the close of busi-
-4-
<PAGE>
ness on the Option Grant Date (as published in The Wall Street
Journal), and (ii) for purposes of determining the extent to which
such Eligible Employee exercises his Option on the Purchase Date
pursuant to paragraph 7, the currency accumulated in such Eligible
Employee's Account shall be converted into United States dollars at
the foreign exchange rate at the close of business on the Purchase
Date (as published in The Wall Street Journal).
6. Payroll Deductions
A. The Purchase Price for those shares of Common stock
subject to an Eligible Employee's Option shall be deducted in
substantially equal installments from his Compensation during the
Payroll Deduction Period in accordance with the Enrollment Agreement
or the Amended Enrollment Agreement, as the case may be. Such payroll
deductions shall commence with the first applicable payroll period
beginning in such Payroll Deduction Period, and shall continue until
the Purchase Date. Payroll deductions must be made in whole dollars.
B. All payroll deductions made pursuant to this paragraph 5
shall be credited to an Eligible Employee's Account under the Plan. An
Eligible Employee may not make additional payments into such Account.
The Corporation shall have no obligation to segregate funds with
respect to each Eligible Employee's Account.
C. No interest shall accrue on the Eligible Employee's
Account.
D. Payroll deductions for Common Stock pursuant to an
Enrollment Agreement or an Amended Enrollment Agreement will be
suspended during any period of layoff, strike, or authorized leave of
absence without pay, and in such case, the Eligible Employee will not
be allowed to make up any such deficiency. Payroll deductions will
resume if the Eligible Employee returns to full time status.
6. Right to withdraw
A. An Eligible Employee who has accepted an Option may, at
any time prior to his last regular payroll deduction thereunder,
direct the Corporation to make no further deductions from his
Compensation with respect to such Option, or may cancel the entire
Option. Upon either of such actions, all payroll deductions with
respect to such Option shall cease. If the Eligible Employee has
directed that payroll deductions be discontinued, any sums theretofore
deducted shall be retained by the Corporation until the end of the
Payroll Deduction Period, at which time there shall be issued to the
Eligible Employee the number of whole shares of Common Stock which can
be purchased with the sum deducted and any remaining balance of the
sum shall be paid to him in cash, without interest. If the Eligible
Employee has canceled his Option, the Corporation shall refund in
cash, without interest, all amounts credited to the Account of such
Eligible Employee.
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<PAGE>
B. Notification of an Eligible Employee's election to
terminate deductions or to cancel an Option shall be made by the
filing of an appropriate notice to such effect with the corporate
officer designated by the Committee.
7. Exercise of Option and Purchase of Shares
A. The Option of each Eligible Employee which remains
outstanding on the Purchase Date shall be deemed to be exercised on
the Purchase Date and become on such date an irrevocable obligation to
purchase Common Stock to the extent provided in the Plan. The number
of shares of Common Stock subject to an Option of an Eligible Employee
which shall be purchased on the Purchase Date pursuant to the exercise
of the Option shall be the lesser of (i) the quotient of (a) the
amount accumulated in the Eligible Employee's Account by payroll
deductions during the Payroll Deduction Period divided by (b) the
lesser of (I) the Purchase Price or (II) the Alternative Purchase
Price, or (ii) the number of shares of Common Stock subject to the
Option as set forth in paragraph 4(D). The number of shares of Common
Stock so determined shall be rounded down to a whole number of shares.
As soon as practicable thereafter, certificates for the number of
whole shares of Common Stock, determined as aforesaid, purchased by
each Eligible Employee shall be issued to him. Any balance remaining
in the Account of an Eligible Employee shall be refunded to him,
without interest.
B. In the event that Eligible Employees would be entitled on
the Purchase Date to exercise Options which exceed the number of
shares of Common Stock that may be sold under the Plan upon the
exercise of the Options pursuant to paragraph 3, then the Committee
shall apportion the aggregate shares of Common Stock among each
Eligible Employee by multiplying (i) the total number of shares
available for issuance upon the exercise of Options under paragraph 3
times (ii) the ratio of (a) the number of shares of Common Stock which
a particular Eligible Employee would be entitled to purchase on the
exercise of his or her Option on the Purchase Date (determined without
regard to the limitation in paragraph 3) to (b) the total number of
shares of Common Stock which all Eligible Employees would be entitled
to purchase on the Purchase Date (determined without regard to
the limitation in paragraph 3).
8. Rights as a Shareholder
An Eligible Employee who has accepted an Option to purchase shares of
Common Stock under the Plan shall not be entitled to any of the rights or
privileges of a shareholder of the Corporation, including the right to receive
any dividends which may be declared by the Corporation, until such time as he
has actually paid the purchase price for such shares and certificates have been
issued to him in accordance with paragraph 7 hereof.
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9. Rights Not Transferable
An Eligible Employee's Option is exercisable, during his lifetime,
only by him and may not be sold, pledged, assigned or transferred in any manner
other than by will or the laws of descent and distribution. Any attempt to
sell, pledge, assign or transfer such rights shall be void and shall
automatically cause the Option held by the Eligible Employee to be terminated.
In such event, the Corporation shall refund in cash, without interest, all
amounts credited to the Account of such Eligible Employee under the Plan.
10. Administration of the Plan
The Plan shall be administered by a committee appointed by (and
subject to removal by) the Board and consisting of at least three Directors and
such other persons as are designated by the Board (the "Committee"). The
Committee is authorized to make such uniform rules as may be necessary to carry
out the Plan's provisions. The Committee shall determine any questions arising
in the administration, interpretation and application of the Plan, and all such
determinations shall be conclusive and binding on all parties. The day-to-day
administration of the Plan may be delegated by the Committee to a subcommittee
of the Committee or such corporate officers as the Committee shall designate.
11. Adjustment Upon Changes in Capitalization
In the event of any change in the Common Stock of the Corporation by
reason of stock dividends, split-ups, corporate separations, recapitalizations,
mergers, consolidations, combinations, exchanges of shares and the like, the
aggregate number and class of shares available under the Plan and the number
and class of shares under Option but not yet issued under the Plan shall be
adjusted appropriately; provided, however, that no adjustment shall be made
which would result in a modification of the Options granted hereunder and
thereby disqualify the Plan as an employee stock purchase plan under the
provisions of Section 423 of the Code.
12. Registration of Certificates
Stock certificates shall be registered in the name of the Eligible
Employee.
13. Amendment of Plan
The Board may at any time amend the Plan in any respect except that,
without the approval of the shareholders of the Corporation by such vote as
would then be required for adoption of an "employee stock purchase plan" within
the meaning of Section 423 of the Code, no amendment shall be made (i)
increasing the number of shares to be reserved under the Plan (other than as
provided in paragraph 11 hereof), (ii) withdrawing the administration of the
Plan from the Committee, (iii) changing the definition of Eligible Employees,
or (iv) which would cause the Plan to fail to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code. The modification
or
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amendment of this Plan, without the consent of an Eligible Employee, shall not
affect his rights under any uncompleted subscription agreement.
14. Termination of the Plan
The Plan and all rights of Eligible Employees in any offering
hereunder shall terminate at the earlier of (i) the conclusion of the Payroll
Deduction Period without the Plan's having been extended or renewed by action
of the Board, or (ii) at any time, at the discretion of the Board. Upon
termination of the Plan at the discretion of the Board, shares of Common Stock
shall be issued to Eligible Employees, (and cash, if any, remaining in the
Accounts of the Eligible Employees, shall be refunded to them,) in accordance
with Section 7A.
15. Compliance with Law and Other Conditions
All Options and subscription agreements under this Plan itself, shall
be governed by Section 423 of the Code and the regulations thereunder and all
applicable laws of the United States and, to the extent not superseded thereby,
laws of the State of Missouri. No shares shall be issued, sold or delivered
pursuant to the exercise of any Option granted under the Plan prior to (i) any
registration or other qualification of such shares under any state or federal
law or regulation which the Committee shall, in its absolute discretion upon
the advice of counsel, deem necessary or advisable, and (ii) the admission of
such shares to listing on any stock exchange or national market system on which
the stock may then be listed free of any conditions not acceptable to the
Committee.
16. Miscellaneous
The Plan shall not be deemed to constitute a contract of employment
between the Corporation and any Eligible Employee, nor shall it interfere with
the right of the Corporation or any Subsidiary to terminate any Eligible
Employee and treat him without regard to the effect which such treatment might
have upon him under the Plan.
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<PAGE>
FIRST AMENDMENT
TO
THIRD AMENDED AND RESTATED
THERMADYNE HOLDINGS CORPORATION
1994 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
This First Amendment to Third Amended and Restated Thermadyne Holdings
Corporation 1994 Employee Stock Purchase Plan (this "Amendment") amends that
certain Third Amended and Restated Thermadyne Holdings Corporation 1994
Employee Stock Purchase Plan (the "Plan"). In connection with that certain
Agreement and Plan of Merger, dated January 20, 1998, among Thermadyne Holdings
Corporation, a Delaware corporation (the "Corporation"), and Mercury
Acquisition Corporation, a Delaware corporation, the Board of Directors has
determined that it is advisable and in the best interest of the Corporation to
amend the Plan as set forth in this Amendment.
2. AMENDMENT OF SECTION 4(A).
Section 4(A) of the Plan is hereby amended to read in its entirety as
follows:
A. An Eligible Employee of the Corporation or a Subsidiary may participate in
the Plan by completing an enrollment agreement ("Enrollment Agreement") and any
other necessary documents supplied by the Corporation authorizing payroll
deductions to cover the aggregate purchase price of those shares of Common
Stock which he intends to purchase pursuant to the terms of the Plan and filing
such Enrollment Agreement with the designated officer of the Corporation prior
to the start of the Payroll Deduction Period. Such election and authorization
shall continue in effect for the entire Payroll Deduction Period; provided,
however, that an Eligible Employee shall have the option to decrease (but not
increase) his payroll deduction once during the Payroll Deduction Period by
filing a new Enrollment Agreement (the "Amended Enrollment Agreement"). The
Amended Enrollment Agreement shall become effective on the beginning of the
first calendar quarter following the date of filing the Amended Enrollment
Agreement with the designated officer of the Corporation.
3. REFERENCE TO AND EFFECT ON THE PLAN.
(a) On and after the date hereof, each reference in the Plan
to "the Plan", "hereunder", "hereof", "herein" or words of like import
referring to the Plan shall mean and be a reference to the Plan as
hereby amended.
(b) Except as specifically amended by this Amendment, the
Plan shall remain in full force and effect and is hereby ratified and
confirmed.
<PAGE>
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to the Executive Employment Agreement is effective
April 24, 1997, by and between Thermadyne Holdings Corporation, a Delaware
corporation, together with its subsidiaries as defined therein ("Employers")
and Randall E. Curran ("Employee").
WHEREAS, on November 1, 1996, Employers and Employee entered into that
certain Executive Employment Agreement.
WHEREAS, on April 24, 1997, at a meeting of the Compensation and
Organization Committee, the Employee's bonus percentage was increased from 75%
to 100%.
WHEREAS, the parties desire to amend the Executive Employment
Agreement as set forth below:
NOW, THEREFORE, Employers and Employee in consideration of the
agreements, covenants and conditions herein agree as follows:
Paragraph 2(b) of the Executive Employment Agreement shall be amended
and restated as follows:
"Bonus. During the Employment Period, Employee shall
additionally participate in an annual bonus plan providing for an
annual bonus opportunity of not less than 100% of Employee's annual
salary."
All other terms and conditions of the Executive Employment Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the 30th day of April, 1997.
EMPLOYERS: EMPLOYEE:
- ---------- ---------
THERMADYNE HOLDINGS CORPORATION
/s/ JAMES H. TATE /s/ RANDALL E. CURRAN
- ------------------------------- -------------------------------
James H. Tate, Senior Vice Randall E. Curran
President and Chief Financial
Officer
<PAGE>
AGREEMENT
THIS AGREEMENT, made and entered into as of the 22 day of
September, 1997 by and between THERMADYNE HOLDINGS CORPORATION, a Delaware
corporation with its principal office located in St. Louis, Missouri (together
with its successors and assigns permitted under this Agreement, the "Company"),
and James R. Delaney, who resides at 2233 Ridgley Woods, Chesterfield, Missouri
63005 (the "Executive").
WITNESSETH:
WHEREAS, the Board of Directors of the Company has determined
that it would be in the best interests of the Company to provide for certain
benefits to the Executive in the event of certain terminations of employment,
upon the terms and conditions provided in this Agreement (the "Agreement");
WHEREAS, the Company may request that the Executive be
employed by the Company or one or more of its Subsidiaries; and
WHEREAS, the Company is entering into this Agreement by and
on behalf of itself and its Subsidiaries.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
receipt of which is mutually acknowledged, the Company and the Executive
(individually a "Party" and together the "Parties") agree as follows:
1. Definitions:
(a) "Annual Compensation" shall mean (I) plus (II), where (I)
is the greater of Base Salary in effect on September 22, 1997 or Base
Salary in effect on the date of a Change in Control and (II) is the
greater of the Executive's target bonus for the fiscal year in which
the Change in Control occurs or the average of the annual bonus (in
either case, where applicable, a Bonus) payable with respect to the
two fiscal years immediately preceding a Change in Control.
(b) "Base Salary" shall mean the Executive's annualized base
rate of pay with the Company.
<PAGE>
(c) "Beneficiary" shall mean the person or persons named by
the Executive pursuant to Section 12 hereof or, in the event no such
person is named or survives the Executive, his estate.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall mean:
(I) dishonesty by Executive which results in
substantial personal enrichment at the expense of the
Company; or
(II) demonstratively willful repeated violations of
Executive's obligations under this Agreement which are
intended to result in material injury to the Company.
(f) "Change in Control" shall mean any of (I) any "person",
within the meaning of Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), other than any employee or
Subsidiary of the Company or any employee benefit plan (or related
trust) becomes the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of securities of the Company
representing 30% or more of the combined voting power of the Company's
then outstanding voting securities; (II) the Company is merged or
consolidated with another person and as a result of such merger or
consolidation less than 70% of the outstanding voting securities of
the surviving or resulting person or parent thereof shall then be
owned in the aggregate by the stockholders of the Company immediately
prior to such merger or consolidation; (III) at any time after
September 22, 1997, individuals who constituted the Board of Directors
on such date (including, for this purpose, any new director whose
election or nomination for election by the Company's stockholders was
approved by a vote of at least three-fourths of the directors in
office on such date) cease for any reason to constitute at least a
majority of the Board of Directors; (IV) the consummation of a sale of
substantially all of the assets of the Company; or (V) the Company's
adoption of a plan of liquidation. A Change in Control shall also
include any series of transactions occurring during the term of this
Agreement which result in any of the changes described above.
(g) "Confidential Information" shall mean information about
the Company or any of its Subsidiaries or their respective businesses,
products and practices, disclosed to or known or obtained by Executive
as a direct or indirect consequence of or through the Executive's
employment with the Company, which information is not generally known
in the business in which the Company or such Subsidiaries are or may
be engaged. However, Confidential Information shall not include under
any circumstances any information with respect to the foregoing
matters which is (I) available to the public from a source other than
the Executive,
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<PAGE>
(II) released in writing by the Company to the public or to persons
who are not under a similar obligation of confidentiality to the
Company and who are not parties to this Agreement, (III) obtained by
the Company from a third party not under a similar obligation of
confidentiality to the Company, (IV) required to be disclosed by any
court process or any government or agency or department of any
government, or (V) the subject of a written waiver executed by the
Company for the benefit of the Executive.
(h) "Constructive Termination Without Cause" shall mean a
termination of the Executive's employment at his initiative as
provided in Section 2 following the occurrence, without the
Executive's prior written consent, of one or more of the following
events:
(I) any failure by the Company to comply with any of
the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(II) any reduction in any form of compensation,
fringe benefit, deferred compensation plan or perquisite
applicable to the Executive immediately prior to a Change in
Control, including any reduction in salary or any reduction
in bonus to less than the average of such bonus for the two
fiscal years immediately preceding a Change in Control;
(III) the loss of any of the Executive's titles or
positions in effect at the time of a Change in Control;
(IV) any change in the position to which the
Executive reports or the positions that report to the
Executive at the time of a Change in Control (reporting
relationships);
(V) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting
relationships), authority, duties or responsibilities as in
effect on the date of a Change in Control, or any other
action by the Company which results in a diminution in such
position, authority, duties or responsibilities excluding an
isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
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(VI) the relocation of the Executive's office
location as assigned to him by the Company, to a location
more than 25 miles from his office location at the time of a
Change in Control;
(VII) any purported termination by the Company of
the Executive's employment otherwise than as expressly
permitted by this Agreement for Cause;
(VIII) any failure by the Company to comply with and
satisfy Section 7 of this Agreement, provided that the
successor contemplated by Section 7 has received, at least 10
days prior to the giving of notice of constructive
termination by the Executive, written notice from the Company
or the Executive of the requirements of Section 7 of the
Agreement.
For purposes of this Section 1(h), any good faith determination of
"Constructive Termination Without Cause" made by the Executive shall
be conclusive.
(i) "Effective Date" shall mean September 22, 1997.
(j) "Initial Term" shall mean the two-year period commencing
on the Effective Date.
(k) "Subsidiary" shall mean any corporation in which the
Company either (I) controls more than 50% of the voting power of all
securities of such corporation or (II) owns more than 50% of the total
value of all equity securities of such corporation.
(1) "Termination Benefits" shall mean;
(I) an amount equal to the product of (A) Annual
Compensation times (B) 1.7565;
(II) immediate vesting and exercisability of all of
the Executive's options to purchase securities of the Company
outstanding at the time of the Executive's termination
without Cause or Constructive Termination Without Cause,
notwithstanding any contrary provisions of such options or
any plans pursuant to which they are granted; and
(III) at Executive's election, and subject to
Executive's payment on a monthly basis of the applicable
premiums set forth on Schedule A, continued medical, dental
and life insurance coverage in
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<PAGE>
each case for two years following the date of the Executive's
termination without Cause or Constructive Termination Without
Cause as though the Executive's employment were continued in
effect during such time and without regard to any benefit
reductions implemented after the date of such termination;
provided that Executive may elect to receive one or more of
such coverages and not the others.
If the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"), would otherwise be imposed with
respect to any payments in the nature of compensation made pursuant to
this Agreement or otherwise, and if a reduction of such payments would
yield a greater after-tax benefit to the Executive, then such payments
shall be reduced in the manner and order specified by the Executive in
order that the Executive receive a greater after-tax benefit by reason
of elimination of an amount of such payment sufficient to avoid the
excise tax. A final determination as to the amount of the Termination
Benefit payment set forth in subsection (I) above, the value of the
other Termination Benefits and the excise tax under Section 4999 of
the Code, as well as any reduction thereof shall be contingent upon
the express approval of the Executive, which approval shall not be
unreasonably withheld. Executive's approval shall not be treated as
unreasonably withheld if counsel of Executive's selection advises that
the proposed reduction of such payments would not clearly result in an
increase in the after-tax benefit to Executive.
(m) "Term" shall mean the term of this Agreement as
described in Section 19.
2. Events Triggering Termination Benefits: In the event, within three
years following a Change in Control occurring during the Initial Term, the
Executive's employment is terminated by the Company without Cause or there is a
Constructive Termination Without Cause, then the Executive shall be entitled to
receive the Termination Benefits. The Termination Benefit described in Section
1(l)(I) shall be paid immediately upon such termination in a cash lump sum.
The failure of the Executive to effect a Constructive Termination Without Cause
as to any one event described in Section 1(h) shall not affect his entitlement
to effect a Constructive Termination Without Cause as to any other such event.
3. No Mitigation: No Offset: In the event of a termination of
employment under Section 2 of this Agreement, the Executive shall be under no
obligation to seek other employment, and there shall be no offset against the
Termination Benefits due the Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that he may obtain.
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<PAGE>
4. Consulting After Termination of Employment: In the event of a
termination of Executive's employment under circumstances entitling Executive
to receive the Termination Benefits as described in Section 2, Executive agrees
to provide consulting services to the Company in accordance with the provisions
of this Section 4. The term of such consulting services shall be eighteen
months. For the eighteen months of consulting, the Company shall pay Executive
$6,754.72 per month, in advance. In consideration of such payments, the
Executive shall be obligated to provide up to, but not more than, seventy-five
days for the eighteen month term. Payments described in this Section 4 shall be
made to the Executive whether or not the Company calls upon Executive to render
any consulting services. The consulting services required of Executive pursuant
to this Agreement shall be with respect to those matters and in the areas of
expertise that were within the scope of Executive's employment pursuant to this
Agreement and Executive shall not be required to perform services not fairly
comprehended as within the scope of services as herein defined. Any request by
Company to Executive to render consulting services shall be upon a reasonable
advance notice and the Company shall exercise such call in good faith in order
to minimize interference with Executive's other duties, responsibilities or
endeavors. In preparation for and while performing consulting services at the
request of the Company, Executive shall be reimbursed for all reasonable
expenses incurred, promptly upon presentation of documentation thereof to the
Company; provided, however, that Company shall advance to Executive at his
request, subject to the Executive's obligation to subsequently submit the
appropriate documentation, advances to cover anticipated travel expenses,
including transportation and hotel, for travel requested by the Company. While
serving as a consultant, Executive shall be provided indemnification and
insurance with respect to his efforts substantially in accordance with that
provided under Section 5 hereof, determined as if Executive, in performing the
consulting services, had been an employee of the Company.
5. Indemnification/Insurance:
(a) The Company agrees to indemnify the Executive to the
fullest extent permitted by applicable law consistent with the
Company's Certificate of Incorporation in effect as of the Effective
Date with respect to any acts or non-acts he may have committed during
the period during which he was an officer, director and/or employee of
the Company or any Subsidiary thereof, or of any other entity of which
he served as an officer, director or employee at the request of the
Company.
(b) The Company agrees to obtain a directors' and officers'
liability insurance policy covering the Executive and to continue and
maintain such policy. The amount of coverage provided for Executive
shall be reasonable in relation to the Executive's position and
responsibilities during his employment during the Term.
(c) The obligations of the Company as set forth in parts (a)
and (b) of this Section shall survive the Executive's termination of
employment and any termination of this Agreement (whether such
termination is by the Company, by the Executive, upon the
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expiration of this Agreement or otherwise) with respect to any acts or
omissions that occurred prior to the Executive's termination of
employment or termination of this Agreement.
6. Effects of Agreement on Other Benefits and Rights of Executive:
Nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to any termination pursuant to Section 2
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
7. Assignability: Binding Nature: This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors, heirs
(in the case of the Executive) and assigns. No obligations of the Company under
this Agreement may be assigned or transferred by the Company except that such
obligations shall be assigned or transferred (as described below) pursuant to a
merger or consolidation in which the Company is not the continuing entity, or
the sale or liquidation of all or substantially all of the assets of the
Company, provided that the assignee or transferee is the surviving entity or
successor to all or substantially all of the assets of the Company and such
assignee or transferee assumes the liabilities, obligations and duties of the
Company, as contained in this Agreement, either contractually or as a matter of
law. The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent Company would
be required to perform it if no such succession had taken place. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
8. Representation: The Company presents and warrants that it is fully
authorized and empowered to enter into this Agreement and that the performance
of its obligations under this Agreement will not violate any agreement between
the Company and any other person or entity.
9. Entire Agreement: Except to the extent otherwise provided herein,
this Agreement contains the entire understanding and agreement between the
Parties concerning the subject matter hereof and supersedes any prior
agreement.
10. Amendment or Waiver: No provision in this Agreement may be amended
unless such amendment is agreed to in writing and signed by both the Executive
and an authorized officer of the Company. No waiver by either Party of any
breach by the other Party of any condition or provision contained in this
Agreement to be performed by such other Party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any prior or
subsequent time. Any waiver
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<PAGE>
must be in writing and signed by the Executive or an authorized representative
of the Company, as the case may be.
11. Severability: In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
12. Beneficiaries/References: The Executive shall be entitled to
select (and change, to the extent permitted under any applicable law) a
beneficiary or beneficiaries to receive any compensation or benefit payable
hereunder following the Executive's death by giving the Company written notice
thereof. In the event of the Executive's death or a judicial determination of
his incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to his beneficiary, estate or other legal
representative.
13. Governing Law/Jurisdiction: This Agreement shall be governed by
and construed and interpreted in accordance with the laws of Missouri without
reference to principles of conflict of laws.
14. Disputes
(a) All costs, fees and expenses including attorney fees, of
any arbitration or litigation in connection with this Agreement which
results in any decision or settlement requiring the Company to make a
payment to the Executive, including, without limitation, attorneys'
fees of both the Executive and the Company, shall be borne by, and be
the obligation of, the Company. In no event shall the Executive be
required to reimburse the Company for any of the costs or expenses,
including attorney's fees, incurred by the Company relating to
arbitration or litigation. The obligation of the Company under this
Section 14 shall survive the termination for any reason of this
Agreement (whether such termination is by the Company, by the
Executive, upon the expiration of this Agreement or otherwise).
(b) In the event that any person asserts that any of the
payments or benefits provided to or in respect of Executive pursuant
to this Agreement or otherwise, by or on behalf of the Company, are
subject to excise taxes under Section 4999 of the Code, the Company
shall assume the cost of dispute with such person incurred by or on
behalf of the Executive until such time as Executive agrees, which
agreement shall not be unreasonably withheld, that pursuit of that
dispute is not prudent.
(c) Pending the outcome or resolution of any litigation or
arbitration, the Company shall continue payment of all amounts due the
Executive without regard to any dispute.
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15. Notices: Any notice given to either Party shall be in writing and
shall be deemed to have been given when delivered personally or sent by
certified or registered mail, postage prepaid, return receipt requested, duly
addressed to the Party concerned at the address indicated below or to such
changed address as such Party may subsequently give such notice of:
If to the Company or the Board:
Thermadyne Holdings Corporation
101 South Hanley Road
St. Louis, Missouri 63105
ATTENTION: Chief Financial Officer
If to the Executive:
James R. Delaney
2233 Ridgley Woods
Chesterfield, Missouri 63005
16. Confidential Information:
(a) Non-Disclosure: During the Term or at any time
thereafter, irrespective of the time, manner or cause of the
expiration of the Term, Executive will not directly or indirectly
reveal, divulge, disclose or communicate to any person or entity,
other than authorized officers, directors and employees of the
Company, in any manner whatsoever, any Confidential Information
without the prior written consent of the Board.
(b) Return of Property: Upon the Executive's termination of
employment, Executive will surrender to the Company all Confidential
Information, including without limitation, all lists, charts,
schedules, reports, financial statements, books and records of the
Company or any Subsidiary, and all copies thereof, and all other
property belonging to the Company or any Subsidiary, provided
Executive shall be accorded reasonable access to such Confidential
Information subsequent to the Executive's termination of employment
for any proper purpose as determined in the reasonable judgment of the
Company.
17. Headings: The headings of the sections contained in this Agreement
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.
18. Counterparts: This Agreement may be executed in two or more
counterparts.
-9-
<PAGE>
19. Term of Agreement: This Agreement shall remain in effect for the
Initial Term and thereafter to the extent necessary to maintain this Agreement
in effect for a period of 36 months following any Change in Control during the
Initial Term. In addition, the respective rights and obligations of the Parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
THERMADYNE HOLDINGS CORPORATION
By /s/ JAMES H. TATE
--------------------------------------
James H. Tate
Senior Vice President &
Chief Financial Officer
EXECUTIVE
/s/ JAMES R. DELANEY
----------------------------------------
James R. Delaney
-10-
<PAGE>
MONTHLY INSURANCE PREMIUM
SCHEDULE A - JAMES R. DELANEY
1ST TWELVE 2ND TWELVE
MONTHS MONTHS
------ ------
Medical $536.40 $557.86
Dental 46.58 48.44
Executive Supplement 458.08 476.40
Life Insurance 51.45 53.51
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THERMADYNE HOLDINGS CORPORATION
<TABLE>
<CAPTION>
JURISDICTION
OF
NAME ORGANIZATION
- ------------------------------------------------ ------------------
<S> <C>
Arcair Stoody Europe S.A......................... Belgium
C&G Systems Holding, Inc......................... Delaware
C&G Systems, Inc................................. Illinois
Canadian Cylinder Company........................ Canada
Comet Property Holdings, Limited................. Philippines
Comweld Group Pty. Ltd. ......................... Australia
Comweld Hong Kong Limited........................ Hong Kong
Comweld (Philippines) Inc. ...................... Philippines
Coyne Acquisition Company........................ Delaware
Coyne Natural Gas Systems, Inc. ................. Missouri
Duxtech Pty. Ltd. ............................... Australia
Genset SpA....................................... Italy
Greymo S.A. ..................................... Spain
Marison Cylinder Company......................... Delaware
MECO Holding Company............................. Delaware
Modern Engineering Company, Inc. ................ Missouri
Philippine Welding Equipment Inc. ............... Philippines
PT Catu Tehnik Arya Unggul....................... Indonesia
PT Comweld Indonesia............................. Indonesia
Quetack Pty. Ltd. ............................... Australia
Quetala Pty. Ltd. ............................... Australia
Quetala Unit Trust............................... Australia
Stoody Company................................... Delaware
TAG Realty, Inc. ................................ Texas
THC Italia SRL................................... Italy
Thermadyne Asia/Pacific Finance Company ......... Australia
Thermadyne Asia/Pacific Finance PTY Ltd. ....... Australia
Thermadyne Asia/Pacific PTE Ltd. ................ Singapore
Thermadyne Asia SDN BHD.......................... Malaysia
Thermadyne Australia Pty. Ltd. .................. Australia
Thermadyne Cylinder Company...................... California
Thermadyne de Brasil S.C. LTDA................... Brazil
Thermadyne de Mexico S.A. de C.V. ............... Mexico
Thermadyne Foreign Sales Corporation............. Barbados
Thermadyne Holding Company....................... Delaware
Thermadyne Industries, Inc. ..................... Delaware
Thermadyne Industries Limited.................... United Kingdom
Thermadyne International Corp. .................. Delaware
Thermadyne Italia S.P.A. ........................ Italy
Thermadyne Japan, Ltd. .......................... Japan
Thermadyne Korea, Ltd. .......................... Korea
Thermadyne Receivables, Inc. .................... Delaware
Thermadyne Welding Products of Canada, Ltd. .... Canada
Thermal Acquisition Company...................... Delaware
Thermal Arc, Inc. ............................... Delaware
<PAGE>
JURISDICTION
OF
NAME ORGANIZATION
- ------------------------------------------------ ------------------
Thermal Arc Phils, Inc. ......................... Philippines
Thermal Dynamics Corp. .......................... Delaware
Tweco Acquisition Company........................ Delaware
Tweco Products, Inc. ............................ Delaware
Victor Acquisition Company....................... Delaware
Victor Coyne International, Inc. ................ Delaware
Victor Equipment Company......................... Delaware
Wichita Warehouse Corporation.................... Kansas
Woodland Cryogenics Company...................... Delaware
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-82674, Form S-8 No. 33-85552, Form S-8 No. 333-04083, Form
S-8 No. 333-30877 and Form S-3 No. 33-77124) pertaining to the 1993
Management Option Plan, the 1994 Employee Stock Purchase Plan, the 1996
Employee Stock Option Plan and Non-Employee Directors Stock Option Plan, and
the 10.25% Senior Notes due May 1, 2002 and the 10.75% Senior Subordinated
Notes due November 1, 2003, respectively, of our reports dated February 5,
1998, with respect to the consolidated financial statements and schedule of
Thermadyne Holdings Corporation included in the Annual Report (Form 10-K) for
the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
Orange County, California
February 19, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,481
<SECURITIES> 0
<RECEIVABLES> 76,847
<ALLOWANCES> 2,217
<INVENTORY> 105,135
<CURRENT-ASSETS> 191,997
<PP&E> 85,257
<DEPRECIATION> 0
<TOTAL-ASSETS> 354,527
<CURRENT-LIABILITIES> 103,448
<BONDS> 358,087
0
0
<COMMON> 112
<OTHER-SE> (162,959)
<TOTAL-LIABILITY-AND-EQUITY> (354,527)
<SALES> 520,440
<TOTAL-REVENUES> 520,440
<CGS> 320,120
<TOTAL-COSTS> 320,120
<OTHER-EXPENSES> 121,813
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,325
<INCOME-PRETAX> 28,544
<INCOME-TAX> 13,475
<INCOME-CONTINUING> 15,069
<DISCONTINUED> 19,188
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,257
<EPS-PRIMARY> 3.09
<EPS-DILUTED> 3.01
</TABLE>
